Although the very smallest firms are exempt from some government regulations and paperwork, it is clear that the burden in terms of the proportion of working time spent on compliance falls most heavily on them. A large majority feel that regulation is unclear, complicated and disproportionate. Only one in ten believes that the government consults well with business before introducing or changing regulations.

However, this is not just a whinge against big government. A vast majority of small businesses say that their view of regulation would be improved by better communication, earlier warning, more effective consultation and feedback on that process. Even more say their view would be improved by fewer and simpler regulations with less frequent changes. However, there is little sign that anyone is listening. Small buisness compliance is big business for government and professional advisors.

The Department of Business, Enterprise and Regulatory Reform (BERR) estimates that businesses in Britain ‘spend at least £1.4 billion each year on advice to help them comply with regulation’. The UK Trade and Investment estimate of the overall regulation advice market is £4.3 while ARK Business Analysis (a consultancy firm in this field) reports that ‘the government’s Regulatory Impact Assessments show an annual regulatory impact on UK business in employment and safety per year of £11 billion and climbing’.

However, another survey conducted by the small enterprise team at OUBS among more than 1,000 professional advisors revealed that the time taken to deal with their own government regulations and paperwork has increased and 71% believe that the time it takes their clients has increased over the past year. They confirm that the government does not consult well enough about regulations and that they are generally unclear and complicated (and that in many cases industry certification should be considered).

Most agree with small firm owners and do not think that the government understands business well enough to regulate. Better communication about what government is doing and guidance on regulations would be welcome, as would better consultation and feedback on that process. Echoing small business owners, the most welcome changes, would be fewer and simpler regulations, with less frequent changes. In fact, the government does have a taskforce that aims to reduce regulation but Britain’s small firms and their advisors are still waiting to see if the government, distracted by the recession, listens to their views.

Find out more

• Calibrating regulation: Light touch or firm grip?
• Evan on... compliance

About the author

Colin Gray is Professor of Enterprise Development at the OU Business School, where he is responsible for research and teaching in small business and entrepreneurship.

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very small firms account for more than 95% of all enterprises in Britain

Sadly, it was not to be. In the final quarter of 2007, the net percentage balance on actual annual sales (the percentage of respondents reporting an increase less the percentage reporting a decrease), slumped to just 12% and has continued to fall. Expectations on sales have been negative for the last two quarters of 2008. Not surprisingly, this has had a significant impact on the survival of firms. Furthermore, it appears that the very small firms of fewer than 10 employees are most adversely affected, which is worrying for the entire economy. The latest statistics from the Department for Business, Enterprise and Regulatory Reform (BERR) - show that these very small firms account for more than 95% of all enterprises in Britain and just under one quarter of national sales turnover (23%) but that they also account for most of the closures in Britain’s declining stock of businesses. In fact, closures had already overtaken new start-ups by the beginning of 2007.

The main economic impact of the credit crunch on small firms is now seen in the labour market and its effects on unemployment. The Office of National Statistics December release shows a steady increase in unemployment from the third quarter 2008, heading for the 2 million mark by the end of December and still climbing. With more small firms shedding staff than those hiring, the Quarterly Survey has recorded negative percentage balances for employment since the second quarter 2008 and negative expected unemployment since the end of 2007. The signs of a deepening slowdown have been clear for over a year.

When asked in July about the measures they are adopting to cope with the economic downturn, most small business owners (53%) report that they take a cut in their own earnings and some 38% report that they have cut staff. A further 14% intend to close their business. However, the more entrepreneurial firms seek new markets and business ideas (42%) or increase their marketing and promotion (35%) – as opposed to the 19% who cut their marketing costs.

The trends from national statistics and the Quarterly Survey are not encouraging. Although recessions are often thought to be an opportune time to launch new cost-saving products, processes and services, many small firm owners face a bleak future. Only 18% now expect to have a comfortable pension when they retire and, more worryingly, 8% of small business owners report they do not have any pension provision at all. Consequently, more than one third (38%) will have to continue working longer than they intended. The average age of retirement is likely to be 67 with a significant number resigned to working into their 70s.

About the author

Colin Gray is Professor of Enterprise Development at the OU Business School, where he is responsible for research and teaching in small business and entrepreneurship.

