Is the government doing the right things to change the failure rates of start-ups?

Whilst the word on the street is that 8 out of 10 start-ups go bust within a few years, the real data is harder to find. What is true is that the majority of start-ups fail over a period of years. An RSA research report found that 55% of start-ups in the UK fail within 5 years. These slightly more positive figures are probably more accurate.

It may well be that the government is too excited by increasing the number of start-ups and insufficiently excited about how to drive “scale ups”. After all Innovate UK puts a tremendous amount of money into grants to drive entrepreneurial behavior. And some of this is working, as the last couple of years have seen record numbers of start-ups launch in the UK.

But this obsession on its own is probably a mistake when data shows that bigger corporations are more productive, pay higher wages, enjoy higher profits, and are more successful in international markets, said a report by European Firms in a Global Economy (EFIGE). And more importantly, it is the UK’s mid-sized businesses that grew faster, generated larger profit growth and created more jobs in the last 12 months than the nation’s large and small companies, according to a BDO report in Jan 2017.

So if this is the case, then surely the government should be directing a greater proportion of effort into building fast growing mid-sized companies? It should more explicitly confirm that society can’t get sentimental about old brands like Game, Clintons and Jessops going to the wall – that is a natural order. And it should continue to support entrepreneurial growth but should refocus some of its efforts into “how to help SME’s scale up and keep going”, even if that means there is less cash for start-ups. Even if this does nothing to improve the success rates of start-ups.

Leave a Reply