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Pathfinders to the Parliament
 
SMALL BUSINESS SECTOR PATHFINDER
Our Approach
We have been asked to identify the main opportunities and problems facing the small business sector in Scotland and the top actions that the Scottish Parliament could take to assist this sector.
 
The Pathfinder Group consisted of:  
Gerard Eadie (Chairman) Chairman, CR Smith
Bill Allan Managing Director, E.J.Stiell
Gordon Beattie Managing Director, Beattie Media
Astrid Emmerich Director, Harrington Corporation
Albie Fullerton Senior Business Services Manager, Deloitte & Touche
Ian McAteer Managing Director, Union Advertising Agency
David Sutherland Chairman, Tulloch plc
 
The Group developed this report by holding weekly meetings and consulting widely with small business practitioners, business bodies, the leading Scottish banks, people involved in enterprise funding and advice, business leaders in the US, Ireland, New Zealand and Australia. We spoke to people both at the very top of the business community in Scotland and those involved in the day-to-day running of small businesses. We reviewed the extensive research provided by various parties. We also received comments and advice from a wide range of interested bodies. We are very grateful to everyone who helped and gave their views.
 
The Scottish Small Business Sector
The economic importance of the small business sector must be emphasised. Small businesses defined as enterprises consisting of 50 employees or less, account for 98% of all businesses in Scotland and almost half of the total employment in the private sector. It is accepted that a vibrant small business sector is crucial to ensuring Scotland's future economic success. However, on a per capita basis, Scotland falls significantly below the UK average in the number of new business start-up companies. This is a concern, as the evidence is clear that the number of future high growth companies is directly dependent upon the number of new start-up businesses. These future high growth companies, which represent 4% of all small businesses, provide 56% of new employment in the sector. This demonstrates the key role of these high growth companies in Scotland's economy. The creation of an entrepreneurial culture, where more people take the risk of setting up their own business, and the development of the high growth sector, should therefore be a priority for the new Scottish Parliament.
 
'Destination 2010'
We were asked to provide a number of actions, which the Scottish Parliament could take to assist the small business sector in Scotland. However, it is our strong view that without a clear plan for the Scottish economy as a whole, any initiatives will lack effectiveness. We have concluded that the small business sector should not be ring-fenced or treated differently. Only with a plan for the Scottish business sector as a whole can we harness the efforts of the whole political, business and educational establishment in order to create real change. We are therefore setting a challenge to the Scottish Parliament. We believe that Scotland's economy needs a clear goal. We need to know where we are going. We are calling this goal 'Destination 2010'. The goal is for Scotland to become a world leader in several key home-based industry sectors, which will form the foundation for the future growth and stability of Scotland's economy. This will then allow the small business sector to flourish. To do this we need to be prepared to invest and focus sufficient monies out of the £0.5 billion Scottish Enterprise and HIE funds available. We also require leadership, direction and commercial accountability from our new Parliament.
We think there are some clear contenders for the key industry sectors. Here are our suggestions. Education, medicine and tourism are all areas which represent significant opportunity. These are all high growth global industries. These are industries where we have a history, an established reputation and world wide perception of expertise. They will also sustain a highly educated, well-paid workforce. These are industries that will embrace the knowledge economy. Most importantly, they are industries which will never get up and walk.
 
Education
It is estimated that the educational sector is worth £650 billion world wide, of which only 2% is in the private sector. However the Boston Consulting Group estimate that in a few years around 20% of this market will be serviced by the private sector. The Scottish educational establishment is already making good progress towards developing the commercial potential of this world wide market. We currently sell £185m of education overseas. If we capture our pro rata share of the projected private sector increase, we would then have a major industry in Scotland. Some of the profits created could be invested back into our own education system, which is rightly a priority for all political parties. An added benefit is that for each job created in education another indirect job is established.
 
Medicine
As with education, Scotland has an unparalleled reputation world wide for its medical expertise. Whether in the areas of medical education, distance learning, remote diagnosis, selling medical services overseas or treatment of overseas patients, Scotland has to tap into the massive potential of this growing global industry. Again some of the funds raised from selling our medical knowledge can be reinvested in our health sector.
 
Tourism
It is recognised that tourism will soon be the world's biggest industry. It is also one of Scotland's key sectors, worth some £2.4 billion each year and responsible for 158,000 jobs, mostly in small businesses. Scotland has the history, world wide reputation, and natural resources to be a world leader in tourism. For example, what are the plans for the Millennium? At a few minutes past midnight on the 1st January 2000 there will be one world anthem. In all four corners of the globe people will be singing the words of Scotland's national poet. Tourism has to be a priority; we must take the opportunity to promote the image of Scotland to a world wide audience.
 
