High Growth and High Start Up Rates: Why We Shouldn’t Chase Them

Colin Bell over at Winning Moves picks over this old chestnut in his latest post.

Should we throw our limited resources at businesses that we believe have high growth potential or should we just go for lots of start-ups knowing that a minority of them will experience high growth anyway?

The plain truth is that both are equally foolish policy goals.
We simply can’t pick winners/high growth businesses.  So how do we know which to resource?
And as Drucker said ‘you can’t have the mountain top without the mountain’ .  High growth businesses emerge from a strong and vibrant enterprise ecology.  An ecology that is diverse, tightly knit and well connected (bridging and bonding, social and cultural capital).
Focus on building the mountain and the top will look after itself.
But please don’t build the mountain by rushing to increase the start up rate.
When we do this we just increase the failure rate too and that undermines aspiration and confidence.  So start fewer businesses, but make sure they are good ones, team starts, well thought through and researched.  Get survival rates into the 90%s after three years.  Not just survival, but successful.  Allow these small but significant success show the way to others.
So set up a broad enterprise ecology – lots of people with ideas and the confidence to act on them (this is not just about business but about social impact, culture, festivals, campaigning and so on) and build social networks, communities, that know how to support their members.
Invest your economic development budget in supporting people, who really are committed to making things better, and building communities.  Smart, confident people in competent communities will not only give you the economic outputs that you require – but they might just give you something much more interesting as well.
I expect these ideas to be dismissed by those who have High Growth and Mass Start Up Programmes to sell, and by those running economic development teams who have for decades been buying these programmes and commissioning evaluations that say ‘much has been achieved but much remains to be done’.

But perhaps some will see that now is as good a time as any to try something new….

4 Replies to “High Growth and High Start Up Rates: Why We Shouldn’t Chase Them”

  1. Mike,
    Support for your post comes not just from me but from Josh Lerner at Harvard (Boulevard of Broken Dreams) . He has studied finance and enterprise policy. His conclusion, widely shared in the academic community, is that Government should ‘set the table’ but should not target directly.

    Our work has shown just how difficult it is to improve enterprise outcomes (Three decades of Enterprise Culture and a paper in Urban studies)

    And really we have been here before. When you target more start-ups you get more firms in marginal industries and greater churn.

    When you target growth firms, generally you miss! This is because there is no such thing as a ‘growth firm’ there is a firm going through a period of growth. This happens to many firms but is often most easily modelled as a random event.

    So ‘set the table’ and think about the instituions that support growth – exporting support, finance, availability of advice and help to build networks and communities of pracice – though that in itself is fraught with difficulty.

  2. Mike It was the approach of a broad enterprise ecology that worked, in Russia. 10,000 micro enterprises in a population of 600,000. Not so easy in the UK. I learned yesterday that our attempts to promote local economic development this way had been hijacked by for profit business with local government funding from our taxation.

    The Guardian social enterprise network grows increasing non-inclusive as today we learn that it’s time to take social business to Europe. If Jonathan Blan was to publish the introduction to our work on his blog comments, we’d all know the time had passed.

    Just the other day there there was a suggestion that we could justify profit from social innovation if the ROI was 40% and 20% went to the investor. That as Prof David Harvey says is capitalism moving its problems geographcally to source from developing countries, or just inventing new money which has been tried.

    As a self-sustaining social business we’re not looking for grant funding crumbs from the table but we do expect to be rewarded for what we create rather than have them credited to others we pay tax to.

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