Older heads nurse new-born ventures to prosperity

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The Independent Online
IN DISCUSSION of the small business sector, much attention is given to problems involved with raising finance. But there is another form of capital that generally attracts less interest - human capital, or the experience and training of the people running the enterprise.

Since the collapses of the late 1980s and early 1990s, banks have fundamentally reviewed their strategies, so that lending decisions are made more on the basis of the impression gained of the people seeking the money than on the quality of their assets, chiefly their homes. But the private belief of business people and financiers that the ability of the founders is "absolutely critical" to the success of a business venture is clearly confirmed by a new survey.

Businesses started by people in their fifties are more than twice as likely to survive as those launched by people in their early twenties, according to the report, published earlier this month by Robert Cressy and David Storey, of the centre for small and medium-sized enterprises at Warwick University's business school.

The generally higher survival rate of new businesses with older proprietors is attributed to two factors. First, younger entrepreneurs are more likely to have alternative employment opportunities and, as a result, less loyalty to the embryonic business.

Second, older people probably have a range of contacts and experience that will help their businesses survive.

The examination of the "people factors" in the report, commissioned by NatWest UK, shows that individuals starting businesses during the late 1980s and early 1990s tended to be mature men who had prior employment and were setting up in sectors where they had obtained working experience.

The survey also suggests that financial security is important, since home owners with equity are more likely than others to establish businesses that survive and grow rapidly. Such attributes are also found in ventures begun by people with better educational qualifications - such as O-Levels.

Mr Cressy said the study demonstrated scientifically that experience and training were essential for success. The addition of human capital more than doubled the chances of businesses surviving in the early years.

Ian Peters, head of small business services at NatWest, said: "The impact of people factors confirms NatWest's view that management competence aids survival."

Mr Peters, who was disappointed that last month's Budget did not include mention of a new approach to training of small-business managers, said the organisation was dealing with the issue through the release of a free start-up planning disc. It is also sponsoring the Norfolk and Suffolk Small Business Initiative, which is a comprehensive training programme for owner-managers.

Meanwhile, NatWest is predicting that the Internet will generate thousands of new compan- ies, because it will cause widespread changes to the way business is done.

The bank's latest bulletin from the Foresight research team it is sponsoring at Durham University Business School acknowledges that although there are several technical problems still to be overcome, a rapid increase in electronic commerce on the worldwide web is likely over the next two years.

Among particular developments, the team sees secure trading and payment over publicly accessible computer networks becoming normal within that time; wider use of electronic mail and/or transferring of information via computer networks between companies and their customers, and smaller firms adapting to these new methods more quickly than their larger counterparts.

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