Young businesses must improve management skills to avoid failure

Inadequate management and business incompetence are the main reasons why half of all startup businesses fail to last more than three years.

According to research from the Chartered Institute of Management, and using data on SMEs from bodies such as the the Office for National Statistics, nearly half, 44 per cent, of businesses founded in 2011 had collapsed by 2014, with incompetence and bad management responsible for a huge 56 per cent of those failures.

The poor performance was worse in Northern Ireland, where only 49 per cent of startups survive more than three years. The North West of England and Wales also struggled.

In comparison, and perhaps surprisingly, the South West of England was the best performing region with 59 per cent of surviving startups. The South East of England also did well.

The Chartered Institute of Management said exacerbating the problem was the finding that only 42 per cent of small businesses have provided management training during the last 12 months, compared to 89 per cent of businesses with more than 250 staff.

Again the South West of England was the highest-ranking in the UK for providing management training, with 46 per cent of organisations in the region having trained managers in 2013.

Read more about business struggles:

• Chartered Institute of Management
• City Link autopsy: Why the business failed so badly
• To fear change in your business is to embrace failure

Emma-Jane Packe, director of The Supper Club, a membership club exclusively for fast-growth entrepreneurs, said SMEs could benefit from learning from a network of companies that are facing the same challenges as they look to grow their business.

“We’ve worked with hundreds of entrepreneurs and SMEs and find that while the circumstances may differ, 95 per cent of the challenges faced by business owners are common across all sectors,” she said. 

“Having the skills, along with a capable team, to manage through these is imperative but sharing with a peer group can help you find solutions faster and be an invaluable resource in helping you scale your business. We say to all SME business owners, we know it can be lonely being an entrepreneur, but the support is out there to help you achieve growth.”

Anne Kiem, chief executive of the Chartered Association of Business Schools, said that business schools can also be a key source of information and support for startups and other small businesses, and can act a driving force for future growth in the sector.

“The UK’s business schools are full of world-class business expertise and knowledge, and with a business school conveniently located in every region, including those who hold the Small Business Charter, they are perfectly placed to support the growth of small businesses,” she said. 

“As this report has evidenced, those small businesses that have received support from a business school have received high-quality advice and professional development to start, grow or reshape the business.”

Ann Francke, chief executive of CMI, added: “Small businesses are a vital part of our economy, yet as our report shows their growth is being held back by poor management and leadership.”

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