The Seven-ish Ingredients of the Microbusiness Boom

The UK’s microbusiness community has grown enormously in recent years. At last count there were over 4.8 million of these small firms, up 500,000 since 2010 and nearly a 6 fold increase on the number we had in the early 70s.

But what’s driven this growth? And perhaps more importantly, will it last?

The most popular theory holds that the entrepreneurial boom has come about largely as a result of the recession. Simply put, in the absence of conventional jobs people have been forced to create their own. This is particularly true for the many highly skilled workers faced with low skilled job opportunities, whose only opportunity to utilise their full talents is by starting a business.

Yet the crash can’t be the only explanation. First, it discounts the long-term factors (microbusinesses have been growing in number since way before the economic downturn). And second – as we’ve heard time and again within our own research – it ignores the many people who are starting a business for largely positive reasons (this is the necessity vs. opportunity / push vs. pull debate).

Based on our conversations with microbusiness owners and experts in the field, we’ve identified a number of other drivers that are equally if not more important in explaining this complex phenomenon - some pernicious and some more benign...

The rise of the niche – We now live in a world where quality, quantity and distribution is guaranteed for the vast majority of goods. In short, scarcity has been replaced by abundance. The result is that consumers are beginning to demand more authentic products and services that make them ‘feel’ something. This in turn has given rise to more niche producers, many of whom will be microbusinesses more able to satisfy the need for authenticity. See here for more information about this trend.

Skeleton businesses – In a bid to cut costs and spread risks, many large organisations have chosen to dispense with their middle management and instead use contractors and freelancers. On top of the this, the jobs that remain have become increasingly precarious. Pensions, bonuses, sick leave, maternity pay – all these pillars of the workplace have taken a hit, particularly in the public sector. The implication is that starting your own business (with all the caveats this entails) has become far more appealing. As one person said to me, “if you’re going to work till you drop, you may as well enjoy what you’re doing.”

Changing demographics – Our society is ageing. So much so that by 2050 the number of people over the age of 80 is expected to triple to 8 million. In the absence of a strong state, it is highly likely that families will pick up the majority of caring responsibilities for their relatives, no doubt causing strains on their working lives. For many, the only means of squaring their duties with their desire to work will be by setting up in self-employment. The same goes for caring responsibilities at the other end of the age spectrum, with many parents only able to look after their young children if they opt for the more flexible option of self-employment - something that may become more commonplace as a result of our current baby boom.

Long term decline in living standards –It is no secret that living standards are atrophying. According to the Resolution Foundation, the income of typical households is set to be 15 per cent lower in 2020 than in 2008; the result of a perfect storm of falling real wages and rising household expenses. Rather than cut back on spending, many people appear to be topping up their incomes by starting part-time businesses, often on top-up of a full-time job. According to the market analysts Keynote, around 1.8 million people now have ‘moonlighting’ businesses. And it’s worth recognising that the purpose of these ventures is not only to meet basic needs, but actually to raise living standards to the level experienced in the pre-crash days. See here for more information about this trend.

New notions of the good life – One of the silver linings of the economic crash is that it has prompted many people to reassess what it is they really want from life. With trust in Westminster, Fleet Street and Big Business at an all-time low, many sense that it is up to them to find their own meaning and purpose. A large number of the fledgling microbusiness owners we met spoke of their desire for more ‘control’ in what they do. Simply put, they don’t want to be subservient to those they no longer trust. Indeed, there’s a real sense that people want to be the authors of their own lives, and that the best way of achieving this is often through the vehicle of a business. See here for more information about this trend.

Technology lowering the barriers to entry – It goes without saying that technology lies behind a great deal of the major social and economic transformations – and the boom in entrepreneurship is no exception. Websites like eBay, Etsy, Skype, WordPress and all the other social media tools are radically lowering the barriers to entry. All that most budding entrepreneurs need now is a few hundred pounds, a laptop and a decent internet connection (at least to begin with). This may not be ‘creating’ entrepreneurship as such, but it is certainly releasing a whole lot of pent up entrepreneurialism that once lied latent in our economy. Nor has the impact of technology fully played out, of course. The growth of 3D printing and ‘sharing economy’ platforms like Airbnb are just two of the innovations that are set to make entrepreneurs out of many more of us.

The RSA and Etsy are exploring similar themes in a new project, The Power of Small.

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