The Global Entrepreneurship Monitor 2005

Published: April 2006

Executive Summary

GEM research shows that the numbers starting and planning new businesses increased to 9.8% in 2005 up from 7.7% in 2004. This significant increase in early stage entrepreneurial activity reversed the decline of recent years and is evident both in the number planning new businesses and in the number that have recently set up new businesses.

That is the equivalent of almost 250,000 individuals. Of this number approximately 137,000 were nascent entrepreneurs [3] and actively planning a new venture, while approximately 112,000 were new firm entrepreneurs [4] and had established a new business in the 42 months prior to the survey that is between the beginning of 2002 and the summer of 2005. [5]

• Almost one in ten of the adult population living in Ireland [6] is actively planning or has recently set up a new business.
• One in every seven men and one in every 20 women are early stage entrepreneurs.
• One in every two Irish adults perceives that there are good opportunities to establish a new business.
• One in every two Irish adults believes that they have the necessary skills to successfully run a new business.
• Over 2,600 individuals are involved in setting up new businesses every month
• Over 3,800 new firm entrepreneurs, who have set up approximately 2,600 new businesses, already employ more than 20 people. [7]

The first signs of an increase in early stage entrepreneurial activity were apparent in 2004 when GEM research first detected a considerable increase in the numbers of those who perceived that there were good opportunities in the environment for commercial exploitation.8 A further increase occurred in 2005 among the adult population which brought the prevalence rate of opportunity recognition to 52%. This latest increase points to the Irish population being one of the most perceptive in this regard across all countries participating in the GEM research.

The 27% increase in the level of early stage entrepreneurial activity in 2005 is due in the main to a very significant increase in the number of men active as early stage entrepreneurs in Ireland. Early stage male entrepreneurs among the adult population increased from 10.4% in 2004 to 14.2% in 2005. This was particularly notable among those planning new businesses. [9]

Ireland maintained its leading position within Europe in terms of early stage entrepreneurial activity in 2005 [10] and began to close the gap on the most entrepreneurial of the OECD countries, particularly with regard to the proportion of the adult population who have recently set up new business.

The perceptions of those involved in early stage entrepreneurial activity is reported for Ireland in relation to those factors which are believed to have an influence on participation in entrepreneurial activity. These relate in particular to their perception of opportunities within their environment, a belief in their own skills to be able to successfully start a new enterprise, their having recent entrepreneurs as role models within their personal network and a reduced reluctance to become involved in entrepreneurial activity through fear of failure. The rate at which these perceptions are prevalent among early stage entrepreneurs, compared with their prevalence among those not entrepreneurially active, is compared for the first time in this year’s report. The contrast is remarkable.

These characteristics are not evenly distributed among men and women in the adult population, however, and in all instances these characteristics are less prevalent among adult women in the population than they are among men. This fact goes some of the way to explaining the lower level of women’s involvement in early stage entrepreneurial activity.

In the 2004 GEM national report, a narrowing of the gender gap was noted for two reasons: there was an increase in the number of women involved in early stage entrepreneurial activity and a decrease in the number of men involved. While the increase in the number of women involved was most welcome, the decrease in the number of men involved was disappointing and was the cause of the overall decrease in the numbers of early stage entrepreneurs noted that year (8.1% in 2003 to 7.7% in 2004).

This trend has now been reversed and is primarily being driven by a greater involvement of men in early stage entrepreneurial activity mainly as nascent but also as new firm entrepreneurs. Hence the gender gap has opened up again: there are 2.6 times as many men involved in early stage entrepreneurial activity in Ireland as women. In the previous year, the figure was 2.1 times as many men.

The majority of new businesses are very small and expect to remain so. This is reflected in the fact that almost three out of every four new entrepreneurs expect on average to need about €10,000 to set up their new business. The financing requirements of the remaining group of entrepreneurs (26% of all early stage entrepreneurs) are much more substantial: they estimate that they will need 25 times that amount (€250,000).

