70 percent of start-ups in the EU survive the first two key years of existence. This is good news in comparison with the long-held belief that the majority of businesses actually fail in the first year. In fact, there’s more to be concerned about further down the road.
According to OECD, only 50 percent of start-ups in the EU make it to five years. The Czech start-up landscape is similar to that of the EU. The percentage of presently active Czech start-ups and those currently being set up in the first phase is actually above the average percentage in the EU. This is a great sign because it shows strong entrepreneurial spirit. However, that rate balances out with the business failure rate, which is slightly higher than the EU average. The possibility of going bankrupt is the most feared risk among business start-ups, as revealed by an OECD survey. But after the initial first years of getting established in a corner of the market, and generating and acquiring funds, start-ups face an additional type of challenge, one much less talked about. Why do so many young businesses fail or lose their edge after succeeding at the major task of securing financing and commercializing their strategy? What are some entrepreneurs missing? And, what are the solutions to help stabilize growth?
Commercial success and financing is not enough to grow a start-up into a sustainable enterprise. An additional challenge for new entrepreneurs is talent management. It is surprising how many start-ups are starved for mentorship in the area of people development. People are the fundamental building blocks of any business. Furthermore, competitors can copy almost everything in a business but the people. Yet people development, soft skills and EQ (Emotional Quotient inventory, sometimes also abbreviated as EQ-i, is a measure of emotional and social intelligence) are not taught in the educational system.
I am involved in an advisory capacity with several organizations, including the European Academy of Business in Society, the Junior Achievement Young Enterprise Europe, as well as AIESEC, the world’s largest student-run organization and an international platform for young people to discover and develop their potential. When I coach start-ups and young entrepreneurs, I see some who are good with technology and who learn to master marketing and sales. But when start-ups begin to grow, they outgrow their human resources capacity faster than they are able to develop, nurture and inspire their people. Reaching sustainable growth for a start-up is a key transitional phase in the life-cycle of a business, and it can be more challenging and unstable than the first phase of starting. Workforce development needs to be much closer to the hearts of entrepreneurs than it currently is, and it can start with increased self-awareness.
Entrepreneurs need to look inwards to themselves and their team because success is not only related to selling services and products, or keeping investors interested. Having the capacity to understand your own abilities, motivations, strengths and passion in relation to those around you and to your surrounding environment, is key to personal success, and beyond that to the success of your start-up. In fact, capacity for introspection is crucial in two key ways. Firstly knowing your strengths and passion, and leveraging these, will help you tap into the opportunities that reside in the surrounding environment. This in turn will help you discover your personal competitive advantage in your industry – what makes you unique, and what others will value.
Secondly, knowing your personal uniqueness allows you to relate better to others, recognize their uniqueness and understand the human capital of your business – namely the knowledge your team and your partners embody that can contribute to the sustainable growth of your start-up. Getting to know what your colleagues’ position of strength is, and what motivates them, can be a powerful tool to unlock their human potential – inspiring them to leverage their strengths in line with the mission and vision of your business. Questions to increase self-awareness, which can also be applied to teams, partners, or customers must be simple and straightforward, and require an equally simple and straightforward answer. If you can’t answer the following in a single sentence, then it’s time to introspect. Key questions to start off include: What am I really good at? What do I enjoy doing? What motivates me and where do I get my energy from? How do I connect with others or how do I communicate? How do I complement those around me?
A different type of question that entrepreneurs must keep in mind in order to connect their start-ups and their in-house talent is – “why?” A step further from exercising self-awareness and leveraging the human capital of a business is becoming a true leader versus a good manager, and communicating effectively. A good manager is able to figure out the uniqueness of a workforce, but a leader is able to go further and align that workforce with the vision of the enterprise, and make sure the entire organization sees and contributes to the bigger purpose of the business. Unlike a good manager who will focus on the “what” and the “how” of a business, a leader will focus on ‘the big picture’ of the business – its mission and vision – inspiring the workforce to do the same. It is the difference between tactical and strategic thinking, the former is a means to an end, but the latter can empower.
Looking forward, the educational system across Europe can incorporate the development of these skills into their curricula in some measure and capacity, because teaching these skills is important to grooming successful entrepreneurs and leaders. This in turn will help make our EU economies more competitive. And, since for entrepreneurs, developing these skills is part of the process of getting the business in order, start-up incubators can also get involved. Indeed, incubators can increase their effectiveness by providing more mentorship in these areas. Seed funding, legal, accounting, and administrative help are all important for entrepreneurs when working tirelessly to establish a steady stream of revenues in a start-up. But to be sustainable, nobody can afford to forget the people and the talent that makes up any enterprise.
There are many ways to help entrepreneurs in these areas and there are platforms that can help circulate these priorities. At Microsoft, we have invested in helping start-ups succeed with all the right resources. For example, our global program BizSpark helps start-ups by supporting a network of organizations – start-up incubators, investors, advisors, government agencies – that are equally involved and invested in software-fueled innovation and entrepreneurship. BizSpark helps software start-ups succeed by giving them access to software development tools, as well as by connecting them with key industry players, and providing them with marketing visibility. The program offers technical support but also business training and a network of over 2,000 partners. Since it was established in 2008, more than 45,000 companies in over 100 countries have joined BizSpark.
A young enterprise will not prove itself until it has invested in talent development, in unlocking human potential and aligning the human capital with its mission and vision. It is growth of both human capabilities and physical assets that produce goods and services. Real return on investment is not only about steady revenues alone, we must think bigger and include return on human capital into our goals.