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Bill Gates.
[image © copyright BBC]

However, merely being extremely rich is not the same thing as being an entrepreneur. There are plenty of people with inherited wealth who did not have to lift a finger or take a risk. The term was first used to refer to merchants and traders who were prepared to bear the risk of buying goods and services at certain (fixed) prices, to be sold elsewhere or at another time for uncertain future prices. They were people who had the skills and energy to spot opportunities in trade and to act on their judgement. In the 1920s, Joseph Schumpeter, an Austrian economist, took the view that entrepreneurs are not opportunists but are energetic and competitive people who seek to gain an edge over their rivals by creating and adopting innovations. By this, he meant not only new goods and services but also novel processes, marketing, distribution, financing and ways of doing business. Thus, ‘modern’ entrepreneurs, in contrast to ‘classic’ entrepreneurs, create their own luck and opportunities. Furthermore, they are controlled rather than unbridled risk-takers. Schumpeter, however, was also interested in the motivation of the entrepreneur, which he ascribed to three main drives – a desire for social status, the joy of creativity or a desire to conquer, win and beat rivals (what is now often called need for achievement). So, what sort of entrepreneur is Bill Gates – classic or modern?

"merely being extremely rich is not the same thing as being an entrepreneur"

Bill Gates was born in Seattle to a father who was a leading lawyer there and a mother who was part of a prominent banking family. So, young Bill had no problem with social status and the family was not short of money. However, there is evidence that Bill was driven by a joy of creativity. As a boy, he was fascinated by computers and programming. He even managed to convince his teachers to let him drop maths so that he could pursue programming. At the age of 14, Bill and his school friend, (and future Microsoft partner) Paul Allen, converted an Intel processor into a traffic counter and earned $20,000 each for themselves. Six years later, in 1975, Paul talked Bill into dropping out of Harvard and travelling halfway across the country to New Mexico, in order to develop an interpreter of the BASIC programming language for the new Altai microcomputer. This opportunity gave birth to Microsoft but was clearly driven not by a desire to beat competitors but more by a love of doing something new, with new technologies, in a new industry.

Within ten years, however, Microsoft was creating its own opportunities and was on the path to becoming the $50 billion, 80,000 employee, multinational, dominant force that it is today in computing. The big opportunity came in 1981, when IBM turned to Microsoft to produce the operating systems for its new personal computers. To meet the IBM deadline, Microsoft bought the rights to an existing system for $50,000 and adapted it into the PC-DOS. Each IBM PC sold included the Microsoft system yet Microsoft retained the rights to sell to other customers. As clones of the IBM PC began to flood the market, they too were mostly using the Microsoft disk operating system (MS-DOS). As the money poured in, Microsoft stepped up its R&D so that it soon began to lead, rather than follow, market developments. So, Bill moved from being something in between an enthusiastic hobbyist, and a classical opportunity spotting entrepreneur, into a thoroughly modern entrepreneur who savours the creating of new opportunities. Bill now clearly enjoys being a winner.

Weblinks

• Join the discussion
• What makes an entrepreneur?
• Are you an entrepreneur?
• Just Do It
•  
• Watch the trailer
• Video extras: Bill and Paul's excellent adventure
• Is Microsoft finally breaking the mould?
• Bill Gates: The skills you need to succeed
• Profile: Bill Gates

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About the author

Colin Gray is Professor of Enterprise Development at the OU Business School, where he is responsible for research and teaching in small business and entrepreneurship.

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Quarterly surveys conducted by the Small Enterprise Research Team (SERTeam), the independent small business research charity that is based in the OU business school (OUBS), revealed in the third quarter 2007 that, while less than one in five small firms had formal term loans from their banks, more than half were exposed to more volatile forms of credit such as overdrafts (28 per cent), credit cards (17 per cent) and re-mortgages (13 per cent). At that time, the economy seemed quite buoyant and small firm owners were more concerned about regulations and red-tape than they were about the state of the economy. By the final quarter of 2007, however, 30 per cent reported that they had been directly affected by the credit crunch, 60 per cent reported indirect effects (from customers, suppliers, and so on) and a very large majority of 85 per cent expected an economic slowdown, including one third who predicted a full recession.

Falling profits.
[Photo © Photos.com]

In fact, the current credit and property crisis has been building up almost unnoticed for some time. British Bankers Association (BBA) figures clearly show a sharp decrease in home purchases starting from December 2006. By March this year, home mortgage approvals were down to 35,417, less than half the December 2006 level and down more than 46 per cent on the previous March. The Council of Mortgage Lenders and the Federation of Master Builders confirm that, as mortgages become more expensive, house prices are on the way down. The Royal Institution of Chartered Surveyors (RICS) predicts a 40 per cent fall in house prices over the next five years. Indeed, this gloomy picture is confirmed by the Governor of the Bank of England, Mervyn King, who has warned that inflation is likely to remain two per cent over target for the next two years and that the booming ‘nice’ decade (no inflation, continuous expansion) is over.

This, of course, prompted comment that the ‘nasty’ decade is about to begin. With unemployment on the rise (the number of job seeker claimants has increased for the third month in a row), fears of a return to the ‘nasty’ early 1990s - the years of negative equity and business failures - are bound to grow. With private debt in Britain of some £1.4 trillion, British businesses and citizens are the most indebted in Europe (and, per capita, more in hock than the US). The UK accounts for one third of all EU credit card debt. Although an important source of business finance, particularly for the self-employed, this is very exposed to rises in interest rates and bank charges. Whether or not we are heading towards a repeat of the 1990s or worse, time will tell. What we do know now is that currently the sectors most at risk from the credit squeeze are the construction, financial and property-related/business services sectors (real estate agencies, surveyors, domestic repairs and so on).

