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Starting up is easy to do

So, there’s this primetime TV show that runs in the UK several times a day. Every day since around 2008, its lead characters bumble from one crisis to the next and the frankly ludicrous plot seems to twist and turn in ways so that are so implausible (yet eerily predictable; they always seem to come up with a new plan and then somehow completely blow it) that it makes Dynasty look like a fly-on-the-wall documentary about eastern European salt mines. Occasionally the characters pose for smiley group photos even though they secretly hate each other. And it’s not hard to see why they hate each other, as they are on the whole a miserable collection of the sort of people in society you’d find it impossible to relate to, never mind build any affection for.

The show is called the News.

And with the exception of the salaciously illustrated phone hacking scandal that has made for some truly outstanding relief lately, I don’t think I’ve seen a day go by since 2008 without some kind economic crisis story utterly dominating the social conscience of the Northern Hemisphere.

Today is no different. Yesterday the UK government published its latest economic figures showing that the UK economy contracted again, by more than expected, and driving the UK deeper into negative growth territory.However, what nobody has noticed – apart from me, apparently – is that amid all the doom and gloom, there’s one statistic that’s confounding the headline numbers.
The numbers of companies being formed every month in the UK has never been higher; in fact it’s running at way more than double the rate prior to 2008.

Experts would call that “counterintuitive”.

I have some candidate theories about why.

  • Lots of people got made redundant in the depth of the Global Economic Crisis four years ago. While that might explain the initial lift it doesn’t explain the continuation in growth of company formations. So, I’ve decided that’s not such a hot theory.
  • The introduction of the 50% personal tax rate drove people from employment into self-employment. That probably has some legs as a theory but, again, doesn’t explain such a big shift on its own.
  • It’s never been easier to setup and run your own business.

I like that last one best.

Fifteen years ago before the world-wide-web (anyone reading this under the age of 25 ask your parents what life was like before Farmville and smartphones), if you had an idea about starting your own business, it was a lot harder to work out the practicalities of how you might go about it. Could anyone just start a business? How much did it cost? Did you have to ask for permission? How would you manage it?

Today you just ask Google.

And Google replies with references to a million self-starter kits and countless free advisory services.  Today you don’t even need an office or many of the artefacts you would have required fifteen years ago. You can promote and sell your wares online for next to nothing, you can build your brand for free on Twitter and Facebook (when you’re not playing Farmville) and you can do your books on beautiful accounting software. For the price of a good coffee. On your phone. While playing with your kids. Smiling.

So, in the wake of the carnage wrought by a million be-suited bureaucrats, theoretical economists and over-enterprising bankers, there’s a huge, monumental re-wiring of the mechanics of the small business economy, at least in the UK and, actually, I suspect everywhere.

But because of the News, nobody’s talking about it.

Until now.

 

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5 comments

John
26 July 2012 #

Interesting post and I agree about there never being a better time to get a business started.

Paradoxically in the UK there’s probably also never been a worse time (in terms of bureaucracy) once you start employing staff and operating premises etc. but that wouldn’t impact on your theory.

Did you get the data for dissolutions too? We’ll be forming at least one company this year but we’ll be getting rid of at least one too :-)

Kane
27 July 2012 #

Yes Gary, I agree with your theory that it’s much easier to build knowledge on how to start a business and also less start up capital is required. The other thing that may add to this is there is a number of people out there that have been made redundant many times and have decided it will be less risky (easier) to do their own thing.
Have you read Richard Branson’s book titled ‘Screw Business as Usual’? personally I’m halfway through but what I have picked up so far is that Branson (and many other partners) think that the way to bet poverty is by helping people set up their own businesses (the key word being “help” as in help them to help themselves) and some of this help comes from large Corporations being very generous.
One day in the future Xero may be able to help in some way and “Screw business as usual”. Off course profits need to come first but it’s something to think about.
One of the many reasons I invested in Xero was because I think there will be a massive trend world wide where we will see a huge increase of small businesses emerging. And Xero is going to be a very important tool for them!

Chris
27 July 2012 #

An equally valid theory is that the massive tax hikes have caused those with money to become more motivated to engage in increasingly complex avoidance arrangements which include the use of companies as conduits and corporate trustees. The weak state of the UK economy certainly doesn’t support the inference that entrepreneurialism is on the rise in any meaningful way.

Gary Turner
28 July 2012 #

Good comments, thanks.

@John – Will see if I can find dissolution stats also and if I do, will append an update.

@Kane – Haven’t ready that book, will look it up.

@Chris – Over the last couple of days I’ve heard various economic pundits struggle to explain why the headline numbers are so weak in the face of growing employment and reasonable performance in some sectors. The consensus is that the reported figure will be revised up and the health of the general economy is being obscured by the serious ill health of the construction industry and the dearth of large scale infrastructural projects, both of which are dragging down the overall number.

Martyn
31 July 2012 #

Is it possible that some of the new company formations are old jobs which are now sub-contracted out avoiding the burden of directly employing people, so maybe instead organisations are freelancing the work out to a new company (a company of 1 is still a company), in the past that person would have received a payslip, now they send in their own invoice and sort their own admin out. Am I on to something?

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