Ride the economic wave: cash in on your social network capital

More people open business bank accounts in Brighton & Hove than almost any other UK location, yet around 60% of new business accounts opened in the city never make it to the trading stage. Despite being known for our entrepreneurial spirit should we be making more of business networks to ensure success?

The figures

In Brighton & Hove, 275–340 business accounts are opened per month, compared to the all-England monthly average of 110–140*. Yet around 60% of the city’s new business accounts never make it to the trading stage. This is 5-10% lower than in some surrounding locations.

This is not just a product of the recession either. In 2008, the percentage of new accounts which went on to trade was 49% in Brighton & Hove, compared to 59% across England. By 2010, this had fallen to 40% in Brighton & Hove – fully 9% below the conversion rate** for Chichester, and 5.5% below the rate for Crawley.

As a city, we have a high level of entrepreneurs, a can-do spirit and skilled and qualified workforce (47.5% have a degree or better). The result is our very high number of start-ups and the third highest number of businesses per head in the UK.

So what’s stopping new businesses that open accounts going on to trade?

Barriers to new businesses

Some more rural areas in Sussex and Surrey have conversion rates which are 15% higher than in Brighton & Hove, though they do produce a far lower number of new businesses overall. Much of the success in these areas is related to low levels of deprivation, exposure to ‘role models’ of success and higher starting levels of finance. 

Part of the local shortfall is also related to access to finance and the ability of those who are starting out from scratch to get a loan. But exposure to role models is also key.

Success is more likely when entrepreneurs are given the right advice and can develop business proposals which are more likely to be viewed favourably by a bank.

But how easy is it for new business people to find sound advice?

The value of networks for new business

“Social network capital” – the value that you gain from your networks – is often an important factor determining business success, not least because of the potential for investment that being part of a dynamic business network may create.

Many entrepreneurs may decide after opening an account that their venture is too risky, and decide not to go ahead. While taking risks and reaping the rewards is the goal of any entrepreneur, not understanding risk or experiencing high levels of uncertainty can make people ‘risk averse’ or cause their business to fail. While risks are an inherent part of operating a business, with the right help uncertainty can be reduced and risk minimised and managed.

Accessing the right advice from an expert or others with suitable experience as part of a network of other entrepreneurs can make a huge difference to you if you are a new business. It gives you network capital that translates into information and advice and can:

•   reduce uncertainty by helping you identify potential barriers and hurdles;
•   give you knowledge that allows you to manage risk; and
•   expose you to different models of success and to sources of mentoring.

Invest in your network capital

The Ride the Wave programme of business support events is aimed at helping business people to build skills and their business networks.

If we support entrepreneurs and the ‘conversion rate’ from account to trading business can be improved, this could translate to between 15 and 30 new businesses per month.

Ride the Wave events are an opportunity for you to invest in your network capital. 

Ride the Wave support for start-ups and new ideas:

There are two workshops coming up in September 2012 both specifically focused on start-ups: 

Preparing for lift-off
More info and book online here

All systems go
More info and book online here

To find out more about Ride the Wave click here and see the attached pdf.

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*Numbers of new accounts vary seasonally, both in Brighton & Hove, and across England. The fourth economic quarter is typically the quietest in terms of start-up activity.
**The conversion rate is defined as: the number of new trading businesses recorded by the ONS divided by the number of new ‘banksearch’ accounts, to give a percentage figure. [eg – 1,000/ 2,000 = 0.5 = 50%].

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Blog post by Tom Perrigo, Economic Research and Project Support Officer, Economic Development, Brighton & Hove City Council

Blog editor, Core Copywriting

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