Youth entrepreneurship can be done – but it’s tough
As South Africa celebrates Youth Month, there are the regular calls on young people to start their own businesses. In fact, this most likely is a call to failure as entrepreneurial mentors advise aspiring entrepreneurs to first get some solid work experience so they can eventually bring some technical and business skills to their start-up. The reality is that many youth start up a business not because they have the entrepreneurial bug, but because they can’t find a job.
There is a lot of hype surrounding youth and entrepreneurship, driven by glamorous role models at Microsoft, Google, Twitter, Facebook – which were all started by entrepreneurs younger than 35. In South Africa, the real motivation for the call to youth to establish their own businesses is that South African youth unemployment stands above 50%.
However, for those youth with money to invest, a franchise is one entrepreneurial opportunity well within their reach.
Entrepreneurship isn’t just a solution to unemployment
Precious M. K. Mvulane CA (SA), author of The Essential Finance Handbook for Entrepreneurs: ‘7 basic steps to manage your business’ financial performance’ says the following in her book: “Some entrepreneurs start a business, because they can’t find a job. Let me say this: finding a job is far easier. You only have to prove competency in one area, such as finance or marketing. When you are running your own business, you must have at least seven basic competencies, including business functions such as production/operations, finance, marketing, public relations/communication, strategic planning, human resources and administration skills, in order to have a chance to make it.”
Financiers also tend to favour funding older entrepreneurs. On its website, Business Partners for instance says only 8% of its funding goes to entrepreneurs younger than 35, but 26% to those aged from 36-45, 35% to those 46-55, and 31% to business owners older than 55.
One reason is that the youth themselves tend to be wary of entrepreneurship. Global Entrepreneurship Monitor, the oldest and biggest comparative study of entrepreneurship globally, clearly shows that throughout the world the youth themselves tend to be cautious about starting businesses. Globally, most entrepreneurs start their businesses in their middle years and older – and for good reason. A recent study of 5 000 businesses in the US showed that the age of the entrepreneur was the single biggest factor determining whether a business survived the 2008 financial crash – the older, the better the survival rate. Age tends to be commensurate with higher skills levels and business experience.
There are sound reasons why some start-up businesses, including many franchises, succeed. It helps to be well capitalised, and older people tend to have accumulated at least some savings, and an asset or two.
Entrepreneurship demands a wide array of skills
Similarly, it has been shown that deep industry knowledge, the kind which you pick up after ten or fifteen years of working in a sector, contributes to success. It can be the difference between survival and business failure. Entrepreneurs have to be able to navigate tax, banking and labour-relations systems, the legal system, and except where a franchise offers a full package, will have to build their own administration systems, management systems and production systems. It is almost essential to have several years’ experience up to at least low-level manager in someone else’s business.
Networks in business are essential. And older entrepreneurs tend to have more substantial networks that can be tapped for anything from advice to finance and sales. Allon Raiz, CEO of Raizcorp emphasises the need for deep training and mentorship to succeed in entrepreneurship – not the superficial though vast networks you can obtain through Facebook.
That’s not to say a young person cannot succeed. In fact, franchising is tailor made for youth to leapfrog the accumulation of experience and skills – many franchises prefer inexperienced (but enthusiastic) people who are keen to learn and follow the rules.
Franchising is suited to youth entrepreneurship
At Cash Converters, almost a third of its franchisees and the majority of store managers are aged under 35, and the company believes that franchising could help answer South Africa’s youth employment crisis in two ways – it can enable young people to run their own small businesses and create jobs at the same time.
The biggest danger facing youth wanting to establish their own business, whether a franchise or independent business, is that the fiery young person wants to impatiently start right now when they possibly should be investing in their own experience and education. Author Precious M. K. Mvulane in her book regularly emphasises that investing in yourself comes before any start-up, and entrepreneurs are often so enthusiastic to plunge ahead that they end up earning far less than they could from an ordinary job over five years.
In this instance, the youthful entrepreneur should mitigate the disadvantages of starting up when they are young by getting an older mentor or business partner.
Global Entrepreneurship Monitor (GEM)
GEM finds the influence of age on entrepreneurial activity tends to be very similar throughout the world. The GEM Global Report 2016/17 indicates that early-stage entrepreneurial activity tends to be relatively
- low in the 18 – 24 years category,
- but with the highest prevalence among the 25 – 34 and 35 – 44 year olds across all three development phases.
It says: “Higher participation rates among those in their early to mid-careers could be attributed to the fact that these individuals have had time to develop their skills and knowledge through education as well as through work experience, building their confidence in their own abilities.”
It appears the youth are the first to recognise their lack of skills and experience, If you have a business idea (and many of the most innovative and disruptive ideas DO come from the youth) then look at ways of mitigating the risks of poor experience and skills.