Wanted: Strategy for start-ups

The education system plays a critical role in developing future entrepreneurs. Photo / Getty Images

Why aren't more Kiwis seizing the chance to start their own business? asks Jon Hooper

On the face of it, New Zealand is a nation of entrepreneurs. According to figures released by the government in its Small Business Sector Report earlier this year, 97 per cent of businesses - nearly 460,000 companies - are small, employing fewer than 20 people.

Our small business sector - our entrepreneurs - employs 30 per cent of New Zealand's 2.3 million-strong workforce and contributes a similar percentage of GDP.

These entrepreneurs create jobs, contribute significantly to economic growth and boost innovation.

So why aren't more Kiwis, particularly those swelling the ranks of New Zealand's 250,000-plus young unemployed, seizing the opportunity to start their own businesses?

Most worrying, there is evidence that fewer people are viewing entrepreneurship as a viable career choice.

Government statistics indicate that in the 2010-11 year, for the first time in a decade, more businesses closed than were set up.

Some of this can be attributed to the recession that followed the global financial crisis of 2008-09. But there is also evidence that while the economy is recovering, prospective entrepreneurs have become more wary and risk-averse.

In part, it's because we - along with most other developed countries - haven't got the entrepreneurial culture quite right.

How might an ideal culture for supporting start-ups and rapidly growing small businesses look?

It's a complex issue, especially as creating sustainable entrepreneurship rarely involves just one element.

The education system plays a critical role (for example, training to develop entrepreneurial skills, mentorship, promoting the value of entrepreneurship, and work experience with established entrepreneurs), as does the availability of entrepreneurial role models for youngsters, the building of entrepreneurial networks and ecosystems, and - most critical - better access to funding, both at the start-up stage and when the business begins to grow.

Above all, fostering entrepreneurship must become a visible part of the government's economic policy. It should be a planned process, with set objectives and performance targets.

A recent EY report on global youth unemployment, Avoiding a lost generation, says entrepreneurs generally need "a more supportive culture, in which their contribution to society is properly recognised and their successes are celebrated".

Conversely, there should be a greater tolerance of failure "which can be a valuable solution of knowledge and experience".

Further, the report says, "to encourage more entrepreneurs, a country needs a set of beliefs that make entrepreneurship a valid and respectable career choice".

The culture should be more inclusive, opening the door to talent that is often excluded. "Women and immigrants, and the disadvantaged, can make a huge contribution, yet today they are often under-represented in entrepreneurial communities."

Businesses begun by immigrants regularly feature strongly among the country winners at EY's World Entrepreneur Of The Year competition held this year in Monaco.

Our survey shows 84 per cent of entrepreneurs globally believe raising awareness of their role as job creators improves public attitudes, and it can encourage others from all walks of life to follow their example.

One suggestion is specifically to target and educate unemployed youth about the opportunities entrepreneurship can bring. Among the countries surveyed, Australia, Brazil, South Africa, Indonesia and Canada are experimenting with funds and programmes aimed at attracting young entrepreneurs.

Another target is the technology industry, where young entrepreneurs have notched up success. To encourage digital start-ups, countries such as Germany, France and Brazil have created tech hubs, incubators, accelerators and networks to bring the relevant talent together.

Former Harvard professor Daniel Isenberg, whose works include How to start an entrepreneurial revolution, says entrepreneurs are most successful when they have access to the human, financial and professional resources they need, and operate in an environment where government policies safeguard and encourage entrepreneurship.

Isenberg's studies of entrepreneurs around the world, particularly "super-entrepreneurial" countries such as Israel, Taiwan and Finland, consistently link entrepreneurs with rapid job creation, GDP growth and long-term productivity gains.

The Holy Grail for governments in emerging and developed nations should be creating an environment that nurtures and sustains entrepreneurs, he says.

Isenberg's blueprint for doing this is nine principles which include "stop emulating Silicon Valley - shape your ecosystem around local conditions", "tackle cultural change head-on", "don't over-engineer clusters - help them grow organically" and "capital is king - you can't achieve world-class status without access to capital".

Isenberg has also written extensively on failure. This, he says, should be treated as a normal aspect of venturing into new businesses.

"It is important to train entrepreneurs to fail small, fast and cheaply," he says.

"Rapid failure functions like a draught in a chimney." It is important because failure generates systemic learning about where opportunities are (and are not) and how to address them.

Despite this, many countries inadvertently discourage entrepreneurs by punishing failure. Union-friendly labour laws also make it difficult for entrepreneurs to hire people for start-ups. Instead of making employees hard to fire, the legal framework should focus on providing support for workers who are laid off, Isenberg says.

New Zealand's official youth unemployment rate is 11.8 per cent for 18-25-year-olds - below the OECD average of 16 per cent but still double New Zealand's overall rate of 6 per cent.

Many of the best practices outlined in EY's Lost Generation report show a combination of groups working together. Our research in New Zealand reveals entrepreneurs themselves believe better co-operation and alignment is needed among the government, private sector and education system, along with a joint commitment to deal with the challenge of youth unemployment.

Young entrepreneurs, our report says, are particularly important. "Brimming with potential and energy, theirs are activities - if nurtured and supported correctly - that can lead to meteoric growth, jobs and success across societies." The time to start is now.

Jon Hooper is awards director of EY's Entrepreneur of the Year programme in New Zealand