Startups: A Contrast
A look at new businesses in two countries, based on a survey by Mind the Bridge
It is generally very difficult to find current data on newly formed companies and their founders. Most official statistics refer to traditional businesses or are generally outdated by the time they are released, which makes it difficult for policymakers and other institutional players to have a better understanding of this phenomenon and address the needs of early-stage business owners.
Startups are nevertheless a reliable barometer of a country’s economic health, especially in the aftermath of the financial crisis and Great Recession of 2008 and 2009, which have left a lasting mark on global economies.
In an effort to learn more about the challenges facing today’s entrepreneurs, the Ewing Marion Kauffman Foundation – often referred to as the world’s largest foundation devoted to entrepreneurship – surveyed 1,431 business owners who formed their companies in 2012 through LegalZoom, a leading provider of personalized, affordable online legal solutions for families and small business.
The statistics collected are mostly consistent with the results of the 2012 survey conducted on a sample of 348 Italian startups by Mind the Bridge – a non-profit foundation created by former Google manager Marco Marinucci – and the Research Centre for Innovation and Life Sciences Management (CRESIT) of Insubria University, Varese (Italy). A comparative study was presented by Prof. Alberto Onetti, Chairman of Mind the Bridge, on March 12, 2013, in Mountain View on the occasion of the Italian Innovation Day.
Before starting to analyze the statistics of both countries, it is necessary to clarify what we mean by “startup”. As pointed out in the survey conducted by Mind the Bridge, the term specifically refers to “companies recently founded or entrepreneurial projects operating in innovative sectors, with solid plans for growth, and requiring capital injections in the early stages.”
The following figures interestingly show some common trends as well as significant differences between the U.S. and Italian startup ecosystems.
Age
The majority of individuals who start companies in the United States are in their thirties and forties.
More than half of those in Italy (56%) are instead between 26 and 35 years old, with an average age of 33.
Gender
About one-third of startup owners in the United States are women. The malefemale ratio is however more skewed toward males among companies reporting higher revenues.
Female entrepreneurship in Italy is surprisingly limited, accounting for only 11% of the total. However, in both countries, female business owners have higher education levels than men.
Education
Education is one of the most relevant factors associated with the propensity to start a company. Bachelor’s degree is the highest qualification for 62% of American and 53% of Italian new entrepreneurs. Among the American respondents, 17% also have a master’s degree, and 8% a doctorate.
These percentages are higher in the Italian sample, with 42% having a master’s degree and 11% a Ph.D. or MBA. Studying abroad (especially in the United States, United Kingdom, Spain, France and Switzerland) is also a frequent trait in the Italian startuppers’ profile (13% of the sample).
Prior Experience
The majority of entrepreneurs (57% in the U.S. vs. 80% in Italy) report having at least half a dozen years of prior industry or work experience before starting their present business. “Serial entrepreneurs” – that is, those who had previously started a company – are 44% in the U.S. and 23% in Italy, confirming that the role of an entrepreneur requires a high level of knowledge and field experience.
Incubation period
More than one-third of U.S. respondents reported spending over a year, and in some cases more than three years, working on their business ideas prior to forming a legal entity. In fact, only 9% spent less than a month on the idea before legally forming their businesses.
Also due to the difficulty in collecting the capital needed for the implementation of the business idea, the majority of Italian startups (59%) are entrepreneurial projects (“wannabe startups”), which are not “structured” nor built as a legal entity yet.
Business Activity
In the United States, consulting (11.6%) is the most common business activity, followed by service-based activities (6.6%), technology (5.5%), real estate (5.4%), business services (5.2%), retail (5.1%), construction (3.9%), home services (3.3%), entertainment (3.2%), and sales (3.0%).
Most of the businesses in Italy focus on the Web (49.1%) and ICT (21.8%) sectors; only 4.8% deals with consumer products and around 3.6% with electronics and machinery. A minor role is played by clean technologies (1.2%) and biotech industry (0.6%), probably because these sectors require a larger volume of investments compared to Web-based businesses. The remaining 19% operates in other sectors, mainly services.
Funding
The great majority (80%) of early-stage business owners in the United States used their own money to start their companies. Only 20% received funds from outside investors, family members, or resorted to bank or home equity loans.
Italian startups base their early development on resources collected through external financing. The most widespread instrument to raise funds is the so-called “bootstrapping” (58%), also known as the 3F-model: “family, friends and fools”; 8% had access to grants, 34% received funds from outside investors.
Employees
In the United States, 70% of the businesses report no employees other than the owner, while one-quarter (26%) have between 1 and 4 employees.
In Italy, startups are not a “one man band”, but are built around a group of 2 to 3 founders or shareholders, of age ranging between 26 and 35 years, and employ an average from 4 to 5 employees.
Challenges and Barriers
Forty percent of the Kauffman survey’s respondents said they did not face general business difficulties. Of those who selected one, 55% cited the “unpredictability of overall business conditions” as a major difficulty, while 45% cited lack of access to credit. When they were asked about policy barriers, respondents cited a range of issues, such as high taxes, tax complexity and licensing regulations.
Bureaucratic difficulties and continued economic uncertainties are also among the greatest challenges for Italian startuppers, whose major difficulty is the access to capital (69%). Money is not the only problem in the early-stage startup creation. More than 50% of respondents are also seeking for strategic partners who can help them develop their business idea.
Capital and skills, along with a more “startup-friendly” cultural and regulatory environment, therefore emerge as the most vital component of entrepreneurial success.
[Data source: Kauffman Foundation and LegalZoom Startup Index 2012 & Mind the Bridge Survey 2012]
Laura Giacalone is the Associate Editor for the Italian Journal.