Advertisement

Why do so few university graduates start their own businesses?

Data shows that 4.7% of recent graduates are self-employed or freelance, with only 0.6% having actually started their own business.
Data shows that 4.7% of recent graduates are self-employed or freelance, with only 0.6% having actually started their own business. Photograph: Westend61/Getty Images/Westend61

Entrepreneurship education has been around for more than 50 years, and is vital for the future economy. Yet data shows that 4.7% of recent graduates are self-employed or freelance, with only 0.6% having actually started their own business. This compares with 8.7% of the general population who have started a business in the last three years. So why are bright young graduates deciding against setting up their own companies?

At first glance, all seems to be going well: entrepreneurship activities have never been so prevalent at universities, with modules for students both on and off business courses. Extracurricular activities include boot camps, inspirational speakers, workshops and business plan competitions, with finance, mentoring and incubator space on offer to the winners.

So what are the barriers? Having invested a lot of time and money in their education, students can be quite risk-averse. Starting a business isn’t always appealing when compared with a graduate job, since working on a business idea may require long hours and initial low pay. Equally, many student entrepreneurship societies are sponsored by large corporations, which pick off potential entrepreneurs for themselves.

Entrepreneurship education itself can also have a negative effect. External speakers who discuss failure openly, or explain that “failing is a learning experience”, can deter some students. This can mean that self-efficacy and confidence suffer as the initial excitement fades.

But there are lots of benefits to entrepreneurship training. According to a European Commission report, students who take entrepreneurship modules have improved communication, presentation and team-working skills – and they are more likely to be employed and earning a higher salary.

This was echoed by the all-party parliamentary group for entrepreneurship, which reported on the future of enterprise education in universities last month. It made the case for university-wide entrepreneurship training, not just targeted at students looking to set up their own businesses, to foster an entrepreneurial culture.

The report also recognised the need for policy to catch up with universities – for example, through incentives to improve the low participation rate in entrepreneurship training. One possible lever could be changing the teaching excellence framework to recognise business start-ups, it suggested.

In the meantime, there is plenty that universities can do. When I asked the alumi entrepreneurs what they wish the course at my university had better covered, they highlighted practical themes such as budgets, taxation, basic bookkeeping, regulations on employing others and even how to physically register a company, rather than the more academically interesting (and assessable) topics.

They suggested that students could do internships with self-employed entrepreneurs, and asked for more opportunities to network with entrepreneurs and other students from different subject areas to stimulate ideas. They also recommended providing more opportunities to practice sales skills. Smoothing the transition into the business world via accelerators and incubators with continuing support from the university would be useful, they said.

There are plenty of examples of good practice in “learning by doing”: some masters courses, such as the M.Ent at the universities of Manchester and Huddersfield and the MSc entrepreneurship at UCL, explicitly aim to set up a business by the end of the course, allowing a safe space for testing ideas while still gaining a qualification in case things don’t work out. These courses have an approximate 1 in 3 success rate in producing a live business.

Equally, London Metropolitan Universities’ Christmas market of 200 stalls gives students experience of selling, and getting feedback, on their products. Universities in Birmingham collaborated to deliver the BSEEN initiative which provided 12 months of ongoing support following a bootcamp leading to 130 start-ups. Kings College London have a “venture crawl” where students are taken on a Routemaster bus to visit lots of enterprising businesses in a short space of time.

The most prolific starters of businesses are in the 25-34 year old age group, many of whom are several years out of university. While it’s difficult to track the success of alumni ventures, it shows that there is hope for business education. We just need to persuade their younger peers that it’s worth getting started straight after university.

  • Robert Phillips is a senior lecturer in Entrepreneurship at the University of Manchester’s enterprise centre