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Entrepreneurship: Is Fear Of Failure Holding Entrepreneurs Back From Taking The Plunge?

When a recent report claimed Scotland had a lost generation of entrepreneurs in their thirties and early-stage business startup activity continued to lag behind the rest of the UK it raised an uproar.

Newspaper headlines like 'The last tycoons?' and 'Scotland fails to deliver entrepreneurs' provoked the Entrepreneurial Exchange, Saltire Foundation, Scottish Institute for Enterprise, Young Enterprise Scotland and Prince's Scottish Youth Business Trust (PSYBT) to call on the Scottish Government to implement a business led National Entrepreneurial Action Plan. The organisations said a joined-up, holistic plan needed to be created for how young Scottish talent was developed and encouraged.

The author of the Global Entrepreneurship Monitor (GEM) report on Scotland, Dr Jonathan Levie, sparked off debate when he said the country may have much to learn from the experience of the Welsh entrepreneurship plan which "may have positively in uenced the attitudes, activity and aspiration of young Welsh adults."

Millionaire businessman Sir Tom Hunter, who funded the report, said in his introduction that the Government should take a fresh look at enterprise policy across all the environments in which our young people travel including further, as well as higher, education.

But what exactly is the situation in Scotland? Why, despite years of campaigns to persuade schoolchildren and students that starting up a business is a good thing to do, is there apparently such a reluctance to do it? Why does Scotland continue to lag behind the rest of the UK in the business startup stakes? And can it learn anything from the Welsh example?

One of the first challenges for policymakers is we don't actually know how many start-ups there are every year. Scottish Government statisticians say VAT/PAYE registrations are the most reliable offcial indicator of business start-ups but admit they exclude the very smallest businesses.

The statistics actually show startup rates in Scotland and Wales are the same with 34 registrations per 10,000 of the adult population in 2009. That compares very poorly with a UK figure of 47 start-ups per 10,000. Even excluding London and the South East, the UK figure would be 40 per 10,000 resident adults.

The Committee of Scottish Clearing Banks produces business start-up statistics every quarter. Last year the four banks who take part in the survey - Bank of Scotland, the Royal Bank of Scotland, Clydesdale and Lloyds TSB Scotland - recorded 15,439 start ups, slightly down from 15,726 in 2009. However the survey excludes some major banks with strong business activity in Scotland such as Barclays, Santander, Cooperative Bank and HSBC.

Another source of statistics is Business Gateway which helped 11,242 business set up in the 12 months to the end of March - a 6.3 per cent increase on the same period the previous year and the highest number achieved since Business Gateway was set up in 2003.

David Valentine, chair of the Business Gateway Scotland board, believes like-for-like comparisons between Scotland and other parts of the UK are unfair. "Business opportunity is a function of market demand and Scotland has a huge rural population with few major conurbations when compared with England," he says. "It would be interesting to know how many Scots entrepreneurs travel south or even further abroad to develop their business activities. It would also be interesting to know how many new businesses based outwith Scotland also service the Scottish market. We may not have a full picture and perhaps this is an area for more academic research."

The GEM research programme is e ectively an opinion poll providing an annual assessment of the national level of entrepreneurial activity. Started as a partnership between London Business School and Babson College, it was initiated in 1999 with 10 countries, expanded to 21 in the year 2000, with 29 countries in 2001 and 37 countries in 2002. GEM 2010 conducted research in 59 economies worldwide with over 180,000 individual interviews measuring differences in entrepreneurial attitudes, activity and aspirations.

In Scotland it is co-ordinated by Levie, a reader at Strathclyde University's Hunter Centre for Entrepreneurship. Some 2000 individuals were interviewed in Scotland for the report which he says is a valid sample of the population. "We have been measuring this since 2000 and if you look at the data you get very consistent results from year to year," he says.

The survey found that: 43 per cent of working age adults who thought there were good opportunities for starting a business agreed fear of failure would prevent them from starting one compared to 36 per cent in the rest of the UK; Scotland's total early stage entrepreneurial activity (TEA) rate - nascent entrepreneurs and new business owners - was 3.7 per cent of the working population against 5.6 per cent for the UK; and the TEA rates of both males and females in their thirties is slightly lower than people in their forties.

Levie says in other home nations of the UK TEA rates peak strongly in the mid-thirties for both males and females and claims "this represents a lost generation of entrepreneurs for Scotland." e survey also says Scotland has fewer entrepreneurs who have started more than one business than the rest of the UK.