Overwhelmingly self-employed or microfirms, they represent 44 per cent of all UK firms and some 28 per cent of all employment. The SERTeam Quarterly Surveys already show falling sales and employment in these sectors which will contribute to falling overall demand and spillover effects into other sectors. However, many of the smaller firms have shown in the past that they can be very resilient in recessions. They cut costs, reduce capacity and the larger ones do shed staff. The Quarterly Surveys conducted during the recession of the early 1990s revealed that owners tend to tighten their own belts first, cutting their own takings, and that they are reluctant to shed core staff (who, after all, may be family members). They keep their businesses ticking over, waiting for a change in fortunes when the recovery arrives, as eventually it must.

About the author

Colin Gray is Professor of Enterprise Development at the OU Business School, where he is responsible for research and teaching in small business and entrepreneurship.

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Similarly, Mike Crisp hit strong age barriers when he began job-hunting in his mid-50s following a 4-year bout of late-career higher education. With good experience as a RAF technician followed by years as a systems engineer in the computer and aircraft industries in Britain and Saudi Arabia. On returning to Britain he decided to get the university education that he had missed when young. Instead of his degrees in law and psychology unlocking the job markets for him, however, he found it hard to get a job. Impressed by an Australian business that provided house renovation and maintenance services for an affordable set fee, Mike founded HouseHubbies when he was aged 58. Five years later the firm was thriving, having opened two new sites in the Manchester and Staffordshire areas as well as employing Mike and nine other people. 

These two stories of age-related barriers prompting late life entrepreneurship reflect a growing trend. A drop in birth rates and longer life-spans due to increasingly more effective health care means the populations of most developed economies are ageing. At the same time, global competition and technological change, plus a perception that it is hard to re-train older workers, have skewed demand in the jobs markets towards a diminishing proportion of younger workers. This is leading to a steady leakage of experience-based knowledge and skills from the labour force and a worrying rise in the ‘dependency ratio’ – the proportion of working people supporting, through their taxes, the economically inactive. Those aged 50 or more account for some 70 per cent of the economically inactive. In 2004, the National Audit Office estimated that the then 2.7 million people between 50 and State Pension Age (SPA) who were not working were costing the UK economy £18-£31 billion in benefits payments plus lost output and taxes.

It is not surprising, therefore, that governments across Europe are concerned to increase employment and entrepreneurship among the post-50s by as much as they can. In Britain, the Performance and Innovation Unit (PIU) 2000 report, Winning the Generation Game, recommended a selective raising of the pension age (which is now underway) and legislation to prohibit age discrimination at work, in the job markets and elsewhere (implemented as the Age Discrimination Act in October 2006). Employment rates have improved. Increasing the participation of ‘seniors’ in the labour market, is also an important part of the EU 2005 Lisbon Strategy. EU studies confirm that overall employment among seniors (people aged 50 -64 years) in the enlarged EU rose from 37 per cent in 2000 to 43 per cent in 2005. Britain was among those that had reached or exceeded its 2010 target. However, the picture in relation to self-employment and entrepreneurship was not so positive.

There are two main sets of reasons why older people decide that they should keep working – financial necessity and satisfaction and the need to be active. With regard to the first set, the most common financial pressure comes from inadequate pensions (the Pensions Commission suggests that about 11.3million people are not saving enough to fund their retirement).

The post-50s self-employed entrepreneurs come from three main stands:

• existing self-employed and small business owners who decide to continue to work
• high-earning ex-employees who have high levels of education or professionally training, with a strong work history, good work ethic and well motivated, who choose to continue
• those with lower incomes working through necessity.

"only 10% of post-50s who lose their jobs find paid-employment"

With regard to this third category, it is worth noting that only around 10 per cent of post-50s who lose their jobs find paid-employment after fifty so, even if they just drifted into self-employment, they are still more entrepreneurial that some 90 per cent of older people.

For those looking to continue working, help and support is available from various organisations who have started working in this area. For example, PRIME is a not-for-profit organisation established in 2001 by the Prince of Wales which specializes in assisting the self-employed. TAEN is an independent charity with a wider remit: all aspects of age and employment. These organisations, like their peers, offer advice and resources to help people who feel excluded from employment by their age.

