This article originally appeared on The Huffington Post here.
Young people are flocking in droves to become entrepreneurs. In 2010, 5 per cent of those under the age of 30 were starting up in business. By 2011 this had increased to 7 per cent. And last year, we’d reached 9.5 per cent – effectively a doubling of enterprise activity in the space of just a few years (see the graph below). Quite a remarkable feat by anyone’s standards.
Yet in spite of these positive signals, we know there is much more to be done to help young people realise their entrepreneurial potential. A particular problem is unfilled aspirations. Only 1 in 3 young people who say they want to start a business are actually doing so. And even if they do start, there’s a strong chance they won’t last very long in their venture. 1 in 3 drop out within their first year of trading, compared to 1 in 10 of those over the age of 30.
So something isn’t quite right – which is why this week the RSA and RBS published A Manifesto for Youth Enterprise. We argue that more could be done to improve enterprise support across a number of areas – from increasing young people’s exposure to enterprise within mainstream media, to building their entrepreneurial acumen within schools, to giving them the resources to start and grow their very first business.
A good place to start is rehumanising entrepreneurship. We know that many young people start up in business to create something meaningful, to gain more autonomy, to solve a problem – and yes, to make money as well. But too often these ‘uses’ of entrepreneurship are sidelined, with enterprise being promoted as an end in itself rather than a means towards a better life. We could encourage more young people to start up in business by showing how it can be used as a vehicle to achieve a variety of life’s objectives.
Related to this, we should be shining a light on the ‘everyday entrepreneurs’ that young people can more easily relate to. A study conducted by the Carnegie Foundation last year found that when asked to visualise enterprise, nearly 60 per cent named a celebrity entrepreneur (e.g. Alan Sugar or Richard Branson) and only 5 per cent a local start up. The problem with these clichés is that they put entrepreneurship on a pedestal, making it seem out of reach for young people. One way of addressing this is by promoting the new types of entrepreneur that are increasingly commonplace – people who are collaborative, stumble into it ‘accidentally’, and are driven by purpose, not just profit.
Many of these are lessons for the media. But more could be done by educators, too. For example, we could expose many more young people to the notion of entrepreneurship by embedding it throughout school curricula, rather than treating it as a bolt-on course that only reaches out to the most enthusiastic and motivated students. Likewise, we should be taking enterprise education outside of the classroom by organising more ‘learning by doing’ activities that happen at the coalface of a business. One international study found that students who participate in mini-company initiatives likes Mycro-Tyco are 50 per cent more likely to start their own company.
But what about those who have already started up? How can we help them to achieve their full potential? A major step here is to get beyond the notion that support is just about the ‘supply side’ -mentoring, advice, finance, workspace and so on. We also need to stimulate the ‘demand’ for the products and services of young entrepreneurs. The fundamental rule that businesses actually need people to buy their products and services if they are to thrive is often forgotten in the debates about support. So we need to level the playing field, for instance by helping young start-ups to find shelf space in large retailers, or by making it easier for them to bid for central and local government contracts.
Finally, there is something to say here about the support ecosystem as a whole. Help for young entrepreneurs has proliferated in recent years – whether that be a new government finance scheme, a national mentorship initiative or local workspaces popping up across the country. But this is creating issues in itself, with the duplication of services and confusion among young people about what is on offer being particular challenges. On top of this, there is a sense that outputs have taken precedence over outcomes, with few services thoroughly evaluating their activities.
What we need therefore is a new era of youth enterprise support. This means not only making necessary improvements in the work of the media, educators, government and others – but also changing the fundamental way in which we see youth enterprise support. In short, it has to become less about numbers and more about results. Bigger has to make way for better; quality needs to take precedence over quantity; and outcomes must come before outputs.
It is only by making this shift that we can help more young people realise their entrepreneurial potential – ultimately for everyone’s benefit.
Follow Ben Dellot on Twitter: www.twitter.com/BenedictDel
By most accounts, life is pretty tough for young people growing up in the UK. Just over 1 million are classed as ‘NEETs’ – not in education, employment or training – and this is having predictable consequences for their health and wellbeing. Research by The Prince’s Trust indicates that 37 per cent of NEET young people are often or nearly always depressed. And even for those who do find work, there is a good chance their jobs will be characterised by zero hour contracts and part-time work.
