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Start-ups returning to policy favour

There has been insufficient debate in recent years on how Scotland can create an entrepreneurial economy.

START-UPS: Nurturing an entrepreneurial philosophy among students is crucial if Scotland wants to grow its economy. Picture: Martin Shields
START-UPS: Nurturing an entrepreneurial philosophy among students is crucial if Scotland wants to grow its economy. Picture: Martin Shields

However, there are encouraging signs that this is beginning to change. Indeed, the Scottish Government is planning to publish a discussion paper on entrepreneurship next spring.

Twenty years ago, Scotland launched its business birthrate strategy. At the time, this was an innovative approach to economic development which attracted many imitators around the world. However, 10 years later, following a review which concluded the approach had been unsuccessful, policy shifted in favour of creating more high-growth firms. This shift from "start ups" to "gazelles" reflects wider international policy thinking, with one high-profile US academic recently arguing that "encouraging people to start their own business is bad public policy". Most advanced economies now have policies in place to support high-growth firms. This approach is under-pinned by considerable research which shows that high-growth firms have a significant economic impact and create the majority of new jobs.

However, the effectiveness of this approach is diminished because policy-makers have a misguided view of what high-growth firms look like. They are assumed mainly to be in hi-tech sectors and based on scientific discovery. This, in turn, results in an over-emphasis on innovation support. But the reality is that high-growth firms are found in all sectors of the economy, they are not heavily R&D based, have few university links and are not dominated by employees wearing white coats. And although they are innovative, this is related to ways of doing business rather than product technology.

International thinking on enterprise policy seems poised for a further shift in response to recent research from the influential Kauffman Foundation. This indicates US job growth is driven almost entirely by start-ups. This points to the age of a firm as being critical for job creation. As a result, entrepreneurship policy is once more focusing on new and young companies. However, this time round the emphasis is on creating entrepreneurial places. For example, last month Startup Genome produced a report on the world's top 20 start-up eco-systems for technology firms.

A blueprint for creating vibrant and sustainable entrepreneurial places is provided by Brad Feld in his new book, Startup Communities. This gives an account of Boulder, Colorado, a city with a population of just 100,000 (250,000 if surrounding places are included) which on a per capita basis is probably the most dynamic place in the US for entrepreneurial activity. He identifies four components – leaders, followers, activities and culture.

The most critical feature of a start-up community is that entrepreneurs must lead it. Government, in contrast, needs to understand that it exists to support entrepreneurship. It can not create business activity, and must avoid inhibiting it.

Universities are also important but primarily for their role in attracting smart, young people to the community. A prime objective should be to raise the intentionality of students to pursue entrepreneurial activities and support those who engage in start-ups. Offering entrepreneurship programmes is also important. The other key role of universities is to leverage their space, students and staff to convene entrepreneurial activities.

A vibrant start-up community has mentors, start-up oriented service providers and large companies which support start-ups with space and programmes that enhance their own ecosystem.

Vibrant start-up communities have regular activities that engage the entire entrepreneurial community – entrepreneurs, aspiring entrepreneurs, investors, mentors, start-up service providers and anyone else who wants to be involved. These events facilitate sharing, networking and learning.

Finally, start-up communities have distinctive cultures. They are inclusive – embracing anyone who wants to engage, welcoming newcomers, accepting failure and have a "give before you get" philosophy of offering help without any clear expectation of a return.

What might this all mean for Scotland?

First, the main focus of government intervention needs to be at the sub-national scale. This is entirely logical. Entrepreneurship is, after all, largely a local phenomenon. Most of the issues confronting entrepreneurs are local. Accordingly, the major urban areas in Scotland should develop and implement their own start-up strategies.

Second, government should adopt a minimalist approach, offering support which is relevant to the needs of growing companies. For example, job training should help companies to "grow" their own employees.

Third, universities must create "entrepreneurial campuses" that encourage and enable entrepreneurship among their students.

Fourth, local government needs to work with its local businesses – especially young ones – to help them negotiate council bureaucracy.

Finally, don't get misled by the statistics. Current statistics on SMEs conflate businesses and self-employed/freelance workers. The goal has to be to increase the number of employer-businesses.

Colin Mason is Professor of Entrepreneurship in the Adam Smith Business School, Glasgow University

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