New thinking for a level playing field for entrepreneurs

New thinking for a level playing field for entrep...

This article was originally published in The Irish Times.

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More than 20,000 people started a new business in Ireland last year. Further positive news was highlighted by KPMG’s most recent Family Business Survey, in which 89 per cent of Irish family- or privately owned companies expressed confidence about future growth prospects. This compares favourably to the 74 per cent level for family businesses in the other 24 European companies surveyed.

There was also renewed optimism in relation to employment numbers, with almost two-thirds (65 per cent) of Irish family businesses increasing staff in the past year compared with just 45 per cent in other European markets.

According to KPMG managing partner Shaun Murphy, sentiment is generally positive in Ireland. He cites increased turnover, expansion into overseas markets and future plans to increase employee numbers as evidence of this positivity. Despite this benign environment, Murphy cautions against complacency, warning that past events are no guarantee of continued good news.

“Most domestically owned companies are in far better shape than a few years ago, but without more pro-enterprise policies to underpin improved performance, there is a risk to current growth.”

Current favourable conditions won’t last forever, he notes. “There is a need for well thought-out policy choices in the months ahead. Factors such as currency movements are by definition only temporary. To promote longer-term growth, we need more policies that further encourage innovation, risk-taking and job-creation among family businesses and entrepreneurs.”

Given his role at the helm of an organisation working with many of these businesses, Murphy is well placed to assess attitudes to entrepreneurship. He believes that Irish sentiment about starting and growing a business is changing for the better, but that policies sometimes lag behind.

“We need to value entrepreneurship and innovation as much as we do international investment or we will lose out on a major opportunity. We’ve been involved with Web Summit from the start because it helps put Ireland on the map and creates an environment where thriving Irish start- ups are the norm. Events such as these highlight entrepreneurial role models, act as an exchange for ideas and are a valuable showcase to investors.”

He also believes that amendments to the Irish tax system could be a very effective means of encouraging innovation and entrepreneurship in Ireland.

Practical suggestions

Responding to the recent Department of Finance public consultation, KPMG has made a range of practical suggestions designed to address issues such as recognising the “cash-hungry” nature of start-ups; appropriately rewarding entrepreneurial risk; and attracting and retaining internationally mobile entrepreneurial talent.

It is in this context that Murphy expresses concern about other trends which have become evident of late. They include the downward trend in the most recent 2014 Global Entrepreneurship Monitor (GEM) TEA Index – the rate of early stage entrepreneurship. In the rankings of early stage entrepreneurial activity across Europe, Ireland is placed only 16th in a group of 25 countries.

“We need the right policies in place to push us closer to the top of these rankings if we are to fulfil our potential,” says Murphy. “There are some policy decisions around risk and reward that can be addressed in the short term.

“Government commitment to sectors such as fintech, for example, is hugely valuable but we also need to recognise that many entrepreneurs are mobile. They have choices about where they locate – so the capital gains tax rate in the UK, for example, at 10 per cent on up to £10 million per individual and other key founders of a company, doesn’t compare well to the 33 per cent that exists here.”

On longer-term initiatives to develop enterprise and innovation, Murphy highlights female entrepreneurship as an area requiring more focus. Referencing the GEM report he says: “Research in Ireland shows that men tend to be more confident in their perception of having the skills and knowledge to start a business and men also have higher growth aspirations than women for their start-ups.”

Murphy does not believe that there is a single solution to encouraging more female entrepreneurs but says that the combined effect of initiatives designed to effect change from an early age can make a difference. “For example, raising female participation in the Stem subjects of science, technology, engineering and maths at second level could be a catalyst for more female- led enterprises in the broad technology sector,” he says.

He also references the higher rate of female entrepreneurs in Ireland motivated by necessity (39 per cent) as opposed to ambition, noting that this is high compared to the European average for female entrepreneurs (26 per cent). “Regardless of gender, we need to promote entrepreneurship as an aspiration – not something that people may feel forced into as a result of situations such redundancy.”
Current anomalies in the tax code may exacerbate this situation. “A tax credit of €1,650 per annum is available to employees but not the self-employed,” he argues. “We need to equalise the situation between employed and self-employed or we will continue to undervalue entrepreneurs at a net cost to the economy and Irish society.”

Understanding what motivates entrepreneurs, as well as attitudes to risk, reward and innovation, is fundamental to making informed policy choices, according to Murphy. “Naturally, we are close to these issues given our client base, but KPMG also invests in research to understand how Irish business views current and future prospects. For example, we’ll be launching our annual Innovation Monitor report in the next few weeks. Based on research carried by RedC, it canvasses the views of business leaders in a range of sectors on what needs to be done to improve our levels of innovation.”

He expects the findings of that research to be generally positive given current economic sentiment. “People respond to fair reward for risk-taking. I think that post-crisis, Ireland is at a crossroads in terms of what we do next. If we choose to ignore the anomalies and disincentives that exist, we will lose out badly. On the other hand, if we grasp the opportunity and level the playing field for entrepreneurs, more jobs will be created in Ireland.”

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