Young entrepreneurs are holding their nerve while their parents fear failure

One piece of data that can strike fear into the minds of government officials is the level of company formations. It may not sound like a stomach-turner, but a surge of new businesses could offer reassurance when politicians are rightly keen to see unemployment continue to fall. Right now, there’s cause for jumpiness.

While the UK saw a record-breaking 526,446 new businesses formed in 2013, our appetite for enterprise may be on the slide. The 2013 GEM Report, the definitive take on such things, shows “total entrepreneurship activity” lower in 2013 than in 2012. It seems that, as the recovery takes hold, fear of failure is rising and we Brits are becoming more risk-averse. Those “necessity” entrepreneurs, who started their own businesses during the recession, are taking flight back to the haven of a full-time job.

Similar trends are in play in the US, traditionally a hotbed of entrepreneurialism. Startup rates there have been declining for three decades. But since 2008, the number of new companies created each year has been outstripped by those dying. It’s pretty dispiriting when we’d assumed we were in a new era of enterprise.

But new research DueDil is releasing today with Enterprise Nation shows an entrepreneurial outperformance by one section of society: the young.

We looked at the number of company formations in 2006, just before the recession, versus 2013, and found that the number of founders who were younger than 35 rose from 145,104 to 247,049 in the period. That’s a 70 per cent rise. The male to female split for 2013 company founders was 74 to 26 per cent. Business and management consultancy, IT, architecture, restaurants, mail-order retail, and “artistic & literary creation” are the favoured sectors for this new generation of entrepreneurs. Notably, more and more young people are also launching companies on their own, rather than with partners or co-founders.

Youth enterprise isn’t just a London trend. The areas that saw the biggest percentage rise in young founders were: North Ayrshire, with a 169 per cent increase between 2006 and 2013; Blaenau Gwent at 161 per cent; the Western Isles, 150 per cent; West Dunbartonshire, 144 per cent; Midlothian, 117 per cent; Merthyr Tydfil, 113 per cent; and Greater London with a 110 per cent rise. By contrast, the Northern Ireland counties of Fermanagh, Down and Armagh have seen a decline in the number of young founders through the recession.

Enterprise Nation’s Emma Jones argues that “young people are turning their interests into a way of making a living and benefiting from the freedom and flexibility that comes with being your own boss.” But might young people also turn away from entrepreneurship as the economy picks up? We may have passed a tipping point. According to UnLtd, more than 55 per cent of young people aged 16 to 25 now want to set up their own firm. Santander estimates that 80,000 UK university students run a business, and a quarter of these plan to turn it into a career when they graduate.

Will they hold their nerve? This is data worth watching.

This article was first published in City AM on September 29, 2014.

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