Irish Economy
Irish startups plan to double new jobs numbers not really a plan
By Michael Hennigan, Finfacts founder and editor
Oct 12, 2014 - 12:55 PM

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Last Thursday the Government issued what it termed "a new plan aimed at creating an extra 93,000 jobs from startup companies in the next five years" - - in effect doubling employment at Irish young firms.

That may or may not happen but the limited data used in the new report in respect of 2011 comprises a mix of units of foreign companies and inactive companies while the majority of the firms in the annual total have no employees.

Startup activity is important for an economy even though failure rates are high - - but firms that employ staff are the key while some one-person operations never grow.

However, rising startup rates can also reflect a poor economic situation as individuals cannot get good-paying employee jobs.

In Ireland from Q2 2007 to Q2 2014 the number of self-employed with employees fell by 34,000 to 89,000 while the number of self-employed with no employees rose by 8,000 to 227,000.

In the United States in 2012, 410,001 new employer firms were created according to the Census Bureau, which represented only a small increase from the prior year. These new firms accounted for 8.1% of all businesses in the United States. However, the volume and the share of new business creation remain far below the rather steady level the United States enjoyed from the late 1970s through the 2000s.

The 2012 figure is 27% lower than the peak reached in 2006, when 561,721 new employer firms were formed while in 1980-1989 the new firm share was 12.4% and in 1990-1999 was 10.8%, according to the Kauffman Foundation.

Richard Bruton, enterprise minister, said on Thursday that the Government’s National Policy Statement on Entrepreneurship in Ireland [pdf] represents "the first time a government has published a comprehensive national plan for entrepreneurship. It is the Government’s plan to deliver an ambitious but realistic increase in the numbers of start-ups in Ireland over the next five years.

The key target contained in the plan is to double the jobs impact of startups in Ireland over the next five years, from 93,000 currently.

The measures in the plan will be implemented through the Action Plan for Jobs process in 2015 and future years. It is anticipated that entrepreneurship will be included as a Disruptive Reform in the 2015 plan."

Page 14 cites CSO data that show 11,847 startups began operations in 2011 in a population of almost 190,000 firms - -  over 90% of all startups were in the services, distribution and construction sectors. In 2011 startups represented a little over 5% of the existing population in construction and distribution but in services and financial services the startup rate was just over 7%.

Of the 11,847 startups, 9,444 had no employees in 2011.

In total, 90,000 active enterprises have no employees (besides founders) and units of other companies or offshore companies such as Apple and Google use for tax avoidance, are letter-box entities - - Michael Noonan, finance minister, said last year that Irish authorities do not know how many offshore companies exist.

The number engaged with the 90,000 non-employee companies is 69,000.

In 2011, of the 9,444 employee-free firms, there were 5,502 individuals identified as being engaged with them; 769 startups who employed 4,429 in 2011.

In 2006, over 10,000 people were involved in employee-less firms; by 2011 that number had fallen 4,765 but an additional 4,000 were employed.

The report says Ireland can double the jobs impact of startups on our economy if we:

  • Increase the number of startups by 25% (3,000 more startups per annum);
  • Increase the survival rate in the first five years by 25% (1,800 more survivors per annum);
  • Improve the capacity of startups to grow to scale by 25%.

"This is a challenging but realistic ambition for the next five years."

Over 30% of all enterprises that were active during 2011 began trading in the period 2006 – 2011 inclusive. These enterprises accounted for nearly 10% of persons engaged in the private business economy in 2011.

1. The target of increasing startups by 25% is based on a total that includes 9,444 enterprises - - or 80% of the total, which has no employees, whereas the number engaged in non-employee firms should generally be greater than the number of firms as enterprises often include more than one founder.

2. Trying to increase the survival rate is not realistic.

Of the 16,696 enterprises which were enterprise births in 2006, 10,188 or 61% have survived to reference year 2011. Of the 13,461 enterprises birthed in 2007, 6,513 or 48.4% survived to reference year 2012.

