FrankFullard.com

One of the key policy issues in economic development, and one on which there is no general consensus, relates to whether grants to industrial ventures are worthwhile or not. Some economists, in particular, oppose grants as instruments of economic development, and speak about things like deadweight and displacement; their quasi-sophisticated way of saying that even without grants the business would have developed anyway, and even if the grants did help project A, it did so to the detriment of project B.   

There is not a great deal of published research on the topic, with empirical evidence generally hard to come by in most countries. Interestingly the one country with a data set that is comprehensive enough to permit meaningful empirical examination is Ireland. The Irish data has now been comprehensively studied by Sourafel Girma, Holger Görg and Eric Strobl, working under the auspices of the Institute for the Study of Labor (IZA) in Bonn, a local and virtual international research center and a place of communication between science, politics and business, associated with the University of Bonn (IZA DP No. 838). While the research was conducted a couple of years ago it is still relevant today.   

In their research they set out to investigate whether the grant provision system in the Irish manufacturing sector has succeeded in enhancing plant performance. Their results indicate that in general grant payments have helped plants to survive longer in Ireland. This result is particularly clear-cut for domestic plants, for which grants of all types have provided an important impetus.   

In contrast, not all grant types have successfully aided multinational plant survival. They also find that most grant provision has been a positive determinant of employment creation in domestic and foreign plants.   

In terms of policy relevance these empirical findings imply that grant provision can be an effective means to enhance firm performance. For one, it can serve as an instrument of employment creation. While it can also be an important impetus in plant survival, particularly for domestic plants, policy makers may want to take note that it may not always ensure that multinationals remain in the host country.   

In recent years there has been lees emphasis on grants generally, understandable enough in a country approaching more or less full employment. The economy has now changed dramatically and business survival and job creation have to become priority issues. That being so more positive grant regimes may be appropriate, particularly for Irish owned firms. We know they work. 

While I find most of what is contained in the GEM Report on Entrepreneurship in Ireland 2007 to be positive, and I have written about a number of the findings in previous posts,  I have a major unease about one particular element of the report – that relating to the trend in terms of the number of nascent entrepreneurs in the country. My unease is added to by virtue of the fact that, while the data is there for all to see, the authors of the report make no mention of it at all in the text of the report. So: have they missed something? Am I misinterpreting the data? Am I allowing my views to be coloured by my own personal perspective? Whats up?
 
I had beter explain.
 
I’ll start with my own personal perspective.
 
As I said in an earlier post GEM rates countries on how entrepreneurial they are by combining two separate measurements. The first relates to the number of nascent entrepreneurs, being those that are actively planning a new venture, measured as a % of those aged between 18 and 64 years in the overall population. The second relates to the number of new firm entrepreneurs, being those who at least part own and manage a new business that has been in existence for not more than 42 months, again measured as a % of those aged between 18 and 64 years in the overall population.
 
While both are obviously important I would argue that for policy makers looking to the future the critical issue is to ensure that we maximize the number of nascent entrepreneurs. They can, after all, do something about that figure, whereas the outcome for new business starts is essentially historical and, by the time it is measured, beyond the control or influence of policy makers. It may indicate how effective past policies have been, but, particularly in a period of accelerating economic change, we know only too well that past success is no guarantee of continuing future prosperity.  At least that’s my personal perspective.
 

Now to my unease.
 

Although the body of the report makes no reference to it, the data in Table 1.3 on page 20 of the report clearly indicates that in 2007 we witnessed a decline in the number of nascent entrepreneurs. It declined from 4.5% in 2006 to 4.2% in 2007. But the level for 2006 was itself down from a level of 5.7% in 2005. While the figure for 2005 did represent an increase over the level of the previous year, the data for the past 5 years indicates that the outcome for 2007 was the lowest for any of the past five years.

The average for the 4 years prior to 2007 was 4.9%, and so, at 4.2%, the outcome for 2007 must, as a minimum, be seen as disappointing. I do not see it as a one-off that we can ignore. To me it represents a worrying trend and one that we urgently need to do something about. The issue is a simple one – if the numbers actively planning to start new business ventures continues to decline over time, how can be maintain our current levels of entrepreneurship, let alone increase them?
 

