• 1  DTI, Small Business Service, “A government Action Plan For Small Businesses”, January 2004.
• 2  The Economist, “A cut above”, July 9^th, 2005, 13.

1The Lisbon strategy (2000) aimed to make the EU the most competitive and dynamic knowledge-based economy in the world by 2010. Concurrently, the British government has claimed to have made “the UK the best place in the world to start and grow a business” by 2005.1 The objectives of the Lisbon summit are now less frequently mentioned despite sluggish growth in the EU. Even though the UK has recently achieved remarkable economic success, at least compared to her major EU partners, her economy is now stalling because of long-standing weak fundamentals: “Next to its European counterparts, British business is less innovative, employs less capital and draws on a less competent workforce”.2

• 3  Michael Porter, The Competitive Advantage of Nations, New York: The Free Press, 1990.
• 4 Financial Times, “Budget 2004—RED BOOK; Emphasis on innovation to help UK overtake its rivals”, Mar (...)

2Improved competitiveness and innovation have emerged as the solution to all ills, since technology has become the fourth production factor alongside work, land and capital.3 The essential role of SMEs in boosting overall economic growth is being increasingly acknowledged: “a vibrant small business sector creates wealth and employment, generates competitive pressure that drives innovative activity and improves the range, quality and prices of goods and services for consumers”.4

• 5  The Economist, promotional campaign for The Economist Conferences, 2005.

3In this effort to keep up SMEs to scratch, the word “innovation” has become pervasive: “Bright ideas…but do they pay? Globalisation…the rise of the Internet…the inexorable pressure of investor expectations—there have never been tougher times in which to find a competitive edge. Innovation holds the key”.5

• 6  DTI Promotional campaign, 2005.
• 7  Micro firms represent 83.3% of all enterprises, 19.8% of overall employment and 16.9% of turnover (...)

4However, the large majority of these campaigns tend to target ICT (Information & Communications Technology) businesses: “Find out why more ICT companies click in the UK?”6 Official campaigns by UK Invest—whose task it is to promote the image of the UK abroad and to attract foreign investors—or by the DTI (Department of Trade and Industry), more generally speaking, tend to convey the impression that the UK has become a post-modern society in which all firms operate in highly sophisticated sectors only. This is far removed from reality, even though micro-firms do make up the huge majority of all enterprises and represent a significant share of overall employment and of all industries’ turnover.7

• 8  HM Treasury, “Advancing Enterprise”, February 4^th, 2005.
• 9  DTI, “Government Action Plan For Small Businesses—The Evidence Base”, January 2004, 36-44.

6“Innovation” is indeed a key word, as the following two examples show. In the transcript of the Chancellor of the Exchequer’s speech8 at a major international conference aiming to promote enterprise as a driver of economic growth and prosperity, the word “innovation” appears up to twelve times on the same page. In the nine-page long Section 4 (“Building the Capability For Small Business Growth”) of the Government Action Plan for Businesses,9 the term recurs some fifty times, although there are only a couple of specific references to micro firms in the whole of the eighty-eight-page document.

• 10  See for example: Tim Edwards, How can firms in the UK be encouraged to create more value, London: (...)
• 11  The Economist, “Don’t laugh at gilded butterflies”, April 24^th, 2004, 75.
• 12  DTI, “Competing in the global economy: the innovation challenge”, 2003, 4.
• 13  Business Link, “Use innovation to grow your business”, 2005.

7However, defining innovation remains very difficult and it has given rise to a wealth of academic literature10 which can be overlooked here, as it does not constitute the micro entrepreneur’s first priority. For the purpose of this study, it will suffice to note the definition given by the Oxford English Dictionary, as suggested by The Economist,11 or to refer to that given by the DTI, namely “the successful exploitation of new ideas”.12 It must therefore be borne in mind that having a bright idea is not sufficient. An inventor does not become an innovator until he has managed to turn his idea into something new which will bring extra value to the consumer of his original idea: “It is important to differentiate between invention and innovation. Invention is the manifestation of an idea. Innovationis the commercial application and successful exploitation of the idea”.13

• 14  The Economist, “Less glamour, more profit”, April 24^th, 2004, 13.