In 2005, a slight downward trend has been detected in the proportion of early stage entrepreneurs with high growth aspirations(10%). In 2004 it was 11%. [11] Notwithstanding
this, the number of early stage entrepreneurs with high growth expectations is broadly similar in 2005. [12] This is as a result of an increase in the numbers involved in early stage entrepreneurship in 2005, despite a decline in the overall percentage of entrepreneurs with growth aspirations. This underlines the importance of maintaining a high level of new enterprises being started.

In the three years prior to the 2005 GEM adult population, 2.45% of adults in Ireland survey had personally provided funds for a new business started by someone else [13]. This level of informal investment activity is broadly in line with that detected in 2004 (2.28%). This means that the level of early stage entrepreneurial activity increased in 2005 without any real increase in the number of informal investors. This would signal a particular difficulty with access to finance for those setting up new businesses in 2005.

The average rate of informal investors among the adult populations across the EU and OECD participating countries is 3.08%. This raises a concern for Ireland, as the early stage entrepreneurial activity in Ireland is higher than the average across these countries, yet the
funds available from informal investors is less. A comparison across the more entrepreneurial
of the OECD members emphasises the low level of such investment in Ireland. [14]

To facilitate readers who wish to see the results at a glance, tables have been prepared with all the relevant headline figures for Ireland and for each of the participating EU and OECD countries. [15] These tables appear at the end of each section summarising the relevant headline results, appropriate to sections 1-5 inclusive.

Early stage entrepreneurship is primarily concerned with individuals and their individual decisions to set up new businesses. Those decisions are influenced by both the personal context of the individuals concerned and the broader political, economic and social environment in which they live and work.

There is little doubt that the general strength of the economy in recent years has provided many opportunities for new enterprises. This increase in early stage entrepreneurial activity reflected continued growth in the economy, buoyancy in consumer spending, and record employment growth.

Demographic factors such as the increase in the population, increased inward migration and the relative youth of the population have all played a part in providing a context in which entrepreneurial activity has thrived.

Another significant contributor is Irish culture and social norms. These are very positively disposed towards entrepreneurs, their new ventures and entrepreneurship in general.

Difficulties for entrepreneurs in raising sufficient finance to meet their financial requirements were highlighted as weaknesses in the environment for entrepreneurs once again by the experts and entrepreneurs consulted as key informants in 2005. Issues around government policy, in particular the burden of compliance costs and local authority charges on new companies were also raised during the consultation process.

Entrepreneurs and experts consulted from locations outside the Dublin/mid East environs, mentioned deficiencies in the telecommunications infrastructure, the additional time and cost involved in travelling to meet customers, and the difficulties in finding a suitably skilled and experienced pool of labour. The point was frequently made, in particular by entrepreneurs who had set up knowledge based businesses, that there were excellent graduates coming from the nearby Institutes of Technology, but that the requirements of a small and young company is for personnel with experience, as the company cannot afford the time needed to bring a new graduate up the learning curve.

One of the unique features of GEM is the facility which it provides to compare countries with each other across a range of variables pertinent to entrepreneurship. This is made possible as the research is carried out in exactly the same way in each country and is coordinated by the Global Entrepreneurship Research Association (GERA), based in London Business School.

For the first time in this year’s national report, short profiles of six countries are featured and their headline results from their GEM adult population surveys are compared with those of Ireland. The countries profiled in this way are Australia, Canada, Finland, Singapore, the United Kingdom and the United States. These profiles have been written by GEM team members in each country to a common template and their cooperation is gratefully acknowledged.

The Irish GEM team consulted over 70 leading experts and entrepreneurs during 2005 to obtain their views on the relative strengths and weakness of the Irish entrepreneurial environment. These key informants were also invited to suggest ways in which entrepreneurship in Ireland could be further developed. In all they made 158 suggestions. The majority of these related to government policy (58), aspects of the education and training sector in relation to entrepreneurial development (37) and Government programmes (25). Their views are reproduced in full in Section 8.

