Youthful Start-up Culture Spreads To Russia's Regions
- Apr. 18 2013 00:00
The trend among young people to start their own business is growing not only in the twin capitals but also in Russia's regions. And there's more help than ever for youthful entrepreneurs. Since 2009, when the first loans became available for business people with little experience or capital, more banks and institutions have become involved.
Enthusiasm for start-ups has grown since the financial crisis hit Russia in 2008 but state programs, sponsors and young entrepreneurs are also driving the trend. Budding business people in the regions face different challenges: a narrower market, more varied consumer habits that contrast with those in the capitals and extra administrative barriers. Red tape can be a greater burden on small businesses.
Federal programs help to overcome these barriers and ease the process of starting a business. These are widely advertised in the press and on television. Less well known are those offered by international sponsors. For example, the International Business Leaders Forum (IBLF) runs the program, Youth Business in Russia, or Молодёжный бизнес России (MBR). The program brings together federal authorities, commercial organizations and private individuals to become advisors and coaches. Banks provide loans on favorable terms.
By focusing on the creation of small businesses the project aims to tackle youth unemployment. Young people are two to three times more likely to be unemployed than older people of working age, according to figures from the Organization for Economic Cooperation and Development. By helping to form and develop small businesses, such projects are likely to bring down unemployment in general. In mature economies, 80 percent of new jobs are created by small businesses.
The most important thing to note is the positive impression made by all the participants.
The small and medium size enterprise (SME) sector accounts for about 50 percent of gross domestic product and an absolute majority of jobs in OECD countries. Opora Russia, The All Russian Non-governmental Organization of Small and Medium Business, estimates that the country has 3.4 million entrepreneurs, and that SMEs account for about 25 percent of jobs and about 17 percent of GDP. That's a small but growing body of entrepreneurs. The question for many people is how to join it.
The IBLF argues that 20 percent of people have the potential to become entrepreneurs but less than 5 percent have the opportunity. Research by David Blanchflower, of the University of Sterling, and Andrew Oswald, of Warwick University, in the UK, found that the probability of being self-employed actually rises with age but there is no firm link to education: highly educated people are more likely to be self-employed in the US and UK, but less likely in Canada. Self-employment is higher in the US among the dominant social groups but in the UK ethnic minorities dominate.
Other studies find that you are two-to-three times more likely to be self-employed if you have an entrepreneurial parent. Research also shows a strong link between setting up an independent business and having access to capital, such as an inheritance. This suggests that advice and the availability of lump sums or cheap loans are vital to success. And this is what federal and private sector initiatives provide.
The IBLF runs in many countries besides Russia, like Canada and Ukraine. The project was launched in Kaluga Oblast five years ago and has expanded to six regions, adding Voronezh, Novosibirsk, and Rostov oblasts and Primorskiy krai. In July 2012 the MBR project was launched in Moscow.
By January 2013 MBR had approved 139 projects with overall value of over 20.3 million rubles, or $530,000 USD. In total, the program has so far created 470 jobs, about half of them in Voronezh region, a third in Kaluga region and the rest split between Vladivostok and Novosibirsk. It's not just about creating jobs, however. By involving state authorities as well as young entrepreneurs, the organizers of MBR say they promote a common language, a shared interest in Russia's economic growth and opportunities on all sides.
Successful Launch Of Shop Shows That A Hobby Can Make A Business
Owner of the shop 'Hobby'
Roman Klyabov sells craft supplies through his shop, Hobby, in the city of Rostov-on-Don. These include paints, brushes, oils, canvases, clay and tools to work with wood. Customers can also take courses at the shop in painting, sculpting and other crafts. The total size of the shop is 78 square meters. He works with his wife and will soon hire sales assistants. The turnover is still small, as the shop only opened at the end of last year and is still building up its clientele.
