Long-term Evaluation of Self-employment Assistance Provided by the Prince’s Trust
Meager N, Bates P, Cowling M
Research Report RR292, Department for Education and Skills, August 2001
research commissioned by the DfES
This summary was published as the Department for Education and Skills Research Brief No.292.
This report contains initial findings from a three-year study, following a sample of young people (aged 18-30) receiving business start-up support from The Prince’s Trust (PT). The study aims to identify the wider benefits of such support, in comparison with other labour market interventions and, in particular, to look at the impact of such programmes on longer-term employability.
A representative sample of 2000 young people across England (who had started their business in the two years prior to the survey) is being surveyed four times. This report contains results from the first survey wave. Subsequent waves will also include a matched comparison sample of young people not supported through The Prince’s Trust.
- Young people receiving support from The Prince’s Trust are relatively well educated (over one-third have a degree or higher), and nearly half of them have had a self-employed parent. Two in five are female, 12 per cent are from ethnic minorities, and 12 per cent have a long-term health problem or disability.
- The businesses are predominantly small (over one-third had weekly takings of less than £150) and concentrated in local markets.
- Prince’s Trust funding was crucial to business start-up for around 27 per cent of respondents. In only 11 per cent of cases did the funding make no difference to the likelihood of start-up or its timing.
- Over a half of businesses supported also had other sources of start-up funding, and nearly two-thirds had drawn on non-Prince’s Trust sources of advice and assistance.
- At the time of the survey, 12 per cent of respondents had ceased trading, and the survival rate varied from 99 per cent among those who had started in the previous three months, to 74 per cent among those who had traded for 20 months or more.
- The type and amount of funding received from The Prince’s Trust did not influence the likelihood of survival.
- Having had mentoring support from a Prince’s Trust business advisor has a positive influence on survival.
- Nearly half of those who had ceased trading were in paid work at the time of the survey, and more than half of this group had found their experiences of starting a business helpful in finding their current employment.
Characteristics of participants
Just under 40 per cent of those receiving support from the Trust are female (by contrast, only 29 per cent of self-employed 18-30 year olds in England are female).
The age distribution of participants funded by the Trust is skewed towards the upper end of the eligible age range (one-fifth were 30 or over at the time of the interview, and only 10 per cent were 21 or younger).
The share of ethnic minority participants, at 12 per cent, is higher than their share in the self-employed 18-30 year old population (around 8 per cent).
12 per cent of participants have a long-term health problem or disability (compared with 2 pre cent of the overall self-employed population aged 18-30).
Over half of the sample had remained in education to age 18 or later, and over one-third had a degree or higher qualification.
Nearly half come from a family background of self-employment (ie having one or both of their parents with experience of self-employment).
Characteristics of Prince’s Trust-Supported businesses
The sectoral distribution of PT-supported businesses is similar to that of young self-employed people in general. The most distinctive feature of the PT-supported businesses, compared with the overall self-employed population, is the under-representation of construction, and the over-representation of the distribution, and community, social and personal services sectors.
The vast majority of the start-ups (87 per cent) are sole traders, and well over half of the businesses (58 per cent) are run from home. Very few (13 per cent) had any employees.
Over one-third of the businesses had gross weekly takings of less than £150, with only 11 per cent taking £1,000 or more a week. Half of the business founders had regular sources of income outside the business - most common were state benefits and second jobs.
The businesses generally had local markets, with half having the majority of their customers within a ten mile radius. Most (over three quarters) faced direct competition in their markets.
Although a minority ran their businesses part-time (a quarter worked 30 hours or fewer), half worked over 40 hours per week, and 13 per cent worked more than 60 hours a week.
The start-up process
Two-thirds of business founders were motivated by a specific growth objective, and nearly 60 per cent aimed for the business to provide their main source of income. Other objectives, such as the desire for independence, or lifestyle factors were also motivations for 60 per cent or more. For just over one-third, lack of alternative job opportunities was a reason for entering self-employment.
Male business founders were more likely to be motivated by a desire for a high or main income, while women were more likely to see self-employment as a source of supplementary income. Women were more likely than men to be motivated by lifestyle reasons, and less by the need for job security.
16 per cent had had some self-employment experience prior to starting up their PT-supported business. Looking at their status immediately prior to start-up, 42 per cent were unemployed, 31 per cent were employees, 5 per cent were self-employed, and the rest were economically inactive. These data show that Prince’s Trust support is not primarily a direct route out of unemployment.
Nearly 60 per cent of participants received between £1,500 and £3,500 in funding from the Trust. Only 8 per cent received £5,000 or more. Men received on average more than women, and the over-25s more than the under-25s. Ethnic minority participants received significantly more on average than their white counterparts.
