1 Office of the Chief Economist Nascent Entrepreneurship: International Research Programs and Preliminary Results for Australian Regions Paul D. Reynolds* Paul R. Steffens & Per Davidsson 23 March 2016 Australian Center for Entrepreneurship Research Queensland University of Technology ; ;

2  Major source of new jobs - But lots of churning  Major source of innovation and adaptation - But not the only source  Contributes to improved sector productivity - Replace inefficient and outdated firms - Social costs associated with transitions  Major work career opportunity - Globally 300 million working on 200 million pre-profit start-ups Why care about new firms?

3 Why are businesses created?  Factors suggested - Market characteristics - Macro-economic conditions - Regional attributes (culture) - National R&D intensity - Business opportunities - Financing - Entrepreneurial Climate - Supportive social networks - Speeches by politicians  But — no business creation until someone takes action to implement a business BASIS FOR RESEARCH PROGRAMS TO EXPLORE THE FIRM CREATION PROCESS AT THE MICRO LEVEL — COLLECT DATA ON THE PEOPLE DOING IT.

4 Social, Political, Economic, Historical Context Adult Population Business Population Nascent Entrepreneurs Nascent Intrapreneurs Start-Up Process Firm Birth Entry Disengage Survival Termination II: Business Creation III: Business operation I: Active Nascent

5 New Firm Birth Criteria  Industrial Organization - Any transaction on behalf of venture  Labor Input - Devoting work to implementing a new venture  Population Ecology/Administrative - New entry in a registry/public record  Business operation - Initial profits

6  Identify representative sample of adults  Ask about participation in business creation - Doing on their own - Doing for their employer - Currently managing a business  Ask additional questions to confirm - Active in past year – action, not just talk - Expect to own part of business - Venture not yet profitable  Identify - Nascent entrepreneurs in start-up process - Owner-managers of young firms (up to 3.5 years of profits) How to find those moving into firm creation?

7 Substantial Variation Across Countries in Business Creation (n=93, Averages) USA Australia New Zealand United Kingdom

8 Economic Development and Business Creation, 93 countries [r= -0.48] Australia

9 Economic Growth follows Business Creation, Lagged Correlation [n=75,r=0.44, equal weights] Australia

10 Is Australia unique?  Yes, sort of.. - Like other countries with an Anglo history - Canada - Ireland - New Zealand - United Kingdom - United States

11 TEA Rates, Australia, Cross-Year Harmonized File: 2000–2015

12 Proportion in Business Creation Phases, Australia 2010–2015

13 Australians, 18–64 Years Old Active in Business Start-ups, 2000–2015 [Population 18–64 Years Old from US Census International Data Base]

14 Australian Early Stage Ventures Initiated by 18–64 Yrs Olds, 2000–2015 [Population 18–64 Years Old from US Census International Data Base]

15 Business Sector of Early Stage Ventures, Australia 2000–2015

16 Proportion Active in Business Creation by Gender, Australia 2010–2015 WOMEN MEN

17 Proportion Active in Business Creation by Age, Australia 2010–2015

18 World Values Survey Clusters [First five surveys]

19 Secular-Rational vs Traditional Secular-Rational  Work no so important  Wife working ok  Children acceptable  Less respect for authority  Politically involved  =============================  US$ 18k/capita  Lower buss registration costs  Lower property rights costs  Lower contract enforcement costs  Higher fear of failure  More women in labor force  More post-primary education  More post-college education Traditional  Work very important  Husband should be breadwinner  Children important  Favors authority  Avoids politics  =============================  US$ 7k/capita  More income inequality  More population growth  More common law countries  More businesses/capita  More entrepreneurial ready  More men in labor force  More informal investors  More cultural support for entre

20 Self-Expressive vs Survival Self-expressive  Priority: Quality of life, Self-expression  HH finances satisfactory  Good Job: colleagues, accomplishments  Leisure important in life  ========================  US$ 21K/capita/year  More common law tradition  Lower contract enforcement costs  Physical property rights established  Intellectual property rights established  More women in labor force  More women post-primary education  More post-college adults Survival  Priority: Economic, physical security  HH finances unsatisfactory  Good job: security, good pay  Children should learn to work hard  =========================  US$ 7K/capita/year  More income inequality  More economic, population growth  More government spending as % GDP  More informal investors

21 8 MENA 2 AFRICAN 13 West EU 6 Anglo 2 L Amer 2 West EU 8 L Amer 10 C, E EU 4 Asia 2 Asia 2 Africa 2 Cent EU 1 MENA 6 L Amer 3 MENA 2 Africa 2 Asia 3 Cent EU, JP 5 Asia 4 Africa 3 West EU 2 L Amer 8 L Amer 5 Asia 4 Africa 3 West EU 2 L Amer 6 Anglo 2 L Amer 2 West EU 13 West EU 3 Cent EU, JP 6 L Amer 3 MENA 2 Africa 2 Asia 8 MENA 2 Africa 2 Asia 2 Africa 2 Cent EU 1 MENA 10 Cent, E EU 4 Asia AU

