Survival of the fittest

Government is offering more, not less, support for business. But by focusing on businesses that are already winning, its policy is inherently cold-hearted, argues Elliot Forte

It has been almost six months since the government closed the Business Link advisory service. While that is a relatively short time in the history of small business policy, it is time enough to make some early observations.

The economy has not come to a grinding halt because Business Link operators ceased trading. It would be ridiculous to claim that Business Link was ever the foundation that propped up any small business.  As such, there was never going to be a dramatic halt of any kind when the network disappeared. Mind you, some might argue we weren’t actually moving very fast in the first place.

As a former Business Link adviser, I spent 15 years intervening in the natural order of economics. The Conservative-sponsored Richard Report was less ambiguous, when they defined these actions as ‘operating a socially re-distributive policy in the guise of small business assistance’. It is hard to argue with that conclusion.  After all, it is worth remembering why Business Link was formed in the first place. Lord Heseltine remembered this simply as to help ‘a friend in need‘. Of course, he quickly checked himself by insisting he had no interest whatsoever in helping ‘losers’. But having spoken to him directly, behind the iron mask, I believe that’s exactly what he wanted to do.

NATURAL SELECTION POLICY OF BUSINESS SUPPORT
Small businesses are that important to the economy that four successive governments of differing ideologies tried to nurture the crop, rather than leave it to the elements and chance. The endgame was the same regardless of political persuasion, to increase the knowledge of the people leading small businesses directly and indirectly (using third party sources such as consultancy and training). Small business performance would improve, and consequently the competitiveness of the country would too. It was a win-win scenario for everyone. Entrepreneurs build their own personal wealth, more people get employed and voters are happy.

The proposed strategy was pretty simple really. Help more of the ‘losers’ understand exactly what is needed to become ‘winners’, and encourage them to make the transition.  That’s why the taxpayer spent a billion pounds on a generation of funded advisory support. That same vision is shared by the current coalition government.  It repeatedly acknowledges how important small businesses are to the economy.  It wants small businesses to increase their knowledge.  However, its route is fundamentally different.

The Labour Party believed every small business should and could be saved.  Its Enhanced Business Links paper (1998) implemented a palatable and worthy, but ultimately fairly diluted, support for all policy.  That was the start of the end for the Business Link advisory service i.e. stretched resources, draconian levels of reporting and short sharp interventions, rather than meaningful engagement.  The coalition government takes a more pragmatic approach.  Yes, every small business could be a winner. But let’s see which seeds break through and are strongest, rather than spreading the jam thinly.

From a business perspective, I see the logic in this approach.  You have limited resources to invest. Therefore, segment the market, identify those customers with the highest potential and target your efforts at those most likely to generate return on investment (in political terms, jobs).  This is an example of running the country like a business. I suspect it will work economically in the long run. After all, natural selection is a fairly indisputable fact of life.  The ‘losers’ that don’t make the grade will be, by default, acceptable collateral damage.  That’s not to say these people can’t help themselves of course, and the Business Link website serves that purpose. However, having personally looked into the eyes of one thousand small business entrepreneurs, I struggle to make the required disconnect.

During that time, I worked with husband and wife teams whose marriages broke due to the stress of running a small business. I worked with entrepreneurs who died in the middle of projects. I even received a suicide note. Life-changing events brought on by the pressure of business. I don’t think a website is enough payback for these entrepreneurs. After all, these people had the guts and enterprise to answer the government’s call to ‘get on your bike’, or whatever the cliché of the day might have been.  On that basis alone, I cannot be completely at ease with a small business policy seemingly founded on a survival of the fittest philosophy.

BACKING WINNERS NOT LOSERS
Five months is too short a timeframe to make any definitive conclusions based on hard data, but I think we can assume with some confidence that hard working small business entrepreneurs are doing exactly what the government expected.  Some are thriving, some are surviving and, of course, some are dying.  The key question is not is this happening, after all that is the reality of business in any time.  Rather, to what extent and how fast?

The local enterprise partnerships (LEPs) are established and have assumed responsibility for regional strategy.  In July 2011, Mark Prisk MP, minister for small business, predicted these ‘locally owned partnerships’ would work to drive ‘economic growth and the creation of local jobs’. Yet, already these organisations seem to be subject to the exact same complaints that plagued their forerunners, the regional development agencies.  These comments come from the exact same sources (look on any forum) and the protagonists cite a lack of action by the LEPs on the ground.

The RDAs were working to 20 years strategies, so it may be slightly rushing to judge after less than 12 months (effectively the LEPs are still start-ups).  That’s not to say they shouldn’t be accountable. The latest review of LEP performance highlighted the need to ‘generate 1.7 million new private-sector jobs to offset job losses from the recession and from expected public expenditure cuts… for private-sector growth and jobs we need successful entrepreneurs’. It is notable that the rate of business deaths exceeded births in 2010 in every LEP area. In the absence of direct influence in the field, it remains to be seen whether the LEP has the authority to nurture the small business baby boom needed to meet this target.

Predictably, the closure of the Business Link advisory service has caused the business support landscape to fragment. The national one-stop-shop ceased to exist as a reality.  This impact on small businesses was far more immediate and visible.  So much so, that the government has already been advised by a Department for Business Innovation and Skills (BIS) think tank to urgently reinvent this wheel. The business support sector is now populated by a larger number of smaller organisations, delivering a larger number of local initiatives to support small businesses (competing might be a better word). Like any market transition, a brand leader will emerge eventually. But I believe a truly impartial one-stop-shop will not return for at least ten years (if at all) and government support will always be compromised by a resulting lack of coordination and market awareness.

As for state-funded advice, the government’s Business Coaching For Growth service was finally launched in April 2012.  The scheme promises face-to-face help over a three year period for just 26,000 growth businesses, using a team of private coaches. In the absence of hard data, I telephoned this scheme the day it opened. I was told less than 4000 places were available to businesses employing up to 10 people.  To put this in perspective, BIS  statistics indicate over 90% of businesses have an average turnover of less than £110,000. The vast majority will clearly be excluded and the government continues to call for 15,000 volunteer mentors to nurture a crop of four million small businesses. However hard I try, I can see no other outcome than a large number of small businesses disengaging from business support (voluntarily or involuntarily), but then I think that may be the point.

That said, for those who already can, the reality is more support available and definitely more investment (£1.4bn spent on enterprise zones, £173m spent on Coaching for Growth). In reality, the government is intervening more. It is just a more selective intervention, targeting ‘gazelles’, winners not losers.

A survival of the fittest policy that must, by nature, be inherently cold-hearted.

• His first article in this series can be read here