So far, so gloomy. Yet there is one piece of good news amidst all the pessimism. Figures just released by the Global Entrepreneurship Monitor survey* show that entrepreneurial activity among young people has jumped once again, so that it is almost twice the rate it was at the outset of the economic downturn. Whereas 5 per cent of young people in 2008 were in the early stages of starting a business, today it is closer to 9.5 per cent (see graph below).
The question is, what’s caused the growth in start up activity? The most obvious answer is that it’s a desperate response to a lacklustre economy and frozen job market. The argument runs that young people are now creating their own jobs because they can’t find any elsewhere. Therefore as soon as the economy picks up pace and things ‘get back to normal’, we’ll see the line in the above graph dip back to its usual lows.
There is no doubt some truth in this – indeed you can’t ignore the fact that entrepreneurial rates were stationary until the great recession hit. Yet it is clear that economic ‘necessity’ is only one driving force among many. Our own conversations with young people reveal that the search for meaning, greater freedom and the chance to leave a mark on the world are just as important motivators for starting a business. It is striking how many of the young people we spoke with talked of the urge to ‘create’ and vent ‘frustration’.
What the recession did was to shake things up and bring these tensions to the surface. True, it destroyed jobs and forced people to look elsewhere for work – often in the form of self-employment. But it also prompted deep reflections on the nature of work itself, what it is we really want from life and whether starting a business could help us achieve those ends.
For that reason, it feels as though this dramatic increase in young enterprise is unlikely to be a temporary blip, but rather a permanent feature of our economic landscape.
*Thanks to Professor Mark Hart of Aston Business School for the data.
Benedict Dellot is a Senior Researcher in the RSA’s Enterprise team. Follow him on Twitter using @BenedictDel
Entrepreneurship is not about money. It never has been. Look at any survey on the motivations for starting up in business and you’ll see that the desire for independence and greater freedom will nearly always trump the opportunity to make money. People start a business to be their own boss, get away from hierarchy and engage in something more meaningful.
While we know much of this already, it’s still interesting to hear it said from the horse’s mouth. So I thought I’d share some of the notes we took when we interviewed young entrepreneurs for our Disrupt Inc. project on new routes to start-up. What’s striking in the following quotes is that the urge to ‘create’ and vent ‘frustration’ crop up so many times as drivers. When Richard Sennett wrote that “work is the road to the unification of the self”, he could have just as easily been talking about entrepreneurship…
Really, entrepreneurialism is just setting something up to make things happen. But lots of things like that happen all the time and aren’t classed as ‘entrepreneurialism.’ Entrepreneurialism is making stuff happen.
Entrepreneurialism is just the vigorous pursuit of opportunities.
Frustration drove me to becoming an entrepreneur. I undertook an internship in a start-up and knew that creating a business is something I could do. I don’t want to be doing a crappy job.
I kept saying the term, “I’m really pissed off” until we made this happen. I think it’s actually like a sort of pragmatic anger.
I just like trying to do things differently – not for the sake of doing things differently, but for the sake of doing things better. And I always felt that if I was put into a corporate environment I’d have much, much less flexibility to do that.
I always wanted to be able to make my own decisions and try and put my own creativity to use without the restrictions of corporate bureaucracy.
I naturally get a bit more from making my own stuff and creating things myself as opposed to just using what’s available. So that’s me, that’s my nature.
It [starting a business] was genuinely down to lots of conversations in the pub about how p*ssed off we all were. I guess it was primarily borne out of our own frustration really.
I don’t like having a boss. I love being able to control my own destiny and build my own day, and do things that I think are good for society in some way, but happen to make money.
I always wanted to create something.
I studied politics at university. But I always wanted to create things. I never knew that I wanted to become an ‘entrepreneur’, however. I just wanted choice in my life.
Follow Benedict Dellot on Twitter: @Benedictdel
Want to create more entrepreneurial schools? Then give someone in DfE the responsibility to work on it
What happens in schools determines to a large extent what happens in people’s lives. Schools are where our world views are constructed, where we learn what is possible and what is not, where we develop the competencies needed to fulfil our life ambitions.
