Denise Kingsmill: 'On yer bike' all over again

Is the Government expecting too much from entrepreneurs?

Last Updated: 04 Jan 2011

Everyone wants to be an entrepreneur. Even the Scouts now have a badge in entrepreneurship. Expect the first bob-a-job franchise any day now. A plethora of TV shows such as Dragons' Den and The Apprentice have helped to create the myth that anyone can start a business. A good idea, some aggressive self-belief combined with a celebrity endorsement, and an entrepreneur is born!

They seem to have replaced in popularity the property makeover programmes that encouraged unsuspecting punters to believe all that was needed to make money out of property was a wreck, some white paint and a bit of decking. The property downturn may have put paid to the ambitions of many an amateur property developer but the recession has not discouraged the would-be entrepreneur. The truly depressing aspect of these shows is the distorted picture of business that they portray. Nasty, ruthless and domineering, the image of an entrepreneur that they depict may be entertaining to some but when 'Suralan' is your role model you have a problem.

The Government is encouraging the notion that starting a small business is the answer to our economic woes, and wants to make Britain the easiest and best place to set up and grow a business. The idea seems to be that a new generation of British entrepreneurs will drive us out of recession into full-blown recovery. The Conservative party certainly sees self-employment as the way back to work but I fear it is just the 2010 equivalent of Norman Tebbit's 'on yer bike'.

Special tax treatments, small business loans, mentors and regulatory exemptions are all proposed as ways of encouraging people to set up small businesses and move out of unemployment. But this may not be good public policy. Studies from the US show that the average start-up is dead within five years, is less productive than existing businesses and, far from being job creators, new firms tend to be net destroyers of jobs after the first year (Bartelsman, Haltiwanger and Scarpetta, 2004).

Even the European Commission seems seduced by the idea that Europe's economic salvation is dependent on more start-ups, stating in 2004: 'Increasingly, new firms and SMEs are the major sources of growth and new jobs,' and declaring, that, unlike the US, we are not sufficiently 'entrepreneur-minded'. Such self-deprecation is unwarranted, since the truth is that the vast majority of growth in any economy and in any industry or time period is driven by the transformation in productivity of long-established businesses. Better to back these than the new kids on the block if you are looking for economic growth and productivity.

Furthermore, the majority of the growth in the US in the past 10 years has been in wholesaling, retailing and securities and commodity broking rather than in new industries. Even a Silicon Valley full of entrepreneurs cannot match this, although it must be acknowledged that innovative new technology has surely made a huge contribution to the growth in these more traditional sectors. Where would Wal-Mart be without Microsoft?

Nor should we necessarily equate business start-ups with innovation. Very few of the UK's entrepreneurs have based their new businesses on original technology. The majority are in sectors with low barriers to entry like sandwich bars or hairdressing and rarely survive more than five years. Often it is the more mature companies that know how to create an environment in which entrepreneurs can flourish, nurturing their innovative flair and energy, and providing the management expertise and resources to ensure they can be productive. Think IBM, which registered 4,914 patents in 2009, or Procter & Gamble, which is renowned for its business innovation and encouraging entrepreneurship in its leaders.

Starting a new business is an exciting and personally satisfying thing to do. I am married to a serial entrepreneur; he keeps buying and selling the same business, each time at a profit. I also had a great deal of fun setting up and running my own business but was mightily relieved to sell it after five years. I often work with entrepreneurs and it is interesting how many are looking for ways to exit their businesses. They may intend to do it again but almost as soon as they are past the start-up phase they want out.

Very few people start a business with the ambition to create a scalable, lasting enterprise. Instead they are looking to pursue a dream, be independent and make some money. British entrepreneurs won't be the saviours of the economy and no amount of government window-dressing will change that, but they are a dynamic source of business energy and resourcefulness, principally motivated by self-interest and, mostly, scornful of hand-outs from Westminster.

At a recent debate I asked the roomful of entrepreneurs what the government could do to assist them. Overwhelmingly, the answer was less tax, less regulation. A resounding: 'Leave us alone to get on with it!' echoed around the room.

Surely government resources should be channelled to existing businesses with a record of growth, innovation, and employment creation rather than being spent on encouraging people to set up new businesses.

An ú80m loan to Sheffield Forgemasters to provide components for the civil nuclear industry would certainly have borne more fruit in terms of increased employment, economic growth and global competitiveness than any amount spent on business mentors and celebrity 'coaching' for wannabe entrepreneurs.

- Baroness Kingsmill CBE has been a non-executive director of various private and public boards. She is a non-executive director of British Airways and Korn/Ferry International

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