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Productivity and micro business

The Productivity Insights Network, funded by the Economic and Social research Council, have recently published a follow-up evaluation of a series of programmes designed to boost productivity (see https://productivityinsightsnetwork.co.uk/app/uploads/2019/02/PIN_ProjectReport_Green _January19.pdf ). The initiatives under the microscope were all originally part of the UK Commission for Employment and Skills Future Programme. Looking at the report from […]

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Can policy be inspired by practice?

At the beginning of this week (19 November 2018) I had the great good fortune to be invited to a workshop on ‘Driving improvements in business performance’ for Department for Business, Energy and Industrial Strategy (BEIS) personnel organised by the Work Foundation (http://www.theworkfoundation.com/). My challenge was to decide what to say in five minutes on […]

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Business productivity review

As part of their concern with the UK’s productivity performance, the Government has launched a consultation. You can have your say at https://industrialstrategy.dialogue-app.com/j3rumznbpn#idea-count-container . We’ve already posted some thoughts under the business support and advice services heading. Do you agree with our points about sole traders and micro businesses?

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Business startup comes to Chesterfield

Here’s a date for your diary: Saturday 24 February. The micro biz champion Tony Robinson OBE will be in Chesterfield to tell us what it’s really like to work for yourself. Marketers, bookkeepers, social media experts and lost of others will be on hand (along with folks who’ve recently started their own business) to offer […]

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Can policy be inspired by practice?

At the beginning of this week (19 November 2018) I had the great good fortune to be invited to a workshop on ‘Driving improvements in business performance’ for Department for Business, Energy and Industrial Strategy (BEIS) personnel organised by the Work Foundation (http://www.theworkfoundation.com/). My challenge was to decide what to say in five minutes on the small and start-up business perspective.

In the end, my starting point was a couple of good news/bad news observations. The UK has done very well in terms of business creation. The total number of businesses has risen from 3.5 million at the start of the century to 5.7 million in 2017, a jump of over 60%.

On the other hand, the smallest businesses are heavily implicated in the long ‘tail’ of low productivity firms. They also have very little engagement with Government and its agencies.  The Small Business Survey 2017 found that only 4% of small business with employees had sought information or otherwise engaged with Growth Hubs. The figure is half that (2%) for those without employees. The latest edition (Autumn 2018) of the Economic and Social Research Council’s Society Now magazine reported on research that concluded that home-based businesses (59% of those with no employees) are largely ignored by policy makers.

If there is one criterion to guide policy, it is the conclusion reached by the Council for Excellence in Management and Leadership: “joining entrepreneurs in their world”. What struck me when reflecting on this injunction was that it leads to advice to policy makers mirroring that which is given to start-up businesses.

Understand your customers

Perhaps the most important step is to stop thinking in terms of SMEs. Small and Medium-sized Enterprises account for 99.8% of all UK businesses, so ‘SME’ is an analytically vacuous concept. Sole traders, owner-managed small businesses and independently-managed small businesses need to be differentiated – one size does not fit all. We need to take a far more granular approach. For example, the Centre for Research on Self-Employment (http://www.crse.co.uk/research/true-diversity-self-employment ) identified nine segments amongst the solo self-employed.

Such businesses are frequently started by people following their prior profession, trade, hobby or passion. They are the butcher, the baker, the candle stick maker; barring the obvious exceptions, they are not the bookkeeper, finance manage, marketer, sales person, human resources manager, IT manager or general business manager. Yet the owner-manager, and to a large degree the sole trader, have to be all those things and more. So, the critical constraint is that they are time poor.

Most have low incomes and barely-profitable businesses. DWP’s Family Resources Survey shows the distribution of weekly earnings for the self-employed has remained largely unchanged between 2001 and 2016. According to the Resolution Foundation’s analysis of the same source the average earnings of the self-employed workers are still lower than they were two decades ago (https://www.resolutionfoundation.org/media/press-releases/typical-earnings-of-the-self-employed-lower-than-20-years-ago/ ). So, they are also poor in cash terms.

