What does a business need to make a profit? At the very least it requires people to buy the goods and services its selling. Whether it’s a market stall holder, a clothing manufacturer or a tech start-up, there’s little hope for an entrepreneur to get their venture past its very early stages without a decent number of customers.
This is the fundamental rule of business, yet too often it’s lost in the flurry of discussions around how we can better support more entrepreneurs. Enterprise education, mentoring, training, workspace and finance; all of this is on the ‘supply’ side of the support spectrum. But what’s happening on the demand side?
Earlier this week, StartUp Britain launched a new scheme with Sainsbury’s that may be a forerunner to a new wave of promising demand-side support measures. PitchUp is giving start-ups in the food industry an opportunity to pitch their product to the supermarket's food buyers in the hope of winning some shelf space in stores. A pilot of a similar scheme run in partnership with John Lewis saw 400 applicants apply for product placements with the department store. There are now plans to run the same competition again this year.
Admittedly, these type of schemes currently only benefit a handful of start-ups. Only 12 businesses were awarded shelf space with John Lewis. But at this stage it's more about significance than size. Getting a few large retailers to bring fresh new businesses into their supply chains may set the ball rolling for others to do likewise. In an ideal world, we would see individual retail store managers take the onus to run their own competitions with local start-ups.
But this needs to be only one small part of a larger movement towards demand side support that actually creates business for start-ups. Local Enterprise Partnerships, for example, should do more to market the products and services of young firms in their area (as they do for large firms). Likewise, as Lord Young recently argued, central government departments could wield their £230bn procurement power more intelligently to support fledgling entrepreneurs. At a minimum, most organisations – whether public, private or third sector – should agree to faster and fairer payment terms with young businesses.
The obvious rebuke to all of this is that it would give unfair preference to one firm over another. Who’s to say that young firms deserve to be given special treatment? Wouldn’t giving more business to one entrepreneur deprive another of their customers, potentially sinking them entirely?
The problem with these concerns is that they view business too simplistically. For one, they wrongly assume that business is a zero sum game. More customers for one firm does not necessarily mean less for another. Moreover, if done in the right way, these kind of demand-side measures would only be there to stimulate healthy competition and to level a playing field currently dominated by numerous monopolies, as pointed out by my colleague Adam Lent.
With so few mainstream firms reporting ambitions to grow their business over the coming years, helping to bring new and dynamic firms to the fore may set in the train the kind of ‘creative destruction’ so desperately needed in our economy.