UNDERSTAND | September 1, 2019

Barriers to Entrepreneurship: Views from Support Organizations

Photo Credit: Global Entrepreneurship Network (GEN)

 

This is the second in a series of articles about the results of a global survey on #Minimizing Barriers to entrepreneurship.  In the lead up to Global Entrepreneurship Week (GEW) on November 18-24, GEN Global surveyed entrepreneurship support organization (ESO) leaders and public sector officials responsible for entrepreneurship policy and programs. The summary below shares our insights into how ESO leaders perceive barriers faced by entrepreneurs.

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In July and August 2019, GEN asked 157 ESO leaders in 94 countries a set of standardized questions aimed at identifying and understanding the top barriers they perceive as standing in the way of entrepreneurs in their respective ecosystems (see, Survey on Barriers to Entrepreneurs).

ESO respondents, who varied in terms of the size and role of their respective organization, included managing directors of in-country affiliates of global organizations (e.g., GEN, Endeavor, Junior Achievement, etc.), leaders of entrepreneur associations, incubators and accelerators, and coordinators of university-based entrepreneurship centers, among others.

Analyzing their perspectives reveals that ESO leaders generally perceive the same set of barriers that policymakers identified.

 

ESO Views

 

 

1. Access to Capital

ESOs across the development spectrum perceive insufficient access to capital as a significant constraint on entrepreneurship. Of a total of 312 barriers identified by the respondents, 93 (29%) cluster into this barrier category.

Like policymakers, ESO leaders reported that traditional financing methods often fail to meet the needs of entrepreneurs. “Banks do not speak the language of startups,” said an ESO leader from Mali. This translates into complicated bureaucratic processes to obtain a loan and “strangling interest rates.”

But, a number of ESO leaders noted that government intervention to address this challenge can fail to elicit private sector participation. In Georgia, for example, there is a perception in the entrepreneurship community that “only government money in the form of grants and investments is available for startups, which is not smart money.”

In Mexico, a respondent reported a void in terms of angel investment for early-stage companies. In New Zealand, the amount of venture capital (VC) funding available is too small given the needs of startups seeking capital for global expansion. In Albania, access to capital is “very present in all the phases of the entrepreneur path, but has affected significantly the growth phase of businesses.”

But not all ESO leaders see this barrier as a supply side roadblock. In Sierra Leone, for example, “the issue is not necessarily the absence of finance, it is understanding and positioning oneself to access it.” In Ireland a respondent said that lack of capital is a misperception: “Frequently enough capital is available to start a business but people either don't know where to look or how to access it.” An ESO leader in Macedonia said that “the real problem is in communication and matching between potential investors and startups.”

When asked to describe how this barrier affects particular demographic groups, many ESO leaders said that those subject to gender, ethnic or racial discrimination are disproportionately affected. But most mentioned was lack of capital for young entrepreneurs.

In addition, location matters.  ESO leaders from Colombia, France and the United States all said that it is particularly challenging for entrepreneurs in small and mid-tier cities to obtain the capital they need to scale their companies.

 

2. Inadequate Skills & Training

Responses from ESO leaders complement the views of public sector respondents in the following ways:

  • Systemic deficiencies: Public sector officials identified particular deficiencies in entrepreneurial skills, but ESO leaders described broader educational system failures. They pointed to outdated curricula, the absence of practice-based learning processes, and the need to build the capacity of educators.
  • Lack of managerial skills and experience: ESO leaders often cited this as the main cause for low rates of business growth.
  • Skill matching difficulties: “Often the person with the idea or passion for bringing it to life cannot find the right people to help them found a company.” (United States). 
  • Lack of innovative capacity: ESO leaders in Belgium, Cameroon, Colombia, Peru, Spain and Vietnam conveyed concern that entrepreneurial activity lacked innovation, leading to business failure in a short period of time. In Belgium, a respondent said that entrepreneurs need to learn how to work with new technologies to increase their innovative capacity.
  • False expectations about the entrepreneurial path: In Bulgaria and India, ESO leaders reported that a lack of entrepreneurial education has created an entrepreneurship “bubble” without real awareness of the challenges entrepreneurs face. 

The ESO leaders who responded to this survey are confident that addressing this set of barriers would have a direct impact on business survival. For example, a respondent based in Manta, Ecuador said that “lack of access to education in entrepreneurship and innovation is the reason why a lot of entrepreneurs don't break the barrier of surviving the second or third year in their businesses.”

