By Bronek Masojada, chief executive of Hiscox
It has become a cliche to say that small and medium-sized enterprises (SMEs) are the lifeblood of the economy - and like most cliches it happens to be true.
In terms of sheer numbers, SMEs dominate the business landscape of both the EU and the USA: according to official figures, in 2010 over 98 per cent of all enterprises in both economies had fewer than 500 employees. SMEs within the EU produced over 58 per cent of the EU’s total output and provided over two thirds of private sector jobs. A European Commission study found that SMEs had created 85 per cent of net new jobs in the EU between 2002 and 2010. In the United States, the National Economic Council reported in May 2012 that over the last two decades small and new businesses had created 2 out of every 3 net new jobs, and that America’s officially defined 28 million small firms now employ 60 million Americans, half of the private sector labour force.
Beyond their contribution to output and employment, SMEs are a key influence on what Keynes memorably called the “animal spirits” of the economy – the mood and expectations which shape economic behaviours. No one with any plan or even hope for economic recovery can afford to ignore this vital sector of the economy.
Over several years, our company, Hiscox, has been surveying the performance and underlying attitudes of SMEs in the United States and a number of EU countries, the UK, Germany, the Netherlands, France and Spain. We do this in our own interest, because so many SMEs are customers of our insurance products, but also as a contribution to national and international debates. Year after year, we are surprised how often our findings run counter to the received wisdom in these debates. Our fourth “DNA of an entrepreneur” study, published last month, is no exception.
For example, SMEs are regularly reported to be critical of the skills and attitude of school leavers and graduates they recruit (sometimes in Victor Meldrewish tones). Our current study tells a different story: over half of all respondents gave their new recruits high marks for basic arithmetic and literacy skills, and nearly two thirds scored them highly for keenness and motivation. New recruits did get lower marks for foreign language skills, especially in the English-speaking countries, where it is hard to separate cause and effect since British and American respondents placed the lowest value on these skills.
It has also become commonplace to read that SMEs have bitter feelings towards banks and other lenders. Again our study suggests otherwise: 62 per cent had never sought to re-negotiate terms from a lender in the past four years. Of those that did so, 74 per cent had been wholly or partly successful.
Above all, our study again contradicted the widespread perception of SMEs leading lives of quiet desperation. Quiet determination would be a better conclusion from our results. Across all six countries, 48 per cent declared themselves optimistic about the year ahead, against 27 per cent who were pessimists (the remainder were not sure). These percentages were virtually unchanged from our study last year, although SMEs have endured almost uninterrupted economic pressure since then. There were some other heartening results (dare one call them green shoots?). Over one in seven were planning to take on new employees next year while 75 per cent expected to avoid redundancies or even recruit. In five out of the six countries, a majority of respondents reported an increase in new customers.
The economic crisis has certainly taken a personal toll on leaders of SMEs (and we found some evidence that it had hit women harder than men). Across all six countries, 43 per cent of respondents reported additional stress and 31 per cent mentioned sleep problems. But 30 per cent said that the crisis had made them stronger and more determined to succeed and 31 per cent that it had spurred them to work more efficiently. One in five reported no personal impact from it at all.
Spain, at the sharp end of the crisis, was the exception to these encouraging findings: its SMEs gave significantly bleaker responses to virtually every question. But even there the gloom is not unalloyed, and their SMEs are not giving up hope. If economic conditions improved in Spain, I believe that their entrepreneurs would reflect the same pattern of optimism and resilience as those of other countries, as they have done in our previous studies.
One finding might give cause for reflection to all those claiming to represent SMEs. Only 22 per cent of all respondents had turned to anyone for outside help on a business issue. That may reflect a can-do attitude among SMEs but it might also suggest a lack of confidence in those who are meant to help them. The most preferred avenue of outside help was a business or small business association (11 per cent), followed by a local councillor or mayor (9 per cent). Just 3 per cent had gone to an MP or equivalent and in the five EU countries only 1 per cent had approached their MEP.
If there is one single message from our study: SMEs resist type-casting. It is facile but foolish to depict them in terms of resentment and gloom. SMEs are indeed pumping lifeblood into Western economies and there is still evidence of a healthy heartbeat.
About the author
Bronek Masojada is chief executive of Hiscox, the international specialist SME insurer. The fourth Hiscox survey “DNA of an entrepreneur” is available at www.hiscox.co.uk/press-room/features/hiscox-dna-of-an-entrepreneur