Consultation Document – emda Business Birth Rate Strategy


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Consultation Document – emda Business Birth Rate Strategy

  1. 1. Business Birth Rate Consultation Document April 21, 2006 Consultation Document – Business Birth Rate Strategy 1
  2. 2. Business Birth Rate Consultation Document April 21, 2006 1.0 Contents 1.0 Contents ................................................................................................................ 2 2.0 Summary ............................................................................................................... 3 2.1 Introduction........................................................................................................ 3 2.2 Context .............................................................................................................. 4 2.3 Aims and Objectives.......................................................................................... 4 2.4 Targeting Activity............................................................................................... 6 3.0 Recommendations .............................................................................................. 10 3.1 General recommendations .............................................................................. 10 3.2 Enterprise Culture recommendations .............................................................. 10 3.3. Awareness Raising Recommendations........................................................... 11 3.4 Start-Up Provision Recommendations ............................................................ 11 3.5 Survival and Growth recommendations .......................................................... 12 2
  3. 3. Business Birth Rate Consultation Document April 21, 2006 2.0 Summary 2.1 Introduction Enterprise culture and business creation are vital for regional development. Evidence shows that prosperous and dynamic regions: • have high levels of new business creation; • create an environment that positively encourages individuals to start businesses and behave in an enterprising manner; • attract enterprising people to work in them; • are more likely to recognise and reward enterprising people; and • have a greater acceptance of enterprise and so are more likely to produce enterprising people as well as entrepreneurs1. Increasing the quantity, and quality, of new ventures starting and surviving is both an indicator of regional economic success and a driver of future growth. The East Midlands needs a vibrant enterprise culture and greater numbers of people entering sustainable self employment or starting a business if we are to achieve our Regional Economic Strategy (RES) vision of a ‘flourishing region’. There are four key justifications for providing publicly funded support to business start- ups (see Section 2.3 of Supporting Material for further detail on all of these): • Return on Public Investment Research2 indicates that there is a good return on public investment in start-up businesses which is as high as if not higher than for business support targeted at established businesses. • Market Failure The market failures associated with business start-up are greater than for any other area of business support. • Opportunity New businesses generate at least 20% of the region’s productivity growth and generate a large proportion of new employment opportunities3. In addition, new businesses are a vital source of innovation. • Need Self employment is the best or only viable prospect of economic inclusion for some groups. Increasing economic inclusion has many wider social benefits. Whilst these factors are important to justify government intervention, it is also important to remember that businesses are started by committed and motivated people who do so at their own risk. What motivates people to engage in enterprising activity is therefore central to this strategy. For the majority of people4, the motivation for enterprising behaviour comes from having the freedom to experiment and do things their own way. This can be seen as a worthy outcome in itself. 1 Atherton 2005 2 Atherton 2005 3 SBS Evidence Base 2003 4 SBS Household Survey 2003 3
  4. 4. Business Birth Rate Consultation Document April 21, 2006 This consultation document makes a set of proposals and recommendations that encourage people to act in an enterprising manner and support new businesses to start, survive and grow. Throughout, the document seeks your feedback and views on how we can achieve this goal. 2.2 Context This Strategy should be considered in the context of a number of other factors: • National and European imperatives to support enterprise culture and entrepreneurship The European Green Paper, along with government initiatives such as Enterprise Week, signals the increasing importance of the start-up agenda. • Business Support Simplification emda, alongside the Small Business Service, is committed to simplifying the business support offer in the region in order to raise the efficiency and quality of support and to reduce client confusion. The Business Birth Rate strategy will help achieve simplification by channelling start-up support through a limited number of quality assured providers. It will also help to clarify the roles of regional and local funding partners in the East Midlands. • Business Link Transformation