 

3. Weak Support Systems

ESO leaders cited this as being a greater barrier (15% said it belonged in the top three) than their counterparts in the public sector (9% said it belonged in the top three). ESO leaders see fragmented ecosystems as affecting new entrepreneurs in particular. As programs for entrepreneurs have proliferated, it has become increasingly difficult for entrepreneurs in many countries to sort through the “noise” and find the right one for them. In Canada, for example, a respondent said, “[It is] very frustrating for new entrepreneurs trying to sort through the sea of information that not even ecosystem players seem to understand.” Information about what services are available for whom, what sector they serve, for which types of startups is hard to find. In Brazil, Colombia and Mexico, ESO leaders reported that their entrepreneurship ecosystems are not clearly mapped, integrated or organized in a logical way.

In many countries (e.g., Argentina, Colombia, Macedonia, the United Kingdom, the United States), the information overload often reflects unhealthy underlying ecosystem dynamics, such as:

  • The lack of transparent coordination and cooperation at different stages of entrepreneur support has resulted in a multitude of competing activities and siloed, overlapping projects.
  • High turnover among entrepreneurship staff, in both the public and private sectors, reduces their ability to plan and execute joint efforts.

A lack of focus among ESOs is apparent in the responses. “Everyone wants to carry out actions in the whole chain of entrepreneurship. Coworking spaces are doing incubation and acceleration, universities giving seed capital and so on,” a respondent from Panama said.

In addition, the lack of support program quality control and validation concerns many ESO respondents, particularly those in Latin America. “This barrier affects the new entrepreneurs because it can generate frustration,” said a respondent from Panama. “At this stage, with a limited number of entrepreneurs, the first step would be to somehow certify those spaces that claim to be or would like to be a business incubator. This would help guide the entrepreneurs through the pipeline of the ecosystem.”

Similarly, respondents in Mexico and Nigeria called for better program metrics and data collection. “The lack of data affects entrepreneurship program design and implementation by enterprise support organizations, development organizations and government,” a Nigerian ESO leader said. “Data could significantly improve the quality of programs designed for entrepreneurs.”

A handful of respondents noted the failure of incumbent corporations to become involved in their ecosystems, particularly in the context of supporting innovative new businesses. In Peru and Turkey, for example, respondents lamented the lack of corporate engagement. “Corporations don't really know how and what for exactly to get involved with startups.”

 

4. Regulatory or Policy Barriers

ESO leaders who identified barriers in this category, like their public sector counterparts, referred to bureaucratic red tape, tax compliance burdens, regulatory requirements, and weaknesses in the overall business environment. ESO leaders, however, offered additional insight into the underlying problems:

  • Regulatory frameworks designed with traditional business concepts in mind: A number of respondents noted that existing regulatory frameworks favor incumbents over new entrants (South Africa). Others said that outdated regulations do not align with today’s realities. "The logic of requirements reflect parameters such as size and revenue that don’t adjust to the reality of technology startups." (Brazil). In addition, the sheer multitude of government agencies and departments overseeing entrepreneurship reduces the government’s ability to keep pace with entrepreneurial dynamics (Belgium, Kenya).
  • Labor regulation paradigms: New work realities make it difficult to identify the appropriate legal status of some entrepreneurs (e.g., self-employed, autonomous workers, etc.). “It is necessary to formalize the entrepreneurial work context in order to reduce the risks perceived by those who decide to develop a new business.” (Argentina).
  • Legal entity categories that do not fit entrepreneurs: An ESO leader in Belgium said that the cost of setting up a limited liability company (LLC) is too high for startups, and that while there are other, less expensive forms of registering a company, they do not have the same benefits.
  • Outdated service categories: “Global digital transformation requires a new approach and opening up more sectors. We currently lack policies on how to treat e-commerce as a service and therefore banks are preventing young entrepreneurs from creating e-commerce platforms.” (Thailand).
  • Long payment cycles in the government: In Morocco, it takes the government at least 180 days to pay an invoice. An established company may have the cash flow to withstand the delay, but this may cause a startup to become trapped in the Valley in Death.

