Young entrepreneurial Australians wanting to start new businesses are falling behind their US counterparts and continue to struggle to access funding, according to the Foundation of Young Australians.
In its post-draft submission to the Productivity Commission’s inquiry into the barriers of starting and closing businesses in Australia earlier this month, the Foundation for Young Australians (FYA) said while Australia might be among the top nations globally when it comes to fostering entrepreneurship, young entrepreneurs aged between 18 and 24 were lagging behind.
The submission also follows recent reports that access to finance remains a significant barrier for many small businesses in Australia, with many resorting to using credit cards and relying on loans from family and friends.
Citing new 2014 Global Entrepreneurship Monitor data for Australia, the FYA told the commission the peak age for early-stage entrepreneurial activity in Australia is occurring among 25-34 year olds, which is consistent with other countries around the world.
However, in the earlier cohort of 18 to 24 year olds, only 8.7% of young Australians are starting new businesses, compared to the average rate of 13.1% across all age groups.
This group was also found to be the age group most lagging behind the US when it comes to the percentage of those engaged in entrepreneurship.
“This data reveals a gap in the PC’s Draft Report, which includes no analysis of young entrepreneurs despite their current and future potential as a driver of jobs growth, self-employment and innovation,” the foundation said.
According to the FYA submission, common challenges and barriers faced by young Australian entrepreneurs include access to finance, human resources and people management, and knowledge and education about legal and regulatory structures.
The foundation, which also conducted its own survey of young entrepreneurs in its Young Social Pioneers accelerator program, found more than three quarters of young entrepreneurs experienced difficulties accessing finance, 40% lacked knowledge about legal structures and regulations and two-thirds were using personal savings to keep their business afloat.
“Access to finance is a major barrier for young people in starting or growing a business,” the foundation said.
“For young entrepreneurs without significant asset holdings (including housing), obtaining commercial loans is difficult.”
The FYA argues to boost the level of entrepreneurship in young Australians, education and accessible investment options are needed.
“Australia is one of the only advanced economies without dedicated youth entrepreneurship initiatives, supported wholly or partly by government. Countries like the United States, Canada and Germany all have initiatives to back youth entrepreneurship,” the FYA said.
“Just as young people need to be equipped to be innovative, creative and enterprising, education models need to adapt too. If young people do not learn about running a business at school or do not have a family history of self-employment, they are less likely to see this as a career option.”
The FYA recommends education about entrepreneurship would ideally start at the beginning of secondary school.
Professor of Family Business Entrepreneurship at RMIT, Kosmas Smyrnios, told SmartCompany there were a few points to take away from the submission’s findings.
“One point is that entrepreneurship courses should be included in all degree programs,” he says.
“The second point is that in universities, academics ought to be focusing more on helping students start up businesses.”
He says a third “very significant” point, was to do with the importance of social business and using models which had been applied to social business, in particular to do with microfinance.
Josh Lefers, co-founder of Big Dog Creative and Big Dog Entertainment, told SmartCompany he agrees starting out as a young entrepreneur in Australia can be tough, but he says the difficulties are par for the course.
“In many ways I would refute that idea,” the young entrepreneur says.
“If you’re truly an entrepreneur it’s your job (to find money)… having an idea and following through and finding a way to execute it.”
“From 18 to 24, resources are tough… even if your idea is great you might not be able (to convince people).”
“Getting finance, if you don’t have money, seems to be quite difficult if you go through the normal channels, like banks. I personally find banks and other official institutions are useless.”
But Lefers says once a young entrepreneur or business owner earns a reputation, things become a bit easier.
“There are not many official channels to tap into, like government funding,” he says.
“People who are good at the process of applying for funding are more likely to be ones who have done it and failed in the past.”
Lefers, who is also making a name for himself in the US, says it was important to remember there are other factors which could be playing a part in research showing young Australian entrepreneurs are lagging behind their US counterparts.
He says an “inherent problem” is that Australia doesn’t have the largest population or the largest concentration of wealthy people.
“There’s not a lot of wealth in Australia, and not a lot of people in Australia,” he says.
“Even if the idea is great, there’s not necessarily the population in Australia to support it.”