Business Link provides an Information, Diagnostic and Brokerage (IDB) service for individuals interested in starting a business. It is the gateway brand allowing access to publicly funded and private sector business support. All start-up activity is IDB and will therefore come under the Business Link brand. • Business Support Strategy and the Universal Start Up Offer emda launched its Business Support Strategy in April 2005, part of which involves creating a Universal Start-Up Offer (USO) for the region. The USO has now been designed and will be piloted and refined throughout 2006. The USO is a quality assured, best practise programme that represents the minimum level of business support that should be available to all those wishing to start a business in East Midlands. Once piloted, the challenge is to ensure this standard is applied to all start-up programmes including enhanced start-up offers targeted at specific groups. The USO is core to this Strategy as it provides the foundation for start-up provision in the region. • Braided Delivery The recent Phoenix Fund evaluation highlights the need to combine the best of mainstream delivery with the best of targeted assistance. This approach aligns itself well with the simplification agenda and is central to this Strategy. 2.3 Aims and Objectives The Business Birth Rate Strategy has the following aims and objectives, each of which is targeted at achieving our RES vision of developing a ‘flourishing region’: 4
  5. 5. Business Birth Rate Consultation Document April 21, 2006 Table One: Aims and Objectives Aim Enterprise for all 1. Building an enterprise culture 2. Increasing numbers of people considering starting a business Objectives 3. Increasing start-up rates 4. Ensuring that new businesses survive and grow The region needs a vibrant enterprise culture and universal access to enterprise skills… Enterprise skills need to be mainstreamed into education and skill development, as they have wider applications than just starting a business. Enterprise culture and skills5 are becoming increasingly important for the region’s population: • Economic and demographic change (ageing population) means more entrepreneurs are needed to set up new businesses and to take over the running of businesses from those retiring. • Employees often require enterprise skills as they are increasingly expected to innovate within their work roles. • Enterprise skills also have social (i.e. non economic) returns as they equip and encourage active citizenship and social enterprise. Since the last strategy, emda has increased its investment in building an enterprise culture through flagship Government initiatives such as Enterprise Week. At present there is no agreed measure that captures the impact of this work, this issue is discussed further in Section 2.4 of the Supporting Material. Despite rises in start-up rates there has been no significant increase in numbers of people considering starting a business… Evidence shows that there is latent potential for business start-up that is not currently tapped into. The GEM report shows that all the requirements for a high start-up rate are present in the East Midlands, but the number of people who could start a business and do not is relatively high. In particular, the group that tends to generate the greatest number and most profitable start-ups (35-55 year old skilled employees) has low rates of business creation in the East Midlands. The SBS Household Survey measures the number of people considering starting a business – within the East Midlands this has been static at 10% since 2001. The GEM survey also measures the number of people intending to set up a business within 3 years – again this is fairly static at between 6-7%. Progress has been made on business start-up but further effort is still needed… Encouraging and supporting business start-up activity is still as crucial today as it was when the previous Business Birth Rate strategy was published in 2001. That Strategy set challenging targets for start-up rates in the region. This included an extra 4,000 start- ups per year. There have been improvements in start-up performance since 2001. In 2003, there were around 1,700 more VAT registered start-ups than in 2001. This is short of our target, but most importantly the East Midlands has closed the gap with the national average start up rate. 5 as defined on page 3 of the Supporting Material 5
  6. 6. Business Birth Rate Consultation Document April 21, 2006 In 2004 the VAT registration rate in the East Midlands was 35 per 10,000 population, compared to a UK average of 38. This strategy aims to increase the rate of VAT registrations to 40 per 10,000 population head and at least level with the UK average by 2009. Survival rates are high but there is no room for complacency… In recent years the East Midlands has also been slightly above the national average in terms of firm survival. There is no reason for complacency, however, as the first three years can be a difficult time for a new business, with only around 2/3rds of businesses surviving for three years after VAT registration6. There is also little point in investing in stimulating new businesses if they do not survive. In the East Midlands 70.6% of those businesses registering in 2001 survived three years, compared with a UK average of 68.9%. This strategy aims to maintain a 3 year survival rate above the UK average and at 71% by 2009. There is a discussion of possible additional measures (particularly around improving the quality of start-ups) in Section 2.4 of the Supporting Material. Consultation Question 1: Do you agree with the aims, objectives and measures set out for the Business Birth Rate Strategy? Consultation Question 2: What if any additional measures should be adopted (see Section 2.4 of Supporting Material)? 