Young Entrepreneurs – passion or necessity?

The Global Picture

Globally, young people are pushed towards an entrepreneurial career through necessity, rather than pulled towards it through genuine interest. The result is that young people are most likely to own their own business in “factor-driven” economies rather than more developed ones. The World Economic Forum defines a factor-driven economy as one dominated by subsistence agriculture and extraction with a reliance on unskilled labour and natural resources. The 2016  Global Entrepreneurship Report finds that 15.4% of early-stage businesses are owned by 18-24 years olds in factor-driven economies (such as India, Cameroon and the Russian Federation) are business owners. In “efficiency-driven” economies (such as Saudi Arabia, South Africa, and Poland), the economy has become more competitive with increasingly efficient processes and higher quality products. Here, we see a slight decline in youth entrepreneurs: 12.3% of early-stage businesses are owned by 18-24 year olds. As economies develop further to rely on knowledge and the service sector expands,  “innovation-driven” economies start to appear, such as Australian, South, Korea, or the United States. In these more economically-diverse countries, only 7.6% of early-stage businesses are owned by 18-24 year olds.

Kethi Ngwenya, 26, is CEO of School Media in South Africa http://www.schoolmedia.co.za/

The higher number of young entrepreneurs in factor-driven economies could be due to the higher numbers of young people as a proportion of the population. These economies are also less likely to send young people to higher education, resulting in young people being forced into income-generating activities far younger than in innovation-driven societies. On the positive side, factor-driven societies are more likely to consider entrepreneurship a good career choice than in innovation-driven societies (62% vs 58%) and are also slightly more likely to consider that entrepreneurs are high-status individuals (72% compared to 70%). In factor-driven economies, 56% of people think they have the right skills for entrepreneurship, as opposed to only 44% in innovation-driven societies. This finding reinforces earlier research that higher education reduces entrepreneurial motivations ((Davey et al. 2011))   Innovation-driven societies are more risk-averse: over 40% of those in innovation-driven societies are prevented from starting a new business by the fear of failure, compared to only 33% of those in factor-driven societies. The social stigma and legal complications of business failure in more advanced economies are possibly more of a deterrent than in countries where it is easier to recover from business failure.

The barriers to youth entrepreneurship

Commentators locally and globally have argued that factor-driven countries have a demographic dividend: an in-built advantage due to a young population that is willing and able to engage in entrepreneurial activity. But counter evidence from South Africa and India indicate that young entrepreneurs in these countries are hampered by poor physical infrastructure such as inadequate transport and communication networks, and a legal framework that fails to protect ownership and intellectual property rights .

Yet innovation-driven countries also have barriers for young entrepreneurs: their lack of credit history and assets to serve as collateral for loans mean that they lack funds to start a business, and then find it hard to scale-up their enterprise.

Young entrepreneurs in the UK

The Small Business Survey of 2014 contains the most recent data for the age of small business owners in the UK. Only 1.1% of all small business owners are aged 18-24, an even lower percentage than the 7.6% across all innovation-driven economies, which indicates that young people in the UK are even less entrepreneurially minded than the European average. The most popular types of industry for young entrepreneurs are SIC codes G, H and I: Accommodation and Food Services, Transportation and Storage, and Wholesale and Retail Trade. This finding counters the popular image of young entrepreneurs favouring technology fields, such as apps, social media or gaming, where there are low barriers to entry and the only equipment needed is a mobile device and internet connection.

little simz
Little Simz, 21, is a singer and a Forbes 30-under-30 entrepreneur https://littlesimz.bandcamp.com/

Turning to profitability, 74% of young entrepreneurs turned a profit in the last year, which is only slightly lower than their older peers, at 79%.

78% of young entrepreneurs did not export internationally, very comparable to their older peers, 76% of whom did not export.

The most surprising finding is that young entrepreneurs are more likely to employ staff than their older peers. It might be imagined that most young entrepreneurs have no employees, as their business is also relatively young. In fact, only 7% of businesses have no employees, as opposed to 14% of business owners aged older than 24. 27% of young business owners have 1-9 employees, as opposed to 19% of their older peers. 48% have 10-49 employees, as opposed to 33% of their older peers, and 16% have 50 to 249 employees, which is only slightly lower than the 19% of older business owners.

