Last year in the UK, 70 new businesses were started every hour.
In just three years’ time, up to 90 per cent of them will have failed.
Business failure is often a personal tragedy, though inevitable in a dynamic market economy.
However, not every failure is due to a lack of demand for a product or service – poor management can destroy what could otherwise be a successful business.
That’s why today we’re launching the Business Stay-Up campaign: a research project with The Entrepreneurs Network and the Centre for Education Economics that aims to increase understanding about the role of skills, knowledge, and experience in ensuring we have fewer unnecessary small business failures.
UK business policy has pivoted from focusing on startups to scaleups – from having more businesses to building better businesses.
This should be welcomed. There is no point having lots of people starting up if they aren’t going to scale, but before they can thrive many will need to survive. That’s where skills and training matter.
It is often said that the UK doesn’t embrace failure enough. There is some truth to this – compared to Silicon Valley (as every other tech breeding ground in the world inevitably is), a failed entrepreneur is too readily written off in the UK by funders, the media, and often the entrepreneur themselves. But it’s not the whole picture.
We shouldn’t compare Apple with oranges. Silicon Valley is dominated by entrepreneurs and investors betting on catching the next big technological wave.
By necessity, many will wipe out a few times, and just like the most ambitious entrepreneurs in the UK, they should be allowed and encouraged to get back on their board. But not all founders are aiming to disrupt an entire market – failure is a luxury many can’t afford twice.
The woman or man at the head of a business has a huge role to play in its success or failure. A significant factor in this is the quality of leadership. Research from 32,000 US manufacturing plants shows that good management predicts a firm’s success better than IT R&D and employee skills.
Overall survival rates and churn are driven by market dynamics outside the control of entrepreneurs on the ground, but it makes sense – both morally and economically – to want as many business owners as possible to have the skills to give it their best shot. The better firms are run, the more competitive the business environment, with competition driving efficiencies and innovations that increase productivity, which leads to higher wages.
As Andy Haldane, chief economist at the Bank of England, said in a speech last year, “a one standard deviation improvement in the quality of management raises productivity by, on average, around 10 per cent”.
It’s a tough nut, but it’s worth having crack.
Improving management skills may require a rethink about how business owners learn. Few will have the time, money or inclination to put their business on hold to enter the classroom full-time. Bespoke, accessible, on-demand learning may be better placed to help more people. As with so many areas of our lives, artificial intelligence will no doubt have an increasing role to play in supporting both the edtech revolution and wider support for business owners and managers.
And, at the very least, there will be an evolving role for the government in signposting, convening and supporting the right training through the tax system.
Entrepreneurs should be celebrated for the risks they take – over the course of this year, Business Stay-Up will try to work out what can be done to help them and the country prosper.
Read more: How SMEs can survive and thrive in 2018