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NOTE: Since 2011, Amway has engaged its global resources to conducts surveys and studies on various topics related to entrepreneurialism and self-employment. Amway President Doug DeVos and Chairman Steve Van Andel both conveyed their enthusiasm for the report’s findings in a recent conversation with Direct Selling News’ Publisher, John Fleming. Van Andel said, “To me, the greatest finding in the report is that over two-thirds of the people surveyed really support entrepreneurialism. So when you look at the industry, we’re sitting in just the right place—the sweet spot. We think having a group of entrepreneurs driving the business is where you need to be.”
The goal of the annual Amway Global Entrepreneurship Report (AGER) is “to stimulate discussion of topics relevant to the encouragement of entrepreneurs and the advantages of self-employment.” The entire 2013 report is available to the public at AmwayEntrepreneurshipReport.com. With permission from Amway, DSN is reprinting sections of the report in this column.
Key Results of the Amway Global Entrepreneurship Report 2013
Despite the recent economic uncertainties, people are positive about entrepreneurship. Our respondents name independence as the most important motivation for becoming self-employed. Yet, fear of failure remains a severe obstacle to starting a business. Policymakers should address these fears and take the necessary steps to remove them and foster an entrepreneurial culture.
Entrepreneurship is an important pillar of economic growth. To better understand motivations behind entrepreneurial attitudes the 2013 Amway Global Entrepreneurship Report surveyed 26,000 respondents in 24 countries. The results show that entrepreneurship continues to enjoy a high reputation. Of respondents to the 2013 Amway Global Entrepreneurship Report, 70 percent have a positive attitude towards entrepreneurship, and 39 percent can imagine becoming self-employed. Yet, the gap between potential entrepreneurs—people that have a latent preparedness to embrace an entrepreneurial opportunity—and actual entrepreneurs is still large. So why do so few potential entrepreneurs make the move?
Key Drivers of Entrepreneurial Intentions
Independence and income are important drivers of entrepreneurial intent, whereas perceptions of risk represent an obstacle to becoming self-employed.
The survey results yield a clear answer as to what motivates people: Independence is a more important driver for becoming self-employed than income. Respondents name being independent from an employer and realizing their own ideas as the dominant reasons for starting a business, while income-related aspects such as a second income or return to the job market were less important.
However, two patterns suggest that people think of starting a business out of necessity rather than due to opportunity. First, in countries with relatively low GDP per capita, entrepreneurship as a second source of income becomes a main driver. Second, in countries involved in the European economic crisis, people consider entrepreneurship as a way out of unemployment.
Still, the fear of failure represents a strong obstacle to becoming self-employed, and 70 percent of the respondents confirm this assertion.
The consequences of failure can be grouped into three categories: social, psychological and financial. The fear of the financial consequences of business failure is an obstacle to becoming self-employed (41 percent). Social consequences such as disappointing family, friends, and co-workers and psychological consequences like personal disappointment all rank far behind financial consequences.
In countries directly involved in the European economic crisis more than every second respondent views the crisis as a severe obstacle. National culture influences the evaluation of entrepreneurial intentions as well. Countries that are more individualistic or less “uncertainty avoidant” value independence higher. Income as a motivation is not affected by culture. The survey also reveals a strong relationship between uncertainty avoidance and fear of failure. For example, in the U.S., only 37 percent of the respondents name fear of failure as an obstacle to becoming self-employed, while in Japan it is 94 percent.
Given that more than two-thirds of the respondents consider fear of failure as an obstacle to becoming self-employed, policymakers need to implement measures to help potential entrepreneurs overcome these obstacles and take action. For example, the European Commission recently presented an action plan for fostering entrepreneurship. This action plan builds on three areas: entrepreneurship education, role models and a fertile environment for startups. The results of the survey suggest that implementing such measures may reduce the fear of failure and ease the startup phase.
Respondents to the survey confirm the encouraging effect of entrepreneurship education on becoming self-employed (33 percent). Respondents with a university degree expect entrepreneurship education to be a stronger facilitator for starting a business than those without a degree. In part, this might be caused by intensified teaching of entrepreneurship skills at universities. Consequently, the rate of respondents that can imagine starting a business is substantially higher among university graduates.
Based on the study’s findings, we also believe that established and successful entrepreneurs may also function as role models for potential and new entrepreneurs. Through mentoring programs and business networks, potential entrepreneurs and actual entrepreneurs may obtain crucial firsthand information on the startup phase. Interestingly, again respondents with a university degree value this option more.
U.S. Respondents Have a Clear Opinion on What Entrepreneurship Is Like
Through all demographic groups, the most appealing aspect for Americans to start a business is “independence from an employer and being one’s own boss” (65 percent; International average: 43 percent).
The chance of “self-fulfillment and possibility to realize one’s own ideas” is the second most important aspect of respondents to start up their own business (62 percent), followed by “better compatibility of family, leisure time, and career” (53 percent).
- On average, more than every second (56 percent) respondent in the U.S. has a positive attitude towards self-employment.
- Evaluating the results of the different age groups, we see a very positive attitude towards entrepreneurship among respondents aged between 30 and 39 years (70 percent) and between 40 and 49 years (79 percent).
- Four out of 10 of the American respondents (42 percent) can imagine starting their own business.
Fearless U.S. Entrepreneurs
The U.S. is the country with the highest percentage of respondents who are not afraid of failing with an enterprise (62 percent). While in other countries, the fear of failure is invariably present and composed by different factors, such as “financial burdens up to bankruptcy” (42 percent), “threat of the economic crisis” (32 percent), “threat of unemployment” (16 percent), “personal disappointment” (15 percent), the fear of “taking over the responsibility” (13 percent), and “legal consequences such as lawsuits” (13 percent), in the U.S. only “financial burdens up to bankruptcy” (23 percent) and the “threat of the economic crisis” (15 percent) frighten more than 10 percent of the respondents.
