Earlier this week, I spent a tiring but fascinating twenty four hours in Sweden, where I had been asked to be the ‘opponent’ for a Ph.D examining public sector support for new ventures.
Whilst there for only a short time, I had the opportunity to catch up with my good friend Professor Magnus Klofsten, who has been responsible for the development of one of the most successful university entrepreneurship programmes in Europe. I wrote my first book with Magnus eleven years on technology, innovation and enterprise (above)
During the last fifteen years, hundreds of ‘spin-offs’ have emerged from his courses at Linkoping University with five technology-based start-ups having been successfully floated on the Swedish Stock Exchange with a collective market capitalisation of around £100 million. This clearly demonstrates that if the right start-up programme is in place, success can follow, especially if the relevant support is provided to the entrepreneur right from the start of the new business.
This was essentially the theme of the thesis which I was asked to review on behalf of Magnus’ department, much of which had direct implications to the current situation here in Wales.
As some of you are aware, there is an ongoing review of Welsh business support, with suggestions that the assistance to new businesses will be largely abolished in favour of a more streamlined system that is focused on growth companies. In contrast, the research in Sweden proposed something quite different.
First of all, the study questioned the concept of focusing public support only on growing firms, suggesting that whilst subsidies are positively correlated to growth during the first year of a new business, their impact may then decrease quickly.
As a result, it argues that supporting start-up firms through government funding can be beneficial in creating a more enterprising economy, which is contrary to current policymaking in Wales.
Business support programmes in Sweden have been shown to be successful by providing relatively small amounts of funds to help entrepreneurs develop their ideas further.
This minimal amount of public support given to back a new venture idea actually helps to motivate entrepreneurs to continue with their business, which raises the entrepreneurial activity of a nation and transforms those ‘thinkers’ who are toying with the idea of starting a business into ‘doers’.
Ironically, there is evidence of similar schemes in Wales, although they have been largely ignored by policymakers. For example, Welsh councils have provided small amounts of grant support (less than £5000) to local businesses with some success, although this has now been abandoned due to a lack of funding.
In addition, start-up programmes managed by the enterprise agencies to help the economically inactive and unemployed to start their own businesses have had spectacular results, although they have been recently cut by the Assembly.
Therefore, instead of abandoning support for new ventures, the thesis presented the alternative view that the development of broad programmes of public support for start-ups using relatively small amounts of funding can give entrepreneurs the chance to evaluate and analyse the competitive capacity of their idea and thus attract further support.
More significantly, it suggests that if funding is to be provided for growing businesses, then it mustn’t be just a case of creating a ‘government policy of simply throwing money at the problem’.
Public schemes aimed at firms which offer easy money, but no ‘hands on’ support, will not help small businesses as they grow. Instead, the solution is to develop ‘competent capital’ i.e. money in combination with business advice.
Ironically, that is what Finance Wales was originally set up to do and its initial strategy emphasised the need for the provision of ‘money with management’. That’s is clearly no longer the case and perhaps it is something that the Assembly should re-examine further in the light of its current review.
‘Customer orientation’ has been the buzzword running through the business support review in Wales, although this depends who you actually count as a customer. Certainly, the Swedish study suggests that entrepreneurs looking to start up a new business are an important set of customers to any economy and should be treated as such.
Indeed, they are relatively easy to deal with as they are not looking for complex solutions but ones that provide a small amount of financial support coupled with the right type of advice to get them onto the next stage of development.
If those dealing with the business support review kept this fact in mind, and looked outside their current coterie of advice to examine those programmes that are actually making a real impact in successful knowledge-based economies such as Sweden, then it can potentially provide the right framework for the economic future of this nation’s prosperity.