Tracks to entrepreneurship

Disavantages of Business Angels

I was surfing on the Internet when I found an interesting article about the Business Angel. I know I have already written a lot about it, but this time there was an exchange about the disadvantages of BA.

 Serge Camguilhem, who works as consultant in business, argues that a BA in some situations overreacts compared to his financial investment, so it leads to tension with the entrepreneur who wants to keep his decision power. Thierry Tillier adds that the entrepreneur has to watch that the BA has a relative low part of the company compared to the entrepreneur’s one. Where Business Angels are proud to be described as someone who is relatively flexible in his conditions to give money, a person, called Damien, warns that he has already experienced a project with a BA who was as exigent as a Venture Capitalist, and this could lead to lack of motivation for entrepreneur.

On the opposite side, Patrick Hannedouche and Cédric Labeau dispute this idea and support the fact that some startups are also guilty because they don’t come to meetings or they ask for 150.000€ without business plan.

I find this discussion very interesting and it’s good for an entrepreneur to have these different points of views in order to make the good choice in his collaboration with Business Angels.

(By Loïc)

Entrepreneurs, here is the recipe of success!

Key points and facts around SMEs life and death

SMEs created in Europe since less than two years are facing difficulties to ensure their future. The first major challenge is to find customers, the second one is the access to finance, the third one is the competition. We will rather focus on the second point in this part, as we aim to focus on capital access questions.

The question of financing is one of the hottest points in the current trends, as it is evolving incredibly fast over time. For instance, 14% of EU SMEs used only internal financing in 2009 vs. 4% in 2011, whereas on the same period, companies using only external financing went up from 27% to 56% between 2009 and 2011. This evolution is obviously an average at the scale of the European Union. If we focus on France on Germany, we can also observe structural important differences in the use of financing sources:

Those discrepancies generate different results in the use of financing sources, as French and German Entrepreneurs use different strategies. In the end, the overall challenge remains however unchanged: after a given time, this resource becomes unreachable. This rarefication of money for young companies leads unfortunately many of them to bankruptcy. This one has, despite the different financing strategies, some common origins. 25% of companies’ failure is due to payment delays in France, 

All that results in fluctuations in the survival rates of SMEs in Europe. In France, the situation is slightly less tragic than commonly assumed. In average, two third of the companies founded in 2006 were still in business 3 years later in average for all the sectors of activity. It has then been observed that the correlation between the profile of the entrepreneur plus its initial investment and the chances of survival of the enterprise is actually significant. A company founded with an initial investment of at least 80 000 € are in average 2.1 more likely to reach the third birthday than the ones created with less than 2 000€[1].  The form of company also has an important role to play: sole entrepreneurs have fewer chances to succeed than multi-personal companies. Therefore, multi-personal companies have 3.2 more chances to pass the first year than sole-entrepreneurs, and 1,7 more to reach the third birthday[2].  Furthermore, if the entrepreneur is graduated, he potentially has no less than 22% more chances to reach the 3 years[3].

Read More

Conversation with an entrepreneur

Conversation with an entrepreneur

Last weekend I went to a party and guess who I met? An entrepreneur! I was excited since the topic “entrepreneurship” interests me a lot but I had actually never met an entrepreneur. The entrepreneur, who prefers to not be named in this article, told me a lot of interesting things about his work. Four years ago he had started his own business, which is an internet web page which offers vouchers. He told me, that he chose this business because he didn’t need anything except a computer and his own business and marketing skills. Nowadays he is even able to employ one full-time and three students! He told me, that having his own business and being able to actually offer an employment to other people makes him more happy than he has ever been before!

Furthermore we talked about other interesting startups. In his opinion, the most successful internet start-up he knows of is zalando!  However, most of the best ideas for internet startups come from the United States, he said. In his opinion there are still some ideas for internet startups left which could be profitable to be copied. However, this doesn’t always work, taken into account that the United States is a bigger market with more purchasing power than Germany.

