If the test of a meaningful policy is that it can be argued against, what to make of yesterday’s announcement by the Prime Minister to cut more red tape for small businesses?
This was one of several new measures designed to boost growth ambitions among the self-employed. Less than a fifth of SME owners have a substantive ambition to grow, and around a third have experienced more or less static growth over the last 3 years. The problem is even more pronounced among one-man bands. Recent research from the Department for Business, Innovation and Skills (BIS) showed that only 5 per cent of sole traders increased staff levels over the 6 year period from 2007 to 2013.
Clearly no one disputes the challenge. It’s just the way we’ve dealt with it over the years that raises questions. The idea that cutting more red tape will stimulate recruitment is fanciful: not one business owner we’ve spoken to over the past few years has raised the issue of regulation as a fundamental barrier to growth.
Nor has their been much appetite for wage subsidises – another state-backed initiative. Take the holiday in National Insurance Contributions that was launched late in 2012. In theory it should have been an attractive proposition for small businesses: recruit new staff and you won’t need to pay anything towards their NI. Yet the take up was very low. The same thing happened to the Youth Contract, which was intended to make it more viable to employ young people by heavily subsidising their wages.
So yesterday’s announcement is not a one-off. Rather it is symptomatic of a wider problem with the enterprise support ecosystem in the UK. Time and again we see state and non-state initiatives that look great on paper – and which make for a decent sound bite – but fail to live up to the hype.
This is not just bad for the businesses who are the intended recipients; it’s also bad for taxpayers (whose money could have been spent elsewhere) and bad for job seekers (who may have found work through a more intelligently designed scheme). But what to do about it?
One starting point is to make sure future business support efforts adhere to three fundamental tenets:
The amount of support available to small businesses has proliferated in recent years. But this has caused issues in itself, with the duplication of services being a particular challenge. On top of this there is little common knowledge of what actually works in stimulating business start-up and growth.
We need to adopt the principles of the Lean Startup model, which involves rapidly testing and evaluating prototype services on a small-scale before rolling out more widely. A good example is the new Growth Vouchers scheme that was launched yesterday on the basis of a randomised control trial.
Yet this has to be as much about changing culture as process. In short, the support ecosystem needs to be more ruthless, pointing out what doesn’t work and acting to terminate failing initiatives – even if it means upsetting the status quo. It's what happens every day in other spheres such as education and employment services, so why shouldn't it happen in the world of business support?
The only thing worse than a poor policy is an excellent one that nobody knows about. The latest RBS Enterprise Tracker survey found that 36 per cent of respondents hadn’t heard of a single one of the 19 initiatives listed. The same problem stands for the government’s efforts to boost lending to SMEs, which were criticised earlier this month by a Parliamentary committee because so few businesses were made aware of them.
So we need to get much better at drawing the attention of business owners towards what’s already available, even if that means spending a decent proportion of the budget on marketing (as Lord Young argued in his most recent review on microbusiness growth). The Prince’s Trust and StartUp Loans lead the way here, with adverts and events that are reaching out beyond the usual suspects to unconventional audiences.
Finance and deregulation are the conventional mechanisms used to stimulate business growth. However we know from the experience of the Youth Contract and National Insurance holidays that these clunky efforts are not enough on their own to influence behaviour.
Part of the reason is that many of the barriers facing business owners are psychological in nature. A research study recently commissioned by BIS found that one of key impediments to growth among the self-employed was a lack of ‘vision’, with sole traders regularly overestimating the costs of growing their business and taking on staff. Alongside this, many are reluctant to step into the unknown or fear letting go of the reins.
No amount of red tape bonfires or extra financial assistance is going to overcome such hurdles. Rather we need to see more initiatives that recognise business owners as humans, and which go with the grain of their frailties and quirks. This is something the RSA hopes to look at in the coming months.
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