India has second-highest number of shadow entrepreneurs in the world

For every business that is legally registered in India, there are 127 shadow businesses that are not.  

India has the second highest number of shadow entrepreneurs in the world.

For every business that is legally registered in India, there are 127 shadow businesses that are not.

Shadow entrepreneurs are individuals who manage a business that sells legitimate goods and services but they do not register their businesses.

This means that they do not pay tax, operating in a shadow economy where business activities are performed outside the reach of government authorities.

Researchers at Imperial College Business School have found that a large number of shadow entrepreneurs are operating in India who aren't registering their businesses with official authorities, hampering economic growth.

In a study of 68 countries, Professor Erkko Autio and Dr Kun Fu from Imperial College Business School found that after Indonesia, India has the second highest rate of shadow entrepreneurs.

While Indonesia has a ratio of 131 shadow economy businesses to every business that is legally registered, India has 127.

Philippines have 126, Pakistan has 109 and Egypt has 103 shadow businesses to every legally registered business.

This is the first time that the number of entrepreneurs operating in the shadow economy has been estimated.

Experts say the shadow economy results in loss of tax revenue, unfair competition to registered businesses and also poor productivity - factors which hinder economic development.

As these businesses are not registered it takes them beyond the reach of the law and makes shadow economy entrepreneurs vulnerable to corrupt government officials.

The researchers suggest "if India improved the quality of its democratic institutions to match that of Malaysia for example, it could boost its rate of formal economy entrepreneurs by up to 50%, while cutting the rate of entrepreneurs working in the shadow economy by up to a third. This means that the government could benefit from additional revenue such as taxes".

The study says that business activities conducted by informal entrepreneurs can make up more than 80% of the total economic activity in developing countries.

Types of businesses include unlicensed taxicab services, roadside food stalls and small landscaping operations.

The UK exhibits the lowest rate of shadow entrepreneurship among the 68 countries surveyed, with a ratio of only one shadow economy entrepreneur to some 30 legally registered businesses.

The researchers also found that the quality of economic and political institutions has a substantial effect on entrepreneurs registering their businesses around the world.

Professor Autio said "Understanding shadow economy entrepreneurship is incredibly important for developing countries because it is a key factor affecting economic development. We found that government policies could play a big role in helping shadow economy entrepreneurs transition to the formal economy. This is important because shadow economy entrepreneurs are less likely to innovate, accumulate capital and invest in the economy, which hampers economic growth."

The researchers suggest that shadow entrepreneurs are highly sensitive to the quality of political and economic institutions.

Where proper economic and political frameworks are in place, individuals are more likely to become 'formal' entrepreneurs and register their business, because doing so enables them to take advantage of laws and regulations that protect their company, such as trademarking legislation.

The study said "We investigated the influence of economic and political institutions on the prevalence rate of formal and informal entrepreneurship across 18 countries in the Asia-Pacific region during the period 2001-2010. We found the quality of institutions to exercise a substantial influence on both formal and informal entrepreneurship. One standard-deviation increase in the quality of economic and political institutions could double the rates of formal entrepreneurship and halve the rates of informal entrepreneurship. The two types of institutions had a complementary effect on driving entry into formal entrepreneurship, whereas only direct effects were observed for informal entry. Institutions exercise an important influence on individual and firm-level strategic choice, and consequently on the type and form of the resulting economic activity such as entrepreneurship".

Informal entrepreneurs trade legal products and services, yet do not apply for business registration or file any incorporation documents with government authorities. The phenomenon of informal entrepreneurship is seen as a potential driver of job growth and economic development, especially in developing countries.

A recent survey by ILO found that employment in the informal sector provided, on average, approximately 40 % of non-agriculture employment across 39 low and middle-income countries. The informal sector accounts for close to half of all non-agricultural employment in Sub-Saharan Africa, 51 % in Latin America and Caribbean region, and the highest rates, 58 %, are observed in South and East Asia.

A large share of these would qualify as informal entrepreneurs. Informal entrepreneurship also speaks to another important issue for less developed countries, that of poverty. Nearly 1.3 billion people remain in extreme poverty (defined as a daily income of less than $1.25), many of which live in Asia and the Pacific region.

The Imperial researchers said "In this study, we argue that informal sector entrepreneurship, poverty, and inequality are conditioned by a country's economic and political institutions. Non-inclusive political and economic institutions can engender and perpetuate inequality and aggravate poverty. The institutional qualities of a society and its economy — such as economic freedom, the presence of policies that condition the operation of private sector, and institutions regulating the balance of political power and the structure of the bureaucratic system — play an important role in either facilitating or inhibiting economic growth and alleviating poverty".

From Times of India

Program turns beggars into successful entrepreneurs

UPLIFTING LIVES: Coordinator S. Mammu receives a check for the goat-farming project from IFIB executive Peter Chalakkal in the presence of Mamoon Al-Azami, left, and IFIB Secretary-General V.K. Abdul Aziz. (AN photo)

Islamic micro-finance, which is based on profit-sharing and does not charge interest, can play a significant role in alleviating poverty and transforming the poor into successful entrepreneurs, said Mamoon Al-Azami, a senior community development specialist at the Jeddah-based Islamic Development Bank (IDB).

“Nobel Laureate Mohammed Yunus introduced a new type of micro-finance through his Grameen Bank, inspired by IDB President Ahmed Mohammed Ali,” he said. 

“The initiative was aimed at turning beggars into salespersons. He gave them toys and other merchandise worth $5 to $10 and told them to sell them. It was a big success,” he said, while launching a seminar organized by the Indian Forum for Interest-Free Banking (IFIB). 

