Global Entrepreneurship Week at the end of 2014 brought a wealth of excitement to the start-up community. Some 300,000 people took part in over 2,000 events in the UK, celebrating the future of entrepreneurship. Looking at start-up growth, the outlook certainly appears strong. In 2014, more new companies were created in the UK than ever before, amounting to more than one start-up a minute. This would appear to paint a picture of prosperity in the start-up world but the reality is not so positive. Statistics vary but the long-term success rate of many SMEs is generally poor, with one survey from RSA claiming a 55 per cent fail rate after five years.
Failed start-ups are nothing new. It’s the context in which they are failing that has changed. I started my first company at 26. Unlike most 26-year-olds today however, I didn’t leave university with a £50,000 student loan. The prospects for the level of failure are daunting. According to start-up statistics, 581,173 people launched a business in 2014, meaning that over 300,000 of them will fail within five years. Twenty years ago failing at starting a business for the first time wasn’t so much of an issue. But today’s twenty-something entrepreneurs are likely to be heavily in debt from university fees and the cost of their first venture. Failure at this stage in their lives could easily discourage them from trying again. Key life influencers like parents may even be pressuring them to take roles in established companies, seeking security over innovation.
It doesn’t need to be like this. When I co-founded my second company in Silicon Valley in 2000, it was only three weeks before the internet bubble burst and the NASDAQ crashed. We stayed in Silicon Valley for a while, hoping for success but finally accepted our losses. We literally went back to the dining room table.
The difference between Silicon Valley and the UK is that there is a strong support network for entrepreneurs. When investors back those who subsequently fail, they’re typically invited back into the firm as an ‘entrepreneur in residence’. This allows them to evaluate other entrepreneurs’ ideas until they have the next one of their own, and then investors back them all over again. The UK must mimic this attitude towards failure and the subsequent support of those willing to take the leap into the start-up world.
A first step is to connect entrepreneurs with business schools. They typically have a strong network of contacts and currently there is no established support framework for helping start-ups to set up with the right connections. This is something Lord Young should incorporate into his mandate for the Small Business Charter, which is designed precisely to build closer links between SMEs and business schools’ resources.
As I learnt myself, it’s incredibly difficult for an entrepreneur to come up with an idea that solves a problem before the initial money runs out. So if you meet any of those 300,000 budding entrepreneurs who started a business in 2014 but fell at one of the hurdles, do everything you can to help them set up and to keep the motivation to do it all over again.
The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of The Economist Intelligence Unit Limited (EIU) or any other member of The Economist Group. The Economist Group (including the EIU) cannot accept any responsibility or liability for reliance by any person on this article or any of the information, opinions or conclusions set out in the article.
