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Young UK Entrepreneurs: Big on Ideas, Short on Growth

Fri, 22 November 2013

The UK’s young business minds are more innovative, but lag behind international rivals on creating jobs.
Young entrepreneurs in the UK find it harder than their counterparts to convert smart business ideas into high growth* start-ups and new jobs, a global study published today has found.

New research by Shell LiveWIRE and Youth Business International (YBI) compared entrepreneurial attitudes, ambitions and activity of young people in the UK against counterparts in other leading enterprise nations** based on latest data from the Global Entrepreneurship Monitor (GEM).

The study, Unlocking Ambitions, Creating Growth, found that nearly one in five (18%) 18-34 year olds in the UK believe they have the entrepreneurial skills to start a business and perceive a potential business opportunity. Yet less than 4% go on to create a company that pays a wage and makes a profit.

Adding those who’ve started a company not yet paying a salary, the UK’s rate for converting potential young entrepreneurs into business owners is still less than half (49%). This rate of conversion is well behind countries including Singapore (84%), China (82%), the Netherlands (55%), Brazil (56%) and the USA (51%).

Additionally, of those young people who go on to start a business, young UK entrepreneurs are also more likely to hit a “growth glass ceiling” within three years of being in business. Despite leading the way on creating businesses which employ 6 – 19 people, none of the young UK people interviewed had created a business employing 20 staff or more. This is in stark contrast to their peers in China (5.2%), Germany (4.2%), the US (4.1%), and the Netherlands (3.3%).

This represents a missed opportunity for the UK economy, since high growth businesses create a disproportionate number of jobs in the UK. Separate research has found that high growth business represent only one per cent of businesses in the UK, but generate one million jobs, or 23% of the total, between 2007 and 2010***.

However, those young people surveyed who have started a business have the edge over most countries in terms of innovation. Over one third (34%) of young UK business owners have developed a product or service which they believe that few or no other businesses offer. GEM has found that innovative companies are expected to perform better, but as the research shows, this potential is not being realised.

Ed Daniels, Chairman, Shell UK, commented:

“The health of our economy depends on young people setting up businesses successfully. This research shows that we must do more to encourage entrepreneurship. Too often, young people have the ability to start a business but do not take the leap, or struggle to turn a fledgling business into a successful company.

“Young people’s ambitions and skills are not enough on their own. We need to foster entrepreneurship, ensuring that potential entrepreneurs have access to appropriate advice and capital. By encouraging a more vibrant economy and innovation, this can benefit business and wider society.”

Andrew Devenport, Chief Executive Officer, Youth Business International, added: “It is clear from this report – launched during Global Entrepreneurship Week - that we need to do more to help young people take the leap from just thinking about entrepreneurship, to actually doing it.

“If we want to continue to be global leaders in entrepreneurship, then it is imperative to look at and learn from what’s happening in the rest of the world. From embedding entrepreneurship into our education system, through to helping young entrepreneurs break through a growth glass ceiling, we can learn much from countries such as Singapore, China and the Netherlands.”

The report also revealed:

Entrepreneurship is perceived as a “poor career choice” by young people in the UK, which is a major reason why so many fail to act on their business ambitions. Just half of young people (56%) consider starting a company to be a good career option, significantly lower than in many other countries, including Brazil (88%), Netherlands (82%), China (75%), and France (70%).

Young people are worried about the risks. More than two in five (42.4%) young people believe that fear of failure is a barrier to starting a new business. 

Encouragingly, there is a strong underlying ambition for growth, with 11.2% of young business owners planing to create 20 new jobs over the next five years. This places the UK only narrowly behind the US (11.3%) and some way ahead of entrepreneurs in bullish emerging economies, such as China (9.4%) and Brazil (3.1%).
 
The report identifies four distinct areas where more can be done to help young people:
 
Starting up: better support for young people with the ambition to start a business  by offering a combination of ‘hard’ support, such as access to finance, alongside a renewed focus on ‘soft’ forms of support, such as coaching and networking
 
Scaling up: better help for established young entrepreneurs to scale up their businesses once they reach the mid-point of growth to help young UK entrepreneurs to break through the “growth glass ceiling”. Unlock potential growth by providing better business planning, marketing and commercial development  
 
Start-up stigma: challenge the perception of enterprise as a poor career choice and reduce the fear of failure barrier by projecting an alternative image of entrepreneurship to the macho, high-stakes, high-risk model  - making enterprise more accessible via role models with whom young people identify 
 
Youth education: establish entrepreneurship early as a viable career choice by introducing the idea of setting up a business into our education system from an early age.  
 
Launched in 1982, Shell LiveWIRE is an initiative that has been supporting young entrepreneurs for over 30 years, awarding over £5 million and helping around 600,000 young people in the UK explore the possibility of starting their own business.

Founded by The Prince of Wales in 2000, Youth Business International is a global network of independent non-profit initiatives helping young people to start and grow their own business. In the UK, YBI’s members are The Prince’s Trust and Start-Up Direct.

* ‘high growth businesses’ are defined by the OECD as any firm with a minimum of 10 employees at the beginning of the period that achieves an average annualised employment growth greater than 20% over a three year period.
** Young entrepreneurs from the UK, USA, China, France, the Netherlands, Germany and Singapore were surveyed
***Stimulating small business growth – 10,000 Small Businesses UK, 2013


 

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