2012 Estonia with the lead of EDF engaged for the for the first time in the Global Entrepreneurship Monitor survey and last year the second time. GEM has given Estonia great opportunity to benchmark its economy against different countries in various perspectives. Although that data is great to have, it doesn’t go deeper into the parameters and doesn’t give any understanding about the reasons for the status quo. That is exactly what GEDI is about. GEDI - The Global Entrepreneurship and Development Index is a peer-reviewed method to profile National Systems of Entrepreneurship and identify bottlenecks that hold back a country’s entrepreneurial performance. GEDI indicators or pillars as GEDI calls them are representing entrepreneurial aspirations, attitudes and abilities. GEDI builds on 15 years of data collection and research by leading entrepreneurship academics, combining hard data and ”soft” insight to understand how a country’s entrepreneurial dynamic works and where the bottlenecks can be found. The GEDI Index ranks 120 countries worldwide, but Estonia is one of the pioneers to engage in the thorough analysis process. As a straight outcome, EDF will be drafting the Startup Estonia program according to the survey results, but not only. GEDI has looked at the whole entrepreneurship system and the findings in our opinion, will be of great value for all the policy planners and implementation agencies. As a reference, the GEDI methodology has been endorsed in academic peer reviews and by the European Commission, who use GEDI to measure the entrepreneurial profile of EU’s ”NUTS II” regions. GEDI is conducted by the GEDI Institute and coordinated by Estonian Development Fund.
This is the overall process of the GEDI analysis. We started with GEDI in late autumn 2013 and today we are where the arrow is. Professor Erkko Autio and the rest of the GEDI international team has collected data from different surveys and reports (GEM, World Bank etc), they have been over to Estonia to have strong debates with Estonian national core and finally agreeing on the initial list of bottlenecks. The bottlenecks, however, were very wide and now it really got interesting. According to the GEDI methodology, in order to better understand the bottlenecks, validate them and open the problems in more detail, focus group discussions with key stakeholders, experts would follow. We had the pleasure to engage a set of very smart people for all 4 focus groups, each focusing on one bottleneck. I am happy to see that some of you are also here. Today we are at a point where the focus group discussions have successfully been carried out, summaries drafted. Next up we will engage key stakeholders to generate solutions for tackling the problem areas indicated by GEDI and their implementation.
So these are the bottlenecks proposed by GEDI, which have been revised and enhanced by the focus groups. We have gained a lot of valuable information with the group discussions and I would like to share some of it with you.
1. The overall attitude towards entrepreneurship is that it is something very tricky and fussy. In many cases people can’t make the difference between being an entrepreneur or manager at a company. 2. Entrepreneurship and entrepreneurs as the creators of value aren’t appreciated enough in the society. Being an employee at a high position is seen as more favourable and important. 3. Being an employee is considered safer than being an entrepreneur, especially in the startup phase. Becoming an entrepreneur is an effort that might take years before it pays off. Bills however have to be paid every month on time. Estonian families don’t have enough accumulated capital to cope with that sort of uncertainty and foreign capital is in many cases not trusted. A deeper cultural restraint – home is sacred and will in no case be put in as a collateral for a business loan. 4. Hard individual work is valued more for achieving success rather than putting effort into creating relations. If this can be enough in a closed environment, then for companies with growth ambition this needs to be addressed for sure. 5. An interesting aspect that came up in the discussion is that in Estonia young people aren’t use to positioning their future and planning their personal as well as career path. This differentiates us heavily from big economies. A small society doesn’t demand this. A personal career path isn’t drafted; young people rather try to be as flexible as possible on the job market.
