Comment: Start-up Scots need get-up-and-grow

Why do so many enterprising Scots emigrate? Had we grown too dependent on big government and a large public sector for our well-being and ambition?

The latest report from the Global Entrepreneurship Monitor (Gem) brings encouraging news. It finds that a rise in entrepreneurial activity has helped Scotland move up the international league table. For the first time in the Gem series, the Scottish estimate for total early-stage entrepreneurial activity (Tea) has matched the average for 20 innovation-driven economies and exceeded the average for Arc of Prosperity countries – Denmark, Finland, Ireland and Norway.

It also found that both Scottish migrants to England and English migrants to Scotland are more entrepreneurial than their non-migrant peers. English early-stage entrepreneurs in Scotland are also more growth-oriented than Scots early-stage entrepreneurs, despite their older profile.

Graduates, who made up 40 per cent of the Gem random sample in 2012 compared with only 21 per cent in 2002, had more positive attitudes towards entrepreneurship than non-graduates. One important exception was attitudes to starting a business as a career choice, which were more negative among graduates.

The survey is not the only sign that enterprise in Scotland is picking up. Scottish Government figures late last year showed that the number of enterprises in Scotland in 2011 rose by almost 31,000, or 10 per cent – the highest annual increase in the series going back to 2000.

So there are signs of improvement to be welcomed. But the latest Gem, undertaken by the Hunter Centre for Entrepreneurship at the University of Strathclyde, also highlighted some troubling weaknesses. Our improvement still trails the UK as a whole. The UK has moved into the top quarter of similar, developed economies. Scotland has moved into the second-top quartile.

A business start-up revolution has long been under way, due in part to changes in information technology. In 1971, an official report identified 820,000 small firms across the UK. By 2000, official estimates put the number at 3.5 million.

By 2008, this figure had risen to 4.26 million. And the figure has since risen further. It now stands at a record 4.8 million, with a net rise of half a million small firms since the onset of the financial crisis and recession.

The number of micro businesses (those with up to nine staff) is up 40 per cent since 2000.

As if these numbers were not startling enough, they continue to grow. According to Start-Up Britain, the number of new business start-ups across the UK so far this year now totals more than 200,000 and is rising at more than 10,000 a month

So is Scotland just being borne along on this greater tide? The Hunter survey found that most of the Scottish improvement in the Tea rate is among graduates, often with little aspiration for growing their firms or employing more people.

I would say this “lack of aspiration” is evident across all age groups and educational backgrounds. Many start-ups are micro businesses comprising sole traders. Older professionals, “let go” from big companies or accountancy firms, have set themselves up at home with a laptop, a fancy calling card and describe themselves as “business consultants”.

While they would like to take on staff to take their business to the next level, there is a widespread apprehension about the legal and regulatory and financial implications of recruiting even one employee. Many lack training in employment law. Others fear litigation and falling foul of costly unfair dismissal claims.

Another notable feature of the Hunter Centre survey is that start-ups are particularly strong among migrants into Scotland. A third of the improvement in Scottish rates is explained by migrants bringing their enthusiasm for forming businesses into the country. Around 10 per cent of Scotland’s early-stage entrepreneurs are from outside the UK – double their share of the population.

Scotland also seems to be leaking much of its entrepreneurial potential. Professor Jonathan Levie, director of the Strathclyde research, says there may be as many as 40,000 early-stage Scottish entrepreneurs who had moved to England.

After 30 years of successive chief executives of Scottish Enterprise and its predecessor, the Scottish Development Agency, struggling to lift the business start-up rates, it seems we still have a problem.

For many years a career in one of the professions – accountancy, law or financial services – offered a more attractive alternative for young graduates. And up until recently there was no lack of opportunity in the government and public sector. Why take on all the risk of running a business, putting your home or savings up as collateral, when a public sector career offered the prospect of very attractive rewards at senior level – and all this with a high level of job security, paid holidays, sickness cover, “family-friendly” hours, maternity and paternity leave, and any number of bank holidays? But with spending cutbacks, public sector recruitment is now sharply down.

Levie says the increase in entrepreneurial activity in Scotland “is mainly due to a jump in low-aspiration start-up activity by graduates and we need a ‘Team Scotland’ approach to both raise and fulfil aspirations”.

Over the past year I have met many experienced executives who, either through redundancy or early retirement offers, have left their companies in middle age and started out on their own. It has never been easier to start up a business. According to the website Freelancer, 34 per cent more people in the past year have developed and launched a start-up from home. The average cost of an online business start-up is just £325.

But as Levie points out, “The challenge now, as the UK economy recovers, is to encourage them to grow their business and not abandon it for a full-time job outside Scotland.”

And, says Sir Tom Hunter, “Ultimately it seems we need to continue the cultural shift towards enabling our people to recognise entrepreneurialism as a real career option.”

We have, it seems, a long way still to go.

Twitter: @Bill_Jamieson