Business Advice

Business advice can help improve firm performance, particularly firm productivity and output

Why business advice?

The provision of publicly funded advice, mentoring and support to businesses, and particularly to entrepreneurs and small businesses, is ubiquitous in OECD countries. Take-up of public sector support, however, is generally assumed to be low. In the UK, for example, it is estimated that about 40% of businesses have received formal external advice, but only 20% received advice from a public sector provider.

We've focused on programmes that are funded by government and that provide information, structured advice or longer term mentoring to firms (hence ‘business advice’). Such interventions typically aim to increase rates of firm creation, to improve business survival, and to promote business productivity and employment growth.

Why are policymakers so interested in this kind of business support? Some governments may want to promote ‘enterprise culture’ on its own merits. Others start from the fact that small and medium-size enterprises (SMEs) form the vast majority of businesses in the UK and other developed economies; and that small, new firms account for the majority of job creation.

In theory, publicly supported advisory services can be justified on two grounds – information failures and wider economic impacts. In the first case, when information is hard to access or of variable quality, firms may under-invest in services that could support their businesses. Economists refer to these challenges as ‘information asymmetries’. Such market failures may result when business owners are:

  • Unaware of information and advice that would be valuable to them;
  • Unclear about how to access such resources;
  • Concerned about the quality of advice offered;
  • Facing financial or time constraints on accessing advice which exceed the perceived benefits; and/or
  • Worried that confidential information could end up in the hands of competitors.

In principle, public policy can solve these problems and help businesses to grow by providing impartial, free or subsidised advice and mentoring.

Business support interventions may also be justified because SMEs are important for economic development. If information, mentoring and advice can help individual firms to grow, this could have spillover effects – or ‘externalities’ – for the economy as a whole. These include the creation of more jobs, more innovation, or lower prices to consumers.

While there is a theoretical case for government intervention, in practice, it is not straightforward for government to provide effective business advice, and there are dangers of policy failure in doing so. But the literature also highlights real market failures for many start-ups and early stage firms; that some programmes have a far higher impact than others; and that there are significant differences in user take-up (for example, between male and female-headed businesses). This implies that well-designed interventions could have positive impacts.

Consistent with all of this, in our review, we find a number of effective programmes but we also find examples of policy failure. This suggests that a better understanding of what works would add significant value to the policymaking process in this area.

Definition of Business Advice

We included in our definition of business advice and mentoring government funded programmes that focused on:

  • Supporting individuals to set up their own businesses
  • Supporting existing businesses to grow, where growth may be broadly defined to include:
    • Improved productivity (in terms of sales/turnover per employee or value added per employee)
    • Growth in employment
    • Growth in turnover
    • Growth in profits
    • Expansion into new markets (particularly overseas).

We excluded:

  • Financial support and access to finance schemes – we will address this topic independently in a future review
  • Incubator programmes – due to a lack of evidence on their impact.

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