I have summarised the figures in the table below. Look at it and then you can make your own mind up.

The level of informal investors in new businesses is an important element in the creation of a conducive environment for entrepreneurship. Research generally, icluding GEM research, indicates that high levels of informal investors leads to high levels of new business start-ups.
 
Ireland, it must be said, is somewhat of an exception to that general rule, because we have managed to attain among the highest levels of new business start-ups in Europe and the OECD, while at the same time we have comparatively low levels of informal investors.  In 2006 we were ranked 16th out of 20 OECD countries included in the GEM research on this measure, when 1.7% of the population were classified as informal investors.  We improved to 3.3% in 2007, but were still only ranked 9th of the 20 OECD countries surveyed.
 
The shortfall in informal investors does not seem to be counterbalanced by the ready availability of funding from other more formal sources, because access to debt and equity finance is the most cited weakness in the Irish enterprise support system.
 
Informal investors here, such as they are, are almost exclusively (84% in fact) family or friends of thr entrepreneur, with the former accounting for 54%, and the latter for 30% of all informal investors in 2007. Indeed strangers accounted for only 8% of such investment overall.
 
Profit is not the primary motivator for family and friends investing in new business ventures because only 29% expect to make a profit from their investment; 43% expect to loose half or all of their investment, while 28% expect to break even on their investment.
 
The moral of the story: look after your family and friends and they may well look after you later on when you get to the stage of starting your own business!
 
The complete data is summarised in the following table.

There I was, posting away on my blog, getting only the occasional comment, more often than not wondering was I simply talking to myself, when suddenly, out of the blue, I get nominated for the Small Business Blogging Brilliance Award by Steve Rucinski of the Small Business CEO blog. To say that I am honoured would be the understatement of the month.
 
The awards procedure is as follows – if you get a nomination it is open to you in turn to nominate seven blogs that you admire or enjoy reading. As the founder of www.Irishbusinesswomen.com I am huge fan of the whole notion of reciprocity – doing something for others without expecting anything in return, and accordingly I have made my selection on the basis that each of the blogs I nominate has given me something or other (enjoyment, information, a laugh, whatever) over the last year or so, and I now return the compliment by giving them a nomination.
 
My nominees are:

Trizle  - which provides tips, tools, and tricks to rock your business like it ain’t no thang but a chicken wing on a string, or so they say, and I have found it to be true.

Smallbiztrends – which always has something interesting to say, and says it in a positive way.

Springwise – which has 8,000 spotters of new business opportunities of amazing variety.

Irishblogs.ie – which keeps us all in the shopfront, even if we get more browsers than customers.

Interactions – because Annette Clancy first showed me the rudiments of blogging, and I now need her to show me how to do it right! ASAP please!

Gingerpixel – because Claire’s photographs always inspire.

Small Biz Survival – because much of what it’s author Becky McCray writes strikes a chord with me.

Those I have nominated are free to keep the awards circulating by nominating seven blogs that they think deserve the award.

If starting a business is one side of the entrepreneurial coin, then business closure is the other. However, when we think about business closure, we generally tend to think in terms of business failure, as if the two were the one and the same thing. This is an erronious approach because the reality is that most business closures are not actually caused by business failure per se. Obviously starting a new enterprise is a risky business but a not uncommon failure to classify the causes of business closure accurately can lead to our overestimating and overstating business failure rates.

The GEM Report on Entrepreneurship in Ireland for 2007 looked at business closures, or exit rates as they called them. They found that there were approximately 51,000 business closures during the year. This represents a rate of 1.9% of the population, down slightly from the average of 2% experienced over the past 5 years.

The GEM research looked at the reasons for closure and their findings make extremely interesting reading. Only 25% closed because they were not profitable. Even allowing for the additional 7% that closed because of problems getting finance, the findings indicate that the vast majority of closures were not related to issues of financial viability. For example 23% of businesses closed for what are described as personal reasons; 16% because the opportunity to sell the business presented itself; a further 16% because the owner retired. For 9% the exit was part of a deliberate planned strategy, while in 5% of cases the owner closed their business to pursue an employment opportunity.