The task of creating a more entrepreneurial society therefore naturally starts here. Indeed, it’s the reason why so many enterprise support organisations operate in the education sector. MyBnk, Enabling Enterprise, Gazelle, Young Enterprise – all of these plough serious efforts into promoting entrepreneurship in schools up and down the country.
I was surprised then to hear at an event I recently attended that nobody at all in the Department for Education has a remit to work on this issue. I had already heard from a civil servant at BIS that DfE had other priorities, yet still this is very surprising. Not least because No 10 has worked so hard to put business and enterprise at the centre of its policy agenda. It’s no coincidence that David Cameron chose the theme of ‘aspiration nation’ for his speech at this year’s Conservative Party spring conference.
This is all for good reason. Though some may dispute it, entrepreneurship is an important vehicle for change. It creates employment where none else is available, and drives innovation where markets are stagnant. Much more than this, it gives meaning to people’s lives and allows them the freedom to do as they wish. For this reason alone we should be promoting it among young people.
Currently, however, too few are being exposed to high quality enterprise education. According to research by RBS and the Prince’s Trust, nearly three quarters of NEET young people say they received no business training whatsoever while in school. Recent research by the Carnegie Foundation reveals much the same result. Only half of the FE students they surveyed said they’d been exposed to enterprise education while studying.
These responses may exaggerate the facts. No doubt most schools would say they provide some form of enterprise activity for their students. But they do reveal something about the content of what is available. Indeed, there are numerous questions over the quality, not just the quantity, of enterprise education in schools. There are concerns, for instance, that too much effort is spent on teaching entrepreneurial skills via ‘chalk and talk’ methods, at the expense of ‘learning by doing’ approaches that give young people direct experience of working in a business. Likewise, there are complaints that enterprise teaching can be too mechanical and overly directed, leaving no time for reflection.
Although it is not hard to understand why head teachers might direct shrinking resources into other activities, it does not mean poor or non existent enterprise education should be condoned. High quality enterprise education should be a right for every child, no matter what school they go to. Not least because the skills derived from it – networking, creativity and acting on opportunities – will be essential for every career, not just for starting a business. As an OFSTED report put it, “… only a small proportion of the working population will become entrepreneurs [but] all adults need to be enterprising both in their work and their personal lives.”
There are numerous ways to encourage and support schools to do more around entrepreneurship, but they are all undermined if the Department for Education doesn’t even bother promoting it. So come on Michael Gove, recruit someone to work on enterprise education. It could be the cheapest, most simplest thing to help more young people in the UK start and run successful businesses.
The Christmas before last, I read a very important book called The Social Entrepreneur by Lord Andrew Mawson, charting his journey transforming a church in Bromley-by-Bow, East London into a centre delivering arts, healthcare and education services. The overriding lessons for me were a) the success of mobilising untapped creativity and cash in communities to tackle social problems and b) using church space outside of congregation time is as good a place as any to start. I was reminded of Andrew’s work by two Fellows’ ventures supported by Catalyst who have taken a similar approach.
The first venture is led by Francis Davis FRSA to use excess faith-run spaces to incubate start-up or growth businesses and social enterprises, initially across the Solent region but developed for replication by every faith-based centre. He was supported by Catalyst to find nine Fellows who stepped forward to be designated mentors for the businesses. Last week I went down to the Portsmouth Cathedral Innovation Centre and saw Francis launching community shares in the fund investing in the start-ups, with Baroness Berridge, Minister for Employment Mark Hoban and Dean of Portsmouth Cathedral David Brindley there to commit to be the fund’s first investors.
Creating wealth is a good thing, employing people is a good thing, and I think it’s really important that the cathedral gets involved so that the capitalists, the people who make the wealth of the future, do it in a way that’s more socially responsible than we’ve seen in the past – Baroness Berridge, backer of Cathedral Innovation Centre, speaking on Radio 4
The second is The Sunday Assembly who run big public meetings with the aim of helping people to “live better, help often, wonder more”. They get people together in churches and other available spaces to sing pop songs, meet their neighbours, hear how they can help out with local community projects and listen to inspiring speakers to teach them more about the world they live in. As co-founder and RSA Fellow Sanderson Jones put it: “Atheists make a mistake to look at church and throw it all out just because they don’t believe in God.” Mobilising other faith spaces will be crucial to the ability to scale the assemblies to other communities. An encouraging sign came when one Assembly in North London dovetailed with a church service, the Bishop was very encouraged by the Assembly: “in the process of time, with love people will come to know the God that we serve.”
