Some of our experts in the field have given their thoughts on the Debate Piece Support policy ignores SME needs by Bev Hurley. If you would like to join the debate please email chris@isbe.org.uk and your comments will be placed on the website.
Responses by:
Julian Frankish
Adrian Ashton
Kevin Mole
Bev Hurley
Response to "Support policy ignores SME needs"
By Julian Frankish
What should the aims and objectives be for public policy with respect to the provision of advice and support to small businesses? While there would probably be agreement that firms ought to be made aware of the tax and regulatory obligations placed upon them by government and that these requirements should be made as easy to comply with as reasonably practical, there would be less agreement about the scope of publically funded ‘advice’.
I would agree that more thorough evaluation of schemes would be welcome, ideally built in at conception. However, this criticism in the article does not then restrain the author from putting forward their own view of what form public policy should take, presumably also drawing on a limited evidence base. Perhaps we need to step back and ask the basic question – why should public funding go towards business advice and support?
If it were any other input into a business the general expectation would be that the firm would purchase it. A starting point would be to assume that small businesses wishing to grow (or make other changes) will also be willing to pay for the advice and support to assist them in doing this. Is this unrealistic? No, it already happens. On almost every survey of external advice the first source firms will turn to, by some distance, are their accountants. Indeed, the vast majority of businesses have never used and will never used publicly funded bodies.
This is not to say that there is no potential value in carefully considered public schemes. I would welcome a framework that permitted more experimentation in small-scale provision, with accompanying evaluation, where the most promising approaches would be taken up and adapted elsewhere. However, public policy should be more than simply trying to give something to everyone. This is as true in the area of advice and support to small business.
Julian Frankish, Senior Economist, Barclays Business
Losing support... a response to "Support policy ignores SME needs”
By Adrian Ashton
Bev’s article argues coherently that publicly funded business support is needed from the perspective of statistical research, but perhaps personal stories can help to illustrate the need even more powerfully:
As a provider of personal business advice through a number of publicly funded programmes in different regions for over a decade now, there are 2 things that they allow which would otherwise be lost: encouraging more start-ups and stopping start-ups –
Feedback I often receive from people I support is that before they meet me, they were on the verge of giving up on their aspirations to launch their own enterprise based on feedback they’d received to date from other ‘professionals’ – advisers and consultants who came from a more ‘traditional’ business support background than perhaps I, and therefore viewed these people through the lens of high growth, priority industry sector, and job creation; rather than the potential that their proposed enterprise had to lift them out of unemployment and provide a better means for their families – lifestyle entrepreneurs who’ll never transform the economy wholesale, but will change the world, one person at a time.
My concern is that such people will now be condemned to a limited life because such encouragement that they need is no longer available to them, or if it is, the quality of it through the mentorsme.com site will be potentially damaging as it offers no consistency with regard to provision or quality assurance...
As for the second benefit – preventing people setting up new businesses may seem to be at odds with the spirit of enterprise support and the article. But I’ve also met and worked with people who had great dreams and aspirations that were based on wholly unrealistic assumptions. In being able to get alongside such individuals and help them to understand that launching their enterprise in the way that they intended would only lead to its collapse and leave them in a worse situation financially, socially and emotionally is surely a positive contribution to the wider economy and society?
So – publicly funded business support is being withdrawn. It’s being replaced with an inconsistent provision of mixed (and non) quality assured advisers who won’t necessarily have the insight, patience and wisdom to recognise the value that a part-time enterprise can offer, as well as to prevent some enterprises from being created that should never be...
Adrian Ashton, Independent adviser, trainer and consultant – www.adrianashton.co.uk
Response to "Support policy ignores SME needs"
By Kevin Mole
I agree with Bev Hurley that the new framework for business support seems fragmented, that the evaluation of programmes is not rigorous enough, and the demise of face-to-face advice takes away a valued service. However, I am less convinced by arguments that we need to do more for more SMEs, or that the targeting of advice is elitist. The current economic climate is not likely to be able to provide more for more SMEs, therefore support will need be targeted.
We have to decide what business support is for, the assumption in Bev Hurley’s title is that business support is there to meet SME needs. It is not. Business support is there to meet society’s needs. If the benefits of advice accrue to the private owner-managers then there is no need for intervention. Economists argue that only market failure justifies intervention (Bennett 2008).
Business support needs to justify its costs. First, it has to improve outcomes for SMEs. Second, its benefits must outweigh its costs. Third, it must contribute to the policy objectives of he government.
Bev premise is that we need to support all people who are starting up in business, as her model proposes there is a triangle and we should support the base of the triangle, as well as the top.
