[dropcap]T[/dropcap]he young tyros and mouthy bundles of self-confidence that grab the attention every year on TV show The Apprentice offer up a now familiar image of youthful and spirited entrepreneurship. That’s not how it works worldwide. The global statistics show that, by-and-large, young people are pushed towards an entrepreneurial career through necessity, rather than pulled by the kind of “passion” on display for Alan Sugar every week in the UK version of the show.
In fact, young people are most likely to own their own business in “factor-driven” economies rather than more developed ones. That is short-hand for poorer nations. 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, the Global Entrepreneurship Monitor (GEM) found that 15.4% of early-stage businesses are owned by 18-24 years olds in factor-driven economies such as India, Cameroon and Russian. 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, they rely more on knowledge and the service sector expands. These are “innovation-driven” economies such as Australia, the US, South Korea and the UK. In these more economically diverse countries, only 7.6% of early-stage businesses are owned by 18-24 year olds.
So why does the percentage of young entrepreneurs fall by more than half from poorer countries to the richest? Well, in factor-driven economies there do tend to be more young people as a proportion of the population. These economies are also less likely to send young people to higher education, pushing people into income-generating activities far younger.
The GEM report found that people with fewer career choices in the wider economy are more likely to consider entrepreneurship: 62% of adults in factor-driven societies consider entrepreneurship to be a good career choice as against 58% in innovation-led economies. Adults in poorer countries are also slightly more likely to consider entrepreneurs as high-status individuals (72% vs 70%).
Perhaps most interesting, 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 works to reduce entrepreneurial motivation. Innovation-driven societies are also more risk-averse: more than 40% of people in these countries surveyed in the GEM report said they were prevented from starting a new business by the fear of failure. That falls to only 33% 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.
Countries and think-tanks 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.
However, counter evidence from South Africa and India indicates 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.
There are also powerful barriers in richer countries too. A lack of credit history or assets which can serve as collateral for a loan mean that many lack funds to start a business, or to scale-up their enterprise as it starts to grow.
In the UK, these kinds of barriers have a dramatic effect. The Small Business Survey of 2014 is the latest look we have at the numbers of young entrepreneurs and it contains that rather startling finding that only 1.1% of all small business owners in the UK are aged 18-24.
That indicates that young people in the UK are even less entrepreneurially minded than their peers in other wealthy countries – the figure is sharply lower than the 7.6% seen across all innovation-driven economies. And it’s worth noting that only three out of 18 contestants were drawn from this 18-24 demographic for the latest series of The Apprentice, a show known for thrusting wannabes hoping to remind Sugar of his youthful self. The businessman, now Lord Sugar, started his Amstrad business at the age of 21.
There is another surprise in the small business data. The most popular types of industry for young entrepreneurs are 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.
Making the most of it
But are the ones that do have a go at it any good? Well, about three quarters of young entrepreneurs in Britain turned a net profit in 2015-2016, which is only slightly lower than their older peers, at 79%.
Another 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, but in fact, only 7% of young entrepreneurs’ businesses have no employees, as opposed to 14% of businesses owned by people older than 24.
That trend continues almost all they way up the scale: some 27% of young business owners have between one and nine employees, as opposed to 19% of their older peers; 48% have ten to 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.
Those kind of numbers should encourage institutions such as the European Commission and OECD, which have seen youth entrepreneurship as a policy solution to persistently high youth unemployment in Europe. Young entrepreneurs do not only take one person off the jobless stats, they are a potential source of job creation, which drives regional employment and growth.
On another positive note, that low level of young entrepreneurs in the UK at least means there is plenty of room for improvement for those seeking to encourage a new generation of people to take the plunge.