Of course the guardian could not resist citing experts who say “I do think it’s going to appeal only to one particular section of the community… a middle-class cultural elite” and “atheist churches were formed in the late 19th and early 20th centuries, but petered out because people found other forms of social organisation that suited them better”. What Mawson said is relevant to these critiques: “start with people and action rather than research… avoid paralysis by analysis.” Sanderson is getting on with it and with the help of a Catalyst grant wants to provide clear instructions to help others launch Sunday Assemblies in communities across the world.
Atheists make a mistake to look at church and throw it all out just because they don’t believe in God – Sanderson Jones FRSA, co-founder of The Sunday Assembly
I wanted to end with what Lord Mawson had learned from building his Bromley-by-Bow centre, which I think sums up what Catalyst is about, supporting RSA Fellows to try out new ventures. He said that: “answers to macro-political questions must be sought in the micro-experience of local activity… rewarding those who bother to get off their backsides to work together on practical projects and discouraging those who want to take the lazy, pontificating, seminar-attending approach.”
Last week the RSA and RBS jointly launched a new report, Disrupt Inc., which looks at the changing behaviours of young entrepreneurs. Visit our Enterprise page to view the report and find out more.
With the economy stagnating, living standards falling and levels of unemployment stubbornly high in some areas, it is little wonder that building an ‘aspiration nation’ has become one of the central underpinnings of this government’s policy agenda. As David Cameron put it at the 2012 Conservative Party conference, “Aspiration is the engine of progress. Countries rise when they allow their people to rise. In this world where brains matter more, where technologies shape our lives, where no-one is owed a living … the most powerful natural resource we have is our people.”
This ‘exhortation for aspiration’ has been matched by practical steps to help more people start up and run their own business. A significant amount of enterprise support has been directed at young people in particular, around 1 million of whom are still without work. Among other initiatives, the government and its partners have helped to establish the StartUp Britain and Business in You campaigns, the StartUp Loans scheme, the Enterprise Finance Guarantee scheme and the MentorsMe programme. We are also witnessing the growth of many non-state enterprise support initiatives, particularly within universities.
The question is, are these initiatives actually working? At first glance, it seems that perhaps they are. The number of young people in the early stages of planning a venture has increased sharply over the past couple of years. The graph below, put together for an RBS report by the Professors Mark Hart and Jonathan Levie, show that early-stage entrepreneurial activity among young people is at its highest level in more than 10 years. It is now almost equal to the rate among the older generation.
Look more closely, however, and we can see that there are at least 2 key issues still blighting the landscape of young enterprise in the UK. The first is that there remains a large gap between the number of young people who say they wish to start a business and the number who are actually doing so. While 10 per cent say they wish to start their own venture, only 3 per cent are making the leap. The second issue is that many of those who do create a business cease trading not long afterwards. One estimate is that a third of young entrepreneurs drop out within a year of starting up, compared to 1 in 10 of those over 30.
Anyone seeking to stimulate young enterprise in the UK therefore needs to think long and hard about how these kinds of hurdles can be overcome. It is of some concern then that our latest report, Disrupt Inc., reveals that many enterprise support initiatives may not be up to the task. Informed by conversations with dozens of young entrepreneurs, our findings indicate that much of the support today tends to be grounded too heavily in supporting one ‘type’ of young entrepreneur at the expense of other types who follow less conventional, but increasingly popular, routes to start-up.
The level of debate over the availability of start-up finance, for instance, disregards the large proportion of young entrepreneurs who are reluctant to rely on loans, and who would prefer to grow their business slowly but surely on a shoe string budget. Likewise, the deafening noise about the importance of having experienced mentors distracts us from supporting all those young people who prefer informal assistance from peers. More generally, the language and imagery of entrepreneurship used by some in the government and media may inadvertently put it on a pedestal and serve to discourage young people from starting a business.
If we want to help more young people start and run successful businesses then we need to begin recognising the wide variety of entrepreneurial journeys that they take. Without challenging crude stereotypes and reengineering enterprise support to cater for this new reality, we run the risk of wasting the potential of thousands of would-be young entrepreneurs.