Levie argues the contrast between the TEA rates for young adults in Scotland and Wales are striking. Since the Youth Entrepreneurship Strategy (YES) was launched in 2004 more young people in Wales now want to set up their own businesses and the proportion actually doing so is signi cantly ahead of the UK average. e strategy aims to boost young people's entrepreneurial con dence so they can play a full and e ective part in the economy and community.

Yet in Scotland millions of pounds of public money has been spent on the Determined to Succeed programme in schools over the past decade together with a somewhat more modest amount supporting the Scottish Institute for Enterprise's work in universities persuading students to think about setting up their own businesses.

Levie says Determined to Succeed was focused initially on primary schools and then secondary schools but there has been very little activity in the third level, particularly in further education colleges. "I happen to be auditing the work of entrepreneurship champions in every Welsh further education and higher education institute in Wales from the early 2000s onwards. By 2003 the Welsh had an entrepreneurship champion at every further education college and higher education institute. They recognise they might not get a lot of people starting up immediately. That wasn't really the point. The point was to educate people and open their minds to this as a possibility.

"The contrast with Scotland is quite stark. My concern is that the Scottish Government have spent all this money and effort in the schools and, given that something like two thirds of people move from school either into further education or higher education, if there is little or nothing in the way of start-up training or awareness creation or maintenance of what people might have learned in primary and secondary school, a lot of the benefits that might have been generated through Determined to Succeed could be lost. I see a hole in provision in the third level in Scotland that was plugged ten years ago in Wales."

The question is how big a hole is it? A Scottish Funding Councilsupported pilot project currently taking place in ten of Scotland's 41 further education colleges seems to indicate a lot has been happening, but below the radar.

Douglas Noble and his colleague Leigh Brown have been funded until the end of 2012 to promote and make enterprise an integral part of the college curriculum. "Our focus is collecting information on what the colleges are already doing, both through promoting enterprise through the curriculum and promoting and supporting entrepreneurship. There is a vast amount of activity going on but very little of it is actually being recorded and recorded in a consistent way so you can make any sensible comparisons," says Noble.

He cites the example of Alex Clyne at Carnegie College. Clyne, in a pro-bono role as entrepreneur-inresidence, is working with students and staffto support them - at no cost to themselves - in developing their business ideas and encouraging new local start-up businesses.

Noble says some colleges also invite past students who have gone on to start their own businesses to come in and talk to their classes. "But most of this is organised by the lecturers - it is not part of the key performance indicators for the college so a lot of the information on what is going on is getting lost."

Noble is also in discussions with the funding council about ways of putting some sort of system in place that allows colleges, universities and schools to stay in touch with students after they have leftand find out if they have started businesses. However with public funding now becoming harder to get the chances of such an initiative getting offthe ground are probably slim.

Levie already has fears about the former Determined to Succeed funding which is no longer ring fenced. "It is now up to local authorities to decide how much money and what activities they are going to have. How committed are they? They should be because they now have responsibility for local economic development. In fact, it is an ideal opportunity for joined up thinking at local authority level linking the work they are doing - or should be doing - in local economic development to what is going on in their schools. Potentially it could be great but I am worried about what is actually going to happen given the constraints on budgets."

Fiona Godsman is chief executive of the Scottish Institute for Enterprise which tries to help university students discover their entrepreneurial talent and start up their own ventures. She thinks some of the people who take part in the GEM survey are not aware of the realities of what is happening. "We work with highly motivated and intelligent young people," she says. "So we are seeing the people that really want to run their own business and want to be successful in life.

"I think what we need to do is really showcase what we are doing and the success of the people we work with because I think an awful lot of the GEM report is about public perception. Anybody that is involved in supporting entrepreneurial activities needs to make more noise about what is actually happening because people need to see and be inspired by role models they can identify with. That is not necessarily the big names like the Tom Hunters of this world. I think it is the people who are quietly getting on with things and setting up their own businesses whether it employs two or three people or ten or 20 or 50."

Individual universities also have their own initiatives. For example Heriot-Watt University runs the Converge Challenge where potential entrepreneurs from across Scotland get the opportunity to develop and pitch their ideas. The Competition supports up to 30 finalists each year in developing their initial business idea into something marketable.

The competition has attracted competitors from universities including Strathclyde, St Andrews and Aberdeen. They are competing for a cash prize of £25,000 and over £15,000 in legal, financial and business advice - enough to match a SMART: Scotland Feasibility Award.

