Monday, 14 January 2013

Start-ups are a Waste of Time and Money

Here's a view (from the point of view of an 'economist') 

It is not a popular view but it makes rational sense.

  1. Startups are not where we should focus our efforts. Investing in start-ups is like betting on a horse race without getting a look at what the horses can actually do. (Clue: most do not win)
  2. Real job growth is found in fast growth businesses (50% of all jobs in a 10 year period) - the top 4% of businesses (see Prof Storey)*. Investing in fast growth businesses is like betting on horses after they have gone over the final jump!! If I could bet at ant time that's when I would do it!!! 
  3. The trouble is that 100% of businesses vote so focusing exclusively on high growth businesses is politically unacceptable!!!
  4. There is also precious little evidence to support a start-up programme 'ology' that works (aside from exclusive high growth incubator-type activity).
  5. Successful businesses appear to succeed despite what might be on offer. This suggests that start-up programmes add little real value apart from helping to create life-style businesses.
  6. The trouble with life-style businesses is that they tend to replace each other (unless they are exporting or selling into an expanding/new market). With a fixed demand for a product then an increase in supply of companies inevitably does little macro good... (moving the deckchairs on the Titanic?)
  7. So it seems that one 'should' invest in fast-growth (to use public funds effectively in the short and medium term)... and to boost the economy.
  8. Invest in start-ups if you want to be politically popular
  9. Invest in "high growth" start-ups with potential (and experience) to increase the chance of seeing a return on your investment; ignore the rest. 
Clearly we need start-ups to 'feed the funnel'... so that some businesses can become the stars of tomorrow. The reality is that most won't; so recognise that life-style businesses in their own right are a good thing but they are not the engine of growth that politicians suggest they are.

This is confirmed by  NESTA showing that the 6pc of all UK businesses with the highest growth rates generated 54pc of the net new jobs created.

No comments: