A ‘No Exit’ Economy

Many define entrepreneurs as those who can persuade others to invest in their ideas. Others argue that entrepreneurs take the risk of investing in their own ideas, at least at first. In both, entrepreneurs are supposed to have one objective of making it work, keeping failure completely out of the picture. So just like many other terms, any definition can be true as long as it targets that main objective. We can perhaps also agree on the importance of entrepreneurship as a way of thinking and on how vital entrepreneurs are in their contribution to any economy. It’s actually an entrepreneurial culture that enabled us to see many of the nowadays extremely popular social networking websites, a scenario that can be replicated whenever a niche need is found hence addressed. In Canada, for example; an entrepreneur established a company that specialized in the maintenance of all local ice rinks, making millions of Canadian Dollars in annual revenues. Since it was a very niche market, big corporations found it too expensive to compete.

A few months back, I read an article that discussed why entrepreneurs succeed in their ventures. An interesting argument was that successful entrepreneurs do not have an exit strategy. Ideally, entrepreneurs do not have huge cash amounts to invest, though lifetime savings can be a kick starter. And if they do not have an exit strategy in their presented business plan, financial institutions would not lend them the money as they are not willing to take the risk. What a trade off right? The challenge, as well as the solution, is by getting angel investors or venture capitalists to invest in ideas rather than finance them. The difference here is that the latter would take the risk with you, only if you believed in the idea well enough to make them believe in it, and they consequently invest for a stake in the business equity. The other way around, banks and financial institutions, regardless of your persuasion skills; are solely interested in getting their principal back once they have made their profits through interest charged.

It is now argued that Europe needs a generation of entrepreneurs to revive its economy. The point here is about establishing a series of successful small businesses that has the potential to grow, not only in monetary terms; but in the good they do to the economy by creating jobs that would boost the sluggish growth in a consumer economy. If this was promoted in a culture of supportive visionaries; economies should flourish in a few years and stabilize for years to come. Home businesses that have been on an upward trend recently, are not part of the above mentioned series. Despite the creativity in many, ideas are copied and applied elsewhere due to the ease of establishing such businesses. And because the business isn’t big enough anyways, it would now have an even lower probability of survival and success. As home businesses fail; scarce resources are being wasted for the sake of generating temporary cash flows, unless these ideas are taken to a different level. In extreme cases, that would be an example of unhealthy competitive market.

If you keep up with the news; you will notice an increased interest in financing SMEs rather than big corporations. Banks have created new funding programs while other financial institutions specialized in lending money to those with good business plans, not necessarily unique ideas as long as they pay the borrowed money back. Unlike venture capitalists, they got no stake in the business and its failure is fine as long as it occurs after all bills are paid. So if funding is what you seek; keep the exit strategy and make sure it meets their ‘risk tolerance’ requirement.  Finally, the importance of entrepreneurial ventures is in understanding that they require very little to start up, a thought quite handy in times of crisis to boost any economy. Once that is understood and is promoted through sincere investments, we will hopefully have an economy of entrepreneurs with many SMEs -initially- that can reach out to and serve many niche markets. A final thought to remember is that despite all world definitions; entrepreneurs are only recognized, not defined.