Friday, January 12, 2007

Canadian entrepreneurs too confident

Canadians suffer from an overconfidence in their entrepreneurial skills that leads to a high failure rate in their business ventures, a new international study suggests.

A team of economists from Germany, the Netherlands and the United States has discovered that among aspiring and established entrepreneurs in 18 countries, Canadians are among the most confident they have the necessary skills to start a business. Canadians who take the plunge also have one of the lowest average chances of staying in business.

Using data collected from the Global Entrepreneurial Monitor research program, an annual assessment of the national level of entrepreneurial activity around the world, the economists created a random sample of the population in each country and identified people in each sample who either owned or managed a business or were in the process of starting one.

Overall, they found confidence in one's own entrepreneurial skills is a major driver in the decision to start a business. New entrepreneurs starting companies are the most confident, even though their abilities are untested in the market.

The study also found that countries exhibiting a high rate of entrepreneurial confidence exhibit significantly higher startup activity but lower average chances that a business will survive for more than 42 months.

Only people in New Zealand, Hungary, Argentina and the United States are more confident than their counterparts in Canada, where 50% believe they have the necessary skills to start a business.

This contrasts sharply with Japan, where only 11% do, and Sweden, where 24% have such confidence.

But in Canada, the ratio of established to nascent entrepreneurs is 0.5, the second-lowest ratio in the sample. This means that for every established or successful entrepreneur, there are two aspiring entrepreneurs trying to start a business.

In countries with lower levels of confidence, such as Japan or Sweden, there are many more established entrepreneurs relative to nascent entrepreneurs (2.3 and 1.7 respectively), which translates into higher average survival chances of those few individuals who actually start a business in these countries.