Counter to this argument, In the 1990s, I interviewed a Prince Trust business adviser co-ordinator in Dudley. One of his bugbears was the number of new car valeters he had with business plans. Each went out and got business but all that happened was that this year’s car valeters pushed last year’s car valeters out of the market. In a study of new businesses in Teesside we found high proportions of new firms in industries with “low-income-elasticity of demand” (Greene, Mole and Storey 2008). These firms may provide jobs, but there is little evidence they boosted economic growth for the area. Teeside continues to struggle.
Where targeting appropriate businesses are concerned Mole et al (2011) found that where Business Links worked more intensively with fewer companies they were more effective. Mole et al (2011) clustered 45 Business Link organizations into those who were “broader” versus those who worked in “more depth” with fewer organizations. Working in more depth cost twice as much: on average costs per intention for “more depth” was £841.18 as opposed to the average of £429.65 per intervention. But even taking this into account: “more depth” still outperformed the average (Mole et al. 2011). The deeper model boosted employment by 6.2% rather than the average of 2.2%, more than the extra costs. Therefore targeted support appears to pay off.
Having established that targeted support is more appropriate the question is which types of firms should policy target? The government argument is that a small number of firms have a disproportionate impact on society. A cohort of new firms start-ups create jobs but David Storey (1994) calculated that just 4% of firms would create half of the jobs that cohort created. If the benefits to growth and society are not shared equally; then the help from support shouldn’t be either.
Implementing this targeted growth policy is not easy. In the first place, growth is a process measured from one point to another. That is not the same as tagging some companies as ‘growth companies’ and others as ‘non-growth’ companies. We can find variables that are linked to growth (Barkham et al. 1996, Delmar, Davidsson and Gartner 2003); such as the ambition of the owner-manager (Davidsson, Achtenhagen and Naldi 2010) and the capability of the management however, the element of chance means that public policy is going to get this ‘wrong’ on many occasions.
As to Bev’s comment on a two-tier business community. Evidence from Ireland suggests that help for high potential start-ups is weighted towards the haves, who have higher education, who are in the high tech sectors and are international in outlook and open to venture finance (Birdthistle, Hynes and Costin 2009)
In support of Bev’s argument is the need for more evaluation so that we can find out which programmes work well. And the loss of national policy has led to a fragmented policy which is likely to make it harder for SMEs to find support. I think she makes a valid point when she discusses the different points of the ‘triangle’. The counter to her argument is that overall there is greater benefits for supporting targeted SMEs which is more cost effective with the drawback that they may be unevenly spread. It makes sense to target or ration policy to those firms that will contribute to the growth policy that the government needs, particularly in the current economic climate.
Dr Kevin Mole, Assistant Dean (Doctoral Programme),Warwick Business School
Bev Hurley, author of the debate piece responds to the comments and counter arguments
Julian Frankish assumes that my comments on what form public policy should take were made on a limited evidence base. I would like to reassure him, quite the contrary. I’ve been a successful businesswoman for over three decades, having grown three successful small businesses. In my capacity as Chief Executive of YTKO, I’ve taken the company from 20 to 80 staff in the last two years. Through our work in the public sector, all of which is not-for-profit, we support over 2000 individuals a year towards and into business under our Outset brand. The Enterprising Women community that I founded has well over 8000 members across the UK, and has enabled the creation of over 350 new businesses and increased the performance of over 3000 women in business. In the private sector, we work with knowledge-based entrepreneurs, including those spinning out IP from universities, growth oriented SMEs and multinationals in the UK and Europe, and run two cross-sector innovation networks. Finally, I’m an experienced female angel investor, and also run a thriving angel network called Connect East.
I do think we are seeing far too much policy made on little evidence, possibly with input mostly from those who’ve made their millions and think their experience is replicable to all shapes, sizes and sectors of UK businesses, and certainly with disregard to building on some of the strategies that have worked in the past. In fact, looking at the document leaked last week regarding the decline of the government’s credibility with women voters, once can see that their concern – at least regarding businesswomen - appears to be all about spin and not about action. I’m sorry, but a meeting at Westminster and an awards party isn’t going to make me swoon with delight, but make me angry!
One of the other assumptions implicit in several of the commentators is that I think business support should be free, and that I’m arguing for ‘something for everyone’. I did not say that; I said that there should be support for those who want to grow, particularly at the key stages. We must continue to add new business stock, and improve the productivity, competitiveness and job creation potential of existing businesses that have the ambition for expansion but need a bit of help to get them on their way. However, there are several other arguments that need to be clearly elucidated within this debate.
The first is that at pre-start stage very few nascent entrepreneurs have sufficient money to pay, especially those furthest from the labour market and where there is clear market failure. The vast majority of our Outset clients suffer from a wide range of disadvantage, including long term unemployment, physical or mental health issues, low skills, ex-offenders, financially excluded, over 50’s, and most living in high SOAs in inner cities and in rural areas. These people have no money to pay for ‘business advice’, even if that advice were available, accessible and appropriate. Which it isn’t.
