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Britain Embraces Entrepreneurism

March 31, 2011


I have repeatedly asserted that one of the best ways to promote economic growth and increase employment is to enact policies that foster entrepreneurism. British Prime Minister David Cameron apparently accepts that theory. He has announced that “angel investors are to be given more tax breaks to encourage investment in nascent businesses” in hopes of building “an enterprise culture based on the nation’s ‘doers and grafters’.” [“Tax breaks aim to lure seed investors,” by Jonathan Moules and Elizabeth Rigby, Financial Times, 28 March 2011] For those of us on the west side of the Atlantic, the use of the word grafter might seem a bit odd. According to most dictionaries, a grafter is someone who unscrupulously uses one’s position to derive profit or advantages. I’m guessing that is not the kind of “grafter” to whom Moules and Rigby refer. I’m guessing they are using the agricultural definition of the term which refers to a person that performs grafts (i.e., joins things together). They continue:

“George Osborne, [Chancellor of the Exchequer], speaking alongside the prime minister, … said he wanted to offer more incentives to those investing in start-ups, having already extended the Enterprise Investment Scheme, targeted tax breaks for investors. … One idea being discussed in Whitehall is whether to introduce a new 50 per cent tax relief rate for sums of up to £500,000 invested in start-ups. The promise was welcomed by entrepreneurs and angel investors in the audience at the launch of StartUp Britain, a campaign organized by business founders to encourage more people to take the plunge and help new ventures grow bigger and faster.”

In a post entitled Not All Small Businesses are Created Equal, I wrote: “The real entrepreneurial heroes are those that create high growth companies that provide employment for people beyond the entrepreneurs, their families, and a handful of others. These are the so-called small business superstars.” Doug Richard, a US-born British entrepreneur, agrees with this assessment. He told Moules and Rigby, “It is not small business that supports economic growth, but young businesses that grow fast.” Interestingly, Moules and Rigby report that StartUp Britain was “inspired by the Obama-backed StartUp America initiative.” They continue:

“StartUp Britain, … is based around a website offering tips and money-off offers to those seeking to start a business. It differs from previous UK enterprise initiatives in that it has sought no government funding, instead generating donations of time and money from other entrepreneurs and businesses.”

Among those participating in the StartUp Britain conference were “Google, Microsoft and more than 50 other businesses” [“U.K. Launches StartUp Britain,” by Angus Loten, The Wall Street Journal, 29 March 2011]. According to Moules and Rigby, participation by large, non-UK businesses caused some consternation among executives from UK-based businesses. Loten reports:

“The effort will see many of the world’s leading businesses donating discounts and services to start-ups, such as free advertising, computer training, management mentoring and consulting, cheap insurance rates, and IT storage and processing deals. Together, the services are estimated to be worth over 1,500 pounds per start-up, or just under $2,400. Writing in The Daily Telegraph on Tuesday, Sir Richard Branson said ‘firing up a new generation of entrepreneurs will be a crucial part of our recovery and essential for creating sustainable growth in Britain over the next decade and beyond.’ Separately, a study of 160,000 small businesses in Britain, also released this week, found a 6.5% increase in the number of owners aged 25 to 34 over the past three years, the fastest growing age group among all small-business owners in the U.K. The second fastest growing age group was 18 to 25 year olds, according Simply Business, a U.K.-based small-business insurance broker that conducted the study.”

In another effort to promote entrepreneurism, the English city of Liverpool will host a global conference on the subject next year [“Liverpool to host global start-up conference,” by Andrew Bounds, Financial Times, 29 March 2011] Bounds reports:

“Liverpool, one of the British cities worst hit by public sector spending cuts, is to be the first European location for a worldwide conference aimed at helping start-up companies. The port’s bid to host the Global Entrepreneurship Congress, run by the US-based Kauffman Foundation, beat those from cities in the United Arab Emirates, Chile and Denmark, and follows events in Kansas City, Dubai and Shanghai. The congress attracts hundreds of entrepreneurs, economists and business gurus and Liverpool’s authorities hope it could help transform an economy still overly reliant on the public sector.”

I have mentioned the Kauffman Foundation in several past posts. For readers not familiar with the organization, this is a description of its focus from its website:

“The Ewing Marion Kauffman Foundation was established in the mid-1960s by the late entrepreneur and philanthropist Ewing Marion Kauffman. Based in Kansas City, Missouri, the Kauffman Foundation is among the thirty largest foundations in the United States with an asset base of approximately $2 billion. Our vision is to foster ‘a society of economically independent individuals who are engaged citizens, contributing to the improvement of their communities.’ In service of this vision, and in keeping with our founder’s wishes, we focus our grant making and operations on two areas: advancing entrepreneurship and improving the education of children and youth. We carry out our mission through four programmatic areas: Entrepreneurship, Advancing Innovation, Education, and Research and Policy.”