2.4 Targeting Activity The Universal Start-up Offer (USO) provides the minimum level of business support available to all those wishing to start a business in East Midlands. This section deals with additional activity beyond the USO, which will need to be carefully targeted. Targeting is determined by the return on public investment… Return on investment can be both economic (for example a rapidly growing start-up) and social (for example moving someone from incapacity benefit into self employment). This differentiation is important. Targeting different returns will lead to focusing on different groups and investing in different types of activity. There is currently little evaluation evidence available to demonstrate the return on public investment from different types of birth rate activity. This should be remedied by careful evaluation of current and future activity using appropriate measurement techniques. The Regional Economic Strategy recognises that both economic and social returns are important and that there is a need for a balanced investment between the two. However, current conditions (high employment and low productivity) suggest that a shift in focus towards increasing economic returns is probably appropriate. Balanced investment implies various target groups, requiring customised intervention… 6 RES Interim Evidence Base 6
  7. 7. Business Birth Rate Consultation Document April 21, 2006 This strategy recognises the importance of sensitivity to different communities, particularly for enterprise culture and start-up awareness raising. Everybody in the region who could start a business should have the opportunity to do so. Typically, public sector start-up intervention has tended to target on the basis of observable individual characteristics (such as ethnicity, age or gender). Once the start- up process begins, the substantive issue of what start-up support is needed depends little on observable individual characteristics, and much more on the viability of the venture and the ability of those involved in it to develop a new business. Delivery still needs to be sensitive to different needs (and the capacity of deliverers needs to be built up to understand these needs). However there are other important factors to consider. Experienced private sector investors in start-ups and new entrepreneurial businesses consider two factors: 1. The overall potential of the business model – in terms of its market, business proposition, market readiness, financial viability; and 2. The person/ people starting the business, and in particular their experience, know-how and expertise in relation to the start-up. These two dimensions provide a useful indicator of the future potential of a start-up. They also provide a useful means of identifying different types of start-up. Diagram One below uses this approach to identify six types of business starter, as defined by their future potential - based on the business idea and the experience and skills of those involved. Any start-up could be placed at different points on this diagram – the six types have been chosen to highlight different target groups and the differences in support they need. Each target group has different issues holding back their birth rates, and so will benefit from services that respond to their particular needs and circumstances. As such, some tailoring in activity is needed for each group. The likely profile of starters, as well as the barriers they may face and the possible services are summarised in Table Two over the page. Consultation Question 3: Do you agree with this approach to targeting and the resulting support for each group? Consultation Question 4: Should all segments be the equal focus of the strategy, or should particular emphasis be placed on one segment? 7
  8. 8. Business Birth Rate Consultation Document April 21, 2006 Diagram One: Segmenting the Market for Start-up Services Quality/Potential of Business Proposition HIGH ‘Future Stars’ ‘Opportunity Starts’ 3 6 Capability and Experience ‘Quality Starts’ 5 LOW HIGH ‘Potential to Grow’ 2 ‘Experienced Hands’ 4 1 ‘Subsistence Starts’ LOW 8
  9. 9. Business Birth Rate Consultation Document April 21, 2006 Table Two: Targeting Rationale and Activity Summary Segment Target Group Profile Likely to be… Barrier Return Service Delivery Funding Building an People who would Young people Lack of Economic Enterprise Week Mainly LSC/ JC+/ enterprise benefit from learning Job-changers enterprise Social Enterprise Education education LAs/ SSPs/ culture enterprise skills No longer working skills Local Alchemy system emda Awareness Groups that under-use Deprived communities Lack of Economic Accredited system of Quality LAs/ SSPs Raising – public support but BME communities awareness of Social outreach in a assured under- could benefit Women public community setting – providers represented (depending on their Rural support permanent or through groups category below) No