A 1993 MORI poll in Scotland estimated that there were over 90,000 latent, or would-be, entrepreneurs and business owners in Scotland, who were frustrated in their ability to act on their aspirations by a range of factors, including the absence of role models, difficulties (actual and perceived) in accessing resources, particularly finance, and lack of knowledge about the process of business formation. Based on figures from the Global Entrepreneurship Monitoring (GEM) research programme around 5% of the Scottish adult population is actively engaged in business ownership or in activities being undertaken with a view to entering business ownership. This is around one half of the level experienced in the US and around one-third the level in other small open dynamic economies such as New Zealand.

Actually achieving this increased level of entrepreneurial activity will require a quantum shift in culture and attitudes in Scotland, which may only be achievable over a generation: as the experience of the business birth rate strategy in Scotland has demonstrated, this is not a ‘quick fix’ option. Specifically, access to finance is consistently cited as the prime obstacle to entrepreneurial activity in the GEM reports, and also in our research and contact with potential entrepreneurs. As it is, at present Scotland is working at perhaps 20% of its entrepreneurial potential.

Our view is that the 90,000 “frustrated entrepreneurs” identified by a 1993 MORI poll (a figure consistent with the GEM data for Scotland a decade later) do not become active entrepreneurs largely because the funding landscape is not only too empty, but is also perceived as empty by those looking to enter it. While market participants respond (with some accuracy) that it is in fact not empty, and that sensible ideas well advised can usually find a funder, this accurate opinion is not helpful to an individual who is in full-time employment during normal working hours, has few or no contacts with the market, has little understanding of how it works, has little spare time to find out, and has a perception that entrepreneurial success relies on unique and specific skills that they may not have and may not be able to acquire.

A Darwinian approach to entrepreneurship would demand that these 90,000 aspiring entrepreneurs be left to live or die on their merits – let the fit survive and the rest remain in employment. Such Darwinism is, however, founded on the false premise (a) that this process will ‘weed out’ weak ideas and businesses, which is economically efficient, and (b) that entrepreneurship ought by definition to be hard and difficult, not least because today’s successful entrepreneurs and investors did indeed have to face harsh and difficult environments, and associate success with difficulty.

This Darwinian approach to the creation of an entrepreneurial economy is flawed, as can be seen from the failure of the Scottish economy to significantly raise the level of new business starts and the rate of formation and growth of high-potential companies over the past decade. A funding landscape that was visibly and obviously rich in sources of risk capital for businesses of every kind would remove a major constraint (real and perceived) on the formation of new entrepreneurial ventures. As such, it would provide an environment for the successful transformation of the culture of the Scottish economy into one in which entrepreneurial activity is seen as a legitimate career option and economic role.

I came across this interesting report from 2004 covering the Scottish investment scene and it goes a long way to explain why Scotland isn't home to as many successful startups as it deserves. Not much has changed in 4 years and to put some figures on it, we are apparently we are only working at 20% of our economy's potential:Next time I have a decent idea, I'm off down to London. We have some of the brightest ideas in Scotland, some of the best graduates and even some of the world's largest banks. Yet we struggle at 20% of our potential. Why should I as an entrepreneur waste my time with a funding sector that isn't fit for purpose?

Labels: Business, Innovation, Politics, Scotland