Entrepreneurship Education Encouraging the American Entrepreneur
When thinking of encouraging factors to the foundation of businesses, people in the U.S. agree that “entrepreneurship education and teaching of business skills” are indispensable (40 percent). This is 7 percent more than the average of the polled countries (33 percent). But also “public funding and startup loans” (U.S.: 33 percent; International: 42 percent), “backing from family and social networks” (U.S.: 30 percent; International: 27 percent), and “mentoring, support through business networks” (U.S.: 30 percent; International: 24 percent) might reinforce people’s decision to start up their own business.
U.S. Votes Itself Most Entrepreneurship-Friendly Country
U.S. respondents voted their country the most entrepreneurship-friendly among polled countries.
In comparison, the average of the countries polled worldwide disperses with 46 percent on each side, stating that their country is equally entrepreneurship-friendly and -unfriendly.
Closer Look at Obstacles and Possible Explanations for the Entrepreneurial Gap
In previous editions of Amway’s Entrepreneurship Report, the “fear of failure” has been among the highest obstacles to becoming self-employed. It’s those obstacles and fears that lead to a high gap between people that can imagine starting a business and those actually putting their plans into action. Is the gap because they do not believe in their abilities, their networks and ideas, or because they do not feel supported by their environment? This raises the question as to why some people are willing to take risks more than others and what fear of failure overcomes? This year’s report therefore aimed to find out more about the inner thoughts that go along with starting up a business and what can be done to encourage more entrepreneurship.
Risks and Obstacles Hindering Entrepreneurship
Among the polled countries worldwide, for 41 percent of the respondents “financial burdens up to bankruptcy” and for 31 percent “the economic crisis” turn out to be considerable obstacles against starting one’s own business. This turned out to be even truer for the member states of the European Union, where 43 percent and 37 percent, respectively, see it that way. Among the remaining (non- E.U.) participants of the AGER 2013, the economic crisis seems to have left less trace, as only 21 percent of the respondents feel threatened by it, and also financial burdens restrain only 38 percent of the respondents from starting a business. However, despite the existence and threatening cognition of risks and obstacles to entrepreneurship, still a considerable number of people seem ready to give consideration to starting their own business.
The average self-employment potential in all surveyed countries lies at 39 percent. Even if it is lower when evaluating the results of the EU member states, still over one-third can imagine starting their own business (36 percent). Breaking it down to the single countries, the highest potential can be found in Colombia (63 percent) and Mexico (56 percent), while Greece, despite its financial problems, remains Europe’s palladium of entrepreneurial potential, with a solid 53 percent (50 percent in 2012).
The other end of the line is held by Germany, with only 26 percent of the respondents considering the possibility to start their own business, and Japan, which ranks last with only 17 percent. To implement the aforementioned potential, political decision-makers need to help prospective entrepreneurs to put their ideas into action, as a long-term decline in startups and entrepreneurial activity—and thus in small- and medium-sized business—is a threat to every nation’s economy and society as a whole. To present an example: The traditional mid-size business culture in Germany is hit hard by this development. Projections of the German Chamber of Industry and Trade (DI HK) expect 1 million less self-employed people in 2050 compared to the status quo. The comparably well-functioning German labor market may serve as one explanation, but an at least equally important reason is believed to be that the fear of failure is very high in Germany. Of all polled Germans, 79 percent reply yes to the question “In your opinion, is the fear of failure an obstacle to starting a business?” When asked, which aspects contribute the most to this fear of failure with an enterprise, 59 percent of the polled Germans confirm that “financial burdens up to bankruptcy” constitute the main obstacle. Thus, it is no surprise that it is other countries that lead the ranking of successful entrepreneurship: The number of people confirming that they are already self-employed is highest in Greece (21 percent), Japan (18 percent), and Colombia (17 percent). Germany along with Finland, Australia, Poland, and the Ukraine is at 5 percent. Denmark, France (each 4 percent) and Russia (3 percent) rank last.
Great Entrepreneurial Potential not Fully Implemented
One crucial aspect of the worldwide survey is the entrepreneurial gap. For the average of all polled countries, this gap between participants showing entrepreneurial potential and those already self-employed is at 31 percent (resulting from an average self-employment potential of 39 percent versus an average rate of 8 percent of people who are actually self-employed).
This entrepreneurial gap is comparatively high in Mexico, Colombia and Australia. On the other hand, the lowest figures for the entrepreneurial gap can be observed in Japan, Germany (21 percent) and Spain (22 percent).
Encouraging Entrepreneurs, Eliminating the Fear of Failure
So why is it that countries like Colombia and Mexico have big entrepreneurial potential, but show low self-employment rates? One explanation could be structural obstacles: Respondents do not really fear to fail with an enterprise, but see “public funding and startup loans,” “entrepreneurship education,” and “support through business networks” as essential preconditions to starting their own business. However, in the eyes of these same respondents in Colombia and Mexico, government, media, and society in general are nowhere near providing those encouraging conditions (How entrepreneurship-friendly is society in your country? Colombia: 66 percent unfriendly; Mexico: 45 percent unfriendly).
In 2013, and in years past, the study’s findings emphasized the significant role of cultural, social and political environments in fostering entrepreneurship, and the need to set up incentives, bring down bureaucratic hurdles, and provide education and financing to help people start up their own businesses.
To download a copy of the full AGER2013 report, visit www.AmwayEntrepreneurshipReport.com.