Small Talk: The high failure rate for start-ups can be reduced by better support


Data from Companies House suggests 2014 will prove to have been a record year for start-ups: by the end of October, just short of 500,000 new businesses had been incorporated since the beginning of the year, 63,000 more than at the same time last year, itself a record year for launches.

While the figures are unquestionably good news, how many of these companies will still be trading in five years’ time? Studies suggest as many as nine in 10 new businesses don’t make it past their second year.

In which case, we should learn from research by O2, which suggests it is possible to reverse those statistics if you give start-up businesses proper support. Survival rates for start-ups that have come out of incubator and accelerator programmes are as high as 92 per cent, O2 points out. These businesses are far more successful at raising investment capital and they’re also likely to trade more profitably.

It’s not difficult to see why. Entrepreneurs generally have to clear high hurdles to get on to these programmes, so the good results they achieve are akin to the strong exam performance posted by selective schools.

Nevertheless, there is no doubt that well-run accelerator and incubator programmes can add real value. They provide businesses with access to specialist advice and support, often with one-to-one mentoring services. They make it easier for these firms to access basic services – everything from cut-price accommodation to cutting-edge technologies. And they provide introductions to the people who can make all the difference to a business’s chance of success, including new customers and potential investors.

The good news is there are now more of these programmes in operation in the UK than ever before: O2’s research suggests that 59 incubator and accelerator projects have supported 1,100 start-ups this year alone. That suggest this community has more than doubled in size over the past three years.

Some of these programmes are run by public-sector agencies of one kind or another – or not-for-profit operations to which the public sector has contracted the job. However, private-sector companies are increasingly moving into this space too – around 40 per cent of programmes run in the UK this year were privately backed. They include initiatives from companies including Telefonica, John Lewis and Barclays Bank.

The growth charted by O2 has put Britain ahead of its European rivals – we now have more of these programmes than any other country. That bodes well for our entrepreneurs’ prospects of taking on their European competitors.

There is, however, a problem. The incubator and accelerator community remains far too London-centric – almost two-thirds of the UK’s programmes are based in the capital, O2 warns. That’s 10 times as many as the rest of the country put together can offer. It’s also the case that many initiatives are focused narrowly on the technology sector.

There are some bright spots. Birmingham and Edinburgh, in particular, have successfully fostered the development of new clusters of support for start-ups over the past couple of years. The major university towns also generally have programmes linked to academic projects. Still, in vast swathes of the UK, entrepreneurs setting up shop for the first time do not have access to a local support scheme. Wales and Northern Ireland are particularly poorly served.

These areas are crying out for state intervention. The Government makes a great deal of noise about developments such as Tech City in east London, but these high-profile communities are already well served by private- sector programmes. Public sector-led initiatives therefore need to focus on reaching out to entrepreneurs in other parts of the country who do not currently have access to support.

Not every business needs to be enrolled in an incubator or accelerator programme, but given the success these initiatives are having, it makes sense to ensure as many entrepreneurs as possible have the opportunity to participate. It isn’t just technology businesses in east London that deserve better support.

Aim fall blamed on its largest companies

This year’s disappointing performance from the Alternative Investment Market can be blamed on the lacklustre returns posted by the largest companies on the junior market, analysis from the Aim Journal reveals. While periods of poor performance on Aim in the past have generally been down to the smallest companies on the market, this year the opposite has been true, the analysis suggests.

The FTSE Aim All Share Index fell by almost 15 per cent during the first 11 months of 2014, in contrast to main market indices that were pretty much flat. Just four of the 20 largest companies on Aim registered gains. Two firms left Aim, but the remaining 14 all saw share price declines, with seven of those suffering falls of more than 50 per cent, including the online retailer Asos, the technology firm Blinkx, and natural resources company African Minerals.

On fundraising, Aim has enjoyed a strong year, with £5bn of new money raised by companies on the market already this year.

Small firms’ appetite for lending slows

Those who hope to see an increase in lending to small businesses in 2015 may be disappointed, research suggests – but not because the banks are any less willing to offer credit. The Owner Managed Business Barometer, a quarterly index of small business sentiment published by Bank of Cyprus, suggests small businesses’ appetite for taking on additional debt is falling.

Some 74 per cent of believe their current borrowing facilities will be sufficient over the coming 12 months, the study shows, compared to 66 per cent three months ago. While companies are more confident today about their prospects – three-fifths expect sales to increase in 2015 – few intend to take on more credit to invest for growth.

“Owner-managed businesses are more positive about the future than at any time since our research began,” said Bank of Cyprus’s Tony Leahy. Some 40 per cent of these firms believe their local economy is in good shape, he added.

Small Business Person of the Year: Alan Hughes, Director, Whitechapel Bell Foundry

“We are the oldest manufacturing company in the UK – officially, we were founded in 1570, though our research suggests we had probably already been in business for 150 years by then. The business was based in Aldgate until 1783, when we moved to premises in Whitechapel, a couple of miles down the road in east London – we’ve been there ever since and today we employ 23 on the site.

“Even with all our history, this is a challenging business in a market that has been gradually declining now for more than 100 years. The problem is that our bells last too long – there are still two bells rung twice a day in Westminster Abbey that we cast in 1583 – and our customers expect us to guarantee what we make for 50 to 100 years.

“Our core business is providing bells to the Anglican church worldwide, but we have other clients too – we’ve just finished a one-and-a-half tonne bell for a private buyer in Brazil, for example, as well as a number of bells for a shopping centre in Belfast.

“The secret to our longevity is that we’ve always moved with the times. While the way in which bells are cast hasn’t changed, we’re never afraid to use new technology. We’ve just signed a deal with EE so that we can use 4G technologies to demonstrate our bell sounds to customers all over the world in audio and video presentations in real time – it’s not the sort of thing you associate with a company that’s almost 450 years old and it shows customers that we’re not a dinosaur.

“Next year is exciting because these new ideas have helped us increase sales and cut costs. But first we are looking forward to our bells ringing in the New Year – the Big Ben tower bell is one of ours, but if you’re listening to the chimes from St Mary’s Cathedral in Sydney or the National Cathedral in Washington, you’ll also be hearing a Whitechapel bell.”