longer working seminar based communities Awareness Groups with the skills 35-55 skilled employed, Risk averse Economic Target mainstream Campaign Emda Raising – to start a business but especially women Inertia USO campaign at this main target not taking action group Start-up: Low or restricted Have a specific barrier to Significant Social USO plus Quality SSPs/LAs Subsistence access to economic start-up, for example: barrier(s) transformational assured starts opportunity. Barriers to • Disability preventing advice - counselling, providers accessing resources. • Basic skills deficits (e.g. sustainable advice & guidance Under-prepared for literacy, numeracy) start-up Referral to other start-up. • Ex-offenders public services • Childcare • Financial barriers Start-up: Potentially a sound Starting a ‘local’ or smaller Raise all- Economic USO Quality Emda potential to start, but needs scale business, with some round (Social) assured grow development. experience. potential providers Start-up: Ideas-driven start-ups Post Graduates Lack Economic USO, facilitate Quality Emda Opportunity Academics/ Inventors business partnerships & assured starts Technicians experience Management Dvpt providers Refer to quality starts Start-up: Businesses based on Managers and Encourage Economic USO Quality Emda Experienced personal expertise, experienced, skilled staff out of job, Venture development assured hands networks and within businesses or help with providers knowledge recently retired. business idea. Start-up: Technology ventures Repeat entrepreneurs Assistance Economic Business Link Regional BL Emda Quality Based on value-adding Highly skilled people will increase Advisers to & private starts activities potential coordinate existing sector programmes providers Start-up: National/international Serial/ incoming Beyond Economic Specialist private Private Private Future stars business proposition entrepreneurs public help sector services sector sector 9
  10. 10. Business Birth Rate Consultation Document April 21, 2006 3.0 Recommendations 3.1 General recommendations 1. The Regional Economic Strategy sets out the following targets for start-up and survival (the Supporting Material explores other possible measures in Section 2.4): i. Increase the rate of VAT registrations to 40 per 10,000 population head and level with the UK average by 2009. ii. Maintain a 3 year survival rate above the UK average and at 71% by 2009. 2. The success of the Birth Rate strategy is dependent on the buy in of both the public and private sector. There are many funders and deliverers of public support in the region who should align this strategy where possible to reduce customer confusion. The private sector (especially accountants and banks) have a huge impact on small businesses – there is a need to improve the links between public and private support and leverage the benefits that business to business interactions can bring. 3. There is a need to establish a consistent and thorough evaluation methodology to gather information on the impact of and return on all public investments in enterprise and start-up. This will inform future decisions on the best way to focus spending. 4. Given the need for local activity, emda should encourage SSPs and Local Authorities to focus their economic development budgets on enterprise culture, start-up and micro-enterprise assistance. emda should coordinate & quality assure activity, fund the core minimum start-up offer and coordinate specialist services (e.g. for rapidly growing start-ups). 5. Employment, Skills and Productivity partners and other organizations involved in learning and development should be approached to assist with the delivery of enterprise skills and, to a lesser extent, the start-up agenda. Recommended actions include: • Mainstreaming enterprise culture in education, particularly in primary and FE; • Sharing good practice across the region; • Ensuring that start-up is seen as a realistic option for all those undergoing life changes such as HE/FE course participants (particularly FE in vocational sectors), unemployed, semi-retired, incapacity benefit clients and those from restructuring industries; • Joining up the core offer with JC+ start up activity and the New Entrepreneurship Scholarship. 3.2 Enterprise Culture recommendations 1. Young people are the priority for building an enterprise culture. Building on the success of Enterprise Week, emda should work with other regional partners to develop and deliver a year round culture campaign, with consistent branding and signposting. emda needs to work with the partners that are using best practice and encourage a shift change in performance amongst the rest. 10
