High-flier aptitude tests reveal alarming gaps

May 2, 2003

The first national aptitude test for UK entrepreneurs and prospective businesspeople has identified serious knowledge gaps that could contribute to commercial failure.

The test was devised by Colin Barrow, head of the Enterprise Group at Cranfield School of Management, as part of the UK's first National Small Business Week, which ends today.

It attracted more than 1,000 online participants, who logged on to the NSBW website over a five-week period.

The event organisers wanted to find out what most challenged small business leaders and where seminar programmes could plug gaps in knowledge.

"We wanted to find out what business leaders needed to learn and to check skills they ought to have," Mr Barrow said.

"The average results were reasonable but there were pockets of indifference teetering on incompetence. People were strong in marketing but poor in law and finance."

The test had a "sanity check" to ensure data were relevant, Mr Barrow said.

This included trials by Cranfield alumni, a broad sample of business leaders running successful companies.

Mr Barrow said that the results indicated a strong need for business leaders of all ages to master finance and law.

"With the 12-year bull market perhaps the tendency has been to leave this to someone else in the company or outside. But you cannot let a bookkeeper run a company," Mr Barrow said.

There appeared to be a direct correlation between higher scores and commercial success. People scoring an average of ten percentage points above the general average score ran the best-performing businesses.

The level of small business failure had reached mythical proportions. A common belief was that most failed within three years.

"You have to be careful about that. A business can cease to trade for successful reasons. A sole trader changes status, goes into partnership, starts a limited company, launches on the stock market, gets bought out.

All these might figure as a company ceasing to trade and 40 per cent do so within three years. But the real rate of failure is more like 18 per cent."

The test showed that barely 40 per cent of owner-managers knew that 130,000 cases of unfair dismissal were brought before industrial relations tribunals each year. Most believed it was either 13,000 or 1,300.

Some 70 per cent did not know what depreciation was and more than half had difficulty interpreting a simple balance sheet.

Two-thirds of owner-managers did not know when a partnership agreement came into force or when copyright protection came into effect. Those who had been running their business for five years or more were just as likely to be ignorant of these facts as someone who had not yet started up.

Overall, those running businesses in the service sector fared best while those in retail fared worst. Owner-managers running e-businesses were ranked second to bottom in the test overall.

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