Youth Entrepreneurship - Enabling young people to build a fairer recovery

YOUTH ENTREPRENEURSHIPENABLING YOUNG PEOPLE TO BUILD A FAIRER RECOVERY

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Executive Summary

In order to ensure that Ireland undergoes a balanced, sustainable recovery, more people should be encouraged to become entrepreneurs. With youth unemployment still at an alarming 22% (compared to the national figure of just over 10%) it is apparent that encouraging young people to start their own business is both mutually beneficial for them and for the state and the larger economy. In order to encourage more young people to look seriously at starting their own business there are a number of measures that must be tackled by Government. These include:

•Allowing self-employed people to opt to pay into Class A PRSI so that if the venture is unsuccessful, they will not be penalised;

•Changing “family employment” so that these family members are covered by the social insurance system;

•Creating “business ghettos” akin to that achieved at Grand Canal Dock for the tech industry for other industries in towns and cities around the country;

•A coordinated Entrepreneurship program built into the curriculum in schools backed up by a centralised, wide ranging, incentivised Entrepreneurship program;

•Encourage commercial landlords with vacant town centre properties to use their premises to promote new businesses receiving Local Enterprise Board support;

•Incentivise landlords to reduce rent on vacant properties, by allowing the local authority to waive backdated commercial rates, attached to the property, if rented to a new venture for 12 months;

•Ensure that key professional titles are protected by statute to ensure that Ireland maintains a reputation as a high skills, highly educated destination that manufactures top class products;

•Introduce a focused mentoring program in order to give new businesses the commodity they most need, time. Advice from people who have been through it all before is invaluable as well as information that might be initially obvious;

•A centralised, dedicated website that give broad and niche information and advice to people starting up a new business on a wide range of topic and industries;

•Specified micro-finance options for young entrepreneurs.


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Introduction

As the Government talks about a recovering economy and dropping live register figures, the plight of young Irish people has changed little over the course of this Government’s tenure in office. Emigration figures are still startlingly high and the number of young people who are unemployed is well above the European average. In fact at 22%, Ireland is still one of the top countries in the EU for youth unemployment. It is one of the main challenges to young people of this generation and can lead to isolation and serious mental health issues. It can also have long term effects and has been shown that just one year of unemployment in a person’s youth can potentially affect your earnings by up to 21% by the age of 42 (Gregg and Tominey, 2005). With the rate of youth unemployment now more than double that of unemployment as a whole across the country, it is clear that not enough is being down to tackle the issue. Self-employment can prove to be an effective means by which young people themselves can turn those statistics around and help drive a fairer, more equitable recovery in Ireland’s economy.

A European Commission study in 2009 found that across the EU, 28% of people indicated that they were favourable to being self-employed. This rose dramatically in the 15 to 24 age group (40%) and 25 to 39 age group (42%). In 2014 however, the number of people in work in Ireland that were categorised as self-employed stood at just under 17%. There clearly are barriers to people establishing enterprises in the country and this, in our view, is a key block on making the recovery sustainable. With a 2012 CSO report showing that 68% of all private sector employees being employed in SME’s (Small to Medium Enterprises) it is clear that encouraging more business ventures in existing and emerging sectors will clearly boost employment in the economy and employment opportunities for all people in Ireland.

Boosting youth entrepreneurship figures is not an easy task however and does require a multifaceted approach. It will take a combination of financial measures (giving entrepreneurs access to capital and providing them with social protection), educational measures (fostering an atmosphere in which entrepreneurship can flourish and appropriate skills are taught), incentivisation (entrepreneurship programs in education with appropriate rewards, creating environments in which entrepreneurship can flourish) and effective mentoring (in education and in business).


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Education: Further developing current entrepreneurial skills and spirit.

