Rewarding entrepreneurship: a US perspective
12 April 2018
The world over, founders are always rather exceptional people. After all, the word entrepreneur comes from the combination of two Latin words: entre (to swim out), and prendes (to grasp, understand or capture). Governments, by contrast, are big, slow animals, well-meaning in the context of high growth small businesses, but not always able to adapt or anticipate to best effect.
Celebrating a key driver of UK economic growth
The 2018 High Growth Small Business Report, produced by Octopus, shines a spotlight on the economic value of the UK’s fastest-growing smaller companies. The report revealed that high growth small businesses are significantly more productive, creating an additional two months of economic output every year compared to the average UK business.
However, as the report shows, more needs to be done to help these businesses realise their full potential. So, looking at government’s role in supporting entrepreneurs and the high growth small businesses they create, it’s helpful to line up some of the differences, the similarities and perhaps the universal givens on either side of the Atlantic.
How does the US encourage fast-growing companies?
There are certainly some things being done well over here in the US from which the UK could take encouragement, if not learnings. Safe harbors, for example, work as legal (rather than geographic) spaces where start-ups are sheltered for a period of time from the negative effects of complex legal requirements – referred to in the UK as ‘red tape’.
This kind of top-down realism has the right nurturing intention the UK government’s proposal seems to be aiming for. With limited resources and management sophistication, a small start-up really benefits from this kind of understanding. While a small company assesses market fit and traction, it helps to level the playing field with competing incumbents. There are examples of safe harbours in the EU, but for the UK – particularly post-Brexit – there may be scope for more, specifically for high growth small businesses.
Championing the people behind small businesses
Created in 1953, the US Small Business Administration (SBA) is an independent agency of the Federal government, with a remit to “aid, counsel, assist and protect the interests of small business concerns, to preserve free competitive enterprise and to maintain and strengthen the overall economy of our nation”.
The SBA today meaningfully supports an area that the private sector is less well-placed or motivated to – businesses that seek to have a local or regional impact rather than an ambition to be category-defining in their scale. Additionally, its work touches on social, racial and gender-based diversity in entrepreneurship.
Here in the US, the lack of a social welfare safety net of the type found in the UK can affect diversity among founders. The entrepreneurial spirit can be snuffed out if the basic costs of living aren’t being met in those crucial early stages. Risk becomes a lot more bearable for an entrepreneur if the family’s medical bills are being covered. The SBA plays an important role in at least providing valuable business support for founders in precarious financial positions, as well as covering the country with a network of local offices.
The entrepreneurial spirit can be snuffed out if the basic costs of living aren’t being met in those crucial early stages. Risk becomes a lot more bearable for an entrepreneur if the family’s medical bills are being covered.
Funding options are starting to improve
As for money, in the US a business is often required to have been operating for at least two years before it qualifies for corporate lending. However, imaginative things are happening in the private sector which should help small, young companies access lines of credit.
As an example, Paypal’s Working Capital, with cash advances and repayments based on sales, has spawned similar workable credit systems suited to high growth small businesses. The UK government might want to consider how it could encourage responsible expansion of these funding options that benefit the entrepreneurial ecosystem, especially in areas that venture capital support is less likely to reach.
We know that high growth small businesses are especially good at generating new jobs. Looking to the future, the chances are they’ll also be much more resilient than big, old industries in the face of inevitable tech and AI advances. In fact, they’re likely to have tech already seamlessly folded into the fabric of their business.
As traditional transport and clerical sectors start to subside, it could be high growth small businesses that fill this void. Governments would be well advised to note this when deliberating the ‘right conditions’ mentioned in its Industrial Strategy White Paper.
“We are determined to ensure that we have both the skills to take advantage of new technologies and the means to help people who are affected by technological change.”
Industrial Strategy White Paper, HM Government
By nature, entrepreneurs don’t hang around waiting for governments to grant them favour. Instead, they take the initiative and put themselves out there. But risk and vulnerability goes with the territory, so anything governments can do to help create favourable conditions that reward this risk-taking, is welcome.