Across the countries of the OECD, a high level of early stage entrepreneurial activity is much sought after by policy makers generally, as it is recognised that from this pool of new businesses greater competitiveness, innovation and growth should flow. Accordingly, this improvement in Ireland’s level of early stage entrepreneurial activity is to be welcomed. It is to be hoped that further improvements may take place in order to close the gap between Ireland and the most entrepreneurial of the OECD countries.

With this end in mind, on the basis of the GEM research and consultations in 2005, it is recommended that the following initiatives be taken to achieve the strategic imperative of creating a fully dynamic entrepreneurial environment:

• A national strategy and coordinated policy for entrepreneurship should be developed, which is focused on maintaining a high level of early stage entrepreneurial activity and on maximizing the number of innovative new enterprises that are created which are capable of high growth.
• Specific focus should be given to increasing the number of women involved in early stage entrepreneurial activity.
• The education sector should be harnessed in a systematic way across all levels and across all disciplines to increase entrepreneurial mindsets and to enhance the capacity of those who decide to become entrepreneurs.
• A greater coordination of capability building for entrepreneurs relevant to their needs and stage of development is needed and any gaps in the training available should be bridged.
• Measures should be taken to improve access and availability of finance for early stage entrepreneurs, particularly for those who require larger amounts of start up capital, by focusing on means of encouraging more informal/angel investment.
• Given the limitations of the Irish market, a wide range of early stage entrepreneurs should be assisted in the identification of customers overseas and in accessing export markets.
• New initiatives should be taken, where necessary, to further assist in the commercialisation of research out of the third level colleges.

Some examples of those who recently set up new businesses in Ireland are featured on the cover of this year’s report and are profiled in Appendix 1. 

Notes

[3] The active planning phase in which the entrepreneur has done something during the previous twelve months to help start a new business, a new business that he or she will at least part own. Activities such as organising the start-up team, looking for equipment, saving money for the start-up, or writing a business plan would all be considered as active commitments to starting a business. These entrepreneurs are referred to as nascent entrepreneurs.

[4] The second phase is the first 42 months after the new venture begins to trade. Entrepreneurs who at least part own and manage a new business that is between 4 and 42 months old and have not paid salaries for longer than this period are referred to as new firm entrepreneurs.

[5] The adult population survey was conducted in June 2005 by Lansdowne Market Research Ltd.

[6] Aged between 18 and 64 inclusive.

[7] Based on the information obtained in the 2003 GEM survey, it is apparent that 54% of early stage entrepreneurs are sole founders of their new enterprise, while of the remaining 46%, 24% have two co-founders and a further 21% have three, four or five owners. Only in just 1% of cases had the new businesses got six or more co-founders. The 2003 Irish report may be downloaded fromwww.gemconsortium.org

[8] The prevalence rate of opportunity recognition increased from 33% in 2003 to 45% in 2004.

[9] Male nascent entrepreneurs increased among the adult population in Ireland to 8.4% in 2005 from 5.4% in 2004.

[10] EU average 5.35% (16 countries).

[11]To facilitate a comparison with other participating countries, the 2004 figure has been recalculated to strip out any double counting of nascent and new firm entrepreneurs. This recalculated figure is slightly lower than the figure reported in the GEM 2004 Irish report.

[12] Approximately 25,000.

[13] Excluding any purchase of stocks or mutual shares.

[14] The 2003 GEM report for Ireland highlights the importance of immediate family, work colleagues, other family/relatives, friends/neighbours and employers in providing finance for Irish nascent entrepreneurs. This report is available for downloading from www.gemconsortium.org

[15] European and OECD countries that participated in the GEM 2005 research were Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Latvia, Mexico, New Zealand, Netherlands, Norway, Slovenia, Spain, Sweden, Switzerland, United Kingdom and the United States. The other countries that participated in the research in 2005 were Argentina, Brazil, Chile, China, Croatia, Jamaica, Jordan, Puerto Rico, South Africa, Thailand and Venezuela.