Speaking about next year’s conference in Liverpool, “Carl Schramm, president and chief executive of the Kauffman Foundation, said: ‘The power of the message put forward by Liverpool Vision about Liverpool’s interest – and the many expansions of entrepreneurship that were pointed out in the application that characterized modern Liverpool as a city truly committed to entrepreneurship – were very decisive.’ He continued: ‘To start the economy in any country – and restart the economy in periods of recession – entrepreneurs will play the critical role.'” All of this attention on entrepreneurs follows on the heel of assertions that “the creation of a more entrepreneurial society in the UK is being held back by a number of myths about how difficult and risky it is to set up a new venture.” [“Doom-laden myths appear to put off entrepreneurs,” by Jonathan Moules and Jonathan Guthrie, Financial Times,15 November 2010] Moules and Guthrie continue:

“Deep-seated views, such as entrepreneurs are born, not made, and are only interested in making money, are just plain wrong according to Mark Hart, a professor at Aston Business School, who for the past 10 years has overseen one of the most comprehensive studies of entrepreneurship in the UK. His research, of 30,000 households, found that 65 per cent of those who had set up a business had done so primarily for independence and personal fulfilment. The results also pour cold water on the idea that setting up a business requires lots of capital, finding that half of start-ups begin life in the founder’s home and the average capital requirement is less than £10,000.”

Moules and Guthrie report that “Britain remains a long way behind countries such as the US in its enthusiasm for starting businesses,” but nevertheless claim “that the level of start-up activity in the UK had held up well during the recession.” In fact, Professor Hart told Moules and Guthrie that the recession might have spurred some individuals to start businesses. “What we are seeing,” he told them, “is the recession releasing a lot of entrepreneurial energy.” Having said that, “he questioned whether this would be enough to drive the kind of job creation the coalition government hopes to gain from the private sector.” Moules and Guthrie continue:

“‘We need to challenge the idea that you have to be an Alan Sugar or a Richard Branson to be an entrepreneur,’ said Tom Bewick, chief executive of Enterprise UK. … ‘Our big message is that this will be the enterprise decade,’ said Mr Bewick, whose charity has the support of business bodies such as the Federation of Small Businesses and the CBI.”

Financial Times columnist Mike Southon also believes that myths and misperceptions are preventing too many people from improving their lives through entrepreneurship [“Resolving to build a strong business,” 17 January 2011]. He writes:

“My focus will … be on those who would like to make a better life for themselves but lack the confidence or connections to know where to start. They include the long-term unemployed and graduates burdened by debt from student loans. For them, there are just two simple options: get a job or become self-employed. Talking to people on a one-to-one basis allows me to judge which option is better for them. I have spoken to some Local Enterprise Partnerships (LEPs) on how to scale this process for larger numbers, using psychometric tests and other online tools. I think this is an important process as I often meet recession-beating companies that are planning to grow. Their only barriers to growth are securing the space to expand and finding the right people to employ.”

Southon makes a point that is worth remembering: not everyone is suited to be an entrepreneur, but those unsuited for entrepreneurism can still become great employees if given the right skills. In these difficult and austere times, however, government help with training and re-skilling is unlikely to emerge — even though Southon recommends that governments set aside money for such programs. StartUp Britain, which relies on no government funding, is the kind of program that is more likely to be found in the future. “For people who have both the aptitude and gumption to become self- employed,” Southon writes that his “task is to de-mystify and de-skill the process for them.” He continues:

“I have spoken with many people whose first contact with a business adviser has completely put them off the idea of starting a business. They got told about company formation, health and safety, accounting, taxation and legal issues. They left discouraged and disheartened by the bureaucracy involved. My advice is simpler. First, find a business area in which you have a genuine passion and knowledge, rather than something that you think might make money but for which you have no expertise. You should also have modest ambitions at first, ideally providing a local service rather than a product. So, if you are passionate about cooking, provide catering for a party rather than opening a restaurant. If you enjoy looking after children, provide a nanny service for friends rather than opening a daycare center. The first test of the viability of your business idea will be whether your friends are willing to pay for your service, re-book you and recommend you to their friends. If you can also make a profit on the transaction, then you have the basis for a viable business. Finally, you need to find your niche. … Even if this is a side venture to your current employment, it could be a useful fallback in these uncertain times.”

I suspect that the next couple of years will continue to see governments around the world put forth policies that foster entrepreneurism. Both developed and developing countries need jobs and those jobs are more likely to be created by entrepreneurs than by established businesses.

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