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Start-ups across the UK are going bust - they need more careful management for our economy to boom

660,000 new companies are registered in the UK every year. That’s equal to 70 new businesses being formed every hour
660,000 new companies are registered in the UK every year. That’s equal to 70 new businesses being formed every-hour

Welcome to Refresh – a series of comment pieces by young people, for young people,  to provide a free-market response to Britain's biggest issues 

Remarkably, 660,000 new companies are registered in the UK every year. That’s equal to 70 new businesses being formed every hour. That’s the same as every man, woman and child in Glasgow starting a new business every year!

Britain is a booming nation of start-ups, so why do we find ourselves in the midst of a productivity crisis?

It’s a less talked-about fact that 60 per cent of those new businesses will go-under within three years, and 20 per cent will close their doors within just 12 months. Let’s be clear, businesses fail for many reasons, some just don’t pass the market test, and we should not attempt to shield businesses from competitive forces. After all, the economy is fundamentally driven by a cycle of innovation, risk-taking and creative destruction. It’s not surprising therefore that many new ventures fail.

But there are economic, social and personal costs attached to this high rate of failure. The flourishing entrepreneurial spirit is a cause for celebration, but at the same time as glamorising entrepreneurial success, struggling entrepreneurs are often written-off, and business failure is usually accompanied by stress, debt and humiliation, which can sap future ambition.

As a teenager, I watched the demise of my father’s own small business venture. He ploughed everything into it – hard work, determination, time and money. But unfortunately for dad – and for so many small business owners like him, management skills were simply not seen as an essential part of the entrepreneurial equation.

Fast forward 25 years – and not much has really changed. Less than a third of UK small firms provide training in management skills for their new teams. UK small business leaders lag behind their contemporaries in 17 other OECD countries when it comes to engaging with adult education, and new evidence suggests that good managerial practice predicts a firm’s success far more than spending on R&D, IT, or even, how skilled the workforce is.

Many promising new ventures are coming undone because of a lack of understanding of basic managerial and financial concepts; managing cash flow, managing inventory, motivating teams, responding to predatory competitors, the list goes on. How many new business owners really prepare themselves for the cold realities of not just growing a business – but keeping it from collapsing?

It’s not enough to be passionate about a new product or idea, or even a hard worker. All too often companies fail due to bad management, even when the idea behind the business is sound. Which means that society – and the economy – lose out.

Clearly, if more small businesses are to survive and scale, while at the same time reducing personal tragedy, then management skills matter. In fact, compelling evidence suggests that improving the quality of small business management is key to solving our productivity crisis.

new report, published today, links to studies that show that almost a third of the differences in productivity between and the UK and the US is linked to good management practice. When businesses are well-managed they create more jobs, pay higher wages, and sell better (and cheaper) products.

The Bank of England’s Chief Economist has previously noted that the gap between our highest and lowest productivity firms was larger than in the US, France or Germany. In particular, he drew attention to the fact that “In the services sector, the gap between the top- and bottom-performing 10 per cent of companies is 80 per cent larger in the UK than in our international competitors”. Clearly, Britain’s productivity issues can be attributed to a failure of firms in the long tail of small businesses to adopt the management practices and processes of Britain’s highest achieving firms. Closing the productivity gap between the top and bottom three quartiles would boost UK GDP by £270bn.

The Management Matters report puts forward various policy recommendations that would help equip fledgling business owners with the management tools and skills needed to Stay-Up, grow, and have a greater chance of success, but new business leaders must have the inspiration and the financial incentive to access and learn management skills.

We now need a government-backed manifesto to improve the small business environment, to increase UK productivity, and to make Britain the best place in the world to not just start, but also successfully grow a new business.

Rob May is the CEO  at Association of Business Executives

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