Last but not least he praised the webpage www.seedmatch.de This is a webpage which offers entrepreneurs and venture capitalist to get in contact with each other. Seedmatch chooses the best startups and publishes their concept on the webpage. Venture capitalists can then look at the webpage and chose in which businesses they want to invest. The minimum prize for investing into a startup is 250€, which makes this concept interesting to many people. On the one hand entrepreneurs can raise money even for smaller projects. On the other hand, even ordinary people can invest into startups with a small amount of money, which makes it less risky for them. So if you have 250€ left why not try it out?!

All in all the conversation with the entrepreneur was very interesting for me and I’m looking forward to see him again on another party. Of course I will update you the next time I have news!

(Franziska)

Found a startup in France vs. in Germany

A few days ago, I found a very interesting table about founding a business in different countries. According to this table, it looks easier and cheaper to set up a business in France than in Germany. In fact, it is more expensive; takes more time and there are more administrative tasks in Germany than in the rest of Europe. I was quite surprised about figures concerning France and Germany. Therefore, I decided to investigate, and to have a look at what bloggers think about it.

The first blog article, I look, was convinced of the opposite. The author writes, here, that doing business in France is the hardest thing in Europe. Excerpts from the summary of the article: “Therefore, if you succeed in France, you will succeed everywhere! He also adds: “Starting up a company is a serious and complicated thing here.”” Becoming French is nothing that any sane entrepreneur would ever want to do.” (Actually, he had founded and gave 50 reasons, not to do business in France.) In another blog, dedicated to English expats, who want to launch business in France, there are the same conclusions. “Here in France the system can be opaque, inflexible, excessively bureaucratic and therefore costly, severely limiting your ability to earn a decent living.”

After those gloomy examples of the British humour, I decided to have a look at Germany.  Unfortunately, Germany seems to suffer the same incurable disease as France. On the first website, I could read  “the race through bureaucratic hurdles”. On this website, they like to rub salt in the wound: “Whatever form of company you choose, you will need to tackle a number of bureaucratic hurdles”.

 According to Paul Gurner, who owns a business in Germany, there are 3 main obstacles to launch a business in Germany:

• bureaucracy
• hold of permits to open a business 
• Employing non-german persons

Conclusion:

After those various depressing and frustrating blogs articles, I started figuring out , that launching a business  in France or Germany is the worst idea, a man can have . However I decided to persevere, and to check, by myself, the different administrative steps to launch a business in the 2 countries. I first looked at administrative steps to found a business in France. Then, I did the same thing for German’s.

Therefore, I find out, that to launch a business in France you need at least 6 to 8 days and around 300 €. For Germany it is more complicated. You need at least 11 to 15 days to found the company. You will also have to pay around 1400€. In France, you need to go to, at least, 3 different offices to launch your business. In Germany you have to visit, at least, 7 different ones. The French process has 5 administrative steps, whereas the German one has 9.  Furthermore, French start-ups are more likely to obtain financing, not only from banks but also from venture capitals. That’s why I think that starting a business is easier in France than in Germany.

Finally, I even found a positive blog post about France. “Life in France will be frustrating, even maddening at times but there’s usually a happy ending” 

François

Entrepreneurship: differences between France and America

Yesterday, I looked at the posts I already posted on the blog. I noticed that I never wrote about my country: France. Thanks to this article, the mistake will be rectified.

This article compares entrepreneurs in France and in the USA. I think, it is interesting because it gives a peculiar perspective about entrepreneurship.  The author bases his article on a book. This book compares company and entrepreneurship philosophies in the 2 countries through a paleoanthropologist’s point of view.

According to the book, France and the USA have 2 different philosophies. In France, people have rather a Lamarckian business point of view and the Anglo-Saxon world and especially the United States, a Darwinian one.

