Entrepreneurs may discontinue a business for a range of reasons. They may be unable to reach or maintain profitability, or they may run out of capital. Conditions in their environment, such as excessive bureaucracy, may impede long-term sustainability. On the other hand, business exits may not always be due to negative reasons. For example, one may sell a business, retire, or simply exit to pursue something else. Consequently, the reasons for exits are a key consideration.
Global Entrepreneurship Monitor (GEM) is a consortium of national country teams, primarily associated with top academic institutions, that carries out survey-based research on entrepreneurship around the world. GEM is the only global research source that collects data on entrepreneurship directly from individual entrepreneurs.
According to the 2019 GEM Global report, all survey respondents were asked whether they discontinued a business in the prior year and the reasons for discontinuing. It is important to look not only at exit rates but at how these relate to startup efforts. For example, when there is both high startup activity and high exit activity in an economy, it may be costly or disruptive to have so many starts and stops, and it might be questioned why so many people are starting businesses they are unable to maintain. To this end, GEM has been conducting research in 49 economies to show the correlation between Total Early-Stage Entrepreneurial Activity (TEA) and discontinuance rates
Total Early-stage Entrepreneurial Activity – TEA – Percentage of the adult population between the ages of 18 and 64 years who are in the process of starting a business or already started a business which is less than 42 months old.
Business discontinuation rate: The percentage of the adult population aged 18–64 years that have discontinued a business in the past twelve months, either by selling, shutting down, or otherwise discontinuing an owner/management relationship with the business
According to the 2018/2019 GEM Global report, discontinuance was highly correlated with TEA in most cases. For example, in Thailand, Chile, Guatemala, and Lebanon, discontinuance rates are high, but so is TEA. This could signal limited alternatives for those who discontinue their business and are forced to start a new business, creating a cycle of starts and stops. Conversely, discontinuance is low in many European countries, but it is accompanied by low TEA rates. This could be explained as a case of pragmatic selectivity, in that few businesses get started, but those which do are most likely to be viable. Finally, for some economies it may signal excessive caution and thus missed opportunities due to a lack of risk-taking.
In 10 economies (Countries) , the reports concluded that discontinuance rates were half or more the level of TEA. Six of these were from the Africa and Middle East (Angola, Egypt, Iran, Morocco, Saudi Arabia, and Sudan). Three were from Europe (Cyprus, Greece and Sweden) and one from Asia (Taiwan).
REASONS FOR DISCONTINUANCE According to the GEM Global report, the most common among reasons cited for discontinuing a business was a lack of either profitability or capital, accounting for an average 45% of exits, unweighted across the sample. In the Middle East and Africa, lack of profitability or capital was the most common reason given, accounting for more than half of exits in Angola, Lebanon, Egypt, Iran, UAE, and Qatar. In other regions, over half of the exits were also due to problems with profitability or finance: Turkey, Uruguay and Colombia, and nearly three-fourths in India.People also chose to leave their businesses because they sold them, retired, or decided to pursue another opportunity. This accounted for 25% of exits on average. Among economies with high exit rates, this reason was cited by 29% in Taiwan, 43% in Canada and 51% in Morocco.
Governments, businesses, and other organizations and individuals place a high emphasis on encouraging people to start businesses in many economies around the world. However, building sustainable businesses is equally important. If too few have reached the established business phase, this could signal issues with the sustainability of the types of businesses started, the propensity and ability of entrepreneurs to maintain their businesses, and the environment’s ability to allow a transition from startup to maturity to evolve unimpeded. While new businesses create jobs and new value for customers and stakeholders, mature businesses provide stable employment, products and services customers can continue to rely on, and long-term value for stakeholders.
Most African countries like Ghana must sit up and rethink the pathway of their entrepreneurial ecosystem regarding the ambience needed, not only to start business but a sustainable path to transition startups into matured stage. This, always need to be demonstrated by the government of the day. There needs to be consideration for encouraging people to start and ensuring a chance for survival and growth, providing a healthy mix of dynamism and stability.
CREDIT: Global Entrepreneurship Monitor (GEM) Global Reports
THE AFRICA REPORT 