"Set on having my own business, I started attending various business trainings and educational programs, and I tried to absorb useful information and contacts. That's how I got to the XII International Business Forum in Rostov-on-Don where I met Mikhail Koltunov, the regional coordinator of the program "Youth Business in Russia". When I learnt about the conditions, I understood that this was exactly the support I needed to make the first step. What was especially attractive was the complex approach of the organizers, which involves both financing and coaching. And since then everything has gone very smooth. In November 2012 at the forum of the leaders of the young entrepreneurship "Your Own Business 2.0" (Своё дело 2.0) I successfully defended my business plan and started organizing my business".
Subsidies And Contacts Get Web Developer Up And Running
Director of Unisoft
Dmitry Sizenko is a website developer in Shakhty in Rostov Oblast. Since he launched his business, Unisoft, one-and-a-half years ago, he and his young staff, three client managers and two software programmers, have completed 25 projects. The turnover of their company in 2012 was two million rubles.
How did you learn about MBR?
Dmitry Sizenko: "At one of the events which took place in the town of Shakhty I met representatives of the Small Business Support Fund and they recommended participating in MBR."
How did you benefit from participating in this program?
Dmitry Sizenko: "The most valuable thing which MBR can offer is coaching. An experienced business person can advise on a lot of issues which arise while running your own business."
Did MBR help you find investors?
Dmitry Sizenko: "MBR is not directly looking for investors, rather it help its participants to get favorable credit terms at the partnering banks. However, coordinators can give a positive reference and even personally get in touch with a potential investor. With MBR my business receives subsidies for development that help to stabilize it from a financial point of view."
Advisers Offer A Complex Array Of Support Ensuring High Success Rate
MBR program coordinator in Rostov oblast
What does the program offer young entrepreneurs?
"The support provided to the participants divides into three key categories: education, consulting and coaching, and bank financing.
To explain more clearly, IBLF is a platform on which different partners come together: authorities, social organizations, infrastructural supporters of entrepreneurship, financial sectors and business people. Each partner can contribute something to support the young entrepreneur. The goal of the program is to remain complex, in terms of the various types of support that it provides. Otherwise more businesses would fail, even with our support. After three years of the program , 85 percent of participants are survivors. That is a really high success rate."
Center-Invest Bank is one of the program partners. What is different about the bank's credit facilities for start-ups as opposed to established businesses?
"The person starting the business can receive a loan at Bank Center-Invest without participating in the program. Through the program, however, he will get better terms: the interest rate will be lower, assets do not need to be pledged and so on. The program ensures that the young business will be less risky, because the bank's staff will have advised and trained the young entrepreneur.
This is why the Bank has developed a special credit product, which is accessible only to participants of the program. This is the principle with all our partners. Our goal is not to shift the focus onto us, but instead to form such conditions under which it is beneficial for all the partners to work together to achieve best results."
The program was launched in Rostov-on-Don in March 2012. What are the results by now?
"There were more than 50 live requests about how to apply to join the program. Out of these requests we admitted 32 potential projects or participants. Out of these shortlisted projects, 18 were financed with a special loan from Bank Center-Invest and these 18 entrepreneurs are the successful participants in the program. They are now being coached and advised by the staff of the Bank. We have 10 more projects that are now at the stage of business planning and the program is ongoing. There hasn't been and there will be no wrapping of the program. It will continue."
Bank Provides Favorable Loans, Free Advice And Consultation
Chairman of Bank Center-Invest
"Bank Center-Invest has been supporting small business since 1997. The program "Youth Business in Russia" has successfully added to the existing program "Start up", including credits for young entrepreneurs on favorable terms, free advice and consultation. This time, on top of the favorable financing, the young participant receives coaching from an experienced businessman: either the Bank's client, or representative of the entrepreneurial organization. A public presentation of the project and a personal coach allows young entrepreneurs to gain credit without pledging their assets and under a lower interest rate, currently 12 percent annually.
"The state's interest has been expressed by Prime Minister Dmitry Medvedev, by President Vladimir Putin and other high profile authorities, as well as regional authorities all over Russia. Entrepreneurs solve many problems: from creating new work places and paying taxes, to the purely political issues, as they are very interested in the social and economic stability of their region and the country as the whole. But I think the most important thing to note is the positive impression made by all the participants in the MBR."