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LETTER OF THE DAY - Private sector should embrace, finance SME start-ups

Published:Saturday | May 24, 2014 | 12:00 AM

THE EDITOR, Sir:

It is widely acknowledged that globally competitive small businesses will rescue Jamaica from its present economic malaise. Small and medium-size enterprises are major providers of employment, accounting for 60 to 70 per cent of jobs in most developed countries.

Although the country's economic fortunes are hinged on the prosperity of SME start-ups, it must be noted that the road to success will be arduous.

According to a 1996 study conducted by the OECD, fewer than half of SME start-ups survive for five years, with a small number of surviving SMEs transforming into high-growth firms. A more recent report compiled by Harvard researchers asserts that about three-quarters of venture-backed firms in America don't return investors' capital and ultimately fail.

It is not the intention of anyone to discourage prospective entrepreneurs from starting a business because of the possibility of failure, but this is the reality of entrepreneurship. It's a risk and if you are averse to risks, maybe you shouldn't be an entrepreneur.

This point was reinforced by entrepreneur Paul Saffo, when quizzed by the British media about the success of Silicon Valley. "Failure is what makes Silicon Valley's success to hard to replicate. Would-be competitors only see, and try to copy, the Valley's success. But to succeed, you need an ecology of fearless players, from venture capitalists to banks, suppliers and myriad other supporting businesses unafraid to risk all by helping with often flaky and unpredictable start-ups.

"So if you want to be the next Silicon Valley, don't copy our success. Learn to support and encourage novel and ultimately successful failure," he said.

Venture-capital financing for small businesses has also become a popular topic. Some are even clamouring for government-supported schemes, but such an activity is the forté of the private sector. A growing number of young Jamaicans are creating start-ups, therefore, the local private sector must embrace the challenge by providing these initiatives with financing.

FAILURE IS ESSENTIAL

This administration may be dithering on business reforms, but the private sector can no longer continue to put off investments because of a fear of failure, because failure is an essential ingredient to success. Furthermore, private entrepreneurs should not give the impression that bureaucrats are to blame for everything, because some things are not in their control.

Nothing is stopping the Private Sector Organisation of Jamaica from starting a venture capital network similar to organisations in developed countries, or a wealthy investor from creating a venture-capital firm. Our wealthy businessmen must not allow their fear of failure to prevent them from engaging in venture-capital schemes; if they do not take the lead in this scenario, cynics will propagate the view that private entrepreneurs are lazy and it will be very hard to restore their credibility.

LIPTON MATTHEWS

lo_matthews@yahoo.com