Wednesday 26 October 2016

Honesty needed about our entrepreneurial shortcomings

Published 27/09/2015 | 02:30

Richard Bruton acknowledged the need to grow the number of entrepreneurs in Ireland
Richard Bruton acknowledged the need to grow the number of entrepreneurs in Ireland

'As I have said many times before, we have great entrepreneurs in Ireland - we just don't have enough of them."

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These are the recently uttered words of Enterprise Minister Richard Bruton.

It is a very welcome development that the minister charged with boosting business accepts that we have a problem of insufficient entrepreneurialism in Ireland. Many of his predecessors preferred to engage in deluded self-congratulatory claptrap about Ireland being super-entrepreneurial.

Ireland has many great businesses and celebrating their success is right and proper. But having successes does not prove that we as a nation are successful in business.

To assess that, we need to look at economy-wide indicators and compare ourselves with other countries. The accompanying box section sets out the hard evidence that a real problem exists. Unless you recognise that you have a problem, you can't even start to address it.

That a problem exists was highlighted in the annual Global Entrepreneurship Monitor (GEM) for Ireland, which conducts a countrywide survey on business self-starters. This year's report is particularly relevant because, as the Government recently announced, it will shortly publish a 10-year plan to boost enterprise.

As in previous GEM reports, Ireland is found to be lacking in a number of indicators. An important stat used in the report is the rate of 'early-stage entrepreneurial activity', which is the percentage of the adult population who are either actively planning a new venture or in the first few years of their new business.

Ireland's rate of 6.5pc is below the European average of 7.7pc, placing Ireland 16th in Europe. As the chart shows, many other developed countries also do better.

This represents quite a drop from 2013, thus reversing the spike in early-stage activity seen that year. The 2014 figure is more in line with previous years and the longer-term trend is static.

Of course, despite being below average, there are still thousands of people who wake up each day with the big responsibility of running their own business.

Last year saw 20,400 individuals starting their own businesses in Ireland - the equivalent of 1,700 a month.

The average age of someone who starts a business in Ireland is 39, according to the report. Most are well educated: over 80pc had a post-Leaving Cert qualification.

They are predominantly men, with a male-to-female ratio of 2:1. The untapped potential of female entrepreneurs has long been recognised by government and is a potential source of more new businesses. Increasing the number of start-ups by millennials has been another government policy and gets a mention in the report.

On average, an entrepreneur spends nine months working on their idea and planning before taking the plunge. Nearly a quarter of those in the early stages of starting up had prior experience of doing so and could be considered serial entrepreneurs.

While the majority chose to become their own boss in the belief of greater opportunity, a significant minority said that they had no better choices than going alone. This is an example of the lingering effects of the recession. Necessity can be the mother of invention.

Given that the Irish domestic market is so small, it is crucial for any start-up with ambitious growth plans to expand into international markets.

Two-thirds stated in the GEM survey that they had international customers, although a much smaller amount reported a significant share of their customers located abroad.

A more encouraging finding is the high level of entrepreneurs who envision employing people in the near future.

Three-quarters of new businesses expected to take on staff in the next five years. This is higher than some of our peers, like the Netherlands and the UK, who have higher rates of newly self-employed who do not intend becoming employers. However, because Ireland starts from a lower base, a below-average level of job creation is likely.

Despite Ireland's lacklustre performance in the entrepreneurial rankings, the environment for start-ups is far from bad.

The World Bank's 'ease of doing business' rankings put Ireland in 13th place globally in its 2015 study. That is decent, but there is a still some way to go before Ireland is "the best small country in the world in which to do business", as Enda Kenny aspires to.

The perceived status of successful entrepreneurs and media coverage are regarded as among the most favourable in Europe and on a par with the US. Many people know someone who has recently set up a business and almost half the population believe that they have the knowledge and skills to successfully start one. Fear of failure is voiced by 42pc - but this is a Europe-wide problem.

Where Ireland really falls down is in how people perceive the opportunities and whether it would be a good career choice. While 49pc of Irish people see starting-up as a good move, this is comparatively low and far below the 70pc who answered positively before the crash.

The most common constraint mentioned in the survey was the lack of financing. Most entrepreneurs use their own funds or borrow informally from people they know.

The average amount raised by informal investors for Irish start-ups is actually relatively high, at €40,500. This above-average level being invested may reflect higher costs and could be a constraint on new entrants.

Government is not viewed as hostile, but there are obviously complaints. These include public-procurement issues, the tax burden on the self-employed and the lack of a safety net should their endeavours fail.

A lack of guile in creating business and wealth is not necessarily an Irish trait. The GEM report also looks at 'intrapreneurs' - employees who initiate new activities within their current place of work. Ireland does relatively well by this score.

Government directives (and newspaper columns) do not create businesses, individuals do. But talking more about why we don't have more successful start-ups can only help focus thinking on how the situation can be improved.

The weakness of indigenous business

  • For a small economy, exports are vital and among the best indicators of economy-wide corporate dynamism. That exports by Irish firms account for only one-tenth of all goods and services sold abroad is an indictment of indigenous industry. Were it not for the exports of foreign companies, Ireland would be one of the most closed economies among the EU 28.
  • Corporate demographics give a good measure of our commercial dynamism. Data from Eurostat for 2011 show that the ‘birth rate’ of new businesses in Ireland is one of the lowest in Europe and well below the most entrepreneurial states, namely other English-speaking countries.
  • An important measure of commercial vitality is a country’s spending on research and development. Total spending on R&D in Ireland was just 1.6pc of GDP in 2012, below the EU average of 2.1pc and less than half that of Finland, the Europe’s top performer. And of the already small amounts, only one-third is accounted for by home-grown companies.
  • The long-term trend in the number of self-employed or employers in the economy is downwards.

Sunday Indo Business

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