But they do have ambition to change their circumstances, get off benefits, and become productive and fulfilled members of society through giving themselves a job: self-employment. Their enterprises may be largely micro businesses, but if they generate a sustainable income for the individual and their family, that is a massive step forward; and we are a nation of small business. When the much fuller and wider social, cultural and economic benefits, including the reduction in the JSA et al, are taken into account, the return on public sector investment is multiplied significantly. Breaking cycles of deprivation and transforming lives is not a quick fix, but at costs between £8 - £12k per sustainable new business/job, around one third that of LEGI-funded new business creation, such investment generates an immediate return to society and, as Adrian says, will change the world one at a time.
The second is the argument that small [i.e. established] businesses wishing to grow will be willing to pay for advice and support. I don’t argue with this at all, except to note that for those that are struggling to reach sustainability, or for existing businesses finding it hard to survive, finding money to pay is challenging.
I very much favour a tiered approach, where areas of market failure are fully funded, and well established, sizeable and profitable SMEs at the other end pay in full; with part-funded support offerings, possibly at different percentages to encourage this vital ambition, innovation and growth, in the middle. Why do my taxes go to support corporate R&D, particularly through the Technology Strategy Board? If economists argue that only market failure justifies intervention, why are we putting £200million into a handful of big government contractors to dish out to the ‘gazelles’?
Julian’s point, with which I agree, about research reporting SMEs mostly don’t use public support and turning to their accountants, is totally understandable in my experience. The Business Link service was not universally well regarded and of variable quality, Enterprise Agencies have been parochial, complacent and not innovative, not many ‘advisors’ have ever had first hand experience of running a business, and few national government schemes have excelled themselves in either engaging with, or delivering a significant impact for, businesses, and a return on our investment.
However, I think that there is a deeply embedded cultural problem in the UK, which is that we see sales and marketing as dirty words, at all levels of business. So different from the US, where they really understand that a business without customers isn’t a business, where customer service is a core value from top to bottom, that companies must always be led by market need and demand – existing and emerging, and making profit and creating jobs is to be celebrated. Thinking commercially is equally vital in the burgeoning social enterprise sector as well.
With respect, accountants, and banks, are not experts in creating value propositions, market segmentation, market strategy and pricing, entry and development, which of dozens of tactics to use when, building sales pipelines, improving closure rates and so on. In my substantial experience, UK businesses are more comfortable talking about ‘cashflow problems’ requiring an accountant, rather than seeing them as ‘not enough profitable customers problems’ requiring marketing and sales advice. Of course, some challenges are to do with late payments and under-capitalisation of new and existing businesses, but the accounting profession is seen as professional and worthy of fees (which can be rolled into unavoidable end of year accounts costs), whereas by and large, sales and marketing isn’t – but that’s a whole other debate!
So, perhaps our small businesses don’t grow because they’re not guided to look at the root cause or think it’s too difficult to solve or their advisors can’t solve it; because they won’t or can’t pay for non-financial professional advice; or simply because they don’t know what they don’t know, nor what they need, as distinct from what they think they want. Once you’ve experienced bad or ineffective advice, whether from the private or public sector, you’re reluctant to do so again. Which brings me back to the point of my original article about impact evaluation. How do businesses know who will improve their outcomes, and that its benefits will outweigh its costs?
Preventing inappropriate entrepreneurship, as Adrian argues, or perhaps more positively, enabling people to de-select from the enterprise option, is an absolutely fundamental role of all good support, from wherever it comes. Helping new entrepreneurs of all kinds to realise that their business plan is not sustainable is really important, both for them and for society, particularly ensuring public sector funds don’t simply deliver deadweight, leakage and displacement.
It’s OK to have £200,000m of government money if you’re a high growth gazelle, or if you’re one of the 50,000 researchers funded through one of the Research Councils, (budget for the next three years £8.3 billion), or a SME or big business getting R&D tax credits for your product development, or grants from the Technology Strategy Board (2008/11 budget, £1billion), just to give a few examples.
That’s fine with me - science and technology development are essential to the maintaining and increasing the UK’s competitive position in a global economy - except I’d like to see a policy requiring proof of market before or in parallel with R&D money for pre-revenue and established SMEs.
But who evaluates this “high growth” end of our business support spend in order to determine its effectiveness for increasing GVA, business and job creation and societal benefit? There’s no monopoly on utter wastes of money and as I said in my article, such a split policy – and no policy at all for women’s enterprise – leaves the vast majority of UK businesses untouched, including the percentage that do want to expand and grow.
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