The right training for business success by James Croft, Chair, Centre for Education Economics on 12-Sep-2018

According to official Office of National Statistics figures, of all firms started in the UK in 2010, only 41% remained active five years' later. Much of this may be accounted for by a general trend to self-employment and 'necessity entrepreneurship' - often short-term efforts to tide workers over until the market picks up again. However, the degree of churn among start-up businesses also tells a story of undesirable business failure says James Croft, Chair and acting Director for the Centre for Education Economics.

Businesses with real potential often fail. Why is this?

Many of the market factors responsible are of course well beyond the influence of start-ups and SMEs, but there's a growing body of research indicating the effect that skills shortage has on firms and of the positive difference to the fortunes of a start-up the right kind of education and training can make.

Existing research suggests that human capital increases high-quality entrepreneurship. It also indicates that science, technology, engineering and mathematics (ie. the STEM subjects) are especially important for ensuring firm success - an effect that appears to operate through better use of management practices.

Based on new quantitative analysis of a survey of 10,500 companies, our ground-breaking research published this week finds that when business owners are trained through programmes in business, social science and law, it becomes significantly more likely that they will seek to improve productivity via employing others. This does not apply to those whose education has been focused in other subject areas.

Relevant task-related training for business owners is important for ensuring higher rates of firm success. This in turn suggests that flexible models of adult education and training are going to be required to enable access if we are to improve business stay-up rates - more flexible, that is, than full-time formal education can offer.

The UK has a poor record on this score. Of the 30 OECD countries we have data for, in terms of the share of business owners engaging in job-related adult education and training, the UK comes only 18th. Only 35% of UK business owners engage in job-related adult education and training - considerably lower than 49% in Germany and 54% in Finland.

What can and should be done to improve take-up? Future entrepreneurship policy must not merely focus on increasing the rates of entrepreneurship, but also identify and set in motion mechanisms to support business survival. The government should provide tax relief for small-business owners to invest in training programmes focused on improving their businesses. But it shouldn't stop there: although we know that training in management practices can have real impact for a firm, we still know relatively little about the relative effectiveness of different training approaches. To avoid wasteful resource allocation, governments need therefore to capture the effects of different approaches by investing in properly randomised trials of their efficacy.

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