15/7/2011

By Peter Forrest, Managing Director, DPM Systems

In any country, entrepreneurs are a key factor in economic growth. Particularly in smaller, less developed countries they can make a major contribution to growth and development. Yet these individuals are invariably undercapitalised and typically lack key business skills and experience. Given the Western world’s lack of funding following the banking crisis, these governments need to look closely at the role they can play in supporting and nurturing entrepreneurs.

This does not mean handing out small business loans to any owner managed business. As Peter Forrest, Managing Director, DPM Systems, and a serial entrepreneur in the technology sector, insists, it is by identifying entrepreneurs and providing the three tenets of finance, mentoring and business expertise that governments can fast track the creation of truly innovative businesses that will contribute considerable value to the economy.


Government Role:

The level of government intervention into business practices remains a controversial issue. There can be no argument that the creation of new businesses is key to economic growth; or that innovative, entrepreneurial individuals can drive new business practices and models that can contribute significantly to the economic success of a nation. But should governments take a more proactive role in fostering such businesses or allow market forces to dominate?

Given the challenges that must be overcome to create and sustain new businesses in what remains a difficult economy and the continuing reluctance of banks to support new business ventures there is a growing debate about the role government could and should play in supporting new business growth.

Of course governments recognise the value of new businesses to the economy and have put in place financial schemes to support start up ventures. In the UK, where 99.3% of registered businesses have less than 50 employees and these organisations contribute 48.3% of total revenue in the UK and employ 38.4% of the working population*, the government’s small firms loan guarantee scheme was in place until recently to support the capitalisation of these organisations.

But such schemes miss a fundamentally important point: is economic growth driven by entrepreneurs or owner managed businesses? The difference is considerable. An individual wanting to work for him- or herself has different drivers than an entrepreneur. Some are looking for a lifestyle business, others are committed to building a larger operation but, in contrast with the entrepreneur, these individuals are not necessarily driven by the same need to excel at all cost.


Creating a Legacy:

The entrepreneur is absolutely driven by the need to be the ‘best in class’. He or she wants to create a legacy business — something that will make their mark on the world. The fact that, if successful, it will employ huge numbers of people and generate substantial profits is simply a bi-product of the overarching objective of creating a company that dominates its sphere of influence and is a market leader.

What does this mean in practice? And how does the inherent difference between entrepreneurs and owner managers affect business success or economic significance? Owner managers are typically far easier to work with. They are bright and self-confident, without necessarily sharing that all consuming sense of urgency that characterises the entrepreneur. These individuals are also typically more agreeable and flexible, which is appealing to the banks. Yet it is the burning ambition of the entrepreneur and the drive that delivers innovation and accelerated growth.

Understanding this difference is vitally important for the future growth of global economies. In a world desperately trying to work out how to find and attract the entrepreneurs that drive economic growth, to identify the next Richard Branson, Steven Jobs or Bill Gates, determining exactly what defines a true entrepreneur is key.

According to Julie Weishaar, a columnist and regular contributor to Technorati, these individuals have seven clearly identified traits. They have a consuming sense of urgency, are highly intelligent, autonomous, self-confident, lack interpersonal relationships, have a need to control and are goal driven. In essence they are often extremely irritating and always think they know best!

The problem is that these individuals are often hard to relate to; indeed governments and financiers may often turn away from entrepreneurs because they struggle to find common ground. Bear in mind that any individual who is always asking why; who is on a constant voyage of discovery and always looking for the next opportunity may be incredibly annoying and tough to work with but is ultimately the person worth nurturing.


Reversing Failure:

Yet entrepreneurs fail. Repeatedly. Why? Often they are undercapitalised — a problem that has become even worse since the banking crisis. However, entrepreneurs also need to recognise they are NOT unique; there is no unique business model, however innovative they may be. The practicalities of manufacture, distribution and good customer service are the same irrespective of the innovative product or service being delivered.

Unfortunately, those within the banking sector do not always have the required business insight. Few understand the value of mentoring, or have practical experience of actually running real world businesses. All too often, the entrepreneur is stifled by the sheer volume and intensity of paperwork required by those who must ‘diligently mitigate all risks’ before signing off the investment.

Governments and the financial institutions are closely intertwined. But when looking to support entrepreneurial business both must step outside the traditional approach to generating new business. There is a huge role to be played by business mentors who can help to raise finance and fast track the growth of these entrepreneurial businesses — ensuring these companies do not reinvent the wheel or make the mistakes that have been made by so many others in the past.

Such mentors cannot be other, young, developing entrepreneurs — face it, these driven individuals are consumed with the vision of success and would be more than likely to take the idea and run with it themselves. The requirement is for the entrepreneur who has already made a market, who has created a legacy business and is now in a philanthropic phase and is committed to building economic value over and above their own financial objectives.


Conclusion:

So can government really play a role in building and nurturing entrepreneurs? In the past entrepreneurs have been primarily supported by the private sector. But the global economy is challenging and private sector finance is extremely tough to attain, especially for a driven and challenging entrepreneur.

If entrepreneurs are to be successful and to provide the foundation for on going economic growth they need support. And that support must extend beyond raising capital — although that is a critical component. It must include the right type of mentoring and business guidance as well as relevant government incentives, including making it easier and less expensive to employ people. With the right support, governments can minimise the risk of failure and enable these critical individuals to rapidly develop and begin to deliver real value to the economy.