The Global Entrepreneurship Monitor (GEM) just released their 86 page report on the state of entrepreneurship across the world. The research program, initiated in 1997 as a joint venture between academics at London Business School in the UK and Babson College in the United States, is now a consortium of more than 400 researchers from 99 economies.
In digging through the report; I uncovered 5 valuable insights to help us better understand entrepreneurship:
1.) 6 Phases of Entrepreneurship
According to GEM; there are 6 phases to entrepreneurship. As shown in the figure below (from the 2012 GEM Global Report) — they include:
- Potential Entrepreneurs — defined as those who have the capabilities and have identified opportunities — but are not planning to start their own business.
- Intending to Start — those entrepreneurs who have identified opportunity; have the capabilities and are planning to start their own business.
- Nascent (or Just Starting) — described as those entrepreneurs who have started but are less than 3 months in on their venture.
- New Business Owners — those who are between 3 months and 3 ½ years into their new business.
- Established — those entrepreneurs who have owned their business for more than 3 ½ years.
- Discontinuance — defined as those entrepreneurs who have discontinued their business for whatever reason at some point after starting it.
According to GEM; because the context and conditions that affect entrepreneurship in different economies are diverse and complex, it is not possible to conclude that one phase inevitably leads to the next. For example, an economy may have a large number of potential entrepreneurs but this may not necessarily translate into a high rate of entrepreneurial activity.
GEM cited factors such as a person’s own fear of failure, current internal market dynamics and regional cultural norms as just a few of the areas having a significant influence on moving an entrepreneur along the linear line from potential to established business ownership.
2.) Cultural & Societal Norms To Encourage Entrepreneurship Are Highest in the U.S.
According to GEM, the U.S. showed a clear advantage over every other region in the world when measuring the extent to which existing social and cultural norms encourage activities to find new ways of conducting business. In other words, the culture of the U.S. is one where risk taking and high levels of innovation are greatly encouraged and not frowned upon in society.
The U.S. received a score over 4 (out of 5) while the closest region in comparison (Asia Pacific & South Asia) received a score just under 2.5 (out of 5).
The responses are measured on a 5-point Likert scale where a score of 1 is completely false and a 5 is completely true. In this case, a score of 4 or 5 would indicate the factor as positive for entrepreneurship, while a score of 1 or 2 would indicate the factor as negative for entrepreneurship.
Clearly the culture of the U.S. is one of the best in the world for engaging in startup and entrepreneurial activities.
3.) Main Factor of Encouraging Entrepreneurship = Physical Infrastructure
Based on the data from the study — access to Physical Infrastructure ranked above 4 (out of 5) in the USA, Asia Pacific, South Asia, and 23 other nations. The lowest score came in from certain parts of Africa — but even then it was given the score of 3 (out of 5).
According to GEM, Physical Infrastructure refers to the presence of and access to available physical resources such as communication, utilities, transportation, and land or space at a price that does not discriminate against new, small or growing firms.
In most cases throughout the world this was given as a lead indicator as to the amount of entrepreneurial activity taking place. And of course, this makes sense. Especially with the explosion of available technology and communication platforms world-wide — almost every aspiring entrepreneur has the ability to leverage these tools for their new ventures. Skype, Amazon Web Services and the WordPress platform are but 3 examples of low cost, high value technology accessible to almost every nation on the planet.
4.) Two Main Reasons for Business Discontinuance
According to the report, the sobering statistic from across the globe points to two main factors for a business being discontinued: The first is lack of profitability and the second is the inability to raise capital. In fact, in every part of the world except for Asia Pacific and the South Asia region, over 50% of businesses were discontinued for one of these two reasons alone.
Other reasons listed were: retirement, personal reasons, a specific incident, opportunity to sell, other job or business opportunity and exit planned in advance.
The report further stated in the USA and European Union, individuals cited other jobs or business opportunities more often than those in other regions as a reason for business discontinuance – which are generally considered more positive reasons to close the doors and move on.
5.) Serial Entrepreneurs Have a Higher Chance of Success
But here is some good news even with the high rate of business discontinuance — a special study of the available GEM data was performed by researchers Jolanda Hessels, Isabel Grilo, Roy Thurik and Peter van der Zwan. Their goal was to study the relationship between business startups and eventual exits. More specifically — when do exits from entrepreneurship lead to the creation of new ventures, and when are exits permanent?
After extensive research, they found that an exit event during the previous year significantly increased the probability an individual would be engaged in subsequent entrepreneurial activity. They argued many of the skills and competencies required to successfully launch a new business can be gained most efficiently through experience. Therefore, an individual’s previous startup experience should constitute an important predictor of future startup activity.
Their conclusion leans toward entrepreneurship being — to a large extent — a project-based activity; the skills for which can be learned by experience. Subsequently, studies show serial entrepreneurs tend to be more successful, and thus more impactful, than new and inexperienced entrepreneurs.
You can find the full GEM report in pdf form here: http://www.gemconsortium.org/docs/download/2645