A senior bod in the think-tank world once said to me he’d throw himself out of the window if he heard that someone had started another mentorship scheme.
I wonder how then he would have reacted to yesterday’s announcement by BIS that the drive to recruit small business mentors through the Get Mentoring initiative had reached its target of 15,000 volunteers. Probably with an exasperated sigh. But why should a national mentorship scheme prompt such a reaction? Isn’t it a given that it’s useful to have someone experienced to look up to and receive advice from, regardless of the context? The answer, of course, is yes. The question is whether the majority of mentorship schemes actually do this at all well.
As it happens, the Sutton Trust yesterday released new research findings which indicate that certain types of mentoring can be worse than no mentoring at all (hat tip to colleague Sam Thomas for the link). Their analysis shows that the impact of mentoring varies widely, but that on average it is likely only to have a small impact on educational attainment. In many cases, mentors drop out of programmes soon after establishing contact with a student, thereby damaging their academic chances. Moreover, the benefit that some mentors bring is rarely sustained once the partnerships come to an end.
Academic mentoring is no doubt a very different ball game to business mentoring. Yet the same concerns exist for both. Throughout the many interviews we’ve undertaken with young entrepreneurs, we’ve come across numerous instances of bad mentoring experiences. This was often because the business mentor that was matched to the entrepreneur came from a completely different industry background. One social entrepreneur who was establishing a venture to support projects in the developing world told of his surprise at being matched with an ex- director of Transport for London. We also encountered various reports of significant personality and mindset differences between the mentor and mentee, created in part because of a wide age-gap between the two.
Over the course of my time at the RSA, I’ve come to realise that meaningful social connections – something mentoring has to be founded on – can seldom be forged through basic matchmaking schemes. To put people in a room and hope they’ll get on, see eye to eye and develop a meaningful lasting relationship is naïve and idealistic. Of course some people like it; there are those who take easily to such formal networking schemes. But for all those who can rely on rough and ready connections, there are many more who depend upon more intelligent matches to find an appropriate advisor. The likes of Business in the Community and the Social Innovation Camp have good models which show that this is achievable – hopefully the Get Mentoring initiative can learn something from them.
Still, on the basis of several discussions with young entrepreneurs and experts in the field, my sense is that organic, informal connections are the best way for budding young entrepreneurs to get the information and advice they need to make their venture a success. Creating the ‘shared spaces’ where those kind of natural connections can occur should therefore be a priority in the coming years. How you actually do that is another question.
Buildings like the RSA are good convenors. Likewise, places such as the Hub can spark useful serendipitous encounters. Another good example, although slightly more formalised, is that of entrepreneur supper clubs. The Un-Restaurant organised by Lime&Tonic, for instance, brings company founders together to socailise and thereby indirectly forge useful connections. Perhaps something similar could be organised for young entrepreneurs.
It’s food for thought.
Life is full of problems. Consequently, it’s also full of problem solvers. But how many problem solvers is too much? And how do you know when you’ve reached that critical point? When it comes to the support available for young entrepreneurs, it appears these questions are still waiting to be grappled with.
I’ve just been reading a paper on enterprise support that was put together by the businessman Doug Richards for the former Conservative Shadow Cabinet. The central message to come out of the Richards Report was that the ecosystem of enterprise advice and guidance had ballooned under the Labour government and turned into a sprawling, confusing and not to mention expensive morass. To take a few figures cited in the report, 3,000 small business government support schemes were in operation in the mid 2000s, only 4.4 per cent of FSB survey respondents said they had used government business support, and the total amount spent by the state on such schemes ran to nearly £2.5 billion (at least, this was the case in 2003/4).
Informed in part by the paper’s findings, when the Coalition government finally came to power it took a number of steps to reduce the cost and complexity of the support available to existing and would-be entrepreneurs. Primary among these efforts was to terminate face-to-face Business Link centres across the country and replace these with one central hub for information and advice. In a similar move, the RDAs were shut down and replaced with new LEPs that were designed to be led and run by businesses, not government. In sum, the government moved from a position of offering direct support to the enterprise community to one of creating a more favourable framework that would place others, for instance universities and libraries, as the main providers.
While these changes were arguably necessary, if not popular with everyone, they failed to get to grips with the same issues of duplication and confusion that have been inflicting the support ecosystem of third and private sector providers.
