NexThought Monday – How Can We Unleash the Potential of Young Entrepreneurs
The importance of small- and medium-sized enterprises for a nation’s economy cannot be stressed enough. They contribute to 33 percent of GDP in developing economies and nearly 64 percent in developed countries. They are also strong job multipliers and innovation generators. In recent years, we’ve seen multiple game-changing innovations by startups, and often led by entrepreneurs in their 20s or 30s.
While entrepreneurship and innovation have long been seen by many governments as significant factors for economic growth and job creation, it is not until recently that policy makers have started to focus on youth entrepreneurship. Many also consider youth entrepreneurship as one solution to youth unemployment, a problem which, associated by stagnant economic growth, is posing threats to public confidence and the long-term health of economies in many developed countries.
The G20 governments are increasingly taking concrete actions to support entrepreneurship and youth. Ernst & Young’s latest report outlines 10 recommendations to support youth entrepreneurship across the G20. Here are three areas in which I think governments and corporates should be more active:
1. Creating a friendly legislative framework for youth businesses
Dealing with legal administration and taxes can be a heavy burden for entrepreneurs in many countries. WorldBank’s DoingBusiness.org ranks countries by the level of ease in doing business. UNCTAD’s eRegulation and eRegistration initiatives aim to help entrepreneurs navigate various procedures of business administration. Take a close look a country such as Vietnam and you will agree that much needs to be done to simplify the bureaucratic processes.
For young entrepreneurs, this is particularly the case because they are more likely to be held back by the complex procedures and less likely to have the support of financial resources. Therefore, it is critical to have a simplified procedure and a clear guidance to help them start their business and maintain it. The following aspects can be considered when making legislation more friendly for young entrepreneurs: 1) simplifying the business registration procedure through online registration systems; 2) streamlining the procedures and reducing points and number of visits at public authority offices; 3) offering clear guidance on the legal administration required for business entities of various sizes and at different stages of their business; 4) setting up a one-stop support office for young entrepreneurs.
Above: Tom Osborn (farthest left), a young Kenyan entrepreneur sells clean briquette to households in rural Kenya via his company GreenChar.
2. Leveraging industry expertise in mentoring young entrepreneurs
Mentorship can be very effective in helping a young entrepreneur and his/her startup develop. In practice, mentorship also opens doors to business and funding opportunities. Unlike entrepreneurs with years of working experience, young entrepreneurs usually lack the practical experience and network needed to grow the company. Linking young entrepreneurs to experienced professionals and successful entrepreneurs for mentorship can help them succeed. Mentors’ industry insights, experience and professional networks are beneficial in guiding young entrepreneurs through critical stages of their business.
Technology companies such as Samsung have set up strategic innovation centers that provide mentoring and financial support to innovative startups. More companies can follow the lead and place a focus on youth-led startups. Big companies can also include youth entrepreneurship mentorship in their employee engagement and CSR activities. This can be realized more efficiently and effectively through collaboration with organizations – public authorities, nonprofits, universities, incubators and private foundations that have a track record of working with young entrepreneurs. In addition, governments can play a role in this by encouraging companies to support such initiatives and facilitating public and private sector partnerships.
3. Increasing access to alternative funding and transparency
Young entrepreneurs typically have difficulties obtaining financing. Their lack of credit history and pledge make them risky clients for banks. The booming development of crowdfunding platforms in recent years provides alternative funding channels for young entrepreneurs. The increasingly aligned networks of business angels and venture capitalists also seem to indicate the surge of interest in startups and the capital available. However, difficulties still remain for young entrepreneurs in obtaining funding. On the other hand, investors find it difficult to find good investable companies. Research has shown that 90 percent of new ventures that don’t attract investors fail within the first three years.
To help young entrepreneurs avoid failure, it is important to align different players in the funding communities to help young entrepreneurs understand what funding opportunities are available and what they entail. In this way, young entrepreneurs can be educated on making decisions most suitable and sustainable for the company. At the same time, mentorship should be provided along with the investment to increase the success rate.
This week’s UNCTAD Expert Meeting is a good example of how public authorities can play a role in bridging the communication among governments, investors and young entrepreneurs. In collaboration with Child & Youth Finance International’s latest initiative Ye!, seven young entrepreneurs will be pitching to policy makers and investors and receive feedback and potential investments.
Governments can deploy legislative tools such as tax incentives and special purpose investment funds to help increase access to alternative funding for startups. To increase its success, it’s important to educate investors on the risks involved. Only when we increase transparency on both sides can we help ensure the healthy and sustainable growth of a capital market for startups.
In short, governments and corporates can take a more active role in supporting youth entrepreneurship. Corporates can leverage their expertise and networks in creating value both for the entrepreneurs and the companies. Governments should take the lead in creating a business-friendly environment and support system for young entrepreneurs, as well as aligning the funding communities to increase access to alternative funding for startups.