Entrepreneurial Exchange chief executive John Anderson believes there have already been some private discussions about the proposal for a business-led National Entrepreneurial Action Plan which "hopefully will lead to something." However he does not think there is a lost generation of entrepreneurs. "If you look at a piece of work the PSYBT has been doing around the impact of the top 100 among the tens of thousands of businesses that have been started and helped over 22 years there are a lot of people who are now thirty-something because they all came through PSYBT five or ten years ago. There is a lot of activity but the public doesn't see it and I wonder whether it is because we fail to communicate it or whether they are saying it is not relevant to me.

"My lost generation is a different lost generation. It is the parents of the current generation who are being enthused to do something who don't get it because it has never been their world. They have worked in a big organisation or in the public sector and don't get this."

Mark Strudwick, who is chief executive of PSYBT, has a similar view about the discouragement from some quarters. "There are a lot of people in Scotland at the moment who are not in enterprise who say it is terribly difficult, it is not going to work, when actually a lot of young people are making it work.

"We want to continue to work with the Government to make sure there is every opportunity, particularly for young people to have enterprise and entrepreneurial options open to them. I don't see the opportunities being less than they have been in the past. I do see a huge need for us all to communicate to young people that there is support there for you. For me the key is there is a high level of uncertainty at the moment and that is what is putting young people off."

Nevertheless PSYBT is still managing to help many young people achieve their dreams. Last year 646 young people in 611 businesses were funded.

Accountants Ernst & Young have been running an award programme for entrepreneurs for the past 13 years and Scottish partner Jim Bishop says it has no problem finding strong new contenders. He says he was quite frustrated by the GEM report. "If you start by reading Sir Tom Hunter's foreword it was a case of here we are again. We don't seem to be making progress. We seem to be going backwards. This issue has probably been around for generations and it is disappointing that despite what would be millions upon millions of funds and initiatives and ideas and support mechanisms we still don't seem to be cracking it.

"There is absolutely no doubt if you look around the corporates of Scotland today you have to challenge what that is going to look like in 15, 25 or 50 years time. You could argue there is not mid caps or enough businesses like Wood Group, Clyde Blowers, Aggreko and Weir who are truly global. It has to be a very serious issue for where the likes of our children and their children's children are going to be employed in the future. But I do think we beat ourselves on this quite a lot. There is not a complete absence of stars, there is just not enough of them."

Former Scottish Enterprise chief executive Jack Perry says he never had a hang up over the sheer number of start-ups. "I think a better indicator is the survivability of the start-ups we have and the scale they acquire. The thing that worries me most is why we put so much emphasis on trying to build companies of scale when I was at Scottish Enterprise."

Shaun Millican, who is a partner at accountant Johnston Carmichael, agrees. "I would say quality over quantity would be preferable. I think if you look at it purely in terms of number of start-ups it is flawed logic. It is better to look at whether we create real growth businesses and how many businesses we create that five years later are turning over, say, more than £2m and in ten years are turning over more than £10m."

The Scottish Government says it plans to review current provision of entrepreneurial education to determine whether there is a need for a separate National Entrepreneurial Action Plan. As part of this, arrangements are being made for ministers to meet the Entrepreneurial Exchange, Saltire Foundation, Scottish Institute for Enterprise, Young Enterprise Scotland and Prince's Scottish Youth Business Trust to determine their views on what further action needs to be taken. They are also in contact with the Welsh Government to find out more about their policies on youth enterprise to identify what is being done in other parts of the UK, and to assess whether there are any gaps in similar provision for Scotland.

The Scottish Government also says it is important to recognise that while Government can help create the conditions to encourage businesses to start up the entrepreneurial flair comes from the individual. "Our focus is on providing a supportive business environment for all our businesses in order to help drive economic recovery and create employment," it says. "We also recognise the importance of access to finance," it adds. "We continue to press the UK Government to take further action to improve access to affordable finance for all businesses irrespective of size, as this remains a constraint on economic recovery."

Responding to concerns about the future of Determined to Succeed the Scottish Government says enterprise education remains core to the delivery of 'Curriculum for Excellence'. "By developing the enterprise and employability skills of our young people we are better preparing them for work and life in a globalised society," it says. "By embedding enterprise in education across and within the curriculum and ethos of every school in Scotland and engaging employers, we are setting learning in context, making it more relevant to the world beyond school.

"Previously, the education and lifelong learning budget had provided local authorities with specific grants for Determined to Succeed (DtS) amounting to £19.2m per year. This budget is no longer ring-fenced and has now been permanently transferred to the local government baseline from April 1, 2011, with the expectation that DtS will continue to be implemented as a key part of Curriculum for Excellence."

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