10 myths about entrepreneurship
Scott Shane is a professor, author of entrepreneurship courses at Case Western Reserve University and author of several books, the latest of which is "Illusions of Entrepreneurship: Myths that Entrepreneurs, Investors and Politicians Live by" (The Illusions of Entrepreneurship: The Costly Myths That Entrepreneurs, Investors, and Policy Makers Live By). Many of those who want to start their own business believe in a whole bunch of myths about business, and Scott, without staying away, destroys the most common of them.
1. To start a business, you need a lot of money.Not true. An average startup needs about 25 thousand dollars to get started. Those who do not believe in this myth plan their business, trying to minimize costs. They don't pay for things, but borrow them. They don't buy, they rent. They turn fixed costs into variables, for example, by paying employees piecework instead of assigning a monthly salary.
2. Venture capitalists are a great option for finding money. Only if you are not creating a computer or biotech company. Computer hardware and software, semiconductors, communications and biotechnologies take 81 percent of all venture capital money. Companies from these areas account for 72 percent of all those who have received investments over the past three years. Every year, venture capitalists finance about 3,000 companies, and only a quarter of them are in the start-up or seed stage. In reality, the project has a chance of receiving funding – one in 4,000. Even the probability of dying by falling in the shower is even higher.
3. Almost all business angels are rich. If being rich means having a net worth of a million dollars or having an annual income of 200-300 thousand, then this is not true. In fact, about a third of all private investors have an annual family budget of less than $40,000, and 17 percent have negative incomes.
4. A startup cannot be financed through cash loans. Borrowing money is even more traditional than attracting venture capital. According to statistics, 53 percent of funded young companies use borrowed capital, and only 47 – non-borrowed.
5. Banks do not issue loans for startups. Another myth. As statistics again show (for the United States – Techhh!), 16 percent of all young companies ever financed receive loans. It may not be much, but at least it's three percent more than the next most popular source – trade lenders. And five percent more than all the others combined: family members, friends, business angels, venture capitalists, strategic investors and government agencies.
6. Most entrepreneurs start their business in attractive areas. Unfortunately, just the opposite statement is true. Most choose the most unfavorable industries for a startup. The ratio of the number of projects launched in a certain area to the number of failures is 0.77. Most go to those areas of business where the chance of failure is very high.
7. The successful development of a startup depends more on the entrepreneur's talent than on the field he chooses. I don't want to undermine someone's self-esteem, but the scope of the project has a huge impact on the success of the entire undertaking. Over the past 20 years, 4.2 percent of all information technology startups have been included in the list of the 500 fastest growing companies in America. 0.007 percent in the food sector and 0.005 percent in the hotel sector. This means that if you start an IT business, the probability of success is higher – more than 800 times. And no one has yet been able to prove that the talent of the founders can also greatly influence the success of a startup.
8. Most entrepreneurs do not have problems with personal finances. Unfortunately, another myth. The average income of a private enterprise is about 39 thousand dollars a year. Only a tenth of all business founders earn more than hired employees. And the average entrepreneur earns less in his startup than he could earn by becoming an employee in any company.
9. Many startups achieve the planned sales volumes that investors expect from them. Nothing like that. Of the 590,000 projects launched in the United States annually, over the past 6 years, only 200 have sold more than $ 100 million and met the expectations of investors. 500 companies achieved sales of $50 million. And only 9500 were able to reach the sales level of $5 million after some time.
10. Starting a business is easy. This is not true: most people starting a business cannot make it work and develop. Only a third of entrepreneurs, seven years after the start, have at their disposal a company that generates income that covers all its expenses.
Portal "Eternal youth" www.vechnayamolodost.ru22.02.2008