The goal that should be aimed for with all educational programmes is to give students Entrepreneurship skills and the confidence to pursue their own business ventures in future. The key aim is to tackle the barrier of lack of entrepreneurial knowledge, skills and attitudes and lack of prior work and entrepreneurship experience that prevent young people from becoming entrepreneurs. They equip young people with skills and competences such as opportunity recognition, business planning and running pilot businesses, including soft skills such as sense of initiative, creativity, autonomy and teamwork. These skills and competences will greatly boost their chances of starting a successful business or for entering the workforce as an employee. There will also be the added boost of the promotion of self-employment as a career alternative and raise the awareness of youth entrepreneurship as something students can aim for after their education has finished.

In primary education, senior classes should have some semblance of education on the various business opportunities that exist and entrepreneurship. This can be done by having a local business owner talk to the class or by having a class visit to a local business. Introducing young people to entrepreneurship from an early age greatly boosts a person’s interest in owning their own business but also in taking up business subjects in second level education. Including a provision in the primary curriculum for such an opportunity would greatly boost the awareness in kids as to how businesses work and broaden their horizons into how their local community works.

The secondary school curriculum should expand on its approach to entrepreneurship. Far too often it’s a small, marginalised section on the Junior cycle Business Studies program. Secondary education should include more focus on the delivery of specific technical skills using mini-companies and activities entailing active learning and real-life situations (EC, 2005). For example, school students should learn about business planning and accessing start-up financing through the setting up of simulation or real business enterprises. Such programs do exist in some regions but they are done in a voluntary approach by the minority of schools. Programs like the national Foróige’s NFTE course and Kerry’s Young Entrepreneur Programme give great insight to students as to the skills, knowledge and attitudes that are conducive to entrepreneurial behaviour. However, these initiatives are being run on a voluntary basis and are critically underfunded as is the case with other such secondary school competitions and programmes designed to boost entrepreneurial spirit in students.

A centrally run and incentivised entrepreneurship programme which ties in these regional and local programmes together can, if well administered and well publicised, achieve major improvements in the number of students leaving secondary education with a view to starting their own business. Local businesses can be approached in order to help mentor


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school students in the competition; promoting the idea of a business community across the different generations in the locality, with the incentive of free promotion should the students they mentor do well. The students themselves should be offered a real incentive of a 3rd level grant for winners and runners up with other prizes for regional winners. If they choose not to pursue further education, the monitory value could be applied as a business grant for a new business venture the winner has, administered by their Local Enterprise Board in mentoring and other supports.

Finance: Levelling the playing field for young entrepreneurs

Finance is one of the main barriers that stops young people from following through with the establishment of new business ventures. It is a true to say that young people do not have the same personal savings as entrepreneurs as a whole, typically have. As such, they need more access to fund raising from banks and other sources. Banks apply a set of parameters in the assessment of loan proposals, which include credit history, past business performance and collateral, which are all likely to be lower in youth-owned firms. This means it is more difficult for young people to obtain external finance, including debt finance. Young people from disadvantaged backgrounds again find it ever more difficult again to get financing for this venture and this leads to a reliance on personal credit cards to kick-start their business. In order to level the playing the field for young people to enter, they will need access to alternative sources of funding. There have been many successful examples of how this can be achieved.

We in Ógra believe that the best way to roll out a finance program is a dual approach. Ireland can emulate the system employed in Scotland with the Prince’s Scottish Youth Business Trust (PSYBT) which is specifically targeted at unemployed young entrepreneurs. We can also target a broader audience with something similar to the Project GATE which is run in several states in the USA. Ireland can use the experiences and success of these initiatives to streamline resources for new business ventures by young people. Funding can be raised via short or long term bonds offered by the National Treasury Management Agency (NTMA) and/or the European Investment Bank. Small Tax incentives may be offered to companies who volunteer to act as mentors in the different projects. The administration and oversight of these programmes will be through the Local Enterprise Board.


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Disadvantaged Entrepreneur Start-up Assistance Fund (DESAF)Based on: Prince’s Scottish Youth Business Trust (PSYBT)

Target Group: DESAF’s target market is young people who are unemployed, from disadvantaged socio-economic backgrounds or face other significant disadvantages.