 

5. Access to Markets

ESO leaders who identified this as a top barrier cited the different paths to increasing market access among established companies and startups. Because running marketing campaigns, participating in trade shows, and obtaining certificates of quality require working capital, “most new companies work under the push approach, trying to generate sales with products that have never received validation in the market,” a respondent from Colombia wrote.

Many ESO leaders noted that gaining access to international markets, which is vital to startups based in small countries, is a high barrier that requires targeted support. The need is to help startups build networks of potential customers and partners in different countries. (Chile, India, Israel, New Zealand, Taiwan, Uruguay).

 

6. Cultural & Mindset Barriers

ESO leaders cited this barrier cluster less often than their public sector counterparts. This could be because ESO leaders are active participants in communities that embrace entrepreneurial behavior.

Some ESO leaders commented on the relationship between the fear of failure and the social welfare system. In Ireland, for example, a respondent noted that there is no social safety net for those whose business closed. A respondent in Sweden highlighted that becoming an entrepreneur means giving up the peace of mind that social insurance provides employees. In Belgium, “employees leaving employment to start their own business lose a lot of benefits due to the social system. Together with a risk averse mentality, this often leads to a huge barrier for employees to start their own business.”

Other cultural barriers ESO leaders cited include a low level of social trust that inhibits networking (Sri Lanka), and an organizational culture gap between startups and large companies. “This gap is preventing both actors from working together. A large share of the startups in Latin America are B2B and it is hard for them to get customers because of this cultural gap,” an ESO leader in Chile explained. Similarly, a respondent in the United States described how, “the culture of academia, research, and the federal government is risk-averse, hampering innovation to happen at the pace necessary to truly enable entrepreneurship to happen at scale.”

In noting the stubborn persistence of cultural and mindset barriers, an ESO leader from Madagascar expressed the concerns of other respondents, “With the development of entrepreneurship promotion since 2008/2009, we are seeing that many events and media activities are developing. But the culture is not necessarily changing at the same pace. Young people are afraid to share their business ideas due to fear of others stealing them. The few companies that are formed remain at the SME stage until their death. We lack vision and long-term oriented business goals. The profits are invested elsewhere but not in the development of the company.”

 

 

The next article in this series will describe a variety of ways that ESO leaders and public sector officials are trying to measure and track progress addressing these barriers. Please monitor #MinimizeBarriers on Twitter to access the next posts.

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GEN owes a debt of gratitude to the members of the Global Entrepreneurship Research Network (GERN) 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 sample for this analysis:

157 respondents to the 2019 Survey on Barriers to Entrepreneurs self-selected as working for an entrepreneur support organization (ESO). These 157 respondents span from across 94 countries. Responses were collected throughout July and August 2019. Countries in this sample, in alphabetical order, are:

Albania, Andorra, Angola, Antigua & Barbuda, Argentina, Australia, Azerbaijan, Belarus, Belgium, Benin, Bolivia, Brazil, Bulgaria, Burkina Faso, Burundi, Cambodia, Cameroon, Canada, Chad, Chile, China, Colombia, Côte d'Ivoire, Croatia, Curacao, Democratic Republic of Congo, Republic of the Congo, Dominica, Dominican Republic, Ecuador, Egypt, El Salvador, Estonia, Eswatini, France, Georgia, Ghana, Grenada, Guatemala, India, Indonesia, Iran, Iraq, Ireland, Israel, Jordan, Kenya, Kosovo, Liberia, Macedonia, Madagascar, Mali, Mexico, Moldova, Morocco, Mozambique, Myanmar, Namibia, Nepal, New Zealand, Niger, Nigeria, Palestine, Panama, Paraguay, Peru, The Philippines, Puerto Rico, Russia, Rwanda, St. Vincent & the Grenadines, Saudi Arabia, Senegal, Sierra Leone, South Africa, South Korea, Spain, Sri Lanka, St. Kitts & Nevis, Sudan, Sweden, Taiwan, Thailand, The Gambia, Trinidad & Tobago, Tunisia, Turkey, Uganda, United Kingdom, Uruguay, United States of America, Uzbekistan, Vietnam, Zambia.

Cristina Fernández focuses on integrating policymakers into startup ecosystems across the world, creating platforms for them to exchange ideas… About the author

Peter focuses on building the Global Entrepreneurship Network's capacity to impact entrepreneurship ecosystems around the world. For the… About the author