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Does positive sentiment towards entrepreneurship mean more startups? Not quite
Last week saw thousands of people take part in events around the world during Global Entrepreneurship Week (GEW). But a growing positivity towards entrepreneurship doesn’t necessarily translate into more startups.
Since it started in 2008 GEW has grown to become one of the largest entrepreneurship events with its initiators, the Kauffman Foundation, predicting about 10 million people from 160 countries would take part in this year’s event — which ran from 16 to 22 November.
The event aims to promote entrepreneurship, and in so doing make it a more attractive career choice.
SA paradox
In a number of countries entrepreneurship has steadily become a more popular career choice, data from the Global Entrepreneurship Monitor (GEM) shows (see Graph 1).
Read more: Total number of SA entrepreneurs dropped by a third last year
South Africa is one of these. Entrepreneurship is increasingly viewed as something more positive there.
The status given to entrepreneurs by the public has also increased, while media attention has improved slightly. This would be encouraging if it had any effect on increasing the number of adults that start and run new businesses. But it seems that unlike in a some countries it has had no real effect at all (see Graph 2).
The one exception when the two rates seemed to increase together was in 2010. But this is likely explained by the 2010 World Cup, which temporarily lifted hopes.
Is there a trend?
Yet in some countries (like Russia and Brazil) there appears to be a strong link between growing sentiment that entrepreneurship is a good career choice and a rising rate at which people are starting new businesses.
The link also appears to be evident in those countries (like Colombia and India) which have seen a trend of declining numbers of adults opening new businesses, where increasingly fewer of the population view entrepreneurship as a good career choice.
In the US and to a lesser extent the UK, the view that entrepreneurship is a good career choice has generally remained unchanged, even when the TEA rate rose. Perhaps that is to be expected in better functioning entrepreneurial ecosystems.
Read more: What can we learn from the successful Start-Up Chile accelerator?
Chile on the other hand presents an odd case.
In the last six years the rate of Chileans becoming involved in starting a business has almost doubled (from 14.1% of adults in 2008 to 26.8% in 2014). Yet year on year steadily fewer Chileans believe being an entrepreneur is such a good career choice (see Graph 3) — 69% in 2014, versus 80% in 2008. Why is that?
The answer may lie in the country’s significantly high business failure rate (Gem data shows the country’s business discontinuation rose from an already high 5.8% to 8.3% over the same period). It could be that more are becoming despondent in their beliefs that entrepreneurship is a viable option.
Malaysia — where the number of new startups has also been rising, but more slowly — seems to fit with Chile’s scenario (Graph 4).
There the perception that entrepreneurship is a good career choice has also fallen (from 59% in 2009 to 50.4% in 2014).
But Malaysia doesn’t suffer from the high failure that Chile does (the business discontinuation rate in fact fell from 2.7% in 2009 to 2% in 2014).
So something else must also be affecting the public’s view of whether entrepreneurship is a good career choice or not.
Little link
It seems at least in Chile, South Africa and Malaysia’s that whether people view entrepreneurship has something cool or not, has little effect on getting more people to start their own business.
Read more: Starting your own business 101: happiness not included
For South Africa in particular, with its high unemployment rate and low rate of entrepreneurship of 6.97% (see this earlier post) this is very concerning. All the media attention, hype and talk won’t help create more entrepreneurs for the country.
South Africans are already very positive about entrepreneurship. But this alone isn’t enough to start their own business. Could it be that better training, finance and support is needed to equip those to start a business? Less red-tape? A more can-do attitude?
These are big questions that need as much action as thought to make things work.
This article originally appeared on Small Business Insight, a Burn Media publishing partner. Stephen Timm writes on small business and is presently in Cape Town, South Africa. Click here to sign up to his monthly newsletter. Follow him on Twitter at @Smallbinsight and on Facebook.
