How best to support small businesses and entrepreneurs

The pandemic seems to have highlighted the fragile structure of the UK labour market. Perhaps, for the first time, many people have begun to realise that in the UK we have very few large businesses and a massive tail of SMEs. Many will be surprised to learn that in the UK we only have around 8,000 businesses that employ 250 or more people. Meanwhile, there are about 5.86 million SMEs – and importantly approximately 5.6 million of these businesses only employ up to 10 employees.

The polarised nature of the UK labour market

This polarised nature of the UK labour market has been often been discussed around the concept of there being a primary labour market – larger corporates and the public sector – and a secondary labour market – small business owners, the self-employed, freelancers, gig workers, zero contract hours workers, and so on.

In the primary labour market, there are structures in place that provide certain job security, career advancement, training, guarantees around health and safety, and so on.  In contrast the secondary labour market is characterised by little job security and training. Essentially individuals need to fend for themselves – they are expected to be entirely responsible for their own work and career progression.

Importantly, over the last few years, an increasing number of people have found themselves in the secondary labour market – either by choice or circumstance. Interestingly, many politicians have elected to set up and frame this trend towards self-employment and the growth of the SME sector as a positive narrative.

How the SME story has been told

The creation of new businesses and jobs in the (secondary) labour market in the UK has largely been positioned as an exciting new era – the arrival of an entrepreneurial economy that fosters innovative thinking and creativity. There has been much upbeat talk about SMEs being the engine room of the UK economy. Politicians have liked to big up the low levels of UK unemployment and hail the massive number of new jobs that have been created – even though many of these are low wage, gig economy and zero hours contract jobs.

This upbeat narrative has tended to gloss over some critical challenges of supporting and sustaining this so-called entrepreneurial culture, not least the fact that in the UK 60% of business start-ups fail in the first three years. It is often said that, for entrepreneurs, the highs can be higher, but the lows will be lower. Furthermore, these upbeat narratives do not fully grapple with the complexities of how you help people transition from the security and structure of corporate life into effectively being totally responsible for their financial wellbeing, and so on.  It is somehow assumed that people can magically become free spirits and entrepreneurs, with limited discussion about the supporting structures that are needed to deliver a true entrepreneurial economy.

Understanding the variations within the SME sector

In my view, successive governments have never fully understood the SME sector at a deep level. Politicians tend to talk in such broad strokes about SMEs – as if they are a job lot. This gets the narrative off on the wrong foot. How can you meaningfully talk about a sector – businesses employing up to 250 employees – that accounts for 99% of all UK businesses? Clearly, the classic SME categorisation is a nonsense. This immediately tells you that this is an outdated and flawed way of thinking about the structure of employment. We urgently need a more realistic and up to date way of classifying small- and medium-sized businesses. I know progress is being made by academics and the civil service in segmenting the SME sector in a way that better reflects the vast variations and nuances within the sector. But alas for me, much of the high level public political debate and narrative about this sector remains rather cliched, oversimplistic and stereotypic.

What it takes to be a strategic entrepreneur

We need to get a more realistic narrative going around what building an entrepreneurial culture is all about. In my view, at the heart of the challenge is that politicians have never really grasped the difference between a business owner, an opportunity seeker and a strategic entrepreneur. The business owner will have important management and/or craft skills. The opportunity seeker, on the other hand, will be running around like a crazed person from the TV show The Apprentice or a hapless ill-prepared person on Dragons’ Den essentially presenting a solution looking for a problem. In contrast, the strategic entrepreneur knows where to play, how to win and how to get there using the minimum of resources. Maybe Napoleon was hinting at something when he described us as a nation of shopkeepers. Perhaps he was the first to realise that a lot of thought, energy and planning needs to go into fashioning a truly entrepreneurial mindset!

Is the pandemic reframing our thinking about the (so-called) SME sector?

The arrival of the pandemic has been a massive wakeup call and has changed the UK SME narrative overnight. It has given everyone a heads up about the fragility, complexities and subtleties of the UK SME sector. We have learnt that many small businesses, after just a month or so without income and with limited capital reserves, are now on their knees. We are beginning to learn that small may be beautifulbut setting up and running a small enterprise is a very uncertain and emotional business!

To his credit, the Chancellor of the Exchequer quickly grasped the magnitude of the challenges facing the UK economy – both for those in the primary, and critically those in the secondary, labour market. The prospect of such a high proportion of those in the long tail of fragile small businesses failing led the government to take massive action in terms of providing funding for furloughs, business loans and other support packages.  This was a level of government intervention into the free market that people would never have thought possible only a few months ago.

Will the ‘new normal’ improve the narrative around SMEs?

The big question here is, when the furlough schemes, loan packages, and other support schemes end, will this trauma have created a new more grounded narrative around what is happening to the fundamental structure of the UK labour market? Or, will we somehow return to muddling through and papering over the cracks about what is happening to the fundamental structure of the workforce and the future of work? We urgently need to understand how to truly manage and foster the arrival of an economy where so many people will effectively be working on their own account – having to take personal responsibility for building and managing themselves almost as a brand?

Let’s hope that one positive outcome of the pandemic is that we get some serious narratives going around what is needed to sustain a truly entrepreneurial based economy.

This a debate to which I am sure fellow insight professionals will have a lot to contribute. I look forward to hearing your views.

You can contact me on [email protected].
DVL Smith is the author of The High Performance Customer Insight Professional: How to make sense of the evidence, build the story and turn insights into action.        

Leave a Comment

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Scroll to Top