8Entrepreneurship and innovation are obviously closely correlated although the exact nature of the relationship remains hard to identify. It must also be noted that “for most of industrial history, small firms have been responsible for the bulk of breakthrough products”.14

• 15  SBS, “UK most entrepreneurial of major EU economies”, press release, January 21^st, 2005.
• 16  Financial Times, Tobias Buck, “Europeans baulk at starting up businesses”, March 2^nd, 2004.
• 17  British Chamber of Commerce (BCC), “Workers dream of starting up”, press release, January 31^st, 20 (...)
• 18  BCC, “Would-be entrepreneurs fail to act on impulse”, press release, March 7^th, 2005.

11Even though the large majority of these very serious reports may not be of direct practical use to the micro entrepreneur, they help to give a general picture about the UK population. There is evidence15 to support the claim that the UK is indeed the “most entrepreneurial of major EU economies” and while “Europeans baulk at starting up businesses”,16 “the UK workforce is riddled with people dreaming of starting their own business”.17 Yet, again, we come across the paradoxical relationship between entrepreneurship and innovation, since the UK also remains less innovative than her major EU partners. Britons are not short of new ideas but they have difficulty in putting them into practice, reportedly because they are not getting the right sort of help: “People in the UK are failing to act on promising ideas, thereby starving the country of useful inventions […] It is clear that people have the ability to come up with great ideas, but they are not being helped or encouraged to capitalise on them”.18

• 19  DTI,“Succeeding Through Innovation—Creating competitive advantage through innovation”, 2004.
• 20  DTI, “Competing in the global economy…”, op. cit.
• 21  BCC, “British Chambers says Government’s innovation report neglects small business”, press release (...)

12It must be added that some DTI publications take a more pragmatic view and do not shy away from asking such basic questions as “why is innovation important to your business?” or “what makes it so difficult to innovate?”19 which are addressed in a straightforward manner. The British Chamber of Commerce (BCC) nevertheless remains highly critical of such “practical” DTI publications20 and it argues that they “neglect small businesses”.21 It must be observed that none of these reports makes any mention at all of “micro entrepreneurs”.

• 22  <http://www.innovation.gov.uk>, consulted in August 2005.
• 23  <http://designcouncil.org.uk>, consulted in August 2005.
• 24  DTI, “Living Innovation 2004: Adding Value to your Business”, 2004.

13The SBS also runs Business Link, “practical advice for business”, another service which aims to answer more practical issues and that defines itself as “a service which is dedicated to helping businesses innovate, improve, grow and become more competitive”. It actually offers straightforward brochures to help “develop new products and services”, “find support for investors” or “use innovation to grow your business”. The booklets follow a step-by-step approach couched in terms accessible to all. Business Link has over a dozen other guides on innovation-related topics available on demand and all DTI documents actually refer to at least another dozen websites that may be of interest to innovators. Among these, one can find a site solely dedicated to innovation22 and the website of the Design Council23 which explains, among other things “why new ideas matter”. There is even the possibility of a self-assessment test to show “how well [do] you manage the process of innovation”24 but it is only made up of leading questions more suited to a teenager’s magazine. So it is not lack of information that constitutes the problem but probably an overabundance of it.

• 25  SBS, “130,000 women go solo”, press release, November 10^th, 2004.
• 26  BCC, “Ministers vow to boost female start-ups”, press release, March 8^th, 2005; “Female entreprene (...)
• 27  DTI, “Promoting female entrepreneurship”, March 2005, 9.
• 28  Ibid., 11.