The GEM data serves as a timely reminder to us of the need to be careful in equating business closure to business failure, because more often than not businesses close for reasons other than failure!

The findings of the report under this heading are summarised below.

I have written before about the barriers to innovation that Irish firms face. Top of the barriers list comes availability of funds. However, if you know someone in one of our third level colleges with particular expertise that you would like to use in your business you might just be able to get it free, gratis and for nothing. That’s if my take on the Innovation Voucher Initiative is correct! You may also need to be a little innovative in how you approach things, but that’s the name of the game after all.

The introduction of the Innovation Voucher Initiative was one of the recommendations of the Small Business Forum in their report Small Business is Big Business, published in 2006. The scheme is administered by Enterprise Ireland, and application forms and complete information relating to the scheme are available from their website.

My lay-mans version of the scheme is that

• If you run a small business (one employing less than 50 people) you can get an Innovation Voucher worth €5,000 from Enterprise Ireland, which you can then exchange for advice and expertise from any one of a number of third level colleges here or in Northern Ireland. The expertise of Teagasc is also included. The EI website lists the colleges involved, but from what I can see most colleges seem to be on the list.
• To be successful your project must require an innovative solution, provide additional value for your company and have on-going benefits. Given that there are no definitions on what this means, I take it that if you think it is an innovative solution, it is an innovative solution!
• You do not have to be a client of Enterprise Ireland to be eligible. All small companies, in every sector of the Irish economy are eligible. That obviously includes clients of County and City Enterprise Boards, and for its part the Mayo County Enterprise Board is actively promoting the programme as part of a wider initiative to attain higher levels of innovation in Mayo. The only exclusions are small enterprises in the transportation and agricultural sectors.
• Groups of up to 10 companies can come together to look at issues of common concern.
• Each year there are a number of “calls” for applications, and there will be two further opportunities to apply this year. The next open period will run from 1st until 30th September, and the final open period runs from 1st to 30th November.

I would heartily recommend that anyone who thinks they might possibly benefit from the scheme should avail of what it has to offer. There are liaison officers listed for most of the participating colleges and of course you can work through them. However, as I said in my introduction, if you know of someone with particular expertise in one of the colleges, and you want to tap into that expertise my advice is to go directly to them and try and leverage their support directly and then deal with the paperwork. Try the innovative approach! At a later stage, I’d love to have feedback from anyone who follows my advice.

There are a number of features of the current scheme that I find peculiar, but that’s another post for another day.

One of the most positive outcomes noted in the GEM Report on Entrepreneurship in Ireland for 2007 is the fact that the levels of early stage entrepreneurial activity for women in 2007 was at the highest ever recorded since the GEM research began.

In 2007 there was a stepped increase in the number of women involved as early stage entrepreneurs. At 5.9% it was up significantly from 4.2% in 2006. Early stage entrepreneurial activity is composed of two elements, nascent entrepreneurs (those actively involved in planning a new business), and new firm entrepreneurs (those that have actually started a business in the last 42 months). The numbers of nascent female entrepreneurs, at 2.8%, remained more or less at the same level as in 2006. The real difference, therefore, was in terms of the very significant increase in the number of females that had actually set up a new business – at 3.3%, more than double the rate of 1.5% recorded in 2006. It is the highest recorded since the GEM research commenced, and is well up on the average for the last 5 years (2.2%).

On average 2,700 individuals set up a new business in Ireland each month. Given that 1,650 are set up by males against 1,050 by females the gender gap remains (as it does in all developed economies) but it is narrowing.

Women in Ireland are now setting up new businesses at unprecidented rates. Hopefully this is a trend that will continue.

The following table summarises the growth in the levels of female entrepreneurship in Ireland over the past five years.

The GEM** report on Entrepreneurship in Ireland for 2007 has just been released. It makes for interesting reading and most, but certainly not all, of the findings are positive indicating that Ireland continues to be to the fore in Europe and the OECD in terms of the numbers among its adult population that are engaged in entrepreneurial activity.

