Start-ups are everywhere but do they generate economic growth?

Start-ups are everywhere but do they generate economic growth? A new report Does Entrepreneurial Success Generate Economic Growth?published by the Institute of Innovation and Knowledge Exchange (IKE) asks that question. The results are startling and go a long way to understanding why only 10% of start-ups are still in business past the fifteen-year mark. Successive governments have seen Entrepreneurship as the silver bullet to boost productivity and stem economic decline. Over the years, they’ve pumped millions in accelerators, regional innovation initiatives and promotional activities, but has this investment really delivered the growth expected?

The report shows nominal growth in the number of enterprises starting with 0-4 employees. But is this genuine start-up activity, or labour market programmes instituted by government to reduce unemployment figures? Much has been made of the gig economy phenomenon producing clever start-ups, but in reality, the report shows all it has driven is low paid and insecure work. Most new enterprises do not grow and nearly 60 per cent fail before five years. A striking feature of the research showed, despite investment, there was very little change in survival rates across a five-year period, with 10% failing in first year, 25% by the second, 40% by the third and by year four almost half had died. The survival rate per sector shown that 51% of enterprises set up in Property survived, following by IT and Comms with 49% surviving. The sector where the most business deaths occurred was in Accommodation and Food with nearly 65% having failed after 5 years.

So where is all this high growth that’s being touted actually happening? Where are those Gazelles that business schools talk about? IT and Comms have the highest proportion of high growth enterprises, followed unbelievably, by the water supply, sewerage, waste management and remediation sector. Well they do say where there’s muck there’s brass!