1. Attitudes supporting entrepreneurship and entrepreneurial thinking, development of emotional intelligence and leadership skills – all this has to start in the elementary education level. The curricular and study methods today aren’t giving young people the skills and attitudes needed to become an entrepreneur. 2. Basic knowledge about entrepreneurship on average is very low (balance sheet, finances, business model analysis etc.) and close to 0 in creative industries. Lack of knowledge however isn’t a problem only for new entrepreneurs. Established companies cannot manage growth and launch export activities. 3. There is a need for a methodological leader for entrepreneurship education, who would run surveys to support its actions and systematically manage both formal as well as the informal entrepreneurship education. Today biggest Estonian universities with the lead of Tartu University have gained responsibility for creating content for entrepreneurship education, setting up a competence centre and managing the landscape. As a reference to foreign universities their activities have to be supported with surveys, that investigate the process of students becoming entrepreneurs. So the status quo isn’t good, but hopefully going through a change for the better. 4. Another problem is, what is being taught under the entrepreneurship education and training headline. Skills taught today have to take into account the demands of the future economy. Today in Estonian media agriculture, construction etc. get 95% coverage, whereas in the future the main emphasis is on service economy. If in USA 80% of entrepreneurship studies consist of soft skills (people skills) and 20% hard knowledge (finances, marketing etc), then in Estonia it is vice versa. Relations are the main reason for companies to go bust; yet developing a set of skills to deal with people issues isn’t looked at. Estonian local market is very small and every company with slightest growth potential has to engage in cross boarder activities. Doing international business however demands a certain set of skills (e.g. creating and maintaining relations), which have to be developed through entrepreneurship training. Today these skills are not enough appreciated and developed in Estonia.
The third bottleneck – Innovation. 1. Most Estonian companies have no attention to grow in terms of employees or new markets and therefore make no investments into innovation. Startups can handle the growth up to 1 MEUR companies, but continuing the growth path from that point isn’t happening well. On the other hand incentivizing established companies to grow and innovate remains a challenge. So there is a lack of knowledge to grow, but the even bigger problem is that entrepreneurs don’t have the wish to grow. 2. Today there isn’t much collaboration between companies, entrepreneurs act mostly as “lonely wolves” and believe they have to take on all tasks on their own and alone. The little cooperation there is between companies today is triggered by other reasons than growth and innovation (rather minimizing expenses, subcontracting). 3. There are no straight incentives to invest into innovation (e.g. tax breaks like the Enterprise Investment Scheme in the UK). Another thing is also the awareness of entrepreneurs of the support that is available from the government or in the form of venture capital. For startups there is more capital available (seed and startup phase) than there are teams with great ideas. 4. Innovation is orchestrated from the government, the top-down structure. There isn’t enough acknowledged need from the industries for research and development. In terms of the amount of patents filed by the research organizations Estonia is performing well, yet the problem is that the majority never reaches the market. 5. In traditional industries IP is still not seen as an asset vs. machinery, real estate. The problem lays in the lack of experience with intellectual ownership and how it can create value. Sweden is a great place for registering IP in ICT and Austria for example for biotech. Estonia is out of competition in terms of IP since there are no effective motivators to register it here. And the whole IP system- Tech transfer offices, competence centres, universities, engaging entrepreneurs – they need to be set common goals and linked to work together. Today pieces are there, but they don’t make a whole.
1. In Scandinavia there are funds, family offices that have very good understanding and expertise of a sector (for ex timber, backery etc). In Estonia we have generalized money and investors don’t have expertise in the sectors, therefore Estonia is lacking the value added private equity. Starting from next year the money supply for early startups will grow considerably. Start-ups, however, aren’t only after investment but the connections and expertise that they gain from the right investor. Therefore the main challenge is to get in the right network, access the right people and support the emergence of smart investors. 2. If pension funds would invest in local funds there wouldn’t be a need for extra entities to enter the market. Also according to the current law only about 10% of the funds assets can be invested into non-listed companies, but even that goes mainly out of Estonia. 3. Estonian tax system is simple, which makes it favorable for foreign companies. However the simplicity comes with a high price. One of the main burdens is the social security tax (with no ceiling), which makes it expensive to employ people through Estonian business entity (which is the main cost for high tech companies). Another aspect is the corporate income tax, which on paper is 0%, but will be taxed with income tax (21/79). Taxing profit as it emerges and minimizing the labor taxes would be more favorable (especially for new companies). 4. Locally it is very hard to raise money between 1-4 MEUR. Foreign investors are willing to invest in Estonian company if the entrepreneur can show local investors participation in the investment round. Otherwise investors demand the business headquarter to be relocated. 5. In the upcoming years the supply of the capital will be exceeding the demand. The challenge will be ensuring the addition of teams with ideas to match the supply and therefore not to restrict the development pace of the entrepreneurial ecosystem.