For 27 per cent of participants, Prince’s Trust funding was crucial, in that they would not have started their businesses without it. At the other extreme, for 11 per cent, the funding made no difference to whether or when they started their business. For the remainder, the funding made some difference to the likelihood of starting-up or to its timing.
Just over half had other (non-Prince’s Trust) sources of start-up funding (mainly personal savings, or loans and equity from friends and family). The sums involved were generally quite small (the mean amount of non-Prince’s Trust funding was £2,750). There was no evidence that funding from the Trust compensated for lack of funding from other sources; if anything, those with more non-Prince’s Trust funding also received larger amounts from the Trust.
Two-thirds received advice and support from the Trust (typically in business plan preparation) before applying for funding. The vast majority found this assistance helpful.
79 per cent of participants received ongoing advice from a Prince’s Trust business mentor, and there were significant regional variations in the provision of such support. Most of those receiving it were still getting it at the time of the survey (or had got it right up until their business ceased trading).
A fuller picture of business survival will emerge as subsequent survey waves are completed. The current findings are, therefore, provisional.
At the time of the first survey, 12 per cent of respondents had ceased trading. Survival rates varied with the length of time the business had been established. Thus, of those whose businesses were started 20 months or more before the survey, 26 per cent had ceased trading, compared with less than 1 per cent of those who had started in the last three months.
There was some regional variation in survival rates. It is not yet clear whether this reflects local economic conditions or factors relating to participants’ characteristics or the support they received. It is notable, however, that the highest survival rates are recorded in southern regions (the South West, London and the South East).
The research examined variations in survival rates by various personal characteristics of the business founders:
- There is little variation by sex (women have a slightly higher survival rate).
- Survival rates tend to increase with age.
- Businesses started by young people from ethnic minorities have, on average, lower survival rates.
- Participants who are married or cohabiting have higher survival rates than single, separated or divorced people (suggesting that the support of a partner can be important in the early stages of business start-up).
- Those with no qualifications have the lowest survival rates, and those with degrees the highest.
- Young people whose parents have self-employment experience have higher survival rates than those without this background.
- Business founders coming from unemployment are as likely to survive as those coming from waged employment or from outside the labour market.
- Those motivated by lifestyle and security factors have slightly higher survival rates than those motivated by high earnings and business growth. Particularly low survival rates are recorded by those motivated by unhappiness with their previous labour market state and those motivated by self-employment as a means of developing job skills etc.
- Risk-loving individuals have significantly lower survival rates than those who claim to be risk-neutral or risk averse.
Turning to the relationship between business characteristics and survival rates, the following patterns emerged:
- The lowest survival rates are found in distribution, catering and related sectors, and the highest in primary, utilities, manufacturing and construction.
- There is a strong relationship between the business’s financial turnover and its survival rate. Having a source of income outside the business also appears to help survival.
- Those reliant on local markets are less likely to remain trading than those with national or international market bases. Those with more competitors have higher survival rates than those with fewer.
- There is no clear relationship between the hours worked by the business founder and the survival rate (although those working the longest hours exhibit lower than average survival rates).
The study also looked at the relationship between Prince’s Trust support and survival rates:
- There is no clear relationship between the amount of Prince’s Trust funding and the business’s survival rate.
- There is a relationship between ‘deadweight’ and survival rates, in that those who are most likely to have set up in business without support record the highest survival rates, and vice versa.
- Those with other (non-Prince’s Trust) sources of funding record higher survival rates.
- Having had support from the Trust prior to the funding application does not influence survival, but mentoring support from a Prince’s Trust business adviser has a strong and positive influence on survival rates (especially if that support is ongoing and continuous).
Finally, the study looked at the minority who had ceased trading by the time of the survey, focusing on their reasons for ceasing trading, and what had happened to them subsequently:
- 63 per cent of this group ceased trading for business reasons, 23 per cent for both business and personal reasons, and 14 per cent for personal reasons alone.
- The dominant business reason was the simple one that the business was not taking enough money.
- Personal reasons were more diverse, the commonest being either that the individual had a preferred employee job to go to, or that he/she was in poor health.
- Just under half the non-survivors were in paid work at the time of the survey (nearly all as employees, rather than self-employed); one-third were unemployed, and one-fifth were economically inactive.
- Of non-survivors in work, most were in relatively low skilled occupations, and their mean weekly take-home pay of non-survivors in employment was £186, nearly twice that of those running PT-supported businesses (£98 per week).
- Of non-survivors in work, more than half reported that the experience of starting a business had been helpful in finding their current job. A similar proportion said that the skills and knowledge acquired in starting the business had been relevant in their current job.
Long-term Evaluation of Self-employment Assistance Provided by the Prince’s Trust: Initial Findings, Meager N, Bates P, Cowling M. Research Report RR292, Department for Education and Skills, 2001.
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