In that context, it’s not surprising they rely heavily on informal processes. When I’ve asked business owners how they learned to run their business, the most common response is “by doing it”. Recruitment is typically by word of mouth, drawing from family, friends and their personal networks. It’s quick and there’s a degree of knowledge, understanding and trust from the outset. Developing those recruits follows the same pattern as the owner – informal, ‘sitting next to Nellie’.

Similarly, it’s not difficult to see why there’s a tendency for people with a trade or professional background to, as Michael Gerber put it, work in the business rather than on it. It’s easy to stay in your comfort zone.

Related to that, there’s an inherent psychological challenge for many owner-managers to cope with growth and relinquish control of aspects of the business to other people. If you started your own business in order to have more control over your working life, it can be difficult to surrender some of that control to others.

Give the customer what they want

You don’t know what you don’t know. Perhaps the first and biggest challenge is to help sole traders and owner-managers recognise when, where and how they and their businesses could perform better.

But ‘better’ needs to be defined by them. Government’s policy objectives may not be their business and personal objectives, and even if they are similar you can bet they will not be expressed in the same language. The last time I talked to other small business owners about productivity the immediate question was: what do you mean by ‘productivity’? Similarly, if you’re focussed on trying to keep your business head above water you wouldn’t naturally turn to something called a Growth Hub for help. It’s all too easy to try to fit corporate solutions to smaller businesses and present them in corporatist language that is an immediate turn-off, a signal that ‘this is not for me’.

The stimulus for small businesses to think about what they’re doing and whether they could do it better may come from a crisis, a nagging fear that keeps you awake at night, a major change such as taking on the first employee or the founder retiring, a frustration that things aren’t as good as they could be or that a major opportunity is liable to go begging. Anything that can help the business owner to reflect on what is and what is not working in their business can help.

Getting an initial engagement will be most efficiently done via those they already know and trust. The snag is that those trusted contacts are many and varied. Accountants are frequently a source of information and advice but there are a huge number of them. In the manufacturing and retail sectors supply chains may be an important conduit to smaller businesses. Past research found that many small businesses are members of a business, industry or professional organisation but far fewer are members of the same one. The challenge is to use all and every established channel; it will be far more effective than trying to create new ones.

The tried and trusted will also be the default position when judging if help is appropriate. Help is most likely to be taken up from people who are effectively peers. They have credibility because they’ve been there, done it and got the T-shirt.

For the time-poor, cash-strapped business owner, the help that is offered needs to be flexible in its focus and delivery, bite-size and capable of delivering rapid results.

Network

Small businesses rely heavily on their network of contacts to find customers, suppliers, staff and so forth.

The first step for policy makers is to secure joined-up Government. There are lots of Government departments and agencies that have connections with, or may be relevant to, small businesses. As well as BEIS there is Her Majesty’s Customs and Revenue, Department for Work and Pensions, Department for International Trade, Ministry of Housing, Communities and Local Government, … There are agencies such as the Health and Safety Executive and then all the tiers of local government. Beyond Government we have accountancy bodies, banks, business membership organisations, enterprise agencies, …

Bootstrapping

If we had joined-up Government and effective networking by policy makers, then there is far less need for spending new cash. Don’t spend money unless you really have to! Leverage what is already available and then direct spending to fill the remaining gaps.

Linked to this is the need to offer consistent, sustainable support through an established institutional framework. Too often Government runs short-term programmes and fiddles around with the institutions that are put in place to deliver them. It’s hardly surprising that small businesses struggle to engage with these institutions; by the time they’ve heard of them and come to the view that they may have something to offer there’s a fair chance they’ll have been changed or abolished altogether.

Test trading

Testing out on a small scale whether a business idea will work is the way to avoid unnecessary risks and hone an offer to really fit with what customers need and want. Running pilots can be the policy makers alternative. Programmes may be national but they work in different ways in different places, industries and times. Learn the lessons when mistakes are less costly and easier to rectify.

My focus was on small and start-up businesses. It was interesting to hear Professor Alan Hughes, a Distinguished Visiting Scholar at Lancaster University, argue that policy makers should mirror the approach of venture capitalists in placing bets on which industries and ideas to support. Perhaps the overarching lesson is that if policy makers want to help businesses they should act in a business-like manner.

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