Youth and entrepreneurship: drivers of economic growth

BY FOSTERS KALAILE

In the face of Malawi’s battle with high unemployment rates, regular calls have been for young people to start their own businesses.

However, instead of joining the chorus, Business Partners International strikes a more cautionary note. It is good to link the two—youth and entrepreneurship—but we have to be careful.

Business Partners’ lending patterns reflect this circumspection.

By way of statistics, only eight percent of the risk financiers’ loan book is lent to entrepreneurs younger than 35. In contrast, the 36 to 45 age bracket get 26 percent whereas those between 46 and 55 account for 35 percent and at least 31 percent to business owners older than 55.

Business Partners’ lending patterns reflect fundamental truths about entrepreneurship across the world.

The Global Entrepreneurship Monitor—the oldest and biggest comparative study of entrepreneurship globally—shows that worldwide, the youth tend to be cautious about starting businesses. Of course many do take the risk, but they are the exceptions rather than the rule. Globally, most entrepreneurs start their businesses in their middle years and older.

Research further shows that this is not necessarily an aberration that needs to be fixed. A recent study of 5 000 businesses in the United States of America (USA) suggests that the age of the entrepreneur was the strongest factor in determining whether a business survived the 2008 financial crisis. The older, the better the survival rate. Age was measured as more important even than skills levels and start-up experience.

Why then this hype around youth and entrepreneurship?

To a large extent, the idea is driven by glamorous role models such as  Microsoft, Google, Twitter and Facebook all started by entrepreneurs younger than 35.

There is a real underlying factor that adds urgency to the exhortation that young people start businesses. Malawi’s youth unemployment stands at very high levels.

Out of sheer desperation, everyone from community leaders to teachers is urging Malawian youngsters to start businesses if they cannot find a job. It is an important way to safeguard against abject poverty, but it is by no means the cure-all for Malawi’s developmental problems that so many hold up.

There are sound reasons why not. In essence, the disadvantages of starting a business in your youth tend to outweigh the advantages. To start a business successfully and ensure its survival in the very difficult first years, it helps enormously to be well capitalised. Older people tend to have accumulated at least some savings, and at least an asset or two, such as a house, against which they can borrow.

It also helps to have deep industry knowledge, the kind which you pick up after 10 or 15 years of working in a sector. General knowledge and business skills also mean the difference between survival and business failure.

Entrepreneurs should be able to navigate the labour-relations system, the tax system, the banking system, the legal system, and they have to build their own administration systems, management systems and production systems. It is almost essential to have a few years’ experience even as a low-level manager somewhere.

Older entrepreneurs tend to have more substantial networks that can be tapped for anything from advice to finance and sales. Sure, the young Facebook generation has vast networks, but they are not nearly as well resourced as the network of a middle-aged, middle-manager.

These factors are so important that the first piece of advice to a fiery young person who wants to start a business is to consider carefully whether they should not study a bit further or get some more relevant work experience somewhere.

If they are adamant that the business cannot wait, every effort should be made to mitigate the disadvantages of starting up when you are young. Get an older mentor or business partner, approach angel financiers rather than traditional lenders. Also, remain very aware of the grim reality of youth entrepreneurship—learn fast or fail.

If anything, the eight percent of Business Partners’ loan book extended to the youth is an indication of the substantial risk that the organisation is willing to take to support deserving young entrepreneurs.

The realities of starting a business may be viciously unforgiving towards young entrepreneurs, but it is worth remembering that there are advantages of being young also: energy, exuberance, a freshness of perspective and freedom without dependents. And if you fail—statistics say you probably will—you have a bit more time to count and recoup your losses with your next venture. 

*Fosters Kalaile is country manager for Business Partners International in Malawi, an international lending institution that empowers entrepreneurs with funding from the IFC, African Development Bank, Stichting Doen, FMO and Proparco.