Monday Postcard #203 – The Real Barriers to Entrepreneurship
Tech start-ups, venture capital investments, IPOs, start-up shows on TV – the media seem to love the start-up scene. But when we look at the actual numbers, it seems like this hype does not translate into an increase in businesses founded. In Germany, barely 10% of the working population ran their own businesses in 2018 (according to the Bundesministerium für Arbeit). Roughly the same percentage applies to Austria (according to Statistik Austria). And these 10% not only involve what we may all think about (an actual entreprise founded), but also freelancers or one-person-operations (such as in the field of nurses or caregivers who have to register businesses but are then in an employment-like relationship with agencies).
Politicians and journalists seem to have come to the following conclusion about the barriers to founding businesses (especially in industrialised countries): high taxes, red tape, lack of (risk) capital, lack of education about entrepreneurship in schools. When I think about my own experience in Hong Kong and Austria and look around the entrepreneurship scene, some of these factors serve as substantial barriers. Nevertheless, I move a step further and see the real barriers from a wider, and rather social and structural perspective.
Firstly, the acceptance and value in our society is a big influence. This starts in our families. Needless to say, children who come from families where members founded businesses will naturally have more interest in pursuing this career. Why? Not only because they were exposed to it from a very early age, but also because their families are more likely to accept or even support their choice. Starting a business is risky. Many of our parents made enormous sacrifices for us and our education, hoping that we would end up as lawyers, doctors or managers with a big fat pay check so that we and our children have a better life than they had. Can we really afford to drop out of this and risk what they have aspired to?
I saw this a lot in Hong Kong. The pressure from families regarding their children’s careers is immense. And another factor adds to the family pressure: with rents being among the highest in the world (we are talking about EUR 2,000 for 35 sqm), many graduates choose to join banks and law firms to be able to move out of their parents’ home and start a new life. Founding a business would mean not only losing the steady pay check covering the rent but also investing savings. In a city like Hong Kong, this is an even bigger risk to take. Unsurprisingly, many founders I met had a family business background. Most of the young graduates we tried to motivate to join a start-up were hesitant or preferred to join big corporates. From a personal perspective, I can totally understand their choice. Sadly, this also means that many smart graduates will probably never live their dream as entrepreneurs.
A different dimension applies to countries like Austria and Germany: the welfare state. Starting a business can affect your contributions to the welfare state. They are often less than those by employees. Hence, your retirement money by the government may be less than if you had stayed at a company as an employee. For all those of you who do not come from countries with a massive welfare package like Germany, Austria or France, you may think “So what, why is that so important? If I make it as an entrepreneur, I do not need to care about a government pension?” Well, right… But the broad feedback you will get in the welfare nations is: Why risk your cushy job with all the benefits for something which may not work out?
Let me explain this further: When I was 16, my school did a project with a bank. The bank also used the opportunity to advertise a product to us: pension funds. I was 16 and the bank representative told us that we were already “late in the game” for saving for our retirement. From a very early age, we are educated to think about our later stages in life. In general, this is a good thing, especially considering the risk of old-age poverty (and especially among women). But on the flipside, it creates a certain type of fear: Austrians count the so-called “insurance years” (ie. years in the workforce) until they can retire. What if I do not have enough years once I plan to retire when I am 65? Will founding a business and not making money for a few years cost me insurance years?
While this long-term focus is based on a good concept, it contributes to an environment which is rather sceptical of entrepreneurs. Risk-taking is often considered as silly and some think of entrepreneurs as outright crazy. (I chose the word “crazy” intentionally because I witnessed it being used in conversations about founders more than once.) Moreover, in certain situations, it can also have adverse effects. One example is rental contracts in Vienna. Many agencies and landlords/-ladies demand a higher deposit for self-employed tenants – no matter what the income of the tenant. Just the fact of being self-employed may lead to a higher deposit.
Another example relates to funding. I do agree that a lack of risk capital will have an effect on the number of businesses incorporated. But I would not blame it on a lack of a “start-up scene”. The world has become so connected, if you cannot raise money in your home country, you may be able to raise it somewhere else. But I do think that our banking system needs serious reconsideration. In Austria, for example, it seems easier to get a loan for building a house at the age of 20 than for founding a business at the same age. Of course, I understand the bank’s view: a house is a better asset to liquidate than a business plan. Still, how are (young) founders (who may not have financial backing by their families) supposed to start businesses, if risk capital from venture capital funds is not an option and banks have this conservative attitude?
All of these are structural factors strongly influenced and set up by politics. Nevertheless, they are shaped by the overall view of entrepreneurs in society. Politics does not create jobs. Businesses do and we need more people to take entrepreneurial risks to keep our high standard of living. But if the “thank you” for founders means that they are at a disadvantage when taking out a loan or looking for an apartment and that they receive less recognition for their work as people in employment contracts, it will be tough to convince anyone to start a business, take immense risk and go on this rollercoaster ride. We need more than lower taxes, “girls can start businesses too”-programs in schools, start-up TV-shows and politicians taking pictures with a handful of successful entrepreneurs.
What we need is an active culture valuing entrepreneurship – not only from a financial perspective but also a social one. According to a study by the Austrian Ministry for Digital and Economic Affairs in 2019, risk aversion, the Austrian mentality, stigmatisation of failure and fears about stability and safety are some of the biggest barriers to entrepreneurship in Austria. I do not think that we can solve this with a few classes in school. This is a long-term change we need in our society. We need more role models who actively speak about how they overcame all the hurdles and what THEY would change. Furthermore, if I was our Economic Affairs Minister, I would listen more actively to entrepreneurs. I sometimes have the feeling that people who work for governments think they know what the issues are for entrepreneurs. But, frankly, if you have never done it yourself, you will not know what it is really like from a government work desk. I am sure there are many of us who would volunteer. 😉
What is your opinion on this topic? Are you an entrepreneur and can you share your experience? Or are you aspiring to become one but there is something holding you back? I look forward to hearing from you!
More Monday Postcards
Monday Postcard #202 – Learnings from My Teenage Dating Life
Monday Postcard #201 – Anniversary Postcard
Monday Postcard #200 – Fast and Furious