16Strikingly enough, women can still be classified as a minority in need of support: “Although around 26 per cent of all self-employed people are women, they are still the largest under-represented group in terms of business enterprise”.25 The government has made a real effort to encourage the development of female entrepreneurship,26 which may prove crucial since “there are indications that female businesses are more innovative than male businesses. They are more likely to use new technology and to be providing a product or service that is new to the market”.27 In addition, the government may feel more vindication in women’s response to its business support efforts since it observes that “women interested in starting up their own businesses want help and they are looking for it in innovative ways.  […] 48% of visitors to the businesslink.gov are women”.28

• 29  SBS, Paul Benneworth, Stuart Dawley, “How do innovating small and medium sized enterprises use bus (...)
• 30  See Bernard Offerle, « Le New Labour et les petites et moyennes entreprises britanniques » in Entr (...)

18Assessing the impact of business support services is a very difficult task for several reasons. First, the latest available figures are now a few years out of date.29 Although the SMEs that are familiar with government services appear fairly satisfied, only a small majority of them turn to government business support. At any rate, the smaller the firm, the less frequent the call for government help. A significant number of small firms do not use the services simply because they do not sense the need for them.30

• 31  DTI, “The Evidence Base”, op.  cit., 63.

20However, the government has acknowledged the shortcomings of the services it offers to the business community: “While there are exceptions, many small business customers see services as fragmented, confusing and difficult to access and not particularly customer focused”.31 The terms of the report remain fairly general and they certainly do not specifically target micro-firms.

• 32 Ibid., 64.
• 33  BCC, “Broadband scheme targets microfirms”, press release, March 24^th, 2004.
• 34  Around £2.5 billion (2002), DTI, “The Evidence Plan”, ibid., 63.

21The major advantage of those services is that they are all accessible online, which means the micro-entrepreneur can consult them in his own time. Yet, they also reflect the problems of all Internet facilities: the information required is probably out there somewhere, but it can be time-consuming to zero in on the problem immediately at hand. Time is indeed the micro-entrepreneur’s most cherished asset and the main complaint about business support is that “it’s all too complicated and it takes too long”.32 So, the micro-entrepreneur may be well advised to go the old-fashioned way and simply make an appointment with his local Business Link operator—which is also one of the options offered by Business Link—as it will probably save him a lot of time and energy: “Despite accounting for 93% of Europe’s 20 million-plus companies, microfirms often suffer greater time pressures and costs than their larger counterparts. They also find it harder to get access to support services”.33 One may therefore wonder whether the huge cost of online government business support services to the public purse is totally justified.34

• 35  Andrea Westall, Peter Ramsden, Julie Foley, “Micro-Entrepreneurs: Creating enterprising communitie (...)
• 36  IPPR, “Revolutionary shift needed in government’s approach to enterprise in deprived areas”, press (...)

22Despite the government’s avowed creed of tackling business issues at the lowest level, it is not obvious that this is how the system actually works. Back in 2000, a report35 emphasised “the need for bottom-up facilitation, not top-down intervention. The Small Business Service and Local Authorities must become more risk-taking, work closer to the ground in local partnerships and have access to flexible funding streams”. The Institute for Public Policy Research (IPPR) added that evidence from a survey for the report found that: “local agencies had a very limited understanding of the types of enterprises (particularly micro-enterprises) in their area […] There were very few innovative ideas for creating new market opportunities for existing businesses or supporting the creation of an enterprise culture”.36 It is not clear whether the issue has since been properly addressed.

• 37  David Stokes, Matthew James, “Capital marketing: Innovation in London’s small firms”, Proceedings (...)

24A paper by Kingston University,37 albeit limited to the London area, helps to conjure up an innovation archetype: “Typically, the innovative owner-manager is aged between 30 and 39 and either has no formal qualification or is university educated” and “he considers himself as risk-taking”. There seems to be “an apparent strong relationship between the age of the business and innovation behaviour. The propensity of a business to be innovation-active decreases as the business matures”. Although the paper concludes that there is no “relationship between innovation and gender or ethnicity”, the case of migrants and ethnic minority businesses is a case in point.

• 38  Cabinet Office, “Ethnic Minorities and the Labour Market”, Final Report, March 2003, 94.
• 39 The Economist, “London’s comings and goings”, August 9^th, 2003, 28-30.