DESAF aims to take a balanced financial risk in supporting aspiring young business owners. Most of the entrepreneurs need intensive support, and the coaching, training and mentoring provided is designed to complement each award of funding approved.

Programme Contents: DESAF provides:

• access to seed finance and early stage growth finance for young people starting and growing their own business;

• a transitional path for early stage micro-businesses, with a combination of financial products and wrap-around support designed to enable them to evolve to a stage where they are more able to access mainstream/other business finance; • a pillar in a bridge for the excluded and long-term unemployed to help them back into the economy through viable self-employment;

• investment in local communities by facilitating the significant in-kind contribution of local business people and supporting the development of local socially motivated businesses.

Entry/selection requirements: Young people aged 18–25 years who can demonstrate that they have the drive and determination to start and continue in business who present with a viable business plan. DESAF is a lender of last resort and will only provide access to finance when other potential sources have been explored.

Programme length: DESAF support stretches from pre-start advice and training through to post-start mentoring which will last up to a maximum of 18 months, determined of a case by case means.

The DESAF model, combining micro-credit with a range of focused business development services, would be a public-private sector partnership backed by the significant contribution of volunteers from local business communities (eg: chambers of commerce). The support combines appropriate micro-loans with a range of business support services including training, coaching and ongoing mentoring.


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Entrepreneur Training and Mentoring Programme (ETMP)Based on: Project GATE (Growing America Through Entrepreneurship)

Target group: First-time young entrepreneurs aged over 18 years of age after completion of second level education.

Programme Contents: Training and counselling for individuals interested in self-employment.

Entry requirements: Entry into the programme will be granted to anyone in the target group that owns their own business, regardless of how long it is established.

Description: The ETMP will offer free training and counselling services to individuals interested in self-employment. The programme will have three steps: applicants had to register at their local enterprise board, online, by mail or by telephone; attend an orientation session; and submit an application package. The ETMP will offer three basic services.

• Assessment: Participants are invited to meet with a counsellor to determine the participant’s service needs and the provider that would best meet those needs.

• Training: The ETMP will offer a wide variety of training courses, including general business courses; specific courses on such topics as how to deal with legal and personnel issues; and specialised training courses.

• Business counselling: Participants will be given the opportunity to meet with business counsellors or mentors for one-on-one assistance with their business, business idea, and/or applications for a business loan.

In order to receive training or business counselling, participants will be required to have an initial needs assessment. However, ETMP will emphasise customer choice: individual participants will not be required to use all of these services.

Projected Results: The results from the similar Project GATE in the USA suggested that unemployed participants were more likely to exit unemployment through becoming self-employed, although the success rate was lower for young people (under 25) than adults (Benus and Michaelides, 2011). It is hoped that the ETMP would increase the number of entrepreneurs in Ireland as well as increase the viability of existing new enterprises.


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Social ProtectionAnother major financial stumbling block that prevents people from taking the plunge and becoming self-employed in Ireland is the risk associated. This risk is heightened by the fact that should the business fail and the entrepreneur find themselves unemployed again, she or he will be disadvantaged in terms of social protection. There exists in Ireland at present a situation that self-employed people can only contribute to Class S PRSI. This entitles a person to a limited range of social insurance payments. Class S PRSI contributions are paid at a rate of 4% on all income or €500, whichever is the greater. However, if you earn less than €5,000 from self-employment in a year you are exempt from paying Class S PRSI. You may pay €500 as a voluntary contributor though.

If a self-employed sole trader either employs, or is helped in the running of the business by specified family member, this is known as family employment and these family members are not covered by the social insurance system. Both of these scenarios are very off putting for entrepreneurs and introduce a needless and unfair added risk for entrepreneurs and any family members they wish to employ. Both entrepreneurs and family members they employ should be eligible to opt for Class A PRSI and make contributions accordingly. Should the business fail, those involved should not be punished for the enterprise and courage they show in establishing a new business venture.

