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05 August 2004
The Scotsman
Back the little guy

LET there be no doubt: creating more start-up businesses is crucial for Scotland’s economic well-being. We need the jobs. And start-ups are a very good way of delivering them.

Unfortunately, these days we are embroiled in a one-way love affair with big business - and it’s not returning our affection. The number of jobs created by start-up businesses in Scotland is greater than the total created by inward investment or the expansion of large companies. In fact, there are more people here employed in Indian restaurants than in UK ship building, coal mining and steel manufacturing combined.

But we’re not getting the message. The whole of the UK isn’t getting the message. In 2003, over 390,000 new businesses started up in the UK, up over 35 per cent on the previous year. But, according to Companies’ House, as many failed.

And although 390,000 sounds a lot, if we wanted to hit the US rate of business creation, we would need to create an additional 1.8 million businesses a year. We don’t. And when it comes to the number of business start-ups, Scotland still lags significantly behind the rest of the UK.

So if big companies aren’t the answer, what is? The temptation is to say, "scrap Scottish Enterprise and use the money to give everyone a tax break". But it’s not exactly a politically prudent policy for Jack McConnell, or indeed any First Minister to espouse. However, here’s one that is. Let us call it the Entrepreneurs Manifesto.

First, think small. Let’s have more window cleaners. From banks to enterprise incubators, they don’t like the small guys like cooker cleaners or driving instructors. Instead, they like backing going concerns. And the only start-ups that make through the door are the sexy hi-tech wunderkinds who start off by handing you a pair of binoculars so you can see where the zeros end on their earnings projections. This might seem a safe, sober and considered approach. It is not.

Take a cross-section of the world’s leading large companies: Apple to Microsoft; Hewlett Packard to JP Morgan; Monsoon to Marks & Spencer. They all started in someone’s bedroom, or from a barrow or in a garden shed.

Mighty oaks really do, from small acorns grow. And we’re going to be in trouble if we’re not sowing plenty more. The challenge facing Jack is not encouraging big business to get bigger, but small ones to dream bigger dreams. Like Tom Farmer ... who started off cleaning cookers.

Second, we pick these winners. There is no underestimating how hard this is to do - there are legions of venture capitalists, bankers, accountants all trying to do that very thing. Just look at the history of the great white hopes of Scottish business and check the success rate … Atlantic Telecom, Scotia Holdings, Orbital.

But even when our choices do hit lucky, and the business shows it can fly, we want to clip its wings because its only got one propeller and not six ramjets. Ask Michelle Mone, the bra manufacturer from Wishaw. She may not be turning over £100 million, but she is actually employing 40 staff.

Third, we get over our crush on the hi-tech flash cats. The most successful entrepreneurs in Scotland’s recent history have sold exhausts, training shoes, dry cleaning and spectacles.

Yes, let’s look at Orbital. Kevin Dorren, its founder, may have propelled his software firm to a valuation of £70m. But it crashed to earth, and he now sells low-carbohydrate food bars.

Technology is never going to be the deciding factor in building a great company. As Jim Collins observes in Good to Great, the world’s best-selling management book, "technology is an accelerator of greatness already in place, never the principal cause of greatness".

Fourthly, we scrap all "targets". What Scotland needs is more "gung ho" and "can-do", not box-ticking. Scottish Enterprise deserves some credit for recognising this ten years ago, with the launch of it’s original Business Birth Rate Strategy, the Entrepreneurial Exchange, and the entrepreneurship centres at our universities, promoting our "Local Heroes", and providing core funding for the Princes Scottish Youth Business Trust and its ilk.

However, it nobbled itself from the word go by setting its business birth rate a clearly ridiculous target, namely, to double the rate of business creation in Scotland in three years. It didn’t, and suddenly it was open season on Scottish Enterprise. The agency dived back into its trench and now crouches behind a sandbagged set of specific, highly measurable, short-term (and dare I say, political) targets that can be scrutinised and assessed on every indicator at every step.

This is ludicrous. How we can set up an agency to bring about a long-term shift in our cultural attitudes, and then measure it by quarterly or even annual targets?

What we have created is a body that we fund from the public purse, to take the type of risks the private sector wouldn’t touch … and which we have made totally risk averse by threatening it with abolition if it misses even an Investors in People accreditation in Ayrshire.

The Irish have the right approach. They know that keeping their "tiger economy" fed is a project that will take a generation. Just because its hard to measure doesn’t mean it’s not important. So return Scottish Enterprise to un-smart, un-measurable, costly long-term goals. And then when all the start-ups get going, winnow out the duff ones by letting them fail faster. Which brings us to the hard bit, Jack.

The Chancellor Gordon Brown’s prudence is a much admired creature. She decrees a return to boom and bust is bad. And we agree because no-one wants negative equity on their house again, or to go through the pain of business failure.

But Jack, what is good for votes is not necessarily very good for the economy. Example? We are not seeing the same rate of new business start-ups that we did after the last recession, thanks to prudence.

The boom in Silicon Valley only happened because of the huge programme of lay-offs in the US defence industry. When Motorola closed its plant in Bathgate, one of the first things the Entrepreneurial Exchange did was get its members in to offer classes on business start-ups. Collapses are painful, but we shouldn’t try to avoid them at any cost as they can lead to better things.

Now I am not advocating just throwing lots of money at aspirant entrepreneurs. Americans set great store by "boot-strapping" start-ups. Companies like Dell and Microsoft were funded by credit cards until they’d proved their concepts and sorted out their technology.

But do throw some money, Jack. First, remove the criteria for the Small Firms Loan Guarantee scheme that if you own a house, you don’t qualify under the "wealth test" and, second, reintroduce the £40-£80 a week Enterprise Allowance for those under 30. They don’t need grants for IT, but £40 goes a long way when you are starting out and living off baked beans. It did for me.

On the other hand, support when it comes to office space, is necessary. What start-up can afford a serviced office at £30 a square foot, and £2 for a digestive and how many will sign a ten year lease.

Instead, Jack, take a derelict building in any inner city, do it up and hand it over to start-ups as office and retail space, then watch them turn it into its own mini-incubator , and a cool shopping destination. Its already worked in Birmingham.

• Caspian Woods is managing director of contract publishers Editions Publishing. He is the author of the business guide From Acorns


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