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The Major Pitfalls Faced by Young Entrepreneurs

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Launching an ambitious new venture is challenging even at the very best of times.

But for young entrepreneurs, especially those in Gen Z (born after the year 2000), running a business can have even more complications that make it difficult to get basic tasks done.

Whether it’s credit card age limitations or simply not being taken seriously by employees or vendors, young entrepreneurs must find ways to overcome these business challenges.

Identifying the Pitfalls

Today’s infographic comes to us from Insurance Quotes, and it identifies the pitfalls encountered by young entrepreneurs as well as some of youth’s most important advantages.

The Major Pitfalls Faced by Young Entrepreneurs

Millennials, in comparison to the generation before them, have been less entrepreneurial as a whole. In fact, only 24% of 20-34 year olds today are new entrepreneurs, compared to a 34% rate from two decades ago.

Gen Z, however, is looking to take the reins – and now, 72% of high schoolers say they want to start a business someday.

Pitfalls for Young Entrepreneurs

Despite this increased interest in entrepreneurship, Gen Z faces significant pitfalls that must be overcome:

Age Limits
Many small businesses use credit cards or bank loans for day-to-day purposes, whether they are for picking up small expenses, growth capital, or as cash flow buffers.

However, in the United States, you must be 21 years old to get a credit card without a cosigner or proof of regular income. For bank loans, that age requirement drops to 18, but even then a cosigner or good credit is usually required.

In the same vein, age restrictions can also make it hard for young people to network, since many conferences or events take place in licensed establishments like bars or casinos.

Age Discrimination
Vendors, colleagues, and employees may not take young entrepreneurs seriously. Sometimes stereotypes of young people being a certain way may persist, as well.

Passing Class
Young entrepreneurs must divide time between business and school, creating competing priorities.

Rookie Mistakes
Inexperience can also be an early enemy for young entrepreneurs – hiring friends (instead of qualified people), micromanaging, being overprotective of new ideas, or mixing business and personal finances can be just some mistakes made from a lack of experience.

Advantages of Youth

Despite the list of potential pitfalls, it’s also clear that youth can provide big benefits to an up-and-coming business owner.

Firstly, the barriers to entry of business today are lower than ever before. It’s now possible to sell almost anything online for next to nothing, and Gen Z is inherently knowledgeable when it comes to exploiting any new technologies.

Next, without families to provide for or mortgages to pay, young people also typically have fewer responsibilities. This sets them up to take on risks that might steer away more seasoned businesspeople.

Lastly, a lack of experience can also be a massive advantage if used correctly. Young people have no preconceptions of “how things should be”, and can use that to pull off new ideas that others simply couldn’t imagine. This naiveté is arguably a big part of how today’s modern giants like Airbnb and Facebook came to be.

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Ranked: The 20 Easiest Countries for Doing Business

Entrepreneurship is challenging at the best of times. Here are the countries where at least starting a new business is easy to do.

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Easiest Countries to do Business

Ranked: The 20 Easiest Countries for Doing Business

Contrary to popular belief, the hardest part about running a business may not be finding customers, it’s getting one started.

Depending on the public policies and application processes of your country, you might struggle or succeed in opening and operating a business.

If you live in New Zealand, for example, you can get a new enterprise up and running in half a day. If you live in Luxembourg or Argentina, however, it’s a different story─with the process sometimes taking over a year.

Today’s chart uses data from the World Bank’s annual Doing Business 2020 report, which delves into the ease of doing business in countries around the world.

Measuring the Ease of Doing Business

Now in its 17th year, the Doing Business (DB) report measures how easy it is for someone to start and run a company in an economy, using 12 key factors throughout a business lifecycle:

  1. Starting a business
  2. Employing workers
  3. Dealing with construction permits
  4. Getting electricity
  5. Registering property
  6. Getting credit
  7. Protecting minority investors
  8. Paying taxes
  9. Trading across borders
  10. Contracting with the government
  11. Enforcing contracts
  12. Resolving insolvency

Of the 190 countries reviewed last year, only 115 made it easier for entrepreneurs to do business.

Note to readers: this year’s DB score did not factor in Employing Workers or Contracting with the Government when ranking economies.

Top 20 Easiest Countries to Run a Business

RankCountryDB Score
#1🇳🇿 New Zealand86.8
#2🇸🇬 Singapore86.2
#3🇭🇰 Hong Kong85.3
#4🇩🇰 Denmark85.3
#5🇰🇷 South Korea84
#6🇺🇸 United States84
#7🇬🇪 Georgia83.7
#8🇬🇧 United Kingdom83.5
#9🇳🇴 Norway82.6
#10🇸🇪 Sweden82
#11🇱🇹 Lithuania81.6
#12🇲🇾 Malaysia81.5
#13🇲🇺 Mauritius81.5
#14🇦🇺 Australia81.2
#15🇹🇼 Taiwan80.9
#16🇦🇪 United Arab Emirates80.9
#17🇲🇰 North Macedonia80.7
#18🇪🇪 Estonia80.6
#19🇱🇻 Latvia80.3
#20🇫🇮 Finland80.2

In the top spot for the fourth year in a row, New Zealand only requires half a day to start a business. Singapore also stands out for having the shortest timeframe when it comes to paying business taxes and enforcing business contracts.