Protection of Professional TitlesIn order to ensure that Irish businesses are best equipped to compete internationally they need to have a reputation of being the highest class and quality on a world stage. At present, in Ireland, many professional titles such as Accountant and Engineer are not protected by statute in the same way that titles such as doctor and solicitor are. For any business venture whose basis is in design and manufacture, ensuring that they have the best possible start to compete internationally is a must. To achieve this, a strong signal should be given by the Government that all businesses in Ireland are set to produce products and intellectual property of the highest standard. By protecting a raft of professional titles would achieve this. Software and Bio-medical Engineering, Pharmaceutical Industry, Finance and Agriculture are all industries that are once again expanding in Ireland and at which, we compete at a high level. All these industries would benefit from a tightening up of the statutory regulation of the professions and professional titles that are employed within them. Such a system already exists in many EU countries for all the above fields. There is no reason that one such suitable system could be not rolled out in Ireland. This move would benefit both new and existing businesses, as we as a country continue in our recovery.


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Pooling of resources in “Business Ghettos”Steve Jobs famously said, “Innovation distinguishes between a leader and a follower”. Ireland has seen itself become world leaders in many fields. It is also said that innovation thrives where imagination meets execution. This can be seen at Grand Canal Dock, with the tech sector and Ireland’s International Financial Services Centre (IFSC), and in Galway with the Bio-medical industry. Concentrating industries in a particular area promotes the nurturing of new idea. In effect, you create an atmosphere in which people are being mentored in an informal manner simply in their interactions with their neighbouring businesses. If such a principle can be implemented in towns and cities across the country, the benefits to local economies can be enormous.

While the IDA has been effective at achieving this with multi-nationals we have largely failed to replicate it with indigenous SME’s. However, one exception is Ennis, the town has gained the reputation as a boutique town. This has come about via the establishment of retail outlets that all fall within the general fashion industry umbrella but cater for a different section of that industry. This has given consumers a great deal of choice in a small area and has seen a huge rise in the number of people travelling to the town from the greater region. This is supported by local media and the local authority in running events such as Ennis Fashion Week, which helps to promote the town as a destination for boutique fashion. This phenomenon is evidenced in Galway and Kilkenny, in terms of the tourism and hospitality industries. The local authorities have supported local businesses by helping to set up various festivals right through the tourism season to ensure that there is always a level of demand for the relative industries to cater for. This model should be rolled out in a more wide spread manner, with individual local councils working with the local enterprise board to find a niche industry that is growing in the area, which can be promoted collectively to benefit all businesses, new and established.

Local authorities supporting local businesses.It has been pointed out numerous times by Fianna Fáil that many town centres around the country have seen large vacancy rates in commercial properties, in town centres. There are numerous reasons as to why this remains the case. However, chief among them is high commercial rates. Local councils require commercial rates to be high, so as to overcome the short fall in funding from central government. Despite the introduction of property tax, local councils enforce high commercial rates, so as to overcome the shortfall in funding from central government. The current Government has not passed on the funds raised, through property tax, to pay for local services, meaning that councils have to retain high commercial rates. This must change. Local government should be funded adequately through the Local Government Fund (LGF). This will give local councils discretion to roll out a rate regimes more conducive to the establishment of new businesses.


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Another key issue is the high rent on commercial properties. Vacant commercial properties are still subject to rate bills. Over time, this can lead to a large, unaffordable sum of money that no new business can afford to cover, leading to continued vacancy. These problems can be addressed through a scheme, which would see the local council offer to wipe out the commercial rate debt (to a maximum of 3 years worth) on a property. This is subject to the landlord commiting to rent the property, at a reduced rate, to a new enterprise for a year. The landlord would be bound, furthermore, not to increase the rent during the course of the scheme. If s/he cut the scheme short, in order to bring in a new renter, then the full commercial rate debt would be re-applied to the property. If the business was to fail, in that time period, a portion of the debt would be written off. Commercial rates would start to apply again on the property after the year is complete. This scheme would cut the financial barrier to new businesses starting in town centres and allow businesses earn some capital before large overheads kick in. It also has the added civic benefit of kick-starting urban regeneration in towns and cities all over Ireland.

