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Why Self-employment - some thoughts based on the Purple Shots experience so far

There was an article in the Welsh press recently reporting a decline in the number of new businesses during 2016  and two possible reasons for this were suggested, One, by Lloyds Bank, proposed that the decline reflected a loss of confidence in the economy and the other, by Professor Dylan Jones-Evans was that it might reflect an upturn in the economy since people went into self-employment when there were no or few opportunities for paid employment, so that a decline in new businesses meant that there were more employment opportunities and therefore the economy was on the up.

Although there is probably truth in both positions, I think that they do not reflect the complexity behind self-employment and the mulltiple reasons behind decisions to start your own business, so I thought I would add in thoughts from the Purple Shoots experience. This is obviously only based on the several hundred clients we have helped so far, and is limited to Wales, however it may offer some helpful insights into the Welsh position. 

Purple Shoots provides loan funding to individuals setting up businesses, usually as sole traders or partnerships, who struggle to get funding from any other source. The majority of our clients were unemployed before they took out their loan - however I would dispute the claim that they are driven into self-employment because there are no other options. It is certainly true that many Job Centre advisors appear to push people who have been unemployed for any length of time towards self-employment but that is not a recipe for success and in my experience most people who are pushed in that direction who don't otherwise have the drive to pursue it will not in the end start their own business.

By the time they reach me with their proposals for a small business, my clients have had to deal with many push backs which would dishearten all but the most determined - so most of them show characteristics of tenacity and perseverence, which are very needed characteristics for someone running their own business. Having tried to live on benefits, they are also skilled at making small amounts of money strecth as far as possible, and at identifying priorities for spending and delaying non-essentials - more useful skills for new business owners. Many have also noted, whilst working for others, ways of doing things better or mistakes that their employer makes which could be avoided, or perhaps gaps in the market where they are working. The businesses they start tend to be small and locally based - and because they are local people running them, they know what the opportunities are and have the contacts to exploit them. 

The reasons these small businesses start cannot be explained simply in economic terms, as a response to a lack of employment opportunity - this does not do justice to the people starting them.  Much of the Valleys areas of South Wales, where the majority of my clients are based, have not experienced the shifts in the economy experienced elsewhere - there was no boom and the bust changed little - people have been coping with a pretty bleak economic outlook for years and nothing in 2016 changed that much either way. If there has been an overall decline in business start ups, more studies need to be done to establish why. There has been a significant decline in the last 12 months in the provision of free advice and support from the Welsh Government (whose focus has switched to "growth" businesses) and also from some local councils who no longer have budget to offer business help. I wonder if this could be a factor.

Purple Shoots has not seen a decline in demand for its loans to assist start-ups during the last year.  Some frequent reasons for starting a business which people have given me are:

- it is the culmination of a long held desire or dream to do this particular thing and to be self-employed

- they want to do something positive for their community, creating a business that will revitalize it and create more jobs

- they need to be able to work around a disability or a caring responsibility

- they do not want to rely on or live on benefits

These seem to me to be more positive than simply responding or not to changes in the economy.

The RSA have done some excellent studies on self-employment and it is worth having a look, especially at the 2014 study "Salvation in a start-up? The origins and nature of the self-employment boom" .


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