WHY YOU HAVE TO INNOVATE TO ACCUMULATE; BRITAIN CURRENTLY LIES IN THE ENTREPRENEURIAL SECOND DIVISION
Copyright 2002 Newspaper Publishing PLC
The Independent (London)
December 7, 2002, Sunday
SECTION: BUSINESS; Pg. 11
LENGTH: 906 words
BYLINE: Joel Budd
BODY:
These are difficult times for Britain's entrepreneurs. Richard Branson is no longer the nation's favourite tycoon, having been shouldered aside by the Greek -born Stelios Haji-Ioannou, founder of the Easy empire. As for Britain's most influential businessman, a Sunday Express panel recently bestowed that honour onto Rupert Murdoch, an Australian.
To make matters worse, a team of economists has placed Britain firmly in the entrepreneurial second division. The Global Entrepreneurship Monitor found that just one in 18 Britons is in the process of setting up or running a new business. In the US, by contrast, one in 10 is taking the plunge. And while America's entrepreneurs seem to be holding firm in a shuddering economy, Britain's are toppling like ninepins: almost a third disappeared in the past year alone.
In fact, the report found that 22 of the 37 countries in its sample were producing more entrepreneurs than Britain. While there were some predictable laggards such as France and Japan, many South American and Asian nations were zooming ahead. Topping the chart was Thailand, where a staggering 19 per cent of the adult population are entrepreneurs. Pretty humiliating, isn't it?
Until the economist Rebecca Harding releases her report on Britain next week, we won't know exactly what has gone wrong. Are investors still feeling burnt from the dot.com collapse? Does being a wage slave just feel too good? One thing is clear, though: unless the situation improves, we will have to give up our reputation of being a nation of shopkeepers.
We might try to salvage some national pride by pointing out that "new business" is a broad term, taking in everything from a Cambridge biotechnology company to a Mumbai fruit stall. And there are different kinds of entrepreneurs, too. Some are trying to seize a business opportunity, while others are forced into it when there aren't enough jobs around.
But Paul Reynolds, the London Business School professor who coordinated the Global Entrepreneurship Monitor, says that "necessity entrepreneurs" can be just as important as their more privileged, opportunistic brethren. A country with a high proportion of entrepreneurs is likely to experience rapid economic growth in future years, even if many of its citizens go into business reluctantly.
"Roughly one third of our respondents around the world are doing this because they can't get a regular role in the economy," says Professor Reynolds. "The assumption in the past has been that these people are losers who can't do anything else, but it turns out that's not the case. People who are being forced into entrepreneurship may be having quite a positive impact on economic growth."
Another advantage to having lots of entrepreneurs around is that they encourage innovation. Although most start-up businesses are trying to exploit niches in existing markets rather than to create entirely new ones, their laser-like focus often brings new ideas into play. Even if they fail - as most do - and pitch their staff into unemployment, another firm will come along to pick up the pieces. It's a chaotic and often painful process, but it keeps the economy on its toes.
According to the consultancy company Accenture, British businesses have a problem. Although 96 per cent of the executives in its survey said that innovation was one of their top 10 priorities (whatever that means), a good half made the feeble excuse that they didn't have enough time for it. Another third cried poverty. Clearly, Accenture suggests, they need to do a better job of incorporating creativity into their corporate structure.
Big business is worried about innovation, and for good reason. Oxford economist Gavin Cameron argues that, with the exception of pharmaceuticals companies, most have been short-changing research and development for years. This is bad news for their future profitability. It's also bad for the financial health of the nation, as the Government well knows. Last week, Gordon Brown announced that Trade and Industry secretary Patricia Hewitt would be leading a government review of support for innovation.
The irony is, of course, that there's no lack of invention in Britain as a whole. There are many people out there with exciting ideas; the problem is that they cannot clear the practical hurdles that would allow them to become entrepreneurs.
The problem is not so much the lack of investment capital available, it's the size of the packages. Most investors are looking to finance companies that could achieve turnover in the tens of millions of pounds.
Rebecca Harding says that the problem of securing venture capital will feature in her report on British entrepreneurship. Harding, who is chief economist at the Work Foundation, says that there has been a dearth of seed funding in the past couple of years. "When market conditions are dodgy, venture capitalists pull out of things that they perceive to be high-risk, and this has a knock-on effect on small businesses," she says.
But Harding also plans to highlight the lack of streamlined institutional support for growing businesses. "We have a very easy environment in which to set up a business, but whether it's as easy to maintain that business is another thing. The British will find excuses if they possibly can, and if business support is a bit fuzzy at the edges, then that's one of the excuses they will find."
You can email me at Gavin.Cameron@economics.ox.ac.uk
Last updated: 27 September 2003.
