YOUNG entrepreneurs are to be encouraged to develop “high growth” instead of “lifestyle” businesses under an initiative aimed at boosting small business development.
Innovation Centres Scotland (ICS) says those starting companies in their twenties need help to reach their full potential beyond becoming one-man or low-growth enterprises.
Peter Andrew, head of innovation at ICS, said the key is to match young entrepreneurs with more experienced mentors. Most of the businesses Andrew sees reach a take-off stage are started by people in their thirties or older, who have already reached a relatively senior level in their careers, he says. They understand the need for a management team with a mixture of different expertise, whereas younger entrepreneurs tend to work alone, he said.
“They [younger entrepreneurs] want to be the chief executive but they don’t understand that it takes a team,” he said.
“We tend to see them starting lifestyle businesses or businesses consisting of one or two individuals that get to a ceiling of £150,000 or £200,000 turnover.”
Although such businesses often serve their owners well, they rarely offer a viable return for outside investors. They are also seen as a missed opportunity by the government agencies supporting start-up firms, because it is young businesses that take off and grow fast that create the biggest boost to the economy, especially in terms of jobs.
Jock Millican, Scottish chairman of business angel group Equity Gap, will be a keynote speaker at a conference which ICS is hosting on 4 March. It will concentrate on ways in which technology start-ups can build strong management teams.
He says that 60 per cent of Equity Gap’s decision-making is based on the top team in an early stage company. In cases where leaders are inexperienced, he tries to encourage them to team up with either professional advisers or mentors.
“It’s not about running the business for them, but it’s making sure that they get help and guidance,” he said.
“So often they get bogged down in the early stage. Some are super examples of drive and move forward, but some end up three years down the track and they are only just turning over enough to pay wages.
“Often what we see is that these companies come back looking for more money to get to the growth stage, but really they should have been doing it first time around.”
Millican cites positive examples – such as a young entrepreneur who teamed up with an established marketing company to get his business off to a flying start, paying the firm for its time with a share of the start-up in a “sweat equity” deal.
He suggests a solution is to tap into Scotland’s reserve of established or retired business leaders by encouraging them to offer their time to start-ups in such a way.