The author claims that in the USA business works like Darwin’s theory of evolution.  According to Darwin, the source of evolution is innovation. You first have to create innovation; it means bring something new to the economy thanks to your business model. Then, the second step is the natural selection. Only he living beings that could adapt to the environment survive. It is the same thing for business. The competitiveness is the base of the business ‘survival.  Thus the French motto “Cogito ergo sum” rules the American entrepreneur system. Your business lives, because the entrepreneur has figures out the right strategy.

 The author is convinced that in France it is different. The French system is ruled by a Lamarckian system: “Diversity is a prerequisite for innovation”. In other words to breakeven , in France, a company has first to adapt and then to innovate. It means that, in France, to launch a business, you have to be different. And then, to breakeven, you have to think out of the box. He demonstrates that, the French administration and organizations are so ineffective, that they form an entry barrier for new business. To launch a business, entrepreneurs have to rely on their own personal network and to do it by his/herself instead of administration. That means that to be an entrepreneur, you have to be different (thanks to the personal network).  This “bricolage” (do-it-yourself) with your networks creates new sources of innovation and development. That enables the business to sustain. This philosophy tends to refrain the creativity because every business ideas have to suit the French system. Therefore we can say that the American “Semper fidelis” rules the French. Only business models, that have already been successful in the past, succeed. 

I think that both of the theories are right. However, they put only the emphasis on the environment, as a source of success. According to me, the main reason of the start-ups success comes from the entrepreneur itself. The personality of the entrepreneur remains the cornerstone of the business.  For a small company with few or no employees, the entrepreneur is the most important person of the business. He creates and adapts his/her business model to his/her capabilities and personality. To launch the company he/she uses his/her money, and network. Moreover, the start-up gets contracts thanks to the entrepreneur’s negotiating skills.  Furthermore, most banks grant loans thanks to the entrepreneur’s personality and persuasion power…

François

Angel Investors vs. Venture Capital

I have already put some articles concerning Angel Investors and Venture Capitalists online which describe the functions of these two types of investments. By reading some others blogs about entrepreneurship, I pointed out the fact that the choice between Angels and VCs is a complicated thing. I will try in the following article to develop some points that would help entrepreneurs in their decisions.

The first aspect concerns the method. Ben Horowitz underlines in one article on the Pmarca’s blog that VCs refer to strong governance because they invest money from an institution and they want to secure the amount invested. He gives also a very good example of the research of financing for the launching of a product: he argues that VCs are in this situation not adapted because it requires less money that they used to invest; whereas Angel Investors are more reactive and are able to invest in one product for example.

Another article consultable on the FreeCapitalRaise’s blog notes that, as entrepreneur, you have to know if you can accept that someone comes into your board and takes part of the direction. Angel Investors are relatively discreet compared the VCs. Angel are more in a role of consultant for the company than the VCs who ask for voting rights. The only question is: do you want to keep your independence in the decision making process?

I would say there are no best solutions to solve this question. Where Angels invest $20 billion in 60,000 businesses a year in America, VCs invest $30 billion for around 4,000 businesses, according to Brian O’Connell, who wrote article on entrepreneurship.com.

According to our previous articles about Angel Investors and VCs and this one, who would you choose? 

(by Loïc)

Entrepreneurs, source of employment?

A friend of mine just sends me this very interesting article about Entrepreneurship and the growth of the economy. The original aim of the article was to criticise the liberal theory of economy: A state should lower its tax rate to let (rich) people invest in the economy, and make it growth thanks to job creations.  Henry Blodget (author) denounces this theory and demonstrates through numerous examples, that rich (and successful) entrepreneurs ( Steve Jobs, Google founders…) are not the expected guardian angels of the economy.

Another point of the article has awoken my interest: In his demonstration the author claims that entrepreneurs are not a source of economic growth.  However at school, we learn the opposite.  Entrepreneurs are a source of economic growth, because they create jobs through their business creation and their business successes. Finally those new jobs leverage the demand, which sets a virtuous wheel in motion.