Following data is calculated as a percentage from 18-64 population according to latest GEM 2013 data 1. Potential entrepreneurs – people, that want to launch a company in less than 3 years time. 2. Nascent entrepreneur – has paid salaries up to 3 months, written bus plan or gathered a team 3. New entrepreneur – owner-manager of a company that has been active 4-42 months 4. Established companies – owner-manager of a company active 42+ months 5. In terms of growth expectation of early stage companies that expect to employ more than 5 people in 5 years Estonia and Israel are very similar (in established companies as well). 6. Innovation in GEM is described through the newness of the product. In Israel 57% of TEA indicate their product being new to the market, whereas in Estonia it is 8% lower. 7. So in Israel entrepreneurs are appreciated way more than in Estonia Estonia and Israel are similar in statistics as you see, but keep in mind what lies behind the % since the population is 8 times higher. Also an interesting indication of the innovativeness of the entrepreneurship is that there are around 12 000 high tech startups in Israel and only ca 250 in Estonia. So how to boost this number? That is what I invite you to discuss after the lunch break.
Eesti idufirmade ökosüsteemi pudelikaelad
Ettekanne seminaril Tallinnas 10.04.2014
What is GEDI?
• Global Entrepreneurship Development Index
– profile entrepreneurship ecosystem
– identify bottlenecks
– policy suggestions
• 15 pillars in categories: Entrepreneurial Aspirations, Attitudes,
• GEDI Index includes 120 countries
• Bases on different comparisons: against EU29, efficiency driven
countries, selected peers…
Analytical Work, Core Group Debates
Profile Estonian ecosystem, identify initial list of
Focus Group Discussions with Key Stakeholders
Debate and enrich bottleneck themes, explore
Agree and prioritise policy action, implementation plan
Implementation, follow-up and monitoring (at least a year)
We are here!
Attitudes: Perceptions of Risks and Rewards
Associated with Entrepreneurship
Skills: Skills for Entrepreneurship
Capital: Capital Availability for Entrepreneurship
Innovation: Lack of motivation of the vast
majority of companies to innovate. Low
sophistication and value-added entrepreneurship and
incentive regime for innovation
Some deeper insights:
Unclear understanding of what an entrepreneur does
Entrepreneurs aren’t highly valued in the society
Low risk appetite
Relations aren’t valued in entrepreneurship
Estonians don’t plan their career path
Some deeper insights
Their development isn’t dealt with early enough
Basic knowledge about entrepreneurship is low, of growth
Entrepreneurship education isn’t systematic
Skills taught today don’t match the future economy needs
and low development of soft skills
Some deeper insights
Comfort-zone driven entrepreneurship is dominant
Low level and simplistic collaboration
Lack of incentives for private money to invest into
Not enough pull for innovation
IP – low experience, incentives, system performance
Some deeper insights
Lack of smart specialized capital sources
Pension funds don’t invest enough locally
Inflexible and expensive tax system
1-4 MEUR is hard to raise in Estonia or through Estonian
Growing deficiency of ambitious projects to invest in
Israel vs Estonia
Potential entrepreneurs 24% 19.4%
Nascent entrepreneurs 5.3% 8.8%
New entrepreneurs 4.8% 4.5%
Established companies 5.9% 5.0%
Growth ambition 29% 27%
New-to-market products 57% 49%
High status of entrepreneurs 80% 59%