22 TEA Rates, Australian States, 2011–2015

23 Shift Focus to Tracking Start-up Process [Panel Studies of Entrepreneurial Dynamics, PSED] [Comprehensive Australian Study of Entrepreneurial Emergence, CAUSEE]  Share conceptual framework with GEM program  Initial Screening Identical  Major difference is in tracking nascent ventures to determine outcomes

24 Assessing Level, Outcome of Business Creation Global Entrepreneurship Monitor [GEM]Panel Study of Entrepreneurial Dynamics [PSED] Identify Representative Sample of All Adults in Country XX Identify those active in business creation XX Gather basic detailsX Obtain extensive detailsX 12 month follow-upX 24 month follow-upX 36 month follow-upX 48 month follow-upX 60 month follow-upX

25 Overview of Five PSED Studies in Four Countries PSED IPSED IICAUSEESE-PSEDCH-PSEDTotal Screening InitiatedJul 98Oct 05Apr 07Apr 98Jul 09 Screening CompletedJan 00Jan 06Apr 08Oct 98Aug 09 Screening sample62,61231,84530,10530,42720,998175,987 Nascents identified*1,4921,5871, ,024 Wave 1 interview8301, ,893 Wave 2 interview ,893 Wave 3 interview ,053 Wave 4 interview ,554 Wave 5 interview ,055 Wave 6 interview One + follow-ups6951, ,441 One + follow-ups, %83.7%91.4%83.8%93.7%53.4%88.4%

26 Start-up Process Transitions  Entry - Active in past 12 months, expect ownership, not yet in profit - Track two activities within 12 months, first activity date of entry - [based on 18, excluding serious thought]  Initial Profits - Monthly cash flow covers all monthly expenses and owner’s salary  Disengagement – Quit - No member of start-up team actively working on venture  Active in Start-up Process - No initial profits and not a quit

27 Outcome Status, All Cases (N=2,513 to 2,059), Venture Weights: FIVE COHORTS QUIT PROFITS Active Start-ups

28 Proportion Reporting Profits After Entry, 5 Cohorts, Venture Weights [0–72 months]

29 Proportion Reporting Quits After Entry, 5 Cohorts, Venture Weights [0–72 months]

30 Start-up Acts, Lag from Entry and Prevalence: All Start-ups WITH 72 Mth Follow-up data, Venture Weights (n=2,051)

31 Start-up Process in Australia  CAUSEE DATA  RECENT ASSESSMENT

32 Outcome Status, Australia, 2005 CAUSEE (n=439) QUIT PROFIT ACTIVE START-UP

33 Remoteness

34 TEA Rates, Australian Region Types, 2011–2015

35 Start-up Outcomes 72 Months After Entry by AU Region Type, Venture Weights [n=366]

36 Proportion Reporting Initial Profits by Time Since Entry by AU Region Type, Venture Weights [0–72 months]

37 Proportion Reporting Quit by Time Since Entry by AU Region Type, Venture Weights [0–72 months]

38 Proportion Still Active Start-ups by Time Since Entry by AU Region Type, Venture Weights [0–72 months]

39 Time to Outcomes by AU Region Type

40 Start-Up Acts, Lag from Entry and Prevalence: Australia Start-ups, New Venture Weights [n=439]

41 Policy Implications  Participation in Business Creation Stable - Small changes year to year  Takes 3–4 years for a new cohort of pre-profit ventures to become profitable operations  Administrative registries capture small part of the activity, at different stages of the process  Substantial funds and time invested in start-up efforts that never reach profitability— or are never registered.  Education, training, workshops in business creation - May encourage more to make an effort - May reduce the costs associated with an outcome - Increases confidence that firm creation is a legitimate career

42 References Steffens, Paul R. & Diana Hechavarria (2015) Global Entrepreneurship Monitor: GEM Australia – 2014 National Report. Brisbane, Australia. Queensland University of Technology, Australian Centre for Entrepreneurship Research, Briefing Paper 009. Reynolds, Paul Davidson Business Creation Stability: Why is it so Hard to Increase Entrepreneurship? Foundations and Trends in Entrepreneurship. 10(5-6): Reynolds, Paul D. and Diane Hechavarria. Consolidated Global Entrepreneurship Monitor [GEM] Adult Population Survey Data Set: ICPSR Study Reynolds, Paul D., Diana Hechavarria, Li Tian, Mikael Samuelsson, and Per Davidsson. (2016) Panel Study of Entrepreneurial Dynamics: A five Cohort Outcomes Harmonized Data Set. Research Gate: DOI: /RG