More businesses need to fail to show that Birmingham is on the road to becoming the city of enterprise, the council has been told.
The counter-intuitive statement came as evidence showed that more successful city economies have businesses springing up all the time and a competitive climate that means many to go to the wall.
But, according to British Chamber of Commerce head of research Mike Spicer, entrepreneurs are a resilient bunch and failure is all part and parcel of a thriving enterprise culture.
He gave evidence to Birmingham City Council’s economy and jobs committee as part of its inquiry into support for small business in the city and how to deliver on the ambition of making Birmingham the enterprise capital of the UK.
He said: “I know that public policy makers do not like failure, but an integral part of business success is failure.
“Successful businesses fight for survival, they are motivated by competition. Successful entrepreneurs often have failures under their belts before they hit the big time.
“The best performing city economies always have the highest failure rates. Strategically if you are looking at raising the business start-up rate, you have to accept this will feature alongside a high failure rate.”
He said that the Birmingham and Solihull LEP area had the fifth highest churn rate in the country, behind London, Manchester, Liverpool and the Tees area and activity was dependent on the level of demand in the economy and quality of infrastructure – such as access to skills and super fast broadband.
He added that the city had 32 enterprises per 1,000 population, slightly lower than Manchester and Bristol.
Bristol boasts the highest business survival rate among core cities, partly it was suggested as a result of being in the south and having resilient anchor industries like Airbus. Birmingham’s performance on survival was described as average.
The committee is exploring what the authority can do to support businesses as the economy struggles to emerge from the downturn – particularly with council contracts.
The Labour administration has drawn up its Birmingham Charter for Social Responsibility, which gives a competitive advantage to firms who tick a number of boxes, including procure goods and services and create employment locally, pay the living wage to staff and do not operate blacklists.
But Mr Spicer urged the council not to be strict on implementing the living wage condition as it could have unintended consequences for micro businesses or new starters. He said that in some cases in other areas business partners who had not taken a salary during early periods of a contract had fallen foul of living wage conditions. “It can present issues,” he said.
Another key concern is that complex council contract demands tend to favour larger established companies which can meet the criteria even though smaller local firms could deliver a service. Consortia of small companies often missed out because, being newly formed, they could not demonstrate years of financial stability, even though individually they may have.
Mr Spicer also claimed that council officers slavishly followed European Union procurement rules which hinder local businesses. “Local government has more flexibility than it knows. A good example is local contracts, where EU law is a lot more grey than many realise.”
Finally, he warned that business support needed to be more simple than at present, pointing out that there were some 900 support schemes operating in England, most of them by local councils.
However, committee member, Labour councillor Elaine Williams (Harborne) hit out at his assessment of the living wage. “I have difficulty accepting that we could pay people lower than the minimum which they require to live,” she said.
She also said there was a large increase in failures after the first year and wondered if that was where support should be.