Can youth entrepreneurship work?

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Larry Page and Sergey Brin were young doctoral students when they created the company we now know as Google. Virgin’s Richard Branson started out in business as a teenager selling records. These big names are just part of a long list of young entrepreneurs that made it in business, a list that could include the founders of Facebook, e-Bay, France’s Free telecom and more.

Beyond such icons, readers of this article may know of less celebrated but nonetheless successful neighbours or friends from school who started their own businesses at a young age. They may also know of some who failed.

Making a go of it in business is not easy, but the idea is catching on, not least among the many young people facing a crisisravaged job market. Indeed, policymakers are also increasingly talking of youth entrepreneurship as a possible way of reducing youth unemployment. Are they right to place such hopes in what is, after all, an inherently risky pursuit? What, if anything, can policymakers do to give young people a start in business?

Youth Entrepreneurship, a policy brief prepared by the OECD with EU support, presents some answers to these questions, and some reality checks too. For instance, young 20-30-year-olds are far more interested in self-employment than older age groups, and though inexperienced and lacking in finances, see entrepreneurship as a potential career. However, only 4% of 15-24 year-olds are selfemployed in the EU, mostly in very small businesses, compared with 15% of adults generally. True, this low score could reflect the fact that many of young people study till their mid-20s, but also reflect barriers to setting up a business.

A closer look at that 4% can guide policy thinking in addressing them. For instance, youth-operated businesses are more likely than adult-driven ones to be involved in sectors such as construction and information technology. They operate locally, but are more open than older entrepreneurs to becoming more internationally oriented. Many of them operate on a part-time basis, which helps lower the risks and build up experience. This has practical advantages for education too: in the US, over 5% of young people in post-secondary education use part-time self-employment to fund their studies, for instance. But what about the success rate? No start-up is easy, and businesses run by young entrepreneurs have lower survival rates than those of older entrepreneurs. This is hardly surprising, given the many barriers young people face by way of experience, finance, networks, etc., and the very competitive sectors in which they tend to operate.

However, there is one encouraging trend which policymakers should seize upon: young people’s businesses that do survive have on average more growth potential than those of older entrepreneurs. Among businesses that survived three years, according to surveys, those run by people under 30 years old had an average growth rate of 206%—nearly double the growth rate of businesses run by those over 40.

Youth Entrepreneurship lists an array of steps for policymakers to follow, covering such issues as how to nurture entrepreneurial skills, provide advice, mentoring and financial support, and address infrastructure needs. It also contains some enlightening examples, of financing from Canada, the Think Big initiative in Europe, Project GATE in the US, and more.

As the authors admit, more data and learning is clearly needed to build better youth entrepreneurship policies, but the underlying message of this policy brief is clear: though young entrepreneurship is risky and should not be seen as a panacea for tackling unemployment, it has the potential to provide many people with real opportunities. Policymakers could do a lot more to make youth entrepreneurship happen, and by extension, bring benefits for society as a whole. Rory Clarke

© OECD Observer 294 Q1 2013

OECD (2012), Policy Brief on Youth Entrepreneurship: Entrepreneurial Activities in Europe, OECD LEED Division, Paris.

See also http://www.oecd.org/employment/

Produced with EU support.




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