  11. 11. Business Birth Rate Consultation Document April 21, 2006 2. emda should involve young people in designing and delivering the campaign wherever possible. 3. Enterprise skills should be a particular focus for emda and our partners. All emda skills projects should be appraised for opportunities to develop the enterprise culture. 4. There are many other partners heavily involved in funding the mainstream provision of enterprise culture activities (primarily LSC, and Local Authorities). It is vital not to compete with or displace current good practice. The role of emda is: • regional activity to raise the profile of enterprise culture (e.g. Enterprise Week); • providing common resources for the region (e.g. Enterprise Week website); • coordinating and sharing good practice amongst our partners; emda’s Sub Regional Strategic partners should also have a role in stimulating mainstream local activity, possibly through teacher training or piloting activity in new areas (primary and further education are good examples). Consultation Question 5: How can we embed an enterprise culture in the region and who should be responsible for making it happen? 3.3. Awareness Raising Recommendations 1 The New Business New Life brand should be used to tie together all local pre-start and start-up activity in the region into a seamless campaign. This campaign should be linked to Business Link branded delivery. The mainstream campaign should target the skilled, 35-55 age group, especially women. This activity should still utilize the New Business New Life brand and link to Business Link branded delivery to reduce the potential for confusion amongst customers. 2 Local funders should identify under-represented groups in their area and target permanent outreach or outreach seminars at these groups. Examples of such under-represented groups might include rural or BME communities. Outreach seminars should be delivered by start-up provider network. Community buy-in is crucial however and the provider network should involve community groups in organising the seminars and customising the messages to suit local circumstances. 3.4 Start-Up Provision Recommendations 1. Regional (LSC, emda and JC+) and local partners (Local Authorities and SSPs) should align start-up provision by agreeing to use the same accredited network of local providers for delivery. Accredited providers should meet organisational and individual adviser level quality control frameworks (for example, Customer First and SFEDI) and use the Business Link brand to reduce confusion amongst the public. 2. An agreed a set of accredited ‘top up’ transformational services (similar to NES or Bizz Fizz) should be designed that can be purchased by local funders from the accredited provider network and delivered to target groups. The target groups should mainly be ‘subsistence starts’, i.e. those with significant barriers to start-up. This is similar to the approach taken for USO regarding a regional minimum offer. 11
  12. 12. Business Birth Rate Consultation Document April 21, 2006 Again, the use of Business Link branding is important here to reduce customer confusion. 3. emda should encourage the stimulation of new business opportunities, or ‘venture development’. This is particularly useful for the ‘experienced hands’ segment of the market. Public and private procurement, franchising, business transfer and unused IP are all potential opportunities for start-up. As an example, some regions run an ‘opportunity database’ for high value start-up opportunities. This should be investigated as part of the Innovation Business Plan. 4. Further work is needed on Access to Finance. The core start-up offer could be better linked with Community Development Finance Institutions (CDFIs) and private sector intermediaries. Start-up/ micro loan & grant rationalisation is also needed. Emda should start this work with a review of CDFIs. Consultation Question 6: Outside the USO, what additional support packages and services are needed to support different types of start-up and where should the focus be? Consultation Question 7: How can public funders better align start-up provision in the region, and how should that provision link with private sector support? 3.5 Survival and Growth recommendations 1. Transformational delivery should increase survival prospects for the most difficult to reach group - subsistence start-ups. There is a need to encourage business led activity such as networks, action learning sets and volunteer mentoring as only these will be able to deliver increased survival and growth on a large scale. 2. emda should coordinate contact with business to maximise mentoring and networking opportunities. The regional Business Link should lead this. 3. Incubation is generally an expensive way to support start-ups. Ideally, incubation should be targeted at firms with rapid growth potential and offer in-depth support in addition to accommodation. This is currently not always the case. emda and SSPs should raise the specification of business support within incubators, and enforce standards as a condition of emda or SSP funding. Virtual incubation7 may be worth experimenting with as a broader way of using capital funding to assist start-ups. 4. There are a number of support programmes for ‘quality starts’ (including incubation, finance, innovation support). These programmes should be coordinated to ensure a seamless offer and ensure that gaps are filled. Regional business idea and business plan competitions are a useful way to attract such businesses. Consultation Question 8: Do you think that the recommendations in this Business Birth Rate Strategy will achieve the business start-up, survival and growth ambitions for the region? Is there anything else that should be considered as part of the recommendations in this strategy? 7 ‘Virtual Incubation’ is the use of capital funding to purchase an IT package which start-ups could rent in exchange for support. The model is analogous to traditional incubation. 12
  13. 13. Business Birth Rate Consultation Document April 21, 2006 13