25Migrant workers seem to offer many of the characteristics needed in an innovative workforce as they are usually young and risk-taking—if only because they have dared to leave their country of origin. They may find it an easier option to start up their own businesses than attempt a professional career because of basic educational obstacles or a lack of qualifications. It is indeed officially recognized that ethnic minority businesses are heavily represented in micro-, small-and-medium-sized enterprises38 and the government is well aware of their share in the country’s economic growth.39

• 40  SBS, “Ethnic Businesses support vital for urban regeneration”, press release, March 4^th, 2003.
• 41  EMBF, Forum News, February 2003.

26Ethnic minority businesses’ contribution to innovation can assume many different forms and does not primarily have to be highly sophisticated. It is acknowledged that such firms are vital for urban regeneration.40 By simply being there and supplying the local community with basic amenities, they bring a new lease of life to areas that would otherwise die out and they thus provide the essential framework for innovation in urban infrastructure. Naturally, there are many examples of such buoyant activity, like the creation in Bradford of a bookshop that sells books, CDs, cassettes etc., in all the languages spoken by the various migrant groups and that has expanded to international e-commerce thanks to the help and support of Business Link.41

• 42  Home Office, Stephen Glover et al., “Migration: an economic and social analysis”, RDS Occasional p (...)

27It must also be observed that many of these small businesses have not waited for the more recent government campaigns in favour of innovation to be innovative. The huge development of the market in ethnic food goes back many years: “There has for example been a dramatic expansion in restaurants providing cuisine from across the world […], and a range of fresh and pre-packed food which were unknown to consumers less than two decades ago”.42 It is doubtful that the huge majority of Asian restaurateurs wish to patent their recipes or launch into production on an industrial scale. Moreover, Asian business-owners especially avoid turning to the government for help and prefer to sort out their business problems among themselves, which can make it difficult for government services to reach out to them.

• 43  Cabinet Office, “Ethnic Minorities and the Labour Market”, op. cit; Home Office, Stephen Glover et (...)

28With increased travel and tourism, Britons have grown keen to enjoy at home the dishes they enjoyed whilst on holiday. Restaurant-owners have proved very flexible and prompt to add to their menus all manner of new delicatessen, slightly adapted to the local mores, to respond to the new customer demand that ever-changing fashionable foreign destinations have given rise to. It may seem simple enough but it is still innovation since it offers new products that were not available in Britain before. Such creativity does not require any business support or help from the government. It is striking that in its final report on “Ethnic Minorities and the Labour Market”, the government has decided to overlook all that it had called the “social outcomes” of migrants and ethnic minority groups’ creativity in former reports.43

• 44 The Economist, “The world comes to London”, August 9^th, 2003, 10.
• 45   DTI, “Competing in the global economy…”, op. cit, 4.

29One can then draw on The Economist for a witty short cut to sum up the situation in a nutshell: “And, economics aside, foreigners make the place [Britain] infinitely more fun”,44 which certainly matches the official definition of innovation as “higher quality and better value goods, more efficient services and higher standards of living for consumers”.45

• 46  Cabinet Office, “Ethnic Minorities and the Labour Market”, op. cit., 8-9.

30The government is aware of the problems specific to ethnic minority businesses: “Whilst levels of ethnic minority self-employment are high, ethnic minority businesses often remain small, and have relatively high failure rates. Part of the reason may be that existing business advice services are not reaching them”.46 So, it merely recommends developing strategies that have already been tried out, namely “gather[ing] more information” and “increas[ing] levels of awareness of its services amongst ethnic minority entrepreneurs”. It remains to be seen whether the same type of measures can bring better results and actually translate into marked improvements in the current situation.

• 47  DTI, “Succeeding Through Innovation”, op.  cit., 10.

