That entrepreneurship contributes directly to job creation and innovation is now accepted knowledge. This being the case, barriers to entrepreneurship are barriers to economic growth.
To better understand barriers to increasing entrepreneurial activity, GEN conducted a global survey of more than 200 entrepreneurship support organization (ESO) leaders and public sector officials responsible for entrepreneurship policy and programming in 114 different countries.
This is the first in a series of articles detailing the results of our initiative to understand and raise awareness of barriers to entrepreneurship. Led by the Global Entrepreneurship Research Network (GERN), the goal of this research is three-fold:
- To examine what barriers are perceived by two groups (ESO leaders and public sector officials).
- To learn how respondents are addressing them.
- To forge new collaborations within and across ecosystems aimed at reducing or eliminating identified barriers.
In this post, we share insights on barriers identified by public sector officials. We identified respondents through GEN’s network of in-country affiliate organizations and through the Startup Nations policy network. They lead governmental efforts aimed at increasing entrepreneurship.
Collectively, this group identified six types of entrepreneurship barriers:
1. Access to Capital
A third of the policymakers who responded to the survey identified lack of access to funding as a top barrier. In the view of public sector officials from across the development spectrum, entrepreneurs struggle to access capital from commercial banks, private sector funds, government lenders and other financing programs.
Respondents listed a variety of factors at the root of the problem, on both the supply and the demand side:
- A lack of information among investors, a lack of dissemination of investment opportunities, and a lack of a culture conducive to investment in new and young businesses (e.g. Chile, Paraguay).
- Existing financial instruments are not tailored to the needs of entrepreneurs (e.g. Argentina, Chad).
- In countries where seed capital is available, entrepreneurs hit a wall when seeking capital to scale (e.g. Australia, Norway, Uruguay).
While most public sector respondents (80%) identified this barrier as affecting all entrepreneurs, many expressed concern about its impact on particular demographic groups: women, youth and those living in rural areas.
2. Regulatory or Policy Barriers
Almost a fifth of public sector respondents looked inward and identified one or more of the following regulatory barriers:
- The tax system’s complexity and requirements place undue administrative burdens on entrepreneurs and/or investors (e.g. Argentina, Dominican Republic, Colombia, Guinea Bissau).
- Licensing and permit systems limit the number of professionals in a given sector (e.g. Malaysia).
- Labor requirements (payroll taxes, mandatory health and social insurance, etc.) result in high hiring costs (e.g. Argentina, Brazil, Poland, Uruguay).
- Slow bureaucracy (e.g. Austria, Belgium, Italy, Philippines, Qatar, Sierra Leone, Slovakia).
- Lack of sustained political commitment to deal with entrepreneurship policy challenges, particularly as technology-based businesses disrupt existing regulatory frameworks (e.g. Argentina, Paraguay).
Among the consequences of regulatory barriers, public sector officials cited fewer startups, more businesses remaining in the informal sector, stunted business growth, and higher rates of business failures. “Because of the high taxes and the regulatory framework entrepreneurs cannot achieve break-even quickly,” a Colombian public official wrote, “so new businesses tend to close before the first two years of starting up.”
3. Inadequate Skills and Training
This barrier refers to deficient entrepreneurial skills, as well as deficient talent pools needed to grow their startups.
With respect to entrepreneurial skills, many public sector respondents (17%) said this barrier results in local entrepreneurs failing to get projects off the ground. They find that entrepreneurs have inadequate skills to determine a viable business model, finetune the value proposition, or validate a market, resulting in non-competitive and failed startups.
With respect to available pools of talent, public officials see this barrier as affecting businesses in the growth stages of the business lifecycle, particularly for startups that require STEM and ICT skills. This barrier was cited most often by policymakers in more mature ecosystems (with growth stage startups) such as Australia, Brazil, Estonia, Germany, Netherlands, and Sweden. As a respondent from Australia put it: “Limited experienced growth talent means many entrepreneurs look overseas to find talent, either moving teams or attracting international talent.”
4. Cultural and Mindset Barriers
Just over a quarter of public sector respondents (27%) perceive cultural barriers and the resulting mindset characteristics as reducing entrepreneurship. Statements expressing this barrier cluster (in general) into the following categories:
- Expectation of employment: e.g. “Our culture tells us that we must study, graduate and work. Be an employee! … if you work in the government it is much better.” “The country's traditional employment-oriented culture decreases the chances of developing a good amount of highly dynamic or innovative ventures."
- Money stigma: e.g. “Our culture tells us that being rich is bad. Some tell kids that being a business person is a bad thing.”
