The 2014 Global Entrepreneurship Monitor (GEM) report that included Qatar for the first time found that 50.4 percent of adults are planning to set up a business, 16.4 percent are in the process of starting a venture or running a business for fewer than 3.5 years, but only 3.5 percent of adults in Qatar manage an established business which has been in operation for more than 3.5 years.
While “total early-stage entrepreneurial activity” (TEA) rates are considered the highest amongst developed economies, the number of surviving businesses is well below the regional average. Bq takes a look at the reasons behind the high SME drop out rate.
“In order to build a stable, but vibrant business sector, it is important to have an appropriate business structure (consisting of early-stage entrepreneurs and established businesses) and an appropriate business dynamics (reasonable difference between higher rate of entrance and lower rate of exits from the business sector),” notes the GEM report and adds:
“A too high intensity of discontinuations might point out potential reasons, e.g. starting a business venture which is not well prepared, bad management of the venture, or extremely strong influences of market distortions—in any case, this is an indicator of wasted resources.”
In the case of Qatar, the numbers stand at 16.4% for early-stage entrepreneurial activity (TEA), at 3.5% for established business ownership, and at 4.8% (of TEA) for discontinuation of businesses.
Total early-stage Entrepreneurial Activity (TEA) includes individuals in the process of starting a venture and those running a new business less than 3 ½ years old.
Among innovation-driven economies the highest TEA rates are found in Qatar (16.4% TEA), Trinidad & Tobago (14.6% TEA), the United States (13.8% TEA), Australia (13.1% TEA) and Canada (13.0% TEA). Japan, with 3.8% TEA, and Italy, with 4.4% TEA, have the lowest share of early-stage entrepreneurs among their respective adult populations, according to the report.
Asked about the motivation for starting a business, 21.5% of surveyees said it was out of necessity, and 77.1% said their decision was opportunity driven, displaying the high entrepreneurial spirit in the country and reflecting the high status attributed to successful entrepreneurs (acknowledged by 87.1% of those surveyed). Obviously, the will is there. So what is in the way, bq asked.
One of the reasons for the high rate of SMS failure is quite simple – the lack of a sound business plan, market research, necessary knowledge and persistance.
An entrepreneur tells bq that the boom in the SME over the past three years has flooded the market with people who may not have the qualities, capabilities or the persistence to be successful entrepreneurs.
“Lack of proper research is a draw-back in many businesses. This is being solved to an extend through QDB (Enterprise Qatar) and incubation center by educating and providing quality services to startups. These institutions have supported many starters but there is a trend of many of them not living up to the mark. I feel there is a lack of accountability for the investment provided.”
Another business owner bq spoke to, agrees: “Lack of knowledge and fear of failure are also strong factors, we tend to question ourselves a lot and sometimes people can be hard on themselves. Also out of concern and love, family members and friends might talk you out of it because having a business is uncertain and unstable. Hearing it from loved ones might affect your decisions. I believe that in order to have a successful business, you have to build a thick skin and believe in the process. Embrace failures and learn from them, be focused and keep going.”
Providing Qatar’s first-ever GEM data set was Silatech, a leading regional social initiative, in collaboration with Qatar University’s Social & Economic Survey Research Institute (SESRI).
Dr Tarek Coury, Senior Economist at Silatech, told bq: “The Adult Population Survey (APS) commissioned by Silatech looks at the attitudes, aspirations and activities of Qatar’s adult population, both Qataris and non-Qataris, with regard to entrepreneurship.
As you mention, there is a big gap between aspirations of entrepreneurs in Qatar and their capacity to actually create and sustain successful businesses. The APS survey asks those who are actively engaged in starting a business if they believe they have the necessary knowledge, skill, and experience required to be successful.
When compared to other Arab countries were data is available, entrepreneurs both Qataris and foreigners, tend to have slightly less confidence that they have the right skills and knowledge to succeed.”
Lack of financing, rising rents, shortage of talent
Although indispensible, knowledge, skills and experience do not guarantee the success of a business venture and many promising startups succumb to the harsh market realities.
When asked why they discontinued their business ventures, entrepreneurs cite high rents, difficulties in financing their businesses, and lack of profitability. Foreigners in our sample also cite other jobs and business opportunities as an important reason for discontinuance.
Silatech has also commissioned the views of various experts through a National Experts Survey which aims to explain the collective challenges businesses, in particular startups, face in Qatar. Our experts cited government policies, lack of financial support and market openness as important reasons limiting the capacity for startups to grow and become successful,« said Dr Coury.
Another entrepreneur shares his tale of woe: “If you ask any entrepreneur, the biggest skill is in finding the right people and making the right decisions. There is lack of good talents in the country at affordable rates for startups. The option comes down to hiring oversees, but the visa issues stand in the way. We face this issue even at the very moment as we are trying to get visas approved for the candidates we have chosen, which get turned down for unknown reason, but I guess nationality is the problem.”
Qatar is a specific market
There is another important specific to Qatar that every aspiring entrepreneur should keep in mind. With its 1.700.000 potential adult customers, it is a very small market. And with about 90% of population living in Doha, the competition is also very geographically concentrated. Oil and gas revenues have been the major catalyst for growth of the non-hydrocarbon sector in Qatar which has developed to serve local market demand (hospitality, F&B, luxury goods).
Explaining the specific dynamics of entrepreneurship in Qatar, Dr. Coury said: »First, Qatar is a small market, implying that businesses that manage to export their products and services have a higher likelihood of success than those who don’t.
Second Qataris have very high incomes on average – this implies that Qataris will probably favor buying an equity stake in an existing business or franchise rather than starting a business from scratch. Third, foreigners make up a large proportion of the workforce and as a result, they should be encouraged to contribute to wealth creation in Qatar but this is made difficult for example by ownership laws.
Asked about what could be done to improve the SME rate of survival, Dr Coury noted that »It is important to stress context in the Qatari entrepreneurship experience because many features of our entrepreneurship ecosystem are unique to Qatar and not found in other countries.
As a result, replicating policies and programs that have been effective in other countries is not likely to result in significant changes in the rate of survival of SMEs.
Overall however policies that can increase the likelihood of economic diversification through entrepreneurial activity should encourage the establishment of export-oriented businesses, facilitate wealth creation by foreigners and set up support mechanisms for Qataris to acquire and manage existing businesses (both in Qatar and outside).«
As far as administrative obstacles that impede entrepreneurial activity go, many growing markets face them and Qatar is no different in this regard. »A number of measures could ease the frictions associated with establishing businesses.
These include improving online procedures, establishing a one-stop-shop experience for startups, removing the requirement for a company seal and remove the paid-in minimum capital requirement.
Because the local market is small, successful entrepreneurs in the future will be more export-oriented. So policies that encourage the development of sustainable businesses that can plug in to regional and global supply chains would be particularly useful for local entrepreneurs,« concludes Dr. Coury.