Throughout the recent workshops we held with young entrepreneurs across the country, time and again we heard the same message that the help provided to those who want to start and grow a business is often, somewhat paradoxically, both disjointed and duplicated. For example, young people will find that both their local library and their university will offer a mentorship scheme, while only the library will provide desk space and only the university will provide grant loans. This can be problematic for the young person who is left bewildered by the options available to her/him, and it may also be inefficient and wasteful since different groups are effectively providing the same service.
Choice is of course a good thing. Young entrepreneurs, and all entrepreneurs for that matter, should be able to pick and choose between different services to suit their needs. But as it stands, the support sector doesn’t operate like a free market. Current provision is dictated by funders, not by the demand of young people seeking services. In other words, the choice that young entrepreneurs face in picking services is to an extent fabricated. In theory big funders, whether national banks or philanthropic foundations, should be able to make informed decisions about which support services to assist based on the result of evaluations. Yet as the Richards Report pointed out, not enough support services conduct rigorous assessments of their activities.
So what to do about it? How can we create an ecosystem of young enterprise support that offers choice and high quality services to end users, and which sees organisations working together to minimise duplication and make the journey of enterprise support as seamless as possible?
A few ideas are already floating about in this space, but one particularly attractive option to have cropped up in a few of my conversations with people in the sector is that of a new kitemark accreditation scheme for support services. This could be similar to the new Project Oracle programme in London, whereby youth services in the city are taught how to undertake basic evaluation and are judged against an agreed grading system (running from 1 to 5). The idea is that this would help funders make more informed decisions about where to channel their money, and that it would also provide some indication to young people about the quality of the services they might receive.
It’s early days but it will be interesting to see if this has any legs. In the meantime, I’d be keen to hear of other people’s ideas.
Yesterday morning the RSA and RBS hosted a short and sharp seminar to discuss a new project of ours looking at the ‘lived experience’ of young entrepreneurs. The goal of this piece of work, which we are half way through, is to provide lessons for how young enterprise support could be enhanced by better understanding the real (and what we supposed to be the unconventional) ways in which young people start and run their businesses. The research is primarily being undertaken through a series of qualitative interviews with young entrepreneurs, as well as with experts and practitioners in the field.
Our hypothesis when commencing this project was that our assumptions about how young people get their businesses off the ground – whether in terms of securing finance, using social media, or working with customers – is somewhat out of kilter with the reality. Part of the reason being that we rely quite heavily on surveys to find out about what young entrepreneurs think and feel, arguably at the expense of examining their actual behaviours.
Here are 4 of the top-line messages from the seminar:
- From ‘entrepreneurial’ to ‘venturesome’ – 37 years ago, Howard Stevenson from Harvard Business School coined the term entrepreneurialism as ‘the pursuit of opportunity without regard to resources currently controlled.’ Using this definition, we can start to see entrepreneurial-like behaviours occurring in unconventional places, for instance within the public and third sectors, or within large organisations (aka ‘intrapreneurialism’). If we could broaden our terminology, would it open up more opportunities to encourage this type of behaviour? One way of thinking about it may be in terms of ‘venturesome’ actions (look out for an upcoming article on this by Adam Lent).
- Get to grips with an unfavourable culture and mind-set – It was widely agreed that some of the most significant barriers preventing people from becoming entrepreneurs relate to a culture that is not conducive to enterprise. There are assumptions about risk and the price of entrepreneurship that are misconceived, for instance that failure will be seen negatively by future employers, or that entrepreneurs earn less than the average PAYE employee. The question is how can we overcome this entrenched mindset? Here we tend to fall back on role models, but perhaps there is also a place for legislation in sending out a pro-entrepreneurial message and setting the right kind of tone that institutions such as councils, schools and universities could follow.
- Finance is not the be all and end all in the age of the lean entrepreneur – One of the most interesting findings emerging from our interviews was the degree of enthusiasm among young entrepreneurs for a bootstrapping business model. Many would rather try to make ends meet on a minimum amount of money (often using their own savings) than take out a loan from a high-street bank or government scheme. This is particularly curious given that access to finance nearly always comes to the top of the list of things which young people perceive as preventing them from getting up and running. The general feeling of those who attended the seminar was that this rang true with their own experiences. Would young would-be entrepreneurs be better served with micro-loans that enable them to build a prototype and test it at the market?