- Failure stigma: e.g. “There's fear of failure and uncertainty here, with many still adopting a more prudent/conservative view of life – something antithetical to entrepreneurship.”
- Risk aversion: e.g. “Too many Danes are too afraid to take risks and leave their safe job with a good salary for a more uncertain future as an entrepreneur, particularly middle-aged people with solid jobs, children, and a house.” "Women are in a lower percentage of people who decide to undertake risk."
Cultural barriers often translate into limited personal ambitions. A public official from Cordoba, Argentina exemplified this: “There is a lack of global mindset of the entrepreneurs of Cordoba. In a recent study of 65 dynamic and innovative startups from the Province, only 28% of them target a global market. For instance in the Agtech sector – a sector in which our country has a lot of chances to be a world leader – new companies are being created with a domestic market mindset, prepared to solve local problems, instead of tackling global opportunities.”
5. Access to Markets
Public sector officials cited scarce market information and the inability to gain clients as top barriers in this category. In addition, public officials across geographies cited the inability of startups to engage the government as a client due to restrictive procurement guidelines:
- “It affects all of society because the Government ends up paying more for services and sometimes technology because the legislation doesn’t allow (or makes it very difficult) to buy from startups.” (Brazil)
- “Young innovative companies are most affected. They need a first set of customers who dare to start buying and to help in co-creating the solution.” (Sweden)
- “Even when businesses have innovative ideas to address community issues, the government insists on using public tender processes which involve lengthy processes and complicated budget approval.” (South Africa)
Public sector respondents also reported that barriers to exporting affect SMEs and entrepreneurs seeking to expand their market reach (e.g. Australia, Canada, Colombia and Qatar). This hurdle stems from lack of access to export financing, non-tariff trade barriers, lack of knowledge of export markets or of potential customers in these markets, and transportation and logistics challenges.
6. Weak Support Systems
The pool of responses showed that most government officials supporting the entrepreneurial economy do not think of entrepreneurs as disconnected program beneficiaries. A majority of responses clearly demonstrated public officials’ understanding that founders thrive when they have a working ecosystem.
In fact, a considerable percentage of respondents identified ecosystem-level challenges. For example, a response from the public sector in Colombia stressed the lack of accurate diagnosis processes to match entrepreneurs with the ecosystems actors who can deliver the right kind of support.
Other government respondents perceived sub-optimal entrepreneurial ecosystem results in the following ways:
- Lack of sufficient articulation between the different actors across an entrepreneurial ecosystem.
- Lack of articulation between the different government agencies that shape the business environment.
- Poor dissemination of information relevant for entrepreneurs.
- Low engagement of qualified mentors in existing entrepreneurship programs.
- Disconnect between the entrepreneurship ecosystem and the academic/research community.
- Geographic bias where there is too much focus on first-tier cities while entrepreneurs in other locations are marginalized.
- Lack of clarity with regards to metrics: e.g. “If there are no clear KPIs in the initiatives related to promote entrepreneurship, there is no way to measure the performance of the startups and the people that support them. Therefore, it is very difficult (or impossible) to improve the ecosystem,” expressed a respondent from the Costa Rican national government.
Our next article presents barriers to entrepreneurship as perceived by entrepreneurship support organization (ESO) leaders. Also, in the lead up to Global Entrepreneurship Week this November, we will be posting articles that share the different ways public sector officials and ESO leaders are seeking to address these barriers. Please monitor #MinimizeBarriers on Twitter to access these as they become available.
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GEN owes a debt of gratitude to those Global Entrepreneurship Research Network (GERN) members who contributed to shaping the questionnaire: the Argidius Foundation, the Center for International Private Enterprise (CIPE), the Ewing Marion Kauffman Foundation, and NESTA.
About the Survey on Barriers to Entrepreneurs sample for this analysis:
- Of the more than 200 respondents, 72 from 45 different countries were from public sector offices working on entrepreneurship.
- The sample includes a mix of national, sub-national and city-level officials.
- Responses were collected throughout July and August 2019.
The countries in this sample are, in alphabetical order:
Argentina, Australia, Austria, Bahrain, Belgium, Brazil, Cambodia, Canada, Chad, Chile, Colombia, Costa Rica, Croatia, Cyprus, Democratic Republic of Congo, Denmark, Dominican Republic, Ecuador, Estonia, Eswatini, Georgia, Germany, Guinea Bissau, Hungary, Israel, Italy, Jamaica, Japan, Lithuania, Madagascar, Malaysia, Malta, Netherlands, Norway, Paraguay, Peru, Philippines, Poland, Qatar, Seychelles, Sierra Leone, Slovakia, South Africa, Sweden, Uruguay.