I am intrigued with how governments want to back a winner. Quotes like we are wanting to see the next Yahoo, Google or Amazon in this state strike me as speak for “we are desperate for jobs growth and don’t really understand how successful businesses are built”. This may appear harsh but I will explain my reasoning for this below.
The title of this blog focuses on grant funding and investment support for start-ups versus scale-ups. Start-ups are new businesses that receive funding to help them start. Scale ups is a term I use for organisations that have been successful over a number of years that with the right guidance, support and right conditions could grow incrementally in to new markets, geographies and other revenue streams.
Governments appear to be fascinated by start-ups. Any opportunity to use business buzzwords like incubators, innovation, hubs, start-ups, entrepreneurship, and technology seem to evoke excitement in ministers, departments and public servants. The problem with this is that very little of this funding or grants eventuate to tangible outcomes, employment and economic growth. Instead, the money is often used to fund a dream, an unrealistic business plan on people with no credentials or track record in business or a risky venture that is not ready to bring to market or commercialise. It appears to defy logic that government would use money to fund risky ventures that are selling hope rather than a track record of business success.
Compare this to scale ups. Businesses with a number of years of experiences. They have survived the first couple of challenging years that find out most business owners. They are clear on what they stand for and there is a market for their services. They have a strong focus on profitability, cash flow with clients and markets. They are solid businesses with the potential to grow through support in to new markets, less red tape or minimised bureaucracy.
The scale ups in my eyes are the better investment. Businesses that might have 10 people but have the potential to be double that. They have good management, a solid track record and positioned for growth. They can be reviewed, analysed and easily identified as to whether they have potential for scalability enabling employment growth for their economy. The multiplier effect of 10 or 20 businesses scaling up is significant enabling others to also grow with them.
Given this, why don’t they get the focus they deserve from government? Are they not sexy enough? Are they quiet achievers? Do they not have the flashy story of a start up? It is a sad indictment of most governments who don’t grasp how to grow an economy which is by backing businesses with a track record of success rather than placing their bets on a number that they hope comes in. I suspect the root cause of this is that very few members of parliament have not run successful businesses themselves.
When a smart government can understand this difference and actually differentiate between start-ups and scale-ups, they will start to grow economies. They will also focus on reducing red tape, removing taxes that drive the wrong behaviour in business owners such as payroll tax and also being lean in public service employment numbers which is primarily their main function.
Their role is to create the environment for business success rather than put on another 50 people in the public service to create jobs. Small business is the heart of any economy. They don’t want funding or another grant. They prefer less in process and red tape to allow them to free up precious time and energy to scale their businesses.