WHEN ONE DOOR SHUTS, ANOTHER ONE OPENS In association with ISME

Mark Fielding, CEO ISME, The Independent Business Organisation.

Overcoming the stigma of business failure can lead to full entrepreneurial potential for wealth and employment in Ireland writes Mark Fielding

If we were to believe the most recent 2006 GEM report on entrepreneurship in Ireland we should be coming down with new businesses and new entrepreneurs, with over 7.4% of the adult population thinking of setting up a business in Ireland in the last 12 months. The GEM report states that 44% of Irish adults perceive that there are good opportunities to establish a new business at present. 50% also believe that they have the necessary skills to successfully establish and run a new business. 

So why do the statistics not translate into more real new ventures? Where have all the potential entrepreneurs gone? Why is the US more entrepreneurial? The answer to why our American cousins are more entrepreneurial is graphically demonstrated in the statistic which shows 48% of Europeans agree to the statement “One should not start a business if it might fail”, while only 19% support this statement in the United States.

RISK-AVERSION

There is a relatively pronounced risk-aversion among us Irish, which can be considered as an important inhibiting factor to business start-up. Europeans predominantly mention the risks of bankruptcy, negative consequences for the family and the loss of personal property as the most feared outcome of bankruptcy. So, the main reason for the majority of people not pursuing their ‘dream’ is the fear and stigma of failure. This is a deterrent to entrepreneurship and a positive attitude to risk-taking and failure in conjunction with the provision of appropriate support are the key to encouraging people to become entrepreneurs.

SERIAL ENTREPRENEURS

But business failure does not mean losing entrepreneurial spirit? Research shows that a large majority of ex-entrepreneurs maintain entrepreneurial intentions subsequent to business closure and also that companies founded by restarters grow faster in terms of turnover and employment than companies run by entrepreneurs who have never failed.

Some well-established companies would not exist if their founders had given up after their first failure, and we would have to go without a host of practical items if the inventors had buried their pioneering spirit after the first failed attempts. Business failure has to be taken seriously, but if we want to tap the full entrepreneurial potential for wealth and employment in Ireland we should not throw out the baby with the bath water. Accepting firm failure, insolvency and bankruptcy, while reducing the economic and social costs of them and at the same time tackling the attendant stigma, needs to be addressed in Ireland if we are to maintain our growth potential.

IMAGE ENHANCEMENT

So how do we go about changing attitudes to business failure with the general public who often perceive insolvency as a criminal affair, with Government agencies, some of whom still look on self employment and small business as bordering on the grey market and our politicians who abhor ‘failure’ and live off success story photo opportunities.

The inital task is to iimprove public image through education and media where the benefits of a fresh start should be put forward in information campaigns and education programmes, showing that making several attempts goes hand in hand with a normal learning process, research and discovery.

The media can play a role in dissociating bankruptcy and fraud and disseminating the benefits of renewed entrepreneurship, thus improving the image of business restarters among the public at large and valuing their experience.

The second area of concern is the role of insolvency law and it is vital to create the right framework which, while protecting all parties’ interests appropriately, recognises the possibility for an entrepreneur to fail and start again. Bankruptcy law should include a clear distinction between the legal treatment for non-fraudulent and fraudulent bankrupts.

Entrepreneurs who go bankrupt through no fault of their own should be entitled to receive a formal Court decision declaring them non-fraudulent and excusable. The decision should be publicly accessible.

Legal proceedings should be made simpler and faster, thus maximising the value of the assets in an insolvency or bankruptcy case when reallocating resources. Typically, proceedings should last a maximum of one year where practical.

Insolvency practitioners should be mandated to exhaust all options to restructure and rescue rather than focus solely on liquidation and report as such to the courts.

The third intervention would be the active support of businesses at risk. It is acknowledged that the number of insolvencies cannot be reduced to zero, but early support for viable enterprises will help keep insolvencies to a minimum. Support measures should focus on insolvency prevention, expert advice and timely intervention.

Businesses at risk cannot afford expensive advice; therefore attention needs to be paid to the accessibility of support and the enterprise one stop shop proposed by the Small Business Forum must take this aspect into account. Adequate psychological and technical support and specific training and coaching should be available for at-risk and restarting entrepreneurs.

Published in the December 2007 / January 2008 Issue of Irish Entrepreneur