Young Entrepreneurs – source of growth for Europe?

In summary, young entrepreneurs in the UK need encouragement and confidence in order to achieve their potential. While the European Commission and OECD have largely relegated youth entrepreneurship to being a policy solution  to persistently high youth unemployment in Europe, our findings indicate that young entrepreneurs actually are more likely to be employing other people than their older peers. In fact, young entrepreneurs are source of job creation, which drives regional employment and growth. Business leadership programmes, such the University of Keele’s Mercia Centre for Innovation Leadership and enterprise education, which encourages entrepreneurship skills in schools and universities, have an important role to play in encouraging more young people in “innovation-factor” economies to take the plunge and start their own business. Evidence in the UK shows that they are likely to be successful.

 

 

 

 

 

 

 

 

 

 

What is the single biggest mistake an SME owner can make?

Today’s blog post is by David Lowe, Entrepreneur in Residence at the MCIL programme. David talks to us about the MCIL programme, how it helps entrepreneurs and shares his many years of insights from working with business leaders.

davidlowe photo
David Lowe

What is your role on the MCIL project?

I’m one of four and soon to be five Entrepreneurs in Residence for Keele’s Mercia Centre for Innovation Leadership.  We co-develop and deliver high quality programme content, alongside the academics from the Keele Management School.  We share practical insights to ensure the content of the programme is suitable for practical implementation. We also coach business leaders on the programme on a one-to-one basis to help them grow and develop their businesses.

What skills do you bring to your role?

Strategy is my personal forte, and as a coach/consultant I have successfully assisted a large number of SME’s over the last 14 years to both grow and to innovate. I’m a problem solver by nature, and I’m fortunate enough to have a talent for the assimilation of wide ranging information; either adding strategic value or simply applying my knowledge towards helping to solve the more practical day to day challenges. My colleagues have complementary skills sets: Will Pritchard is experienced in working with start-ups; Carolyn Roberts is a product innovation expert; David Townson is expert in product design.  This means that there is a lot of synergy as well as a lot of energy across the team.

Why do you enjoy your job?

I get a real kick out of helping businesses to solve their strategic problems and to drive innovation. We challenge all of our participants positively, try to ask the right questions, and we help wherever we can with new approaches. I absolutely love what I do.

What is the single worst thing that a business owner can do?

I’d say that the single biggest bad habit that business leaders get drawn into, is where they are doing so much working in their business that they don’t spend nearly enough time and effort working on their business. Indeed, for me, working with business leaders, no matter what the theme or the headline task, it nearly always means actually getting them doing something tangible as opposed to just saying they do it.

Why is innovation important for a business owner?

I also try very hard to get them to buy into the fact that there is very solid evidence of a strong relationship between innovation, growth and profitability: innovative companies do genuinely tend to have higher profit levels for example. Putting it simply…

Innovation = Good

No innovation = Bad

When helping leaders to see innovation as part of their thriving and surviving, I always do my best to ensure that they understand that ‘doing it’ is what actually matters!

Why should an SME owner join the MCIL programme?

Whether working with me or one of my colleagues, we offer energy, enthusiasm, focus, and commitment to making a real difference. We can help businesses get to where they are going much more effectively than they may otherwise have done without us.We are just entering the final phase of delivery for the very first cohort of MCIL, and its plain for all to see that all the business leaders on the programme have benefited as individuals, and that their businesses are all the better for the experience too!

What has been the most exciting MCIL programme achievement?

Beyond the immediate theme of innovation, what’s got me most excited personally is that the companies we are working with are creating jobs! In fact, they are creating significantly more jobs than we’d originally envisaged. This very tangible ripple of new employment that we are helping to drive will have positive associated benefits for the Stoke and Staffordshire area for years to come. This makes me even more proud in terms of being involved in the delivery of this leadership programme.

To set David’s insights into context, try the reading list below.

Further Reading

Working in the Business, not On the Business Geri Stengel for Forbes, June 2012

Dynamic Delegation: Shared, Hierarchical, and Deindividualized Leadership in Extreme Action Teams Klein K., Zieghart, J., Knight A., Zhao Y. (2006), Administrative Science Quarterly, vol: 51 (4) pp: 590-621