A Focus for the Parliament
It will be open to the Parliament to debate the precise areas where Scotland should strive for world leadership. However in the Group's opinion it is not open for debate that Scotland needs to focus on the creation of at least three world leading industries. The second part of the challenge for the Parliament is to create a step change in Scotland's attitude to business and enterprise. Scotland lags significantly behind the rest of the UK in business start-up success. We have nothing like the approach to business and entrepreneurship that exists in the USA. To the contrary we have a dependency culture. The new Parliament must take the lead in creating a new cultural environment of acceptance and enthusiasm for wealth, creation and enterprise. We need to applaud business success and be less critical of business failure. The Parliament should work with the Scottish media to promote and popularise the benefits of business success within Scotland. We also need to protect and develop our image both within the rest of the UK and internationally. The Parliament should actively promote Scotland as a nation of inventive, resourceful and hospitable people with a strong work ethic. A powerful image for Scotland, based on the talents of our people, is unquestionably one of our most valuable assets.
In summary, there are two challenges. First, guide Scotland to world leadership in several key industry sectors. Secondly, create a cultural step change in Scotland's approach to business and entrepreneurship. Once the concept of 'Destination 2010' has been debated and accepted, this Group calls for all-party support to the goal to ensure that Scotland meets the challenges ahead. We believe that leadership is the key to achieving our stated objectives. Look at our world class Scottish companies. All have decisive leadership combined with planning, focus of resources and absolute accountability for performance. The same commercial principles must apply to those with the responsibility for the Scottish economy as a whole and for the selected industry sectors in which we aim to become world class.
Finally, one proposal made by several parties was the creation of a 'Small Firms Minister'. We have not progressed this idea as the Group felt it would not create the correct image for this sector. Small businesses should have the full attention of the Minister of Trade and Industry.
 
Actions for the new Scottish Parliament
The practical steps the Parliament can take to achieve the above goals are as follows:
Action 1: Root And branch reform of the current Scottish Enterprise Network
Objective: To create a world class organisation acknowledged as a leader in the development of an enterprising culture, which results in sustainable economic growth.
 
Actions:
  • Recruit a full time CEO of the highest calibre, offering a remuneration package linked to performance and in line with major Scottish plc's. In our view, this should be seen as the most important appointment in Scotland.
  • Allow the CEO to appoint regional directors with proven commercial experience to head up the various LECs and HIE, and again offering substantial packages, linked to performance.
  • The CEO of HIE to report directly into SE to create a unified enterprise body.
  • Reorganise the Board to consist of the above full time executives and appoint the appropriate NEDs in line with the 'Cadbury' recommendations.
  • Consider removing the policy-making responsibility to the Parliament, and give complete autonomy to the Board, allowing them to interpret and apply the rules as necessary, to achieve their targets.

Introduce absolute accountability for performance in key areas, benchmarked against the world's best in each, for example:

- development of key industry sectors;

- the 4% of companies that demonstrate high growth potential;

- business birth rate;

- job creation;

- GDP;

- Scottish exports;

- R & D expenditure.

  • Performance related bonus should be linked to the output in each of these key areas.
  • Align Scottish Enterprise with the private sector and academia to form joint ventures to exploit opportunities where possible. One step short of actually privatising elements of Scottish Enterprise.
  • Radically simplify and streamline the business support and advice infrastructure. Introduce best practice. Substantially reduce the current level of over 800 business-to-business bodies.
  • Raise the profile of business support schemes to create wider awareness and ensure quick and simple access for support, with ownership being taken at the first point of contact.
  • Introduce stringent criteria for inward investment support encouraging only those organisations prepared to commit to an R & D facility and substantial investment.
  • Commit to a long-term strategy which ensures sustainable home-based economic growth, if necessary at the expense of the 'headline grabbing' inward investment projects.
 
Action 2: Mentoring - harnessing the expertise of Scotland's leading entrepreneurs
Objective: To create a formal mentoring programme whereby selected business leaders are encouraged to advise and help promising new Scottish businesses.
 
Actions:
  • The Group proposes that the new First Minister for Scotland should personally select and invite Scotland's top 100 entrepreneurs, business leaders and business experts to become 'The Scottish Parliament's Business Mentors'.
  • The group recommends that the Parliament use the Business Mentors as the catalyst to help create the new entrepreneurial spirit in Scotland.
  • The First Minister should appoint a Chairman to run and administer the scheme with the help of a small management team.
  • The first line of Mentors would be entrepreneurs directly involved with running a business. However, part of the scheme would involve top bankers, academics and people running large plc's - on the basis that if the entrepreneur can't help, he'll know someone who can.
  • In several countries around the world, successful mentoring programmes are run. New Zealand is one example.
  • The mentoring programme would be voluntary. The Group expects that most business leaders would want to be involved, both because of the high profile and out of a sense of 'national duty.' The criteria for selection would include a proven track record, with clear evidence of running a profitable business. The individuals would have to be public spirited and excited by the fact that they will be part of the 'team' which creates a better future for everyone in Scotland.
  • New and growing businesses could then apply for an appropriate Mentor. Research suggests there are between 50 to 100 companies which would be appropriate.
  • The Mentors should also seek out and select promising companies with a view to offering them a Mentor.
  • The Mentor's role and goals should be clearly defined. Mentors should be committed to a business for a three-year period. In this way healthy competition between Mentors and their companies could be encouraged.
  • Another category of Mentor should hold 'business surgeries' at their own offices to advise and help any businesses seeking assistance. This might involve no more than 4 hours work a month.
  • The Mentors should serve for three years, with new Mentors introduced to the scheme as appropriate.
  • The details of the Mentors should be published and widely available so that any start-up business can access their expertise.
  • The success of the scheme should be monitored with regular reports back to the First Minister.
  • The scheme does have parallels with the role played by non-executive directors. However we believe that without the constraints that Company Directors' duties and liabilities involve, the Mentoring Programme would produce better results. In summary, it would make high-level business advice and expertise available to businessmen who at present are unable to access it.
 