Only two African nations─Rwanda and Mauritius─are listed in the top 50 countries, with Mauritius being the only one to crack the top 20 list.

Latin American economies are noticeably missing from the rankings, as many countries in this region are fraught with bureaucracy and prolonged processes.

Most Improved Scores

Several developed and developing economies made significant strides in 2019 to implement reforms that opened doors for new business owners.

The Doing Business 2020 report shows that the cost of starting a business has fallen over time, particularly in developing economies.

Top 10 Most Improved Economies, 2018-2019

Top 10 most improved economies for doing business

Saudi Arabia made the greatest improvement overall, adding 7.7 points to its score.

Bahrain also made improvements over the most number of factors (9). While Jordan showed improvement in the fewest factors (3), it showed the second highest jump in DB Score.

Gains Among Low-Income Countries

The DB 2020 study also shows that developing economies are making progress: it’s now cheaper than ever before to run a business in developing economies.

However, a significant disparity still remains when we consider the difference in business costs between high-income and low-income economies.

An entrepreneur starting a company in a low-income economy will spend about 50% of per capita income (PCI) to launch a venture, whereas an entrepreneur in a high-income economy spends only 4% PCI to accomplish the same task.

Put another way, entrepreneurs located in the bottom 50 economies spend an average six times more to open a new company as those in a high-income economy.

Entrepreneurship and Economic Growth

Generally, more entrepreneurs will enter a market where they can easily conduct business─adding more value to local economies.

While the rankings clearly illustrate the link between ease of doing business and economic growth, there are still significant barriers in place that not only deter entrepreneurship but also inhibit a relatively simple strategy for growth.

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Visualizing the Stages of Startup Funding

About 1,500 companies are founded daily, but how does the typical startup get financed? This creative graphic uses pie to explain startup funding rounds.

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startup funding

About 1,500 new companies are founded every day.

However, only a fraction of these entrepreneurial pursuits will eventually operate on a grand scale. With many of these companies propelled by venture capital funding, how do investors provide the cash—and get a piece of the startup pie?

Pie in the Sky

Today’s creative infographic from Fundera uses pie to visualize each stage of startup funding, from pre-seed funding to initial public offering.

It’s worth noting that numbers presented here are hypothetical in nature, and that startups can have all kinds of paths to success (or failure).

Visualizing the Stages of Startup Funding

Pre-Seed Funding

In the pre-seed funding round, the founder(s) pitch their business idea to potential investors. These are typically friends, family, angel investors, or pre-seed venture capital firms.

Since there is likely no performance data or positive financials to show yet, potential investors must focus on two primary features: the strength of the idea and the team.

The biggest factor in our decision-making is always the founding team […] that’s what success lives or dies on in this industry: the ability for founders to make really quick, good decisions.

First Round Capital

At this stage, both the level of risk and potential payoff are at their highest.

Seed Funding

After the initial stages, seed funding—the first official funding round for many companies—takes place. Entrepreneurs use the funds for market testing, product development, and bringing operations up to speed.

By this point, investors are generally looking for the company’s ability to solve a need for customers in a way that will achieve product-market fit. At this stage, ideally there is also some level of traction or consumer adoption, such as user or revenue growth. The level of risk is still quite high here, so investors tend to be angel investors or venture capitalists.

Series Funding

In each series funding, the startup generally raises more money and increases their valuation. Here’s what investors tend to expect in each round:

  • Series A: Companies that not only have a great idea, but a strategy for creating long-term profit.
  • Series B: Companies generating consistent revenue that must scale to meet growing demand.
  • Series C (and beyond): Companies with strong financial performance that are looking to expand to new markets, develop new products, buy out businesses, or prepare for an Initial Public Offering (IPO).

Private equity firms and investment bankers are attracted to series C funding as it tends to be much less risky. In recent years, startups have been staying private longer. For example, Uber obtained Series G funding and debt financing before going public.

Initial Public Offering

Once a company is large and stable enough, it may choose to go public. An investment bank will commit to selling a certain amount of shares for a certain amount of money.

If the IPO goes well, investors will profit and the company’s reputation gets a boost—but if it doesn’t, investors lose money and the company’s reputation takes a hit.

Here’s how the example investment amounts break down at each stage:

 Pre-SeedSeedSeries ASeries BSeries CIPO
Amount Invested< $1M<$1.7M<$10.5M<$24.9M<$50M<$10.5M
Average Equity Stake10-15%10-25%15-50%15-30%15-30%15-50%

An investor’s equity is diluted as other investors come on board, but their “piece of the pie” usually becomes more valuable.

The Venture Capital Funnel

How likely is it that a startup makes its way through the entire process? In a study of over 1,110 U.S. seed tech companies, only 30% exited through an IPO, merger, or acquisition (M&A).

Companies that reach a private valuation of $1B or more, known as unicorns, are even more rare at just 1%.

At each stage, natural selection takes hold with fewer companies advancing. Here’s a look at the entire funnel, with the “second round” generally corresponding to a series A stage, a “third round” generally corresponding to a series B stage, and so on.

venture capital funnel

Source: CB Insights

Notably, 67% of the companies stalled out at some point in the funding process, becoming either dead or self-sustaining. While startups carry a high degree of risk, they also present opportunities for substantial rewards.

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