32Micro-firms may be eligible for a grant of between £2,500 and £20,000 for research and development to “help develop a simple, low-cost prototype of an innovative product or process”.47 Yet, as the DTI specifies the grant comes along with strict administrative constraints and must be completed and ready for commercialisation within twelve months. Turning to the high street banks for help often seems a more straightforward alternative. Micro-firms are at a disadvantage again because of their size and the lack of back-up guarantees they can offer to the banks which do not wish to be very adventurous or take unwarranted risks. Relationships with banks are already difficult in the day-to-day running of business accounts and many micro-firms are not happy with the services provided by their local banks, let alone the financing of innovative projects.

• 48  DTI, “The Evidence Base”, op. cit., 48-49.
• 49 Ibid., 50.
• 50  BCC, “SME bankers still get a ‘raw deal’”, press release, March 14, 2005.

33This is another long-standing issue the government has tried to tackle, but apparently in vain. Yet, the authorities have come up with new improvements, which are all but targeted specifically at micro-firms. The terms of government reports are fairly general and limited to restating the existence of problems that have already been known for a long time: “another barrier facing small businesses, particularly young businesses, is that the risk is perceived to be higher because the business management team may be unproven, as may be both their product or market” or “analysis of data on the characteristics of self-employed people in deprived areas suggests that potential entrepreneurs and businesses in these areas are more likely to have characteristics that could impact negatively on their ability to access bank finance”.48 It is no real surprise either that “it is more difficult for women to raise finance and that women encounter credibility problems when dealing with bankers”.49 The government’s sole answer seems to be to gather even more information on the issue. In the meantime, micro-firms are left to their own devices to fight with bankers and hope competition might still play its part in what is largely a stitched-up banking market: “Despite successive efforts to improve the business banking industry, many smaller firms are still getting a raw deal…”.50

• 51  B. Offerle, « Le New Labour et les petites et moyennes entreprises britanniques », op. cit.

34The ever-increasing tangle of administrative constraints and regulations is another on-going problem which has already been discussed51 and has not yet found a satisfactory answer. It probably affects the whole of the UK economy, let alone SMEs, but micro-firms are at a particular disadvantage because they often do not have the staff or the resources to deal and keep up with constant regulatory changes. Conforming to government requirements devours much valuable time that could probably be better spent on creating new products or improving existing services to the consumer. Such administrative activity has a cost to the economy and it is all the more worrying as this is the government’s direct responsibility.

• 52  DTI, “The Evidence Base”, op.  cit., 72.
• 53  SBS, “Business Link helps make dealing with regulation easier for small business”, press release, (...)

35Again, the government is well aware of the issue: “…red tape costs the UK economy £6 billion a year, with 68% of this falling on micro businesses employing less than 10 people”.52 In addition to its “No-nonsense Guide to business finance”, Business Link has just launched the 2005 edition of the “No-nonsense Guide to Government rules and regulations for setting up your business”.53 It is indeed a practical, straightforward and comprehensive publication in attractive bright colours, yet readers are reminded that some of the fees, rates or other figures may already be out of date and need checking.

• 54  The authorities launched a new “red tape” portal on September, 15^th, 2005, <www.betterregulation.g (...)

36The SBS also provides a “Red Tape Busting Observatory” where business owners can “have their say” and are asked to identify the regulations (both UK and/or European) they feel are a burden on their business. Each piece of red tape must be entered separately. One can only hope this feedback information is actually acted upon and that the facility is not just another space offered to irate entrepreneurs so they can let off some steam.54

• 55 Financial Times, “Less red tape to promote enterprise”, March 17^th, 2005.
• 56 Financial Times, April 28^th, 2005.

37In this particular domain, there is growing evidence that the situation is not at all improving, but getting rather worse. There have been warnings against overregulation from very many different sources and, even more worryingly, the complaints have been constantly repeated, whatever the government’s reactions to this predicament. After acknowledging the government’s efforts,55 the Financial Times goes on to aver that “Blair woos business—but corporate Britain fears more tax and regulation”.56

• 57  BCC, “DTI red tape plans are meaningless without a financial commitment”, Newsletter, November 11^t (...)
• 58  BCC, “SME growth hit by red tape”, press release, February 8^th, 2005.
• 59  BCC, “Report shows government has failed to deliver on previous promises to cut regulation”, press (...)