GEM universally measures the rate of entrepreneurial activity under a number of common headings, including:

• The number of nascent entrepreneurs, being those that are actively planning a new venture, measured as a % of those aged between 18 and 64 years in the overall population.

• The number of new firm entrepreneurs, being those who at least part own and manage a new business that has been in existence for not more than 42 months, again measured as a % of those aged between 18 and 64 years in the overall population.

• By combining these two measures they get a rate for total early stage entrepreneurial activity, called a TEA rate or index, which is essentially a rate that combines the rates for nascent and early stage entrepreneurs.

• Established businesses are those that are older than 42 months.

The highlights for Ireland in 2007 indicate that:

• In 2007 about one in every 24 people could be described as being a nascent entrepreneur, in that they were actively involved in planning a new business.

• Over the last three years an average of over 2,700 people have set up a new business each month.

• One in every twelve of the adult population was involved in actively planning or had recently started a new business (8.2%). The most active age group for business start-up is that between 25 and 34 years, and the rate for that group was one in nine (11.5%).

• Women are setting up new businesses here at a higher rate than ever before, and while there is still a gap between the business start-up rates of men and women in Ireland (as there is in all developed countries) that gap is narrowing.

The overall situation in relation to early stage entrepreneurship in Ireland for 2007 is summarised below.

__________________________________________________

**The Global Entrepreneurship Monitor (GEM) is a not-for-profit academic research consortium that has as its goal making high quality international research data on entrepreneurial activity readily available to as wide an audience as possible. Each year GEM produces a series of reports measuring the levels of entrepreneurial activity in each of the participating countries, of which there are now over 40. The great advantage of the GEM approach is that because the same things are measured in the same way in each country we can make meaningful comparisons as to the level of entrepreneurial activity in different countries.

As part of the Government’s climate change awareness campaign the Department of the Environment has recently launched a carbon footprint calculator. This allows individuals to measure their carbon footprint. In introducing this tool it is hoped to reinforce the message that individual decisions can influence individual footprints which will bring down Ireland’s carbon emissions. 
 

The tool has the capacity to measure an individual’s carbon footprint under two headings – in respect of their home and their use of transportation. You can measure your carbon footprint on a one-off basis or alternatively the data gathered can be stored in the system to allow for the making of comparisons over time.
 

There does not appear to be a comparable tool, at this stage at any rate, to measure the carbon footprint of businesses. Hopefully this is just a temporary omission.
 

To view or use the tool go to: www.change.ie.

The virtual network www.Irishbusinesswomen.com will shortly be three years old. As its founder I obviously have a keen interest in networks and how they work. Much of what I read, particularly of the “How to Network” genre I find to be total rubbish. For me, reciprocity, or doing something for someone without asking or expecting anything in return, lies at the heart of networking. In one simple sentence it is about giving. The getting end is the bonus that comes later.    I was reminded of that recently when I read the following piece by Loren Eiseley . It is called “The Starfish Story”     

Once upon a time, there was a wise man who used to go to the ocean to do his writing. He had a habit of walking on the beach before he began his work.

  

One day, as he was walking along the shore, he looked down the beach and saw a human figure moving like a dancer. He smiled to himself at the thought of someone who would dance to the day, and so, he walked faster to catch up. 

  

As he got closer, he noticed that the figure was that of a young man, and that what he was doing was not dancing at all. The young man was reaching down to the shore, picking up small objects, and throwing them into the ocean. 

  

He came closer still and called out “Good morning! May I ask what it is that you are doing?” The young man paused, looked up, and replied “Throwing starfish into the ocean.” “I must ask, then, why are you throwing starfish into the ocean?” asked the somewhat startled wise man. To this, the young man replied, “The sun is up and the tide is going out. If I don’t throw them in, they’ll die.” 

  

Upon hearing this, the wise man commented, “But, young man, do you not realize that there are miles and miles of beach and there are starfish all along every mile? You can’t possibly make a difference!” 

  

At this, the young man bent down, picked up yet another starfish, and threw it into the ocean. As it met the water, he said, “It made a difference for that one.”