The five myths that are hurting entrepreneurship

Studies linking entrepreneurship to job creation, not to mention the recent stock-market debuts of Twitter and Facebook, have sparked a new enthusiasm for start-ups. This trend should be music to my ears, given that I’m chair of the Forum’s Global Agenda Council for Fostering Entrepreneurship – but it makes me wary. Not because start-ups aren’t a key to long-term economic growth. They are. It’s more because uninformed people may rush to become involved, and make mistakes, leading everyone to be disappointed.

Here are five myths that I believe are harming the future of start-ups:

1. If we could create more start-ups faster, we’d solve the job crisis

Many business accelerators – companies which help start-ups to grow – and universities around the world have started celebrating how many new companies appear each year. But they don’t seem worried about which of these are poised to grow and make a real impact.

Yes, new companies create new jobs. According to a 2010 study from the Kauffman Foundation, all net new jobs in the United States have been created by enterprises less than a year old. But much of that job creation quickly evolves into losses as the majority of start-ups contract or go out of business. A full 40% of new companies close within the first five years. It is the remainder, which grow, that lead to long-term economic growth.

At the same time, discussions about entrepreneurship policy are often sidelined by the interests of small businesses, which should not be confused with entrepreneurial ventures. Most small firms stay small and don’t add many new jobs. For example, in the United States, only 23% of businesses with revenues of less than $10 million have any payroll at all.

There’s no doubt that start-ups and small businesses play a significant role in the economy. But if we are looking for growth, we need to focus on scaling ventures, not just starting them.

2. The main benefit of entrepreneurship is job creation

New ventures are critical for innovation because they can challenge the status quo and are a breeding ground for new ideas and talent. They lead to a more productive use of resources, and are therefore a key component of a country’s competitiveness. They also encourage people to solve society’s problems. For many, they provide a path to economic independence, and can therefore serve as a driver for democracy. None of these benefits can be measured by counting the number of start-ups or jobs created.

3. Entrepreneurs are young

Several years ago, my colleagues and I surveyed 500 founders of successful start-ups. The resulting study, Anatomy of an Entrepreneur, found the average founder was around 40 years old, married and with more than six years’ industry experience.

These founders were leaving paid employment to pursue new ideas. They worked in, say, supply-chain management or manufacturing, and soon started to think of solutions to workplace challenges. These ideas don’t seem obvious to a 22-year-old, but they are business’ untapped resource. The entrepreneurs cited prior industry experience as the most important factor in their success.

4. Investing in entrepreneurship means investing in companies

Entrepreneurial communities are driven by people and ideas. As venture capitalist Brad Feld asserts in his book Startup Communities: Building an Entrepreneurial Ecosystem in Your City, start-ups thrive when experienced founders mentor the next generation.

Meanwhile, many governments eager to support entrepreneurship are making misplaced investments. Mariana Mazzucato, economics professor and author of The Entrepreneurial State: Debunking Private vs. Public Sector Myths, describes how the UK annually spends $8 billion on funding new companies and start-up programmes – more than it spends on teachers or universities.

But this is misguided. A 2012 study by Sergey Anokhin and Joakim Wincent discovered that start-up rates did not positively correlate with innovation in countries that didn’t invest in research and development. Why not? I would argue it’s because the start-ups were created in response to a lack of jobs rather than out of new ideas.

When start-ups struggle to grow, in most cases we need more skilled talent and good ideas connected to each other and to early-stage private sector investments. Governments should play their part by developing human capital through education, driving innovation through fundamental research, and implementing laws that lead to more efficient capital markets.

5. We should emulate Silicon Valley around the world

In a rush to support new ventures, we often use a one-size-fits-all approach, but each region is very different. “Success stories about Steve Jobs and Jack Dorsey? They don’t resonate here in Nigeria,” says Eric Kacou, co-founder of Entrepreneurial Solutions Partners. “We need regional role models and mentors that show how it can be done in Africa. We need resources that are appropriate for the kind of start-ups we have here.”

In an effort to help spread the word, and to highlight local resources, the Forum’s Global Agenda Council for Fostering Entrepreneurship has partnered with the Kauffman Foundation to create the first truly global library of resources by entrepreneurs, for entrepreneurs.

Today, we are launching the Global Entrepreneurship Library in conjunction with Global Entrepreneurship Week and the Forum’s Summit on the Global Agenda. This growing repository for videos, lessons, case studies and document templates is being crowd-sourced by a worldwide network of founders and advocates across 138 countries. Please visit, spread the word and contribute.

Harnessing the power of entrepreneurship

Tech pioneer and entrepreneurship professor Bob Metcalfe said recently: “There are too many cargo-cult accelerators and Potemkin start-ups these days.” The risk is that the bubble will burst, leaving behind failed programmes and disgruntled investors, and poisoning the well for future opportunities.

Entrepreneurship requires long-term investments. It depends on a culture that accepts failure, agile and skilled talent, and a resilient ecosystem that will enable workers and ideas to flow easily from one firm to the next. Without these changes, efforts to support entrepreneurship will fall flat.

But if we can understand the mechanisms for how entrepreneurship happens, invest in developing the human capital and new ideas that drive it, and stay guided by a broader long-term vision, entrepreneurship can work its magic.

Author: Krisztina “Z” Holly is an entrepreneur, engineer and a contributor to Forbes. She is also the chair of the Forum’s Global Agenda Council for Fostering Entrepreneurship. On Twitter, she’s @krisztinaholly.

Image: A young man is seen working on a computer terminal REUTERS/Sivaram V.