How is the UK skills gap hurting entrepreneurship?

Entrepreneurship requires complete resilience whilst being notoriously fragile. The UK has a strong track record of blossoming growth rooted in its entrepreneurial culture. Perhaps, nowhere else is it as straightforward or normalised to set up a new business. However, we are facing the stark reality that the UK skills gap hurts entrepreneurship. There are solutions, as there always are for the entrepreneurially savvy, but it takes a depth of understanding and a new approach.

Our strength as entrepreneurs

To understand why the UK skills gap is potentially harmful to entrepreneurship, we need to understand the realities of British entrepreneurship.

The UK provides fertile ground for the entrepreneur and, as such, has a global reputation for being a self-employment and start-up heartland. As a result, the UK is Europe’s leading start-up nation, consistently attracting the most investment year after year. In real terms, this translates to more than one new business starting every minute here. 

At the start of 2021, so within pandemic territory, there were 5.6 million private sector businesses in the UK. A staggering 5.5 million of those businesses were small, with 0 to 49 employees. What’s more, they account for around half of the turnover of the UK private sector. So small burgeoning businesses are the lifeblood of the UK.

Is the UK still good for entrepreneurs?

It’s essential to take a critical eye to the media reports and drill down into the data. The data shows a mixed picture. 

The total private sector business population decreased in 2020. There were 389,6000 fewer businesses in the UK than in 2019. This is only the second-ever decrease on record. 

However, the number of new businesses in the UK increased by 14% in the same year. Indeed, a whopping 726,000 new businesses started in the UK in 2020. In March 2021, more businesses began than in any other year since 1989, when records began. 

In the UK, the response to the pandemic was to tug on our entrepreneurial boots and get cracking. When furlough and redundancies started taking their toll, individuals responded by starting from scratch. 

Hiccoughs in the journey

Despite these encouraging figures, I remain concerned that entrepreneurship in the UK faces some unique and complex challenges. Our entrepreneurial spirit is still very much intact, but how will that spirit survive in the face of the ever-increasing skills gap?

What happens then when the skills aren’t there to build these new businesses? And this is a big issue because the most significant area of concern in terms of the UK skills gap concerns digital skills, and these start-ups are relying heavily on eCommerce, the cloud and digital capabilities.

The UK skills gap

Over 80% of employers say that a lack of skills harms the UK’s competitiveness. This is because approximately 40% of UK workers aren’t adequately skilled for their job. 

The Recruitment & Employment Confederation (REC) publishes a monthly report called the Report on Jobs. Every month for as long as I can remember now, the number one area highlighted for skills shortages has been IT & Computing. The skills gap exists in many sectors, but digital skills gaps stand out as the biggest problem. Some new businesses fail due to such very basic marketing mistakes as failing to create a coherent marketing plan or selling to the wrong market. Data analysis, big data, cybersecurity and data architecture are areas where the skills shortages are significant and growing. For example, the Department for Digital, Culture, Media and Skills (DCMS) estimated that cyber security alone is an area short of about 10,000 people every year. 

According to the UK Data Skills Gap Report, 46% of employers have struggled to recruit adequately digitally skilled individuals over the last two years. This is because the number of university graduates with the needed skills is not enough. 

On the ground, how is the UK skills gap hurting entrepreneurship?

The entrepreneurial challenges

There are many different facets to what’s going on and what we can do about it. So here I look at some of these issues.

• The playing field isn’t even

First, we need to recognise that the landscape isn’t created equally for different start-ups. For example, the skills required for an individual local retailer breaking into eCommerce contrasts starkly with a digital start-up developing a new software solution in fintech. It’s fair to say that the second will struggle considerably more in terms of digital skills shortages than the first.

Entrepreneurs need to be aware of how skills shortages will affect their start-up plans and consider how to mitigate them. 

• You can’t make people do something they don’t want to do

As the Employment Related Services Association (ESRA) pointed out in their recent article for FE News, making people do jobs they don’t want to do will not help employers in the long term. ESRA discussed the DWP’s Way to Work campaign, which threatens people with benefit sanctions if they don’t take ‘any job’.  

This approach doesn’t bring on board the skills that are wanted. As a result, employers will still lack the skills they need, even if they have a new hire in the empty seat.

That said, don’t dismiss potential employees that may be good in the longer term. Instead, look carefully at their CV to determine if they have the right personal attributes to mould into the employees you need.

• You really, really can’t make people do something they don’t want to do

This problem goes further. We know from the failure of the ‘Rethink, Reskill, Reboot’ campaign that you can’t make people adopt careers in tech if they don’t want to. You can’t magically make people in the arts want to develop their tech skills, as was encouraged at that time.

Instead, we need to go right back to square one, where young people are still in the education system, and light the fire of interest in digital skill development. Young people need to be encouraged into further and higher digital education in more significant numbers. The Learning & Work Institute reports that the number of teens taking IT subjects at GCSE level has dropped 40% since 2015. 

• The problem is too big to fix from within

The narrative often seems to be: hire well-enough and train within. This approach of training individuals within the business undoubtedly works in some scenarios, especially in bigger firms. It also works on a small scale. For example, you can learn simple digital skills such as how to create an electronic signature simply by following a free online set of instructions. 

However, can we argue that this is a solution for the start-up entrepreneur? Firstly, the skills needed are likely not even to exist in-house – that’s why the business is looking for an employee in the first place. Secondly, start-ups need a capable workforce that can drive success very quickly.

As we break ground with revenue-based finance for start-ups, this problem should be much easier to manage.

• Diversity matters

Entrepreneurship thrives best in diversity. Yet, diversity in the tech sector is notoriously poor. For example, 49% of UK workers are women, yet just 19% of tech workers are women. Individuals from a BAME background are underrepresented in the industry also. 

The tech industry has an image problem. If we want to address the skills shortages, we need the sector to appeal to everyone. Importantly, we need to invest in diversity and inclusion, knowing that it pays off with increased productivity and turnover.

• Skills cost

The jobs market in the UK is tight. As such, starting salaries are increasing rapidly. Start-ups need to be able to afford the skills that are in highest demand, and they are competing against the big players for this. Again, novel strategies such as revenue-based financing will help start-ups and entrepreneurs in this regard.

• Work-life balance

We need more insights to emerge, but so far, it is proving to be very evident that employee priorities have shifted over the pandemic. Employees are demanding a better work-life balance. 

Again, bigger companies are in a much stronger position to offer better work-life balance than entrepreneurial start-ups. Those involved in a business in the early days must go the extra mile with dedication and unremitting energy. Flexibility is essentially a privilege for the established business.

When skills are in short supply, those owning those skills can seek the roles which suit them best. They will be more likely to choose the employer that can offer the flexibility and balance they are looking for, which naturally harms the entrepreneur.

This problem goes deeper than this too. Those individuals in possession of the skills could become the entrepreneurs themselves, but will they, when they have the potential to earn well and achieve the work-life balance they want, without the hours and the risk involved with starting up a business?

Due to technological and digital advancements, being an entrepreneur is perhaps more accessible than ever, and the data proves this to be true. You can sit on your sofa with a computer and get started. But, the skills gap is hurting entrepreneurship in myriad ways, and we need to plug those gaps too. Given that so many start-ups now sit squarely within the digital area, if the skills required aren’t there, those start-ups won’t blossom.