Project “Create County” will finish at the end of the August. Through the project student teams in Latvia and Lithuania worked on different business projects in order to create economic values for their own counties. During project period in both countries were created in total 16 new companies, 7 new jobs and attracted around 180 000 EUR as financing for teams’ projects.
“Create County” was financially supported by Erasmus+ programme and one of the goals of the project was to evaluate current business support tools in both countries for youngsters and come up with recommendations how to improve them.
It needs to be stressed that during 2014-2016 when project was running initially in Latvia and later in Lithuania, there were not available most of the business support tools from current EU planning period 2014-2020. So it was not possible to evaluate some of the most effective current solutions. Nevertheless, by working with student teams and seeing some of basic challenges that they have to overcome in order to start and run successfully businesses, we came up with 8 recommendations for the government of Lithuania, counties and universities.
1. The biggest obstacle for starting up business is the decision itself. Such decision means initial costs and administrative and tax costs all the time while company exists, even if idea didn’t worked out. Most of the youngsters have also doubts and fear about establishing company and starting up business. As a solution for this problem could be creation Open Companies in business incubators or under municipalities, where youngsters could test their business ideas. In such companies there would be one supervisor/accountant who would sign all papers and would secure that all businesses are done accordingly to laws and terms. At the same time youngsters through such companies would be able to offer their services or products thus testing demand and getting first experience until they have enough confidence and are ready to create their own company.
2. Strong aspect that hinders starting up a business is tax legislation and tax rates. Quite often companies are established, but are working in “grey economy” at least initially. Also continues changes in legislation, taxes and different rules requires a lot of energy, knowledge and spending for specialists, which is a big burden for every young entrepreneur. Also each euro that is earned is important in initial stages and could be difference between success and failure. Meanwhile such companies doesn’t create any difference for state budget. We suggest to create new type of enterprise form: Beta enterprises. Those would be companies that would have legal status, but they would not pay any taxes and fill any administrative forms. Also they would have very simple process for founding and for liquidation. Beta status would be available for companies which yearly turnaround would not exceed 3000 EUR. Through such companies anyone would be able to test their skills and interest in business, but tiny turnaround would guarantee that those companies would not distort competition and would not create losses for state budget.
3. The biggest problem for any startup company is to attract necessary funding. Private investments in Lithuania almost exclusively works only in cases of personal contacts and friendships. At the same time a lot of government money is being allocated for risk investment funds who are targeting companies with high growth potential. Without doubting need for such companies, it needs to be pointed out that a small kindergarten with innovative methods who employs 3-5 people in the long term could bring more income and benefits for a country then a Hi-Tech startup with the same number or employees and option to leave Lithuania at any moment if that would be better for business growth and profit potential. So, from the sustainable long term development it equally important for a country to support creation of small local businesses which would also help to move people from public sector, where government pays all the salaries and taxes, to a private sector. In order to assist such process we suggest by the similar principles that risk capital funds are co-financed by government, to create funds that would invest only in such small local businesses. State could provide 50% of the funding and private investors 50% as well. Funds could be providing loans to such companies without collateral. Those loans would be returned back only if business proves to be successful. In the long term private investors would earn money from successful companies, but state earns money through new jobs and taxes.
4. Another option where to receive capital is through different business competitions. There are plenty business ideas competitions that are organized by government institutions, municipalities and businesses. But there is big difference between creating a great idea and realizing it in real live. That’s one of the motivations for running project Create for County, because it focuses specifically on business creation aspect. Unfortunately everyone else takes the easy route and focuses on ideas and provides money for the things that doesn’t bring anything. In some competitions money is given only when recipient can provide some invoices that shows that they have done something. Even so this is definitely a wiser attitude, it still basically is a tool for justification of failures after first hardships- we tried to do, but nothing worked out, here are our checks. Such outcome could fit very well with providers of financing as well, because that is not their own money and all they need is to show that money was used properly. We suggest to significantly alter principles upon which money is being given in such competitions. As a condition for giving out money should be principle of maximum effort, but not simply ideas or invoices. That would be agreement between giver and receiver in which money receiver agrees to implement and do certain list of tasks in order to successfully realize their business idea. Of course, it is impossible to request certain economic results in return of such money prizes, because every business project is just a potential- some potentials realizes fully, but some never do. But it is possible to request 100% effort from those who are going to get free money for their business. Such approach would secure that no money is being wasted through such business competitions, thus leaving more money for those who are willing and ready to do everything what they possibly can in order to create a successful business.
5. During the course of the project it was identified that it is complicated for students to find enough time and motivation to run business projects during their studies, because they are preoccupied by studying and many of them are already working full or part time in order to secure means for leaving and learning. At the same time each county provides small grants for local startup companies through business idea competitions or in other ways. We would suggest for counties to direct part of this money to support those native students who are ready to create local businesses and create own job place so that they would have opportunity to come back after studies to their own counties and live and work there. Thus both county and youngsters would benefit from such support tool.
6. Universities could become a strong support tool for young entrepreneurs. Teams that got supported by their own universities reached their goals easier and faster in Latvia. On the one hand, successful businesses would raise universities’ prestige and show that it can provide their students with real life skills and knowledge. On the other hand, students can use universities’ experience, knowledge and networks in order to realize their business ideas. Some of the universities are already providing business incubation opportunities for their students. This practice needs to be continued and developed further. In the best case, in order to evaluate student knowledge and to provide final marks, university will take into account practical achievements for students. Thus more focus would be put on students to really show what they have learned and understood, rather than simply write about it.
