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Aspiring Entrepreneurs Scared of Borrowing

There is a big gap between the intention to start a business and actually doing it. According to Anna Lipatova, Junior Research Fellow of the HSE's International Laboratory for Socio-Cultural Research, less than one third of those who think of becoming entrepreneurs or starting another business bring their ideas to life

Starting your own business is a classic example of planned and deliberate action, but how many aspiring entrepreneurs translate intention into practical steps, such as taking a bank loan or renting a space for business? In 2012 and 2013, the HSE's Laboratory for Socio-Cultural Research launched a two-stage panel study in two federal districts – Central and North Caucasus – to find out the percentage of aspiring entrepreneurs who have implemented their ideas and to identify factors which may help or hinder business startups.

Lipatova reports that more than two thousand respondents aged 36.5 on average were interviewed about their entrepreneurial intentions in the summer of 2012, and then again in the spring of 2013. They were asked the same question plus a few more about the type of start-up and perceived reasons for its success or failure. To explore the respondents' intention, the study used a specially designed questionnaire based on the theory of planned behaviour.

Entrepreneurial Intention Not Sustainable

Most people planning a business start-up fail to bring their plans to life, the study found. In 2012, 269 respondents in the sample reported an intention to start a business, 164 of them were interviewed again in 2013, and only 29 already had a business by that time. Some 77% did not. "We found minimal association between stated intention and action," notes Lipatova.

Entrepreneurial intention, the study suggests, is highly unsustainable. One third of the respondents who answered 'maybe' in 2012 when asked "Do you intend to start your own business in the next two years?" said the same in 2013, but 37% of the respondents who had previously planned a start-up had given upby the second interview, while the percentage of respondents without entrepreneurial intention remained stable at 75%.

Bureaucracy Kills Startups

In the second round of interviews, respondents were asked additional questions about problems encountered when starting a business and the reasons why their attempted startup failed or why they never made an attempt in the first place.

Most successful startups did not report any significant problems with starting a business, and some reported no problems at the beginning, but certain challenges at a later stage.

The problems mentioned most often concerned red tape, – too much paperwork and lengthy administrative procedures. According to Lipatova, other reported problems included finance (lack of access to loans or investment), excessive taxes, corrupt officials, not enough state support (in terms of policy and finance), high rent, and difficulty finding a place.

Aspiring entrepreneurs also admitted their own lack of skills, difficulty finding their business niche, problems with contractors, and shortages of skilled staff.

Focus on Commerce and Services

Commerce, services – from taxi to funeral homes – and construction companies prevail among new businesses, and the two former types seem to face most problems, the study suggests, even though no clear patterns have been established.

A lack of finance was the most frequently mentioned reason for failure; the majority of respondents said they failed to raise enough money. Many respondents were scared of borrowing or risking their own savings, which, Lipatova reasons, may be explained by local and global economic uncertainty.

While the lack of seed money is a major obstacle to business startups, the study reveals that personality factors may be even more important: quite a few respondents admitted that they were happy with their current situation or had given up the idea of starting a business, or that they were just too lazy to do it.

 

Author: Marina Selina, May 20, 2014