Expert Commentary on Creative Industries

Getting to the root of what business is

Commentary by Simon Walker, Director General of the Institute of Directors

What is business? It seems like a straightforward question, and certainly anyone on the street would be able to list the names of large companies they regularly interact with – but the answer may be harder to pin down than you would think.

Businesses have to make a profit. Otherwise, they cannot survive. But there are more reasons than just money to go into business. At the Institute of Directors (IoD) we recently ran our first survey of our new group for younger entrepreneurs, the IoD99. When we asked why they set up their company, the most popular reasons were the satisfaction of building a successful business and being their own boss. One in five said their motivation was to have a positive social impact.

I do not say this to denigrate the desire to be a financial success and secure a livelihood for yourself and your family.

“Small businesses could provide a young person with their first job or be the source of a world-changing technology”

But I argue that we cannot understand business if we just look at it in terms of cold hard figures. The business community is a collection of individual companies, individual directors and individual employees. The majority of people work for companies you have never heard of. This is because the business landscape is populated almost entirely by small and medium-sized enterprises (SMEs).

We should be proud of our big companies, and pleased that the UK’s traditions of the rule of law and fair dealing have attracted companies from overseas to list on the stock exchange here. But we also have to recognise that they are the exception and not the rule. Across Europe, the EU commission estimates that 99.8% of all businesses outside finance are SMEs. The IoD, which is the UK’s oldest organisation for business leaders, has a membership 70% of which is composed of directors who run SMEs. Our members come from all sectors of the economy, and all parts of the country. Each of them has different priorities, strengths and weaknesses.

Yet there are some issues that are particularly acute for SMEs.

We know, for example, that SMEs are more likely to suffer from late payment of invoices. Smaller businesses also have more difficulty getting hold of finance, with only one in five of our members describing it as ‘easy’. The majority of SMEs did not even apply for bank finance in 2014, because of difficulty, real or perceived, in getting approved. This pattern is repeated for entrepreneurs, with IoD99 members citing lack of access to finance among their top two concerns.

  • 99.8% The percentage of businesses outside finance that are SMEs

But small does not mean limited horizons. Half of IoD members’ companies employ migrants to fill skills gaps, and two-thirds engage in some form of international trade. This means that political issues like the government’s misguided net migration target, or the need to complete the ongoing trade deal, matter to SMEs as well as to large companies.

The IoD engages with policymakers in the UK and the EU on these issues and others, because the health of our SMEs is of central importance to the UK economy. But small businesses are not just units of economic activity. They are someone’s ambition, livelihood and plans for the future. They could provide a young person with their first job, or be the source of a world-changing technology.

I will leave you with an optimistic thought. Over the past year, over half a million new businesses were started, with the highest birth rate and lowest death rate since the economic crash. Things are looking up for Britain’s SMEs.