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• Investigating entrepreneurial opportunities course
• Take it further - sharpen up your business skills
• Join the discussion - why can't older workers get jobs?
• Too Young to Retire - Ageing entrepreneurs are still rocking
• What makes an entrepreneur? - take a test to discover if you’ve got what it takes
• Just Do It - Bobby Friction asks Alan Sugar and others how to make a success of your business
• Free magazine

About the author

Colin Gray is Professor of Enterprise Development at the OU Business School, where he is responsible for research and teaching in small business and entrepreneurship.

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Initially driven by huge levels of unemployment, the ‘enterprise culture’ policies of the 1980s tended to focus on privatising publicly-owned assets and encouraging older unemployed workers to try self-employment. Indeed, fuelled mainly by funds from North Sea oil and generous donations from a number of private sector firms and foundations, a host of enterprise training initiatives and enterprise agencies sprang up. Self-employment doubled to record levels (3.7 million, about 12 per cent of the total workforce) and unemployment began to decline.

However, the idea of young entrepreneurs or of parents encouraging their teenagers to become tycoons was not a noticeable part of public rhetoric. Public policy and private initiatives were firmly focused on improving the efficiency of former state enterprises and on creating new jobs for the unemployed.

The entrepreneur was still a shadowy, and somewhat suspect, figure for much of Britain. The British Social Attitudes Survey 1990 actually found that a marginally smaller proportion of employees in Britain were seriously considering opting for self-employment in 1989 (16 per cent) compared with 1983 (17 per cent). And, even among those who had opted for self-employment, the 1992 Labour Force Survey found that a majority would prefer to work for someone else as an employee.

They were what the Global Entrepreneurship Monitor would term ‘necessity entrepreneurs’. Even so, all the major bodies that promote and support teenage entrepreneurs – Young Enterprise, Shell Livewire, the Prince’s Trust, and so on - have their origins in this turbulent era that saw Britain shift from manufacturing to become a service-based economy.

By the mid-1990s, more changes were in the wind as computer-based technologies began to impact on working practices and the economy. Traditional, industrial jobs began to disappear at a faster rate as older workers – both employees and the self-employed – began to retire. Despite an ageing population, many young workers were finding it harder to find a job. Increasingly, the future was seen as being driven by new opportunities thrown up by new applications of technology.

In 1998, the new government of Tony Blair redefined the enterprise culture in terms of innovation and entrepreneurship, with a focus on equipping the new up-and-coming generation with the skills and attitudes to develop and exploit the technologies of today and tomorrow.

The fresh focus on the younger generation appears to be working. Last year, self-employment hit 4.3 million, a new record. According to research published by the Small Business Service (SBS), increasing numbers of parents and teenagers feel that entrepreneurship is a suitable career choice.

Since 1963, Young Enterprise has been providing enterprise education to teenagers (and some pre-teenagers), hitting a record of more than 291,000 last year, a 40 percent increase on the previous year. Shell Livewire has supported more than 600,000 young entrepreneurs since 1982 and also reports increasing numbers.

The SBS is pushing the youth agenda too and reports that some 408,000 people attended 2,215 events – including business plan competitions and young entrepreneur of the year awards - across the Britain during its second national Enterprise Week last year. It expects to surpass that with the third Enterprise Week this November.

This focus on youth appears to have broad support across all parties, as the Director-General of the British Chamber of Commerce, David Frost, made clear at the BCC’s Annual Conference last year:

‘If communities are to be re-invigorated then we need to develop a spirit of enterprise which penetrates at every level and within every group of society – not least the young. So what we need is nothing less than a National Enterprise Strategy.

We must move away from a number of disconnected initiatives to provide a real ladder of progression, a rope which pulls young people through a linked series of connected programmes, all of which aim to get enterprise to stick, and we do not just mean “starting a business”; but we mean young people becoming more enterprising – taking responsibility for their own lives. Becoming a productive part of their own community.’

Against this backdrop, 'Teenage Tycoons' has raised a number of interesting issues. The young entrepreneurs - Jake, Oliver and Sarah - are clearly very enterprising and the programme has tapped into a real phenomenon. Moreover, the three have been genuinely innovative in providing new services to consumers.

Yet, they also seem to fit the old entrepreneurial stereotype of being very individualistic. And, they do not appear to have made use of the many enterprise training courses that abound for youngsters. They all seem to have supportive parents and perhaps this is more important. Each is unique, leaving unanswered the age-old question – are entrepreneurs born or can they be created?

Further reading

• The Young Entrepreneur's Edge : Using Your Ambition, Independence, and Youth to Launch a Successful Business by Jennifer Kushell, published by Princeton Review
• The Young Entrepreneur's Guide to Starting and Running a Business by Steve Mariotti, published by Three Rivers Press
• Shell Livewire
• Small Business Service
• Startup UK
• The Prince’s Trust
• Young Enterprise UK

About the author

Colin Gray is Professor of Enterprise Development at the OU Business School, where he is responsible for research and teaching in small business and entrepreneurship.

Subscribe to Colin Gray's posts