Small and medium-sized enterprises (SMEs) have been the engine of the recent disruption of long time established business models. They have developed new approaches made possible by improvements in technology and connectivity, and account for 60-70 per cent of jobs created in most OECD. That’s why governments around the world have focused investment and policy development on programmes to enable entrepreneurs to set up and scale up their start-ups.
It’s not surprising that support for these enterprises is one of the ten key pillars in the Industrial Strategy Green Paper. While the UK is home to more of these business support programmes than anywhere else in Europe, and we have a rapidly expanding community of scaled up companies, we lag behind the US and other leading economies in the proportion of economic growth they drive.
Our experience directly supporting innovative scale-ups and start-ups in the UK and overseas suggests there are a number of lessons to be learned about what works and, just as important, what doesn’t. This starts by understanding and tailoring those services, and helping start- ups deal with basic legal and financial requirements.
Know your customers’ needs
All entrepreneurs are different. Founders and business models bring a unique blend of strengths and weaknesses, and support programmes must appreciate and respond to those differences. In practice this means they should offer some kind of diagnostic to assess the quality of the enterprise and the skills they have, or lack. This diagnostic must critically examine the product, the target market, the plan and most importantly the team.
Provide legal advice
One of the critical areas where we find entrepreneurs often lack expertise is in meeting legal and regulatory requirements. Most bring either a technical or business background to the table, but very few have the detailed legal or regulatory understanding needed to enter many of the sectors that are most ripe for disruption. Yet securing legal advice is extremely expensive and only experienced customers are likely to get value for money from that expert counsel.
While some accelerators that specialise in providing this legal support are emerging, there is an obvious market failure in legal services. The industrial strategy could address this failure by offering specific programmes of support which educate high growth firms about how best to engage legal services and by providing specific funding for these costs, in a similar fashion to the existing innovation voucher programme.
Make it easier to open a bank account
Whether you are a UK or foreign entrepreneur, setting up a bank account is still a huge hurdle for new start-ups. Whilst there have been many developments in the digitisation and customer centricity of banking services, work to update the regulations around setting up a business bank account has lagged behind.
But the emergence of new banking solutions like Tide which gives SMEs the opportunity to open a business current account in less than five minutes are starting a welcome move away from the traditional bureaucratic requirements. Developments in trusted identity services, such as Verify UK, will also help remove some of the need for overly onerous documentation and requirements.
So what works?
Through the business support programmes we’ve helped design and run, we’ve identified a number of specific actions that really make a difference.
· Access to investors – the importance of access to investors can’t be overstated. There is no lack of availability of investment funds, but there is a market failure in providing access to those funds. Support programmes need to connect start-ups with the right kind of finance (whether that be debt, equity or non-traditional options such as crowdfunding) and with investors whose expectations align with the growth plans of the start-up.
· Co-working spaces – providing a space where start-ups can work together is a great way to help entrepreneurs self-diagnose the support they need. By observing how other entrepreneurs benefit from specific activities and through open peer-to-peer conversations, the value of generic business support tools can be improved dramatically.
· Access to international supply chains and new markets – as the UK exits the European Union, our status as a launchpad into European markets will start to erode. The role of accelerators and business support programmes in bridging barriers to entry is going to become increasingly important.
These programmes will deliver real value to their customers if they can make introductions and provide advice on establishing and maintaining international business relationships. One of the most inexpensive and effective methods of doing this is through partnerships with business groups and other accelerator programmes overseas. These can be mutually beneficial relationships which end up producing a large number of cross referrals.
· Public relations – PR is another skill which is often missing from start-up teams and is expensive to acquire. Getting this wrong or overlooking its importance can lead to zombie SMEs. These are start-ups with fantastic products and potential, but that never get enough of a foothold with consumers to scale-up. Providing visibility and PR support to those businesses at an early stage will add substantial value.
And what doesn’t?
Our experience also helps us to see what aspects of support programmes don’t work.
· Mentoring programmes – there’s no magic formula for successful mentor-mentee relationship. High-profile British entrepreneurs like Richard Branson will talk about how their mentors provided immeasurable value to their careers, but the one thing these stories will have in common is that the relationship developed organically – it was not set up for them by a third party.
We have seen various models used across both private and public sector run accelerator programmes such as using paid mentors; recruiting experienced entrepreneurs to commit time on a pro-bono basis; and using accelerator alumni. But in our experience none of these reliably work out as intended. Mentors you can afford to keep on an accelerator’s books often don’t have the right connections or depth of experience that start-ups require to succeed.
Experienced entrepreneurs won’t have the time required to dedicate to mentoring someone they don’t have a vested interest in developing, such as a personal interest or a financial interest or equity stake. Using accelerator alumni can work, but only when they have some incentive to keep them motivated and committed.
· Generic academic training – the content of classroom-based learning can be valuable, but is not always a cost- or time-effective way of delivering value and often leaves a number of participants behind. In our experience, those we support appreciate having access to a wide selection of online learning modules more than purely classroom-based delivery.
The best business support programmes will offer a choice, including blended learning which incorporates elements of very specific, targeted classroom sessions and a wide range of online tools for more generic support.
· Giving everything away for free – start-ups can be very demanding and when everything is free, they can take it for granted. Demanding something in exchange for support services, even if that’s a non-monetary contribution such as data sharing, improves engagement and the value a participant will gain from the programme.
This is particularly important for publicly-funded business support programmes where demonstrating value is vital to their longevity. If start-ups don’t share data around job creation it can be exceptionally difficult to prove the programme’s value. But this must be asked for up front. No one likes to be told they have to make a contribution before they can receive a service they used to get for free.
The UK is a hot bed for entrepreneurship, we create numerous small businesses every year, and a good proportion of them survive to maturity. However if these start-ups are to realise their potential impact on national employment and GDP they need to scale and internationalise.
Government and Industrial Strategy can play a pivotal role in this through providing or facilitating the creation of intelligent acceleration programmes.
Marta Solorzano and Khalil Souki are economic development experts at PA Consulting Group