"Overall, the survival rate for enterprises that are State supported (in existence after five years) is high. This ranges from 68% in LEO (local enterprise offices) supported enterprises to over 85% for Enterprise Ireland’s High Potential Startups (HPSUs)."

US Bureau of Labor Statistics data show a consistent failure rate for young firms up to 5 years old.

Eurostat data are similar with higher levels for Austria and Sweden.

3. Scaling: Fast or high growing firms are not typically in high tech and earlier this year researchers from three Scottish universities reported a mismatch between the nature of UK high-growth firms and the policies developed to support them.

They argued that Westminster and Holyrood had been over-subsidising tech firms, many of which could not grow.

They were also missing the target on firms with real high-growth potential.

The study was carried out by researchers at the universities of St Andrews, Glasgow and Stirling and published by the foundation, National Endowment for Science, Technology and the Arts (Nesta).

It claimed a number of myths had developed around the nature of high-growth firms, saying policy makers typically perceived them to be new or very young high-tech businesses which often emerged from university spin-offs.

According to the BBC, Dr Ross Brown of the University of St Andrews said: "Our research clearly shows that there is a mismatch between the nature of high-growth firms and the policies which have been developed to support them.

"The vast majority of high-growth firms are in fact well-established firms from traditional business sectors and do not equate with the hypothetical 'techie' view of these firms.

"At present, through their interventions, policy makers may be over-subsidising technology-based firms who are incapable of growing.

"In the main, public policy is largely ineffective in this area which could be undermining economic growth."

Kauffman Foundation research has shown that US state economic development programs, "which traditionally target high-tech firms, may be missing 75% of high-growth companies."

Most of the content of the Government's report details action plans and aspirations as well as improving the culture of entrepreneurship.

It's foolish and misleading to lump indigenous startups with subsidiaries and financial vehicles of large foreign-owned companies.

Richard Bruton, enterprise minister, has a poor record in the policy making area.

The idiot/ eejit's guide to distorted Irish national economic data

The standard government report today is simply a promotional brochure with an avoidance of facts that may conflict with what is a permanent propoganda campaign where dowsides are whitewashed from the narrative.

Prof Dan Isenberg wrote on the Harvard Business Review blog last May:

Surprisingly, there is no reason to believe that formal education in entrepreneurship leads to more, or more successful, entrepreneurship; there is, however, some evidence that it is irrelevant. Well-known entrepreneurial hotspots such as Israel, Route 128, Silicon Valley, Austin, Iceland and others, had significant entrepreneurship long before there were courses in it. These arose organically, first and foremost due to access to customers and employable talent, as well as access to capital. I taught the first masters course on technological entrepreneurship in Israel at the Technion in 1987, 15 years after Israel’s first tech IPO on NASDAQ and when the entrepreneurial revolution in Israel was well underway. This is not to say that entrepreneurship education is not helpful, rather that it is probably not on the critical path to a regional entrepreneurship ecosystem."

Related links:

Many high growth firms either fail or fade - Part 1

Top 1% of entrepreneurial firms in 10 countries account for 40% of job creation among startups

Entrepreneurship: Are clusters within city-regions needed for innovation?

Imbalance in focus on tech and non-tech entrepreneurship in Ireland & elsewhere - Part 1

Up to 90% of US high tech startups fail; System of failure by design? - Part 2

Ireland: Why not a prize for failed entrepreneur of the year? - Part 3

Irish Innovation: Israel as Startup Nation, why not Ireland? - Part 2

Declining regular work; Rising low-paid freelancing in Ireland & elsewhere - Part 1-4

Young and jobless? The solution isn’t always university

Q1 2011-Q2 2014: Irish employee jobs up 21,000; 130,000 part-timers seeking full-time work

Irish Economy 2014: Live Register + Public Scheme numbers at 452,000 in September

Japan's Labour Market: Lifers, temps and banishment rooms

South Korea: A rich/ poor country - grim model for future world of irregular work?

German living standard highest in Europe; Irish, Italians, Spanish among Eurozone's poorest

IMF says 70% of new employment contracts in Italy are temporary

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