THERE is little argument that small businesses hold the key to job creation. If you take an average 12 month period between 1998 and 2010, the majority of UK jobs were created by small companies, a trend which has heightened since the late 1990s. By 2010, the employment share of small to medium-sized enterprises (SMEs) was three times what it had been just over a decade earlier.
And it’s not just about size. New firms started between 2007 and 2010 created more than a third of all jobs in that period. As a recent report from the Goldman Sachs 10,000 Small Businesses UK programme has shown, just 1 per cent of all firms – the high-growth small businesses, according to the OECD definition – were responsible for 23 per cent of all new employment over that time.
Economies thrive when the environment is right for ambitious, innovative and productive companies to succeed. An alchemy of jobs and game-changing innovation is what the entrepreneurial sector can offer when given the chance. But small firms exist within a hugely-volatile environment: a large number – around a quarter of a million – are born each year in the UK, but a decade later between 70 per cent and 80 per cent of those companies will be dead.
For the economy as a whole, getting startups past this point of pain must be a priority if job creation is to be boosted. As a recent white paper from the new Enterprise Research Centre, co-hosted at Aston Business School, has shown, firms that survive their first decade will account for half a million jobs by their tenth birthday, compared to 300,000 at start up. As things stand, only two or three of every ten will reach that stage.
Improving that statistic must be a key focus for policymakers and business leaders if small businesses are to continue powering job creation. The question they face is a dual one: what are the barriers to small business development, and how can firms with growth potential be helped power past the tipping point, whereby they contribute sustainably to overall job creation?
Sourcing the finance needed to grow is probably the most common problem for high-growth firms. Increasingly, however, with the rise of angel investment, crowdfunding and myriad forms of alternative finance, the deficit is perhaps less on the supply side than on the part of business owners themselves.
It goes without saying that entrepreneurs must present a coherent, sound and strategic growth plan if they are to win significant investment – through whichever channel. But it is less self-evident that an entrepreneur, with a successful business already off the ground, will have the necessary knowledge and experience to present persuasively for growth-stage funding.
This points to the vital importance of education in helping early-stage firms into sustainable high growth. For instance, among the initial participants of the business training programme I am involved in, 69 per cent agreed that formal training had enhanced their prospects of winning finance, while 83 per cent thought they understood the options for investment better.
Entrepreneurs are by nature individualists, but there should be no shame in the admission that they may not have all the skills and experience needed to convert a startup into a successful company in the long term. Indeed, networks are a vital component in the growth trajectory of any small firm, and can play a significant role in overcoming the hurdles to long-term development. Contacts and intelligence are two of the most important currencies for all companies, but particularly those looking to grow and make their mark.
As a business training programme, what 10,000 Small Businesses UK has shown is that the opportunity to work and learn alongside likeminded entrepreneurs is as important as the skills development that the training modules allow. Initial findings show that 65 per cent of participants have found new suppliers, and 51 per cent new clients.
Both government and big businesses have a role, therefore, in helping create the conditions that allow small businesses to grow. Partly this is through intervention – through schemes like Funding for Lending, which address problems faced by entrepreneurs. But it is as facilitators – by helping small firms help themselves – that corporations can do most to support the growth of the UK’s job-creating cohort.
The UK employment landscape is undoubtedly volatile: in a typical year, 28 per cent of all private sector jobs are either created or lost. It is imperative, therefore, that small firms are supported to achieve sustainable growth. After all, a job saved in the current economic climate is as a good as a job created.
Mark Hart is professor of small business and entrepreneurship at Aston Business School and programme director for the 10,000 Small Businesses Midlands programme.