Startups matter. Why? Because they create jobs and perhaps most importantly are a source of productivity, growth and innovation. They are hubs of creativity and form the foundations of the knowledge economy. But startups have their own unique set of pressures, challenges and policy issues to get to grips with in order to scale the heights that their founders aspire to. We’ve compiled the top 9 policy issues that affect startups (and SMEs) worldwide:
Digital Infrastructure & Connectivity
Startups rely heavily on smart digital infrastructure to grow, develop, respond and communicate. Superfast connectivity and affordable flexible office space lowers the cost of launching a product and allows startups to pay for what they use rather than invest in expensive infrastructure.
Access to Talent
For digital startups to thrive, entrepreneurs need to be able to hire skilled developers, engineers and designers. Talent comes from entrepreneurs and top STEM graduates, domestic and overseas, but the lack of visa options often limits entry. Hiring people can also be complicated, costly and time consuming for startups, which is clearly not conducive to being able to move quickly and grow. Hiring the wrong person at the wrong time can also mean the end for a startup as it prevents them from being able to accept and deliver customer orders. This afterall is the bottom line.
There will be 1 million new tech jobs that need to be filled in the UK by 2020 according Baroness Lane-Fox. Raising the levels of basic digital literacy is essential for everyone, while some will need more advanced skills to create and utilise new technologies. Whether this starts in school or through by retraining and upskilling the current workforce, the shortage needs to be addressed.
Access to Finance
Startups need funding and investments to set up and grow. Venture Capital and Private Equity financing represents the norm, with loans often unsuitable or inaccessible. While the costs of launching a startup have fallen significantly and funding at the seed level has become easier to access, raising money in subsequent rounds of funding is where main the challenges lie. Entrepreneurs themselves are also restricted in how they can benefit from tax reliefs on investment in early stage companies.The UK Government, in the last budget, in response has made adjustments to EIS, SEIS and VCT schemes in the form tax benefits for individual investors; this will undoubtedly benefit SMEs/startups looking for funding.
For startups trying to scale up and expand their markets, taxes can be an expensive hindrance, especially as startups can often operate across complicated and differentiating tax systems. Take the VATMOSS disaster implemented by the EU. Originally formulated to to help businesses handle VAT, startups and SMEs are having to spend hundreds and thousands of pounds on software and support services to process their VAT – costs which are hugely out of proportion with the amount of VAT due in the first place. Startups, often operating on limited funding could be using this money to hire talent, develop and deliver products. Tax reliefs, such as a lower level of corporation tax as announced in the UK government’s July Budget, are essential for startups as well as those, entrepreneurs, VCs and Private Equity, investing in them. Chancellor Osborne also pledged to cut National Insurance which would allow small businesses to employ four people full time on the national living wage, paying no NI at all.
Almost every sector of the economy is being disrupted by innovative technologies and new business models. This is a good thing as it leads to more consumer choice, and to cheaper, better services and products. It’s how progress happens. Problems arise when new technologies or ways of doing business run up against outdated regulations. Some economists argue that startups should be able to pursue permissionless innovation – the idea of a freedom to try new things and experiment, learning through trial and error, rather than having to seek a licence or prove that it wouldn’t cause harm first. While this approach may arguably be taking deregulation one step too far, it’s true that governments should look to remove unnecessary barriers in order to catalyse innovation.
Digital Government Services
Data is the raw material of innovation in the digital age and many successful startups, for example Zoopla, which uses public data from the UK’s Land Registry, have been built on top of free public sector data often to benefit of all. Allowing greater access to public sector data online is therefore one route to unlocking innovation and creating new opportunities.
Encouraging Digital Uptake
One barrier to digital uptake in general, and to take up of individual startups’ services in particular, is public concern about the security of personal data. Digital startups often handle significant amounts of data but lack the resources of larger companies to adequately meet the requirements of well meaning regulations. Working with strong and appropriately resourced data protection authorities who can give startups clear direction and advice is vital to ensure consumer confidence and therefore also growth.
Trade and Access to Markets
Access to markets is key to rapid growth, and so the trade agreements that a startup’s home market has with overseas markets are vital. For example, Britain’s re-negotiations of its EU membership will certainly affect startups ability to operate and grow in Europe; especially in the context of the recently launched Digital Single Market Strategy which seeks to create a single borderless digital marketplace in Europe and the upcoming Internal Market Strategy aimed at removing barriers to trade within Europe, will also assist SME’s in remaining in the EU and attempting scale up here, rather than transition to the US. Also worth noting, trade agreements conducted without transparency such as TTIP (Transatlantic Trade and Investment Partnership) with the US could also have a negative effect for startups such as reducing the regulatory barriers for big business, the easing of data privacy laws and potential unemployment.
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