Not all start-up exits are necessarily negative.
Successful trade sales offer entrepreneurs an opportunity to harvest their innovation efforts. After exiting a business, some continue being an entrepreneur in a different capacity. The person could become an investor or mentor other aspiring entrepreneurs. Some enter the world of entrepreneurial philanthropy. These different scenarios are all examples of entrepreneurship recycling: reusing capital and experience built after the start-up exit to drive innovation and productivity.
At the other end of the spectrum, there are scenarios when an exit is done in adverse circumstances that has negative ramifications.
During an OECD workshop on business exits, several expert panelists weighed in on what can be done to encourage successful entrepreneurs to re-invest and re-engage in innovative ventures following an exit. GEM UK researcher Jonathan Levie, Professor of Entrepreneurship & Regional Development at the J.E. Cairnes School of Business & Economics at the University of Galway, was among the panelists.
He shared insights on start-up exits gleaned through the GEM Adult Population Survey, a comprehensive interview questionnaire, administered to a minimum of 2,000 adults in each GEM economy (approximately 50 countries per year). The survey is designed to collect detailed information on the entrepreneurial activities, attitudes and aspirations of respondents.
Between 2015 and 2019 among 32 OECD countries, 2.1% of a representative sample of working age adults answered that they exited a start-up and the business did not continue. Between the pandemic periods – 2020 to 2022 and among 30 OECD countries – this number increased to 3.4 percent.
Among 10 reasons for quitting a business in between 2020 to 2022, the COVID-19 pandemic was tops.
After reviewing these and other GEM findings, Levie highlighted patterns and possible policy implications:
- Over half of exits are NOT attributed to business failure or financial issues.
- There are high rates of business churn (i.e. both business starts and business exits by individuals) in OECD economies in North and South America.
- There are low rates of business churn in OECD economies in Southern Europe.
- COVID-19 increased the rate of quitting but did not decrease start-up attempts.
- Poorly educated females and low and mid-income, poorly educated males have the highest rates of exit AND these groups are most likely to try starting again within a year. With their low opportunity costs and low human capital, this could be a training opportunity for governments or NGOs to consider.
- Wealthy males have the highest rates of exit where the business continued; a quarter of them are trying to start another business within 12 months of exit. Wealthy and well-educated females who have quit where the business continued are much less likely to start another business within 12 months than their male peers; the opposite is true for poor and less educated individuals.
Levie concluded: “Experienced, wealthy, better educated women entrepreneurs in the OECD who sold or left an ongoing business in the pandemic years seemed less likely than their male peers to re-start a business quickly. At first sight, this looks like a loss for the entrepreneurial recycling process, and is worth investigating in more detail.”