I’ve spent much of today, interviewing Australian tech company founders on why they moved to San Francisco for a project I’m doing.
One question I’m asking is what advice they would give others planning a similar move.
Every response so far has been, “do it now. Don’t wait.”
So what are you waiting to do?
Being an entrepreneur has become fashionable in western countries, but according to the Global Entrepreneurship Monitor it’s not the developed nations which are the most enterprising.
UK purchasing platform Approved Index took the GEM’s 2014 report and looked at which countries have the most entrepreneurs, defined as being “the percentage of an adult population who own (or co-own) a new business and has paid salaries or wages for at least 3 months.”
Surprisingly Uganda came out on top with 28.1% of the population meeting the GEM’s criteria for being entrepreneurs with Thailand and Brazil in second and third place. Of the developed nations, Australians were the most entrepreneurial at position number 26.
This raises the questions of what is the definition of an entrepreneurs and what drives people to become one?
Part of the answer to the second question is necessity. In Nigeria, a part time business is known as the “5 to 9 job” and, as the BBC reports, those evening enterprises are the way most Nigerians see as being a pathway to the middle classes which wouldn’t be possible for most wage earners.
That becoming an entrepreneur is often a result of necessity is borne out by Uganda’s profile in the GEM report where the authors note are scathing about the government’s support of business.
The biggest enabler of entrepreneurship in Uganda is its internal market dynamics. The most significant constraints are the unsupportive government policies, in terms of bureaucracy and taxes, and a lack of financing.
Indeed, the GEM itself noted in its 2014 report on global entrepreneurship that “there tends to be more entrepreneurial activity in less competitive economies” and Uganda ranked 122nd of 144 economies in the World Economic Forum’s 2014/15 Global Competitiveness Index.
Looking at the Countries listed in the GEM’s top ten and listing the countries by the World Economic Forums competitiveness index ranking and the World Bank’s ease of doing business index starkly illustrates the correlation between business strangling bureaucracy and people setting up their enterprises outside the regulatory strictures.
|
GEM rank |
Country |
WEF rank |
World Bank rank |
|
1 |
Uganda |
122 |
122 |
|
2 |
Thailand |
31 |
49 |
|
3 |
Brazil |
57 |
116 |
|
4 |
Cameroon |
116 |
172 |
|
5 |
Vietnam |
68 |
90 |
|
6 |
Angola |
140 |
181 |
|
7 |
Jamaica |
86 |
64 |
|
8 |
Botswana |
74 |
72 |
|
9 |
Chile |
33 |
48 |
|
10 |
Philippines |
52 |
103 |
Of the top ten countries by their entrepreneur ranking, only Chile and Thailand make the top 50 of either the World Bank’s Ease of Business index or the World Economic Forum’s Global Competitiveness Index. To summarise, the urge to be entrepreneurial is a reaction to a poor business climate.
What we could be seeing is a poor definition of an entrepreneur although it’s hard to draw the line between a Ugandan housewife who sets up a market food store and an Australian family that buys a fast food franchise. Is one more entrepreneurial because they have more access to capital?
Perhaps the Silicon Valley definition of an entrepreneur – the founder of a technology startup – is a more appropriate however that excludes vast tracts of western economies and almost all the developing world.
On many levels the Global Entrepreneurship Monitor’s definition is probably the fairest as it indicates how many people are starting their own ventures regardless of their capital position or the nature of their business.
If the GEM’s definition is fair then the leader board indicates that maybe having a nation of entrepreneurs is actually the symptom of a constrained business community rather than that of a vibrant economy.
Maybe political and business leaders need to be careful what they wish for when they call for a more entrepreneurial nation.
It’s not all good news when a tech company becomes a unicorn reports the New York Times as it often means employees and other ordinary stockholders may be diluted out by later investors holding preferential shares to secure their big bets.
The danger with these high private valuations is the later investors whose big cheques created the unicorn mythology insist upon preferential shares to protect their stake. Should the company go public or be sold for less than the valuation then it’s the common stock holders who take the greatest hit.
Good Technology’s sale to BlackBerry is the example cited in the New York Times’ story. The company’s last round of funding valued the business at $1.1 billion but it’s eventual exit was less than half of that.
As a consequence, the common stockholders lost 90% of their wealth in the company while executives and late stage investors came out with only a slight dip in the preferred shares valuation. The CEO walked away with nearly six million dollars.
With the last two years investment mania and the clear topping of the market, situations like Good’s are now becoming common. The New York Times points this out in the story.
The odds that the unicorns will all reap riches if they are sold or go public are slim. Over the past five years, at least 22 companies backed by venture capital sold for the same amount as or less than what they had raised from investors
For employees in these highly valued startups, those valuations and the risk of losing most of your own equity is a serious concern. Analyst firm CB Insights flagged earlier this week an exodus of talent from overvalued firms with dubious prospects is a great opportunity for the top tier companies.
While the headline numbers for unicorns are impressive, the reality for employees, founders and early stage investors is an overvaluation is a dangerous place to be.
Are today’s entrepreneurs just rich kids? “When basic needs are met, it’s easier to be creative; when you know you have a safety net, you are more willing to take risks,” writes Aimee Groth in Quartz.
Groth makes an important point about today’s cult of the entrepreneur, that many are rich white kids from privileged backgrounds.
Indeed, it’s striking when interviewing them how many of today’s entrepreneurs come from banking or management consulting backgrounds, which explains why so many of the business ideas revolve around fixing upper middle class problems such as food delivery services or hire cars.
What’s also intriguing is how the definition of an entrepreneur has changed. Just over a generation ago it was more commonly associated with the entertainment industry, someone like a concert promoter, band manager or even circus proprietor.
The 19th Century definition of ‘entrepreneur’ is probably closer to the current meaning where it was applied to the budding railway and steel tycoons building their empires.
Many of the 19th Century entrepreneurs turned out to be either hopeless romantics or charlatans and no doubt many of today’s ‘unicorns’ will prove to be similar. In some respects things never change.
How successful can crowdfunding be for IoT hard? We looked at some of the downsides of campaigns recently and story in Smart Company on some of the IoT gadgets at the recent Internet of Things World exhibition showed how many of projects are being funded by the crowd.
The notable thing about the projects at the conference was how many had not only been successful crowdfunding projects but had also smashed their targets.
The lesson from that is a successful campaign has to catch the imagination and excitement of the crowd, not just be a worthy idea.
How many if these products end up being successful remains to be seen, the test will be how accurately the founders have estimated their costs.
If it were just the enthusiasm of the funders, then the projects are almost certain to succeed.