However the author has a different opinion. According to him, the source of job creations remains the customers.

In fact his demonstration comes from another author, Nick Hanauer, a former entrepreneur: Entrepreneurs could have set up the most brilliant idea or business they could, customers are their source of income. If those customers find the product or service useless, or if it is too expensive they won’t buy it. If there is no purchase, entrepreneurs don’t get any money at all. And without any money, they can’t succeed and businesses can’t survive. If they close down, jobs are destroyed. On the opposite side, if customers buy the product, businesses are profitable. In addition, money is invested in the business leading to job creation. Thus, customers have the power to create or destroy jobs.

The author is also very critical towards equity ’ influence in the job creation process. He argues that owner equity or shareholders’ equity have only a short-term effect on jobs’ creation. In fact, they only create temporarily jobs, until the invested capital runs out. To keep it last, the only solution remains customer willingness to buy the product sold.

I found a fourth article of Cullen Roche, which argue against this theory, using the same examples and citing the 2 former authors. According to him, it is true that entrepreneurs don’t exist without any demand. However, according to him, the 2 others’ analysis is wrong because one part of the economic analysis is missing: entrepreneurs bring value to a customer, that’s why they pay. Moreover customers are persuaded that the price of the service or good, they buy, is lower that the value they get in return, and improve the standard of living of the users (Adam Smith).  At the end, C. Roche concludes that customers and entrepreneurs are “two sides of the same coin”. He adds also that the most important is the wealth created is “the product of increases in our standards of living”.  In other words, the entrepreneur has an innovative role, and without innovation, our standard of living stagnates. And if our standard of living increases, demand grows up as well, leading to jobs creation.

François

Social Entrepreneurship

Have you ever heard these two words? Probably yes. This is one of the new trends in entrepreneurship. So what is this exactly?

Well, according to the European Social Entrepreneurship Funds (http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/11/881), they are companies whose activities «have a positive social impact and address social objectives as their corporate objective rather than only maximising profit». They represent 10% of all European businesses, which is already a lot, in my opinion, considering this is a new trend, at least in Europe. But does it work?

William Spec argues it could have a better impact if it was better organised and integrated in the economy. The limited access to finance, the lack of awareness and structural problems of capacity have been constraints that can explain why social entrepreneurship has such limited impact, at least for the moment (http://blog.slate.fr/europe-27etc/8317/social-entrepreneurship-is-cool-but-does-it-work/). The limited access to finance can easily be explained. Indeed, banks are one of the major means of finance and the only goal of these financial institutions are to make profit and if social entrepreneurship has for aim to achieve social aims and not profit maximisation, well it isn’t that illogical that finding finance sources for social entrepreneurs is so difficult. In my opinion, the area probably lacks governmental incentives, just like the renewable energy industry does and this won’t apparently get any better in the next few years because governments have greater problems to solve in order to get out of the current crisis.

Bank financing for entrepreneurs:

The Makaias’blog explains us that today an entrepreneur can get a loan from commercial banks, which finance 12% of all small businesses start-ups according to a recent SBA study. But nowadays entrepreneurs are looking for other sources of financing because banks are very exigent, for example they require more and more a business plan to evaluate the value of the company. This is confirmed by this chart of the “Federal Reserve Bank of Atlanta”: young businesses are now using other sources of financing like personal savings.

City Bank Business Blog confirms this trend and argues that banks ‘criteria are very strict and to become eligible to a loan, the entrepreneurs have to pay attention to their projects. Banks want to be sure that the money invested in startups will bring high return back.

But entrepreneurs don’t have to forget the banks. Joanna Krotz in her article “Breaking the Small-Biz Lending Barrier” underlines the fact that community banks have been developed in order to help the startups in their financing search. She explains this new principle which is based on banks which are focused on the local development. This is a very wide network which represents a good opportunity for entrepreneurs. 

(by Loïc)