Supporting habitual entrepreneurs

During the last few weeks, I have been working alongside Dr Piers Thompson of the University of Glamorgan to examine the Global Entrepreneurship Monitor (GEM) and utilise the fantastic dataset we have to examine the specific phenomenon of those who start up more than one business, commonly known as habitual entrepreneurs.

As many are aware, there has been an enormous growth in policies which have focused on the increasing the level of entrepreneurial activity across the world. Interestingly, the vast majority of resources are aimed at creating a greater understanding of entrepreneurship and providing a greater proportion of the population with the skills required to undertake such activities.

In Wales, as in many other countries, this has manifested itself through the massive growth in enterprise education activities, particularly within universities, although the jury is still out whether initiatives such as the Enterprise College have had any real effect on entrepreneurial activity.

More recently, it has been argued that policymakers, instead of supporting entrepreneurship in general, should concentrate their efforts on those with repeated and multiple involvements in start-up activities, namely habitual entrepreneurs. These can be divided into those who prefer to close one business before starting another (serial entrepreneurs), and those who run a number of businesses concurrently (portfolio entrepreneurs).

Why should this be the case?

Clearly, the experience gained by habitual entrepreneurs in their first venture can benefit the economy as it can lead to higher levels of efficiency, employment and growth. This can be through a better ability to deal with the liabilities of newness, greater use of effectual reasoning, and a less negative view of failure.

For example, habitual entrepreneurs tend to run larger businesses than novice entrepreneurs, which reflect their ability to raise start-up capital from the proceeds of previous businesses or through leverage of existing company assets. They will also use their previous track record in business ownership and their entrepreneurial experience to persuade venture capitalists to invest in their business.

So it is not surprising that some have called for policies and resources to be targeted at supporting these proven entrepreneurs rather than at increasing start-up levels in general, especially given the ‘liability of newness’ that many new firms face in terms of competition, finance, reputation and establishing a new idea in the marketplace.

You will have to read the academic paper for the full results, but I am glad to say that our research supports the notion that the contribution of habitual entrepreneurs to the total supply of new businesses is substantial. For example, whilst less than one percent of the population was involved in starting a business as a habitual entrepreneur, this constituted around one in three start-ups in the UK. More importantly for those looking to create a more entrepreneurial economy, the evidence suggests that those with previous experience of starting a business are more than three times as likely to be intending to start a new business than those who are doing it for the first time.

In terms of the different types of habitual entrepreneurs, portfolio entrepreneurs are the rarest type of business start, although these individuals who start multiple businesses have also the greatest probability of creating employment and high turnover businesses. They are also more likely to expect to introduce new products and open up new markets and to demand the highest amount of start-up capital to develop their new venture.

Therefore, the GEM research suggests that for the Welsh economy to truly benefit from entrepreneurship to its maximum potential, then creating a greater number of portfolio entrepreneurs should be a priority.

Currently, there is very little focus by policymakers on encouraging such entrepreneurial activity from existing successful businesspeople who not only have the ideas, but also have the expertise and experience to grow and develop a new business successfully. Whilst clearly we need to encourage more people to enter self-employment for the first time, there must also be an increasing focus on making the most of the talents of those who are already running existing businesses to create wealth and prosperity.

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