38The BCC has issued a string of press releases57 based on many surveys and studies that denounce the harmful effects of red tape on SMEs: “red tape is easily the biggest business concern”.58 It also points out that “the government has failed to deliver on previous promises to cut regulation” and it stresses that the EU is not to blame for the increasing burden: “The report highlights that the number of business regulations has increased by 46% in the first half of 2004 compared with a year earlier. In addition, contrary to government claims, the vast majority of new regulations come from Britain—the proportion of EU regulations is declining”.59

• 60 The Economist, “The missing guest at Gordon’s party”, January 24^th, 2004, 33.
• 61  “A cut above”, op. cit., 13.

39The Economist has long been critical of the consequences of the Chancellor of the Exchequer’s policies on innovation: “Despite Mr Brown’s productivity policies, the government has wound business up in more and more red tape. This is a worry because regulations can restrict the changes in working practices needed to reap the full potential of new technology”.60 The London economic weekly has obviously not been overly impressed by the Finance minister’s more recent measures: “Mr Brown, who has made productivity his thing, has tinkered with grants and education and incentives, but has little to show for it except more complication for British companies that already complain of overregulation”.61

• 62 Ibid.

40It is therefore only fair to say that the government has not set the example for innovative practices. The British economy has been largely driven by the public sector over the past few years. This has not changed much either: “The ever larger public sector is even more impervious to efficiency gains”.62 Now the economy is slowing, it is becoming even more crucial that businesses, especially micro-firms, be let free to innovate and grow. It remains to be seen whether the economic slowdown is only a blip or a more lasting trend. It is also getting more hazardous to predict when Gordon Brown will actually take over from Tony Blair and whether this will mean even tighter government regulations. Most evidence suggests, however, that such a stance would certainly not be conducive to more innovation and entrepreneurship on the part of small firms.

• 63  Global Entrepreneur Monitor, “2004 Executive Report”, London Business School, 2004, 14.
• 64  ONS, URN 04/92, statistical press release, August 26^th, 2004. See also: SBS, “SME statistics for t (...)

41Many government reports etc. later, the situation does not seem to have budged much for micro-firms. Even though “traditional analysis of economic growth tends to focus on large corporations and neglect the innovations and competition that small start-ups contribute to the overall economy”,63 it is striking to notice how little attention micro-firms are being given as a category, despite their large number and the importance of their social and economic role. Official reports hardly ever mention them and official statistics tend to favour the group of “small enterprises” (0 to 49 employees).64

• 65  BCC, “BCC would like to see a refocused DTI, acting as a champion for business”, press release, Se (...)

42It is also true that the authorities have set up and developed highly sophisticated business support services. However, this may be an inadequate tool and the wrong approach altogether for micro-firms. It could well be that the government is too insistent on providing too much of the same and that the strategy needs a total rethink, as the BCC has suggested, after pointing out that “there is an inherent paradox at the heart of the DTI—that the same body should be both the voice for business and a primary regulator of business”.65 Whatever the case may be, it seems at least clear that the whole system is too complicated and too time-consuming to use. Besides, the government seems more interested in boasting a modern-looking political showcase than in following up the implementation of the measures it has initiated.

• 66  D. Stokes, M. James, “Capital marketing: Innovation in London’s small firms”, op. cit., 9.

45A more accurate tool to measure innovation by micro-firms is also missing: “What this also highlights is the need for more sophisticated measures of innovation that factor in the level, frequency and impact of innovation behaviour amongst small firms. Such measures would, it is thought, be helpful in providing an explanation for the apparent under-performance of UK firms in innovation”.66 Many micro-firms do innovate on an everyday routine basis, yet many of these efforts probably go unrecorded.

• 67  DTI, “The Evidence Base”, op.  cit., 67.

46So, one must finally conclude in total agreement with official reports and observe that there are “gaps in the evidence—there is still much to do …”.67