Vacant town centre commercial properties can have other uses in promoting local enterprise, especially new businesses. New enterprises participating in Local Enterprise Board programmes can use vacant shop fronts on high streets to advertise and promote their venture. This would give the property a sense of life and rejuvenate the high street. Landlords who refuse to allow their property to be used for such a scheme should be levied by the local authority.The levy would pay for the upkeep of the town centre and incentivise the landlord to help the local economy and local businesses. These measures will encourage cohesive town centre commercial communities, highlighting the importance of commercial interaction for SMEs.

Dedicated entrepreneurial start-up website.These days the internet is the first port of call for anyone looking for information on starting a new business. The website www.startup.ie was launched for exactly this purpose. However, it’s interface is difficult to use. The website needs an overhaul. Anyone visiting should be able to, quickly and easily, access the resources and information they need specific to their business venture. Rather than cheer-leading Government press launches, the home page should ask the visitor to enter details of what industry they are in and what they’re looking for. A recent tool launched by Government to do this has been a shambles. It is generic, hard to find and does not readily give detailed industry specific information. The focus is on the basics but doesn’t offer the visitor niche supports and financing options which would not be obvious from the outset. Putting the entrepreneur first in the design of such a website, offering them specific information to cater for their needs, is a must.


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Conclusion Although young people have shown they are willing and enthusiastic about starting their own businesses, there are also considerable barriers in their way, more so that older adults. The failure rates of businesses that young people do start are also higher than those of older members of the population. This is due to a host of reasons all of which need addressing at all levels of Government both locally and nationally. The policies and proposals outlined in this document are designed to tackle barriers affecting youth entrepreneurship in areas including skills, networks and financing; barriers that are often particular to youth or more severe for youth than for adults.

As we recover from an unprecedented global financial crisis we still have a situation of underemployment of young people in Ireland. Concerted effort to boost youth employment through public policy can reduce this trend and play a role in getting young people back into the labour market. It will not solve the youth unemployment issue on its own however but it will help a section of young Irish people ensure their long term employment either as business owners or employees in these companies. Past experience across the western world has shown that when constituted appropriately, government programmes can have significant impacts on increasing the exit rate of young people from unemployment with reasonable results on value for public money. This can only be achieved by embedding entrepreneurship teaching throughout the education system, providing information, advice, coaching and mentoring, facilitating access to financing and offering support infrastructure for business start-ups.

One of the benefits of youth entrepreneurship initiatives is an increase in employability rather than business start-up per se, and achieving this outcome may be worth a higher investment for people from disadvantage socio-economic backgrounds. To achieve business success, these initiatives should offer more intense support per entrepreneur instead of an approach that spread support thinly. Financing should be designed and concentrated on allowing young people to start businesses outside the low entry barrier, but highly competitive sectors towards which youth entrepreneurship is currently skewed. This finance should be associated with more intensive business development support for these enterprises. Promotion of entrepreneurship in education supports the development of more entrepreneurial intentions and competences, but may need to be followed up with start-up support to turn these intentions and competences into business ventures. The effectiveness of supplying finance will be enhanced when it is complemented by advice, coaching and networking.


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Bibliography

Gregg, Paul and Tominey, Emma, 2005, ‘The wage scar from male youth unemployment’, Labour Economics, Vol. 12, pp. 487–509.

European Commission, 2009, ‘Entrepreneurship in the EU and beyond — A survey in the EU, EFTA countries, Croatia, Turkey, the US, Japan, South Korea and China’, Flash Eurobarometer 283

European Commission, 2005, ‘Mini-companies in Secondary Education’, Best Procedure Project: Final Report of the Expert Group.

Benus, J. and Michaelides, M., 2011, ‘Are Self-Employment Training Programs Effective? Evidence from Project GATE’, Revised and resubmitted, Journal of Human Resources.


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Youth Entrepreneurship - Enabling young people to build a fairer recovery