Tuesday, 12 April 2011

Start me up: StartupBritain, the Startup100 and Smarta

Startups have really been in the news for the last few weeks. We had the David Cameron-endorsed launch of StartupBritain, then Smarta launched (after a year or two in development) its Business Builder online package, the UK and US governments have both announced "Startup Visa" programmes, and tonight the prizes will be awarded to the winners of the Telegraph's Startup 100 competition.

Anyone would think there was something good about starting a new business. Governments love new businesses, because they feel like pure economic creation - new jobs, new investment, new products and services being offered in the economy, new tax revenues - and at no cost to anyone except the entrepreneur and their financial backers. Economists like them because they provide a positive externality - new ideas - which other people can benefit from as well as the entrepreneurs themselves. And customers like them because they offer new services which might not have been available before, and seem somehow charming and congenial, local and friendly, and provide opportunities for emotional affiliation which big companies often don't.

But while everyone agrees that motherhood, apple pie and business startups are full of goodness, not everyone goes along with what's being done to help them. In particular, StartupBritain has been criticised as "a government-backed link farm" among other things.

It's quite entertaining to read these debates - whether accurate or not, watching people insult each other (to be fair, the insults are only really going one way) is great fun. But is the criticism fair?

Unlike @SamEngland who wrote the above articles, I don't have a problem with the motives of the StartupBritain founders and I don't think the private sector is inferior to the public sector at helping businesses get started. Of course they want to make some money, but I am sure they also want to help businesses to start up. A more interesting question is whether the StartupBritain site is a useful way to do it.

The apparent focus of the site when it launched - £1500 of money-saving discounts off various services - probably wasn't an ideal way to start. Classical economic theory might say that reducing the financial cost of starting up will increase the number of people doing it. But in practice, those discounts will make very little difference to anyone who isn't already committed to starting a company.

In fact, the main barriers to starting up are very different to the financial barriers which are (slightly) lowered by these discounts. Our recent research into careers choices for the Department of Business, Innovation and Skills (to be published soon) indicate that the real things stopping people are more likely to be:

  1. the risk and uncertainty of leaving your current job to start up
  2. lack of knowledge of how to get a business going
  3. the complexity of most information that's available
  4. a lack of successful, accessible role models for people to copy
  5. a simple lack of understanding of where to start
Some potential solutions to each of these problems are self-evident:

  1. Encourage people to start something on a small scale in the evening or weekend
  2. Provide a simple, practical startup guide which shortcuts some of the uncertainty. Some of the straightforward things that most people don't know, not because of stupidity but because it doesn't occur to anyone to tell them: How do I raise an invoice? How do I pay my income tax? Where do I look for an office? I told a friend of mine who works in the civil service that some of our clients simply don't pay their bills, and he was astonished that such things could possibly happen. Well, they do - and new businesses could easily put some processes in place to deal with them, if they only knew how. It's easy to answer each of these questions, but without a simple guide, the uncertainty will stop a lot of people from getting started.
  3. Edited versions of - for example - HMRC or Companies House guidance on starting up. A simple step-by-step guide would cover 90% of business needs - the complexity is mostly created by the exceptions.
  4. A scheme for people to simply watch how other businesses work. Want to offer some mentoring to new startups? You could make it a complicated and time-consuming business planning and advice process, or you could just let people visit your finance department and see how they pay bills, collect debts and do their accounts. Let someone listen to your telephone sales calls or come along to a client meeting. Simple things, with no real cost to you as a mentor, but immense value to a new startup.
  5. A really simple portal which brings all these things together and takes you through the steps you need to start up.
I kind of expected StartupBritain to provide this kind of step-by-step simplified process, which may say more about my assumptions than about them. But in essence, most people have much higher cognitive barriers to starting up than financial barriers. And most of those who do have financial barriers, won't be helped much by 10% discounts.

As it happens, I think the Smarta Business Builder might close quite a few of the above gaps (Disclosure: I have no prior connection with Smarta but, having now met some of their people I'll be writing some guest blogs for them soon).

I said something like this on twitter, and @OliBarrett correctly pointed out that there's no reason StartupBritain should have been designed along these lines. But personally I believe these kind of step-by-step structures are the best way to encourage more people to start up.

One great model is the Tenner Tycoon scheme - which I only just discovered was founded by Oli himself! It addresses many of the above barriers, above all else encouraging people to simply try it out. Once someone is in the habit of thinking like an entrepreneur, many of the cognitive barriers are gone. Therefore I'm surprised that StartupBritain wasn't designed more along those lines.

I'm sure it will evolve over time. I hope that in the near future there's a site I can visit, with a big button marked "Start My Business", that will take me through step-by-step everything I need to get going. In the meantime, Smarta will provide some tools, StartupBritain some resources and ideas, Startup 100 some inspiration - and no doubt that will be enough to get some people going who wouldn't otherwise have done so. It's a start.

p.s. Inon is donating a free pricing research workshop to each of the category winners of Startup 100. I look forward to telling you about the winners, and their business models, here soon.

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