Starting your own business can be a difficult decision to make. You have to balance both the positive and negative outcomes of being your own boss. More freedom to steer your business in the direction you want comes at a cost: you are the sole responsible for the business going underwater.
If you still have an awesome idea that you think will rock the boat and make you a successful entrepreneur, then this article might help you understand what will you be facing if you decide to start your own company.
What is the economic situation in Europe right now? Economic growth is a relatively good predictor of the economic health of a country. If you want to start a business you can take into consideration the projection for the countries in which you reside. Briefly, Central and Western Europe have failed to deliver outstanding growth rates, but the relative easiness of doing business in these countries compensate for the sluggishness of the market dynamics.
Eastern Europe has impressively accelerated the economic endeavours to close the gap with the West and performed very well, with Romania and Poland as regional growth champions, both having more than 3 % annual GDP increase.
Besides the economic situation of the countries, you should take into consideration the entrepreneurial performance of an economic ecosystem. It is well known that there is an imbalance between corporations and SMEs in terms of contribution to wealth creation. In a few words, over 90 % of companies in EU are SMEs, however, they account for less than half of the production output.
First, you have to take into consideration the survival rates of small enterprises in your country. Those rates are the rate of companies that survived through a period of 3 or 5 years since their founding moment. In EU, survival rates had a steady decline. This is not surprising, taking into consideration that we can still feel the reverberations of the late 2008 financial crisis.
The highest survival rate of young companies is registered in Romania, Sweden, and Luxembourg (60.66 %, 56.75 %, and 54.04 %), and the lowest in Lithuania, Latvia, and Hungary ( 30.89 %, 35.4 %, and 37.12 %). This means that in the first group of countries, almost 2 in 3 young companies survive the 5 years threshold, while in the low performing countries group, 2 in 3 young companies go out of business before reaching 5 years of operation.
A notice should be taken when interpreting these numbers. While it is better to start your business in a country with a higher rate of success, those rates differ greatly according to the industry in which the companies operate. For example, real estate start-ups are more prone to failure than SMEs that operate in the ICT industry (58 % of the first group failing after 4 years, with only 37 % of the ICT group going underwater after the same period of time).
Second, surviving shouldn’t be the only measure of success for your start-up. While reaching the 5-year threshold is an achievement that just a fraction of the start-up can brag about, turnover growth is also important because it signals that your company is scaling up. The statistics paint an even grimmer picture of young companies.
Gazelles are young companies that sustain growth rates higher than 10%. How many gazelles are out there? Way too few! Latvia, Estonia, and Hungary have the highest percentage of gazelles in their start-up ecosystems (all scoring a bit more than 4.5 %), while Slovakia, Romania and Norway have less than 1%.
Nonetheless, everybody (or at least many of you) dreams of having a successful start-up, just a limited number of companies manage to reach the podium. This shouldn’t come as discouragement. You should go ahead with your plans, you never know if your idea is the next Facebook! While keeping your optimism, those statistics should offer you some threshold that will determine you to find ways to overcome the odds.