Action 3: 'Fast Track' - targeting Scotland's future business champions
Objective: To identify and 'fast track' the business winners, namely the 4% of new starts which provide 56% of all new jobs in the small business sector.
 
Actions:
  • We recognise that it is extremely difficult to spot future winners and to be selective in the use of public funds. Nevertheless in order to generate significant economic growth and create new jobs it is essential that this task be addressed as a priority. The current scatter-gun approach to funding should be avoided.
  • Therefore, implement a formal system of identification of 'fast track' businesses especially at the early stage.
  • Provide special business and financial support.
  • Match 'fast track' businesses to targeted highly experienced Business Mentors.
  • Create a high profile 'Fast Track Club' with the appropriate entrance criteria.
 
Action 4: Commercialising the potential of the creativity in our universities
Objective: Scotland is a nation of inventors. We need to capitalise fully on the ingenuity and innovation coming out of our universities. Identifying research projects with business potential does not appear to be the problem. Rather, we need to create an environment which fosters closer links between the business sector and the world of academia. We must provide an infrastructure which generates more commercial enterprises.
 
Actions:
  • Exchange and contact between the universities and business should be fortified. The objective should be made a priority by the First Minister and set as one of the targets for the Chief Executive of Scottish Enterprise.
  • Scottish Enterprise should then actively seek to develop relationships between business and Scotland's universities.
  • Scottish Enterprise should provide intensive support to groups of university spinout businesses specialising in specific sectors.
  • These businesses will need access to risk capital. Scottish Enterprise should work with the private sector and the banks to establish specialist seed funding.
  • Benchmarks and targets should be set for the number of successful business ventures spinning out of iniversities.
 
Action 5: Creating an enterprise culture in our schools
Objective: As a nation, Scotland must become more entrepreneurial. This cultural change must start in our schools with children learning about business and its importance to our standard of living.
 
Actions:
  • Make entrepreneurial studies part of the academic curriculum by introducing new Standard and Higher Grade courses. These courses should focus on the practical, as well as the academic, and young people should get the opportunity of establishing mini-enterprises as part of any course.
  • Scottish schools should be encouraged to establish business clubs. Local businesses should be invited to support these clubs by providing finance, equipment, business speakers and work experience opportunities.
  • Scotland's high profile Business Mentors should also participate in the enterprise programme for schools.
 
Executive Summary
  • This Group proposes that the new Parliament agree a goal - 'Destination 2010'. The destination is for Scotland to become a world leader in several key home-based industry sectors within ten years.
  • The Parliament should also work to create a new cultural environment of acceptance and enthusiasm for business and enterprise throughout Scotland.
  • The Group believes that the top business appointment in Scotland is the CEO of Scottish Enterprise. The CEO, with a budget of £0.5 billion, should be absolutely accountable for performance in key areas, benchmarked against the world's best.
  • The Group proposes that the Parliament works to radically simplify and streamline the business support and advice infrastructure, which currently has over 800 organisations.
  • The First Minister should personally select a team of high profile 'Business Mentors' to nurture Scotland's young entrepreneurs.
  • The Group proposes that we need to target Scotland's future business winners, the 4% of new starts which provide 56% of all new jobs in the small business sector. These companies should be given 'fast track' support, with special business and financial help.
  • The Parliament should actively work to create an enterprise culture in our schools by introducing Standard and Higher Grade courses in entrepreneurial studies.
  • Finally, Scottish Enterprise should help to commercialise the potential of the creativity in our universities.
In preparing this report it became obvious to this Group that we have an opportunity that we did not have before the creation of the Parliament. With the right political leadership, the commitment of Scottish business and a spirit of co-operation and teamwork, we undoubtedly have the means to quickly generate greater wealth and prosperity for the people of Scotland.
Therefore this Group welcomed the initiative by Lord Macdonald to involve us in assisting the new Parliament. If any further assistance is required, this Group would be more than happy to help.
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