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Stimulating Business Growth – top down or bottom up? by Andy Coote

Andy Coote

The Government is in the process of reducing the size of the public sector. In October central government learned of the cuts to be made in their budgets in the Public Spending Review. Earlier this week, local government in England found out how big the cuts to their budgets would be. The FT published a useful map showing the effect of the cuts across England. The Government also published their Localism Bill which will devolve some powers to local government and communities.

The private sector is expected to step up and provide the growth that is necessary to replace (and build on) the reduction in the public sector. Local Enterprise Partnerships (LEPs) are replacing Regional Development Agencies (also part of the Localism agenda) and will have to decide where to place their limited cash for the best effect. Do they go ‘top down’, choose sectors or companies to support and grow – a policy known as ‘picking winners’ or do they approach the problem from the bottom up, by creating the conditions in which any small business can become a medium business and medium businesses can become large?

“When you’re looking for growth opportunities you don’t stick a pin in a map and drop down a research centre here or arbitrarily back an industry there” David Cameron Prime Minister

In a speech to the CBI conference in late October reported by the BBC, David Cameron seemed to favour the top down approach.

“Mr Cameron said targeted government support for “those industries where Britain enjoys competitive advantage” would be a key priority.” The BBC reported.

However, in a later passage they also note “The prime minister insisted support would not be limited to large sectors already in existence. “We’ve got to back the big businesses of tomorrow, not just the big businesses of today,” he declared. Such support would not take the form of subsidies, however.”

Cameron also appears to support a free market operating without constraints, “I believe in competition,” he said. “I believe when new entrants challenge big business, everyone wins. This hasn’t always been the view of the government.”

A top down approach is also referred to, not always favourably, as ‘picking winners’. Previous government approaches that attempted to do this have not always been successful. There are many variables involved and it could be compared with placing bets. Success depends to a great extent on the quality of research and decision making, on selecting the ‘right’ investment opportunities, with the right spread of risk and on good forward vision in a world market that can change rapidly. In this approach, money is spread across fewer businesses and sectors, with more money available to those chosen. There is a higher potential return on investment but at a higher risk. As a single approach, it excludes those who are not perceived as ‘winners’ but who have a good business plan and might, with support, have high growth potential.

The bottom up approach could be called ‘growing winners’. It is a wider-ranging, less selective approach and usually involves stimulating the whole business sector by training, support, advice and mentoring. There is a much lower cost per business with a lower individual risk. Central provision can be supplemented by private sector services which have the effect of stimulating those businesses, too. There is the potential for moderate growth across many businesses, producing a broader front of growth in the economy.

For those of us who have been involved in arguments about the most effective approach to networking, this dichotomy has a familiar structure. It is the quantity vs quality argument where the selective approach = quality and the general approach = quantity.

Some businesses approach networking as a focussed exercise with set criteria and with only those who meet criteria worthy of further exploration. This produces a limited field of operation and effectively rules out random connections which may display unexpected potential.

Other businesses set out to meet as many other people as they can, to develop some understanding of who they are and what they do and develop further levels of relationship with those where there is a promise of further success for both parties. This approach does allow for random connections and presupposes that the answers are not all known at the outset.

As it has proved in networking, the solution to the business growth question may be a combination of both approaches. If growing businesses can be compared to gardening, and I think it can, it is likely that one would want to grow some prize specimens whilst having a good level of plant health and growth across the whole garden. To do this, the prudent gardener would
• ensure the conditions were right for all plants, providing feed and protection where needed,
• choose some prize specimens from existing plants in the garden and supplement by buying in and
• plant plenty of seeds and cuttings, selecting from them to grow on as the prize specimens in future years
• keep the rotation going, favouring home grown specimens with some bought in plants to fill the gaps

Developing business may not be so different. Some winners are obvious and some are not. Growing next year’s top businesses will probably come from existing successes, finding the successful businesses further out requires seeding and cultivation. So bottom up AND top down approaches are needed to work together and to encourage private businesses to support other private businesses to supplement and develop government/LEP support.

This approach seems to support what David Cameron was saying to the CBI and, indeed, what Vince Cable and Eric Pickles are asking LEPs to do. It has been said that LEPs, being more local, will have their ear closer to the ground. It needs to be a listening ear, nuanced to recognise potential and act upon it. Time will tell if that will be the case.

Andy Coote is a writer and editor and runs Bizwords providing writing services for businesses and individuals. He has edited this blog during 2010 and also writes Case Studies for The Academy. He has been following the changes being made to business support and development by the Coalition Government since the election earlier this year.

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