- Stoke demand for young entrepreneurs’ products and services – Government efforts to support young enterprise are typically centred on the likes of campaigns, finance, mentorship schemes and entrepreneurial education; all of which are on the ‘supply side’ of support. There may be an argument for turning the idea of support on its head and using the purchasing power of central government, local government and large corporations to stoke demand and create a market for the services/products of young entrepreneurs. One option is to build young enterprise into supply chains, for instance by altering council procurement exercises to favour young entrepreneurs. However, this may be complex and unfair to other firms in the market. A simpler and less controversial solution would be to address the issue of late invoice payments, which often create headaches for young entrepreneurs with limited cashflow.
A report detailing the full findings of our project will be published early in the Spring.
Benedict Dellot is a Senior Researcher within the Enterprise team of the RSA’s Action and Research Centre. @benedictdel
What do people need to begin and run a successful business? A decent idea for a start. No doubt some degree of confidence and a smidgen of luck. Perhaps a guiding hand and some innate business nous, too. But what about money?
Today’s announcement of an expansion to the Start-Up Loans scheme suggests the Government believes start-up capital to be integral to getting businesses off the ground. Previously limited to those under the age of 25, the changes mean that anyone below 30 will now be entitled to apply for the loans of up to £5,000. Like their younger counterparts, the newcomers will also be provided with a formal mentor who will guide them as they grow their operations.
For all the song and dance, this boost to start-up capital should be greeted with a note of caution. It has already been pointed out that only a few hundred loans – the equivalent of £1.5 million – have been channelled to people since the scheme’s inception. This is despite having a budget of some £110 million over 3 years and a target of delivering 2,500 support packages by March 2013.
Part of the reason for the low take-up may be a lack of awareness of the scheme among young people. Indeed, unless you’ve consciously set out to find support to start a business it’s unlikely you’ll stumble across funding sources of this kind (encouraging people to even consider becoming an entrepreneur is perhaps the greatest challenge for policymakers). Yet for all those who haven’t heard of the opportunity, there must be thousands who have (and who fit the bill) but didn’t decide it was right for them.
One explanation for this lies in the rise of the lean start-up culture witnessed among fledgling entrepreneurs. As part of a new RBS/RSA research project, we’ve been conducting a number of interviews with young entrepreneurs to identify whether there are any interesting trends emerging in the way their cohort are starting and running businesses. One of the most interesting findings we’ve come across so far is that bootstrapping is perceived as the easiest and most attractive means of getting an idea off the ground.
This is driven in part by young people’s reluctance to be saddled with a relatively substantial loan (the low rate doesn’t seem to have made much difference), and in part by developments in Web 2.0 which have reduced sunk costs and made it easier to take an idea and turn it into a marketable product in a relatively short space of time. In an age when young people can have an idea, build a website and market a product in the short space of an afternoon’s work, why would they go through the hassle of preparing a detailed business plan (based largely on guesstimates), which is normally guaranteed to be rejected by the first few funders they come across? As many of the people I spoke to said, better to build the business first and then go after the capital when you’ve proven yourself and are ready to scale.
The problem with the Start-Up Loan scheme is that it doesn’t accommodate this emerging kind of business model. The result is that not only does it fail to attract budding young entrepreneurs (and diverts valuable funding that could be used elsewhere e.g. for accelerators), it may also damage the prospects of some of those who actually take part. The danger, as pointed out to me a few times, is that these entrepreneurs build the business around the loan, when it should have been the other way round. Indeed, one of the practitioners I spoke to who’s supporting young entrepreneurs said he rarely mentions the Start-Up Loans scheme to those coming through his doors for fear it will distract them from the task at hand: turning a good idea into a profitable product.
Of course, it would be daft to say that loans don’t have a place in supporting young enterprise. Finance is nearly always at the top of the list of survey responses when it comes to what prevents young people from setting up a business, and there are some industries like manufacturing where sunk costs merit a sizeable initial investment. Yet even with these qualifications, it is obvious that ploughing lots of money into something increasingly shown to be out of kilter with the way young people approach entrepreneurialism is not, in Cameron’s words, the best way to back “all those young people who want to work hard and get on in life.”