22 August 2019

Money isn’t everything for the new generation of entrepreneurs

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Over the past decade, the British people have become more entrepreneurial. Fifteen years ago, Brits were just as likely to be engaged in early-stage entrepreneurial pursuits as Germans and the French.

Today, Britain has become a ‘mid-Atlantic’ economy. We may not be as entrepreneurial as Americans, but we’ve broken ahead of Germany and France. One of the key drivers of this shift is a rise in the number of young people starting companies, with the rate more than doubling in some parts of the UK.

Young people increasingly see entrepreneurship as an option. New polling from ComRes, commissioned by The Entrepreneurs Network and Octopus Group, finds that over half of young people have considered starting or have started a business.

As the UK faces major economic headwinds, the willingness of young people to give it a go and start a business is a rare bright spot. Yet our entrepreneurial boom hasn’t been sufficient to make up for lost productivity in finance, pharmaceuticals, or utilities.

Ask a Minister at BEIS why and they’ll invariably recite the conventional wisdom: “The UK is a great place to start a business, but not yet a great place to scale one”. But does this ring true? British startups can take advantage of powerful tax breaks such as the Enterprise Investment Scheme, one of the world’s best financial sectors, flexible labour laws and a well-educated workforce.

The UK’s seeming inability to translate a high start-up rate into higher productivity growth might be explained by a deeper look at the motivations, aspirations, and expectations of business owners. According to data from the Global Entrepreneurship Monitor, while a quarter of US and European early-stage entrepreneurs expect to create more than 10 jobs and have 50% or more job growth in the next five years, only a sixth of British early-stage entrepreneurs expect to do the same.

Researchers draw a distinction between necessity and opportunity entrepreneurs. In a recession, people who have lost their jobs tend to start businesses. Indeed, in 2011 we saw a temporary surge in entrepreneurship. Yet the rise in self-employment and entrepreneurship in the UK has coincided with record levels of employment.

New polling offers a better explanation. When young people are asked what has motivated them to consider starting a business, they are more likely to say it was the desire “to be your own boss” or to have the “freedom to do what I want”, rather than wanting to be wealthy. Money is still a motivation but it’s not in the top three.

This is significant because there’s evidence to suggest that an entrepreneur’s motivations shapes the sort of business they create. One study from Wharton finds that a desire for independence is negatively associated with intended and achieved employment growth.

If you want more freedom, it’s far from clear that founding a high-growth company is the easiest way to get it. Staying small might be a better option, if you want fewer commitments and responsibilities.

It’s not clear what, if anything, policymakers should do about this. While there have been concerns about the rise of self-employment, and the gig economy in particular, there’s evidence to suggest that people are happier when they work for themselves. One study from Carl Benedikt Frey and Thor Berger of the Oxford Martin School found that Uber drivers had higher life satisfaction in spite of earning below average wages. We should be indifferent if individuals prefer to trade off lower incomes for greater flexibility.

There is a positive story too. As well as a desire for independence, young people expressed an interest in starting businesses to make a positive difference to society and work on ideas and causes they are passionate about. Even though Jack Ma recently mocked the tendency of Silicon Valley startups to talk about how they are ‘making the world a better place’, it’s surely a good thing that more young people want to tackle society’s pressing problems.

For the next generation of entrepreneurs money isn’t everything, it’s about flexibility and the opportunity to ‘do good’ too. If the Government wants to support the founders of the future, they need to ensure they’re prepared and understand the risks of starting a business, while working hard to remove the barriers faced by the most ambitious entrepreneurs.

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Sam Dumitriu is Research Director at The Entrepreneurs Network