The UK has tremendous potential for growth powered by high-impact digital entrepreneurship. We need to do everything we can to help our start-ups to scale up.
Digital businesses really are changing the world. Four in ten of us carry an iPhone or similar device. Amazon sells more Kindle books than hardbacks and paperbacks combined. TV and radio presenters urge us to get in touch via Facebook or Twitter. People started using the word Google as a verb a decade ago, and don't show any sign of stopping. The businesses behind these changes have some big things in common. They are all extremely ambitious. They have all grown astonishingly fast. And they all rely on smart people to turn visionary ideas into great, everyday products.
The prime minister says he wants the UK to be the best place in the world to start, run and grow a high-tech company. As a strategy for rebalancing the economy, this makes a lot of sense. Digitisation is one of the great trends in the modern economy. The internet already accounts for a greater share of GDP in the UK than in any other G20 country. We have a great tradition of design and innovation, and more world-leading universities than any country apart from the US. If we can get a few other ingredients right, then there is tremendous potential for growth powered by high-impact digital entrepreneurship.
First, we need a pragmatic approach to skills and migration. Digital businesses cannot run without smart, talented people - walk into any start-up incubator or hit the online jobs boards and you will see a wall of adverts for coders and designers. We have to get better at teaching our kids how to create software rather than just use it, and put more emphasis on both science and the creative disciplines that provide a foundation for working in the digital economy. In the near term we have to make it easier for start-ups that are struggling to complete their teams to bring highly skilled employees in from overseas.
Second, we need more flexibility for management teams and top employees. The most successful start-ups are those that are able to pivot rapidly when circumstances change - and doing this right will often mean benching some team members or bringing new faces in. More freedom for employers to hire and fire should go hand in hand with more freedom for employees to break contracts to work for competitors or start their own businesses. This may sound tough but it works - labour market flexibility and rapid cross-pollination of ideas is a key part of the success story in California.
Third, we need to get more of our brightest young people to consider working for or co-founding a start-up. Start-ups have real difficulties competing with the job security on offer from large firms, even if the potential upsides from stock options are large (just ask the folk who got in on the ground floor at Instagram). A range of initiatives already exist to encourage graduates to give the start-up world a go. Big employers could build on the success of these schemes by lending some of their graduates to start-ups in exchange for equity - a relationship that could benefit all sides.
There are other factors to consider alongside these - mentoring, copyright modernisation and tax reform will all matter for the future of our digital start-ups. And to scale a business effectively, the ability to access external finance remains critical. There needs to be a healthy blend of capital on offer for growing businesses - across debt and equity, and with enough sources to see firms through every stage from seed funding to IPO.
In research published today we analyse the success factors for high-impact digital entrepreneurship. Our recommendations are designed to stimulate economic growth and make the UK the first choice for aspiring digital entrepreneurs. In our view, government needs to act more like the high-impact digital entrepreneurs it wants to promote: pivoting as required to stay ahead of other countries, focusing aggressively on measures that will help start-ups to scale up, and building an attractive environment for investors to back innovative digital businesses.
The UK has the potential to launch world-beating, high-impact digital enterprises. There is a real opportunity to excel - but only if we think big and act fast.