When Grameen launched its beggar-lending project, Yunus expected 1,000 or so beggars to participate, but 100,000 joined almost immediately and within two years, more than 25,000 stopped begging completely after becoming successful door-to-door salespersons. 

“The project not only helped in protecting the honor of these people, but also made them self-reliable,” he said.

In his keynote speech, Al-Azami told community leaders to work together to improve the condition of their societies instead of depending on others, including governments and politicians. 

He emphasized the role of Islamic finance in strengthening real economy. 

“Islam has encouraged lending, not to make money through interest, but to enhance social cooperation, cohesion and harmony.”

V.K. Abdul Aziz, secretary-general of IFIB, gave a presentation on the participatory micro-finance scheme. 

“It offers financial services to people who are denied access to the financial market and empowers people who can pursue projects with their own resources, and who lack assistance, subsidies and dependence.”

“It provides financial services to those who are traditionally non-bankable, mainly because they lack guarantees against a loss risk,” he said.

In the spirit of Islam that goes beyond mere profitability, this new financial system aims to maximize social benefits as opposed to profit maximization, said Aziz, a researcher on Islamic banking and finance.

“Micro-finance is a very flexible tool whose models can be replicated, but must be tailored on local socio-economic and cultural characteristics,” he said.

Speaking about IFIB’s goat farming project in Kerala, S. Mammu, a barrister and social worker, said it would not only solve the financial problems of the poor farmers, but also help investors make profit. 

Under the pilot project, five goats each have been given to 50 families regardless of their religions worth a total investment of Rs1.2 million. 

The beneficiaries will return three goats and their kids to the facilitator, who will sell them at local market price and distribute 33 percent of the profit to the financier, 33 percent to the farmer, 23 percent to management and 11 percent to the monitoring committee.

From Arab News

A Non-Depressing Story About Executive Pay

We didn't always make lots of money.

Photo by Emmanuel Dunand/AFP/Getty Images

How much do startup founders pay themselves? And how much should they pay themselves if they raise money from investors?

Career research company 80,000 Hours estimates that founders going through the Y Combinator accelerator program pay themselves about $50,000. If they go on to raise more money, that salary can double. If the startup flops, $50,000 could be the highest salary a founder makes.

"During the Y Combinator program, they use only a one-off seed investment from Y Combinator of $120,000 to pay living and business expenses," 8,000 Hours' Ryan Carey writes. The investment is expected to cover everything, including a small salary for the founder. "If they go on to receive angel investment [they] can pay themselves about $50,000 per year. With venture capital funding, this tends to increase to about $100,000 per year."

The most successful Y Combinator founders can make much, much more. Carey estimates that the founding teams of Dropbox and Airbnb are worth $6 billion combined, for example.

Carey's salary estimates for early-stage startups up with a Quora post on a similar topic. A founder who raised $500,000 used the Q&A site to ask, "Is a $100K salary too much for an angel/VC-backed startup co-founder?"

Foundry Group's Brad Feld thought a six-figure salary was too high for an early entrepreneur. Another person agreed, stating that while $100,000 is below what an engineer should make, it's "certainly above market for a seed-funded startup."  

"Salary should be sufficient to not create hardship—no sense in losing productivity because you can barely eat," this person concluded.

The general consensus seemed to be that a $50-$75,000 salary was reasonable. "$50K/year is plenty. Some families live on that," says VC Sean Owen.

David Rose agrees. "In my experience, that fact pattern (a pair of founders, $500K seed round) would typically see them each taking $50-$75K, at least until they either start generating revenue, or raise a larger round."

When you're profitable, you can start paying yourself a more impressive salary.

"An adviser once told me to keep the total annual figure (including taxes) under $100k per year until you're profitable, and VCs have seemed to accept this," another says.

From Slate

Why Entrepreneurs Should Try To Kill Their Startup Ideas

What's the best way to ensure your startup will succeed?

According to David Gomel, co-founder and co-CEO of Finom (a new matchmaking site for consumers and investment advisors), entrepreneurs can test their success by doing everything they can to do in their ideas.

"Instead of trying to figure out how to make an idea work, I think a lot of entrepreneurs would benefit instead from trying to kill their idea," Gomel told Benzinga.

"The success in their endeavor is really figuring out how your idea cannot work," he added. "We spent a lot of time going through every little unknown point early on, and taking meetings, and tried to figure out why [Finom] wasn't possible. We failed at that mission, but it gave us a lot of conviction that we could do something with this."

Finom may not be the norm. But if entrepreneurs succeed in killing their ideas, they shouldn't be too disappointed.

"The flip side of that is that if you do succeed in killing your idea, you've saved yourself a lot of money and time," said Gomel. "That's very important."

Be Out Of Synch

Entrepreneurs shouldn't necessarily work with individuals who are always in synch with each other.

"I think sometimes being out of synch with your partners is a good [thing]," Gomel noted. "It's easy to kind of always want to have your peak moments at the same time as the others. But sometimes it's helpful to have each other to fall back on when you're not at your peak and vice versa."

And it's not just about having different skills. Gomel said startups could also benefit from having individuals with different personalities/temperaments as well.

Shift Your Focus

When building Finom, Gomel said he and his partners tried to focus on an exciting area that was (up until now) mostly ignored by entrepreneurs.

"FinTech is [now] one of those spaces that a lot of people are putting a lot of time into," he said. "It's exciting to be in a space where there's a lot of attention."

Believe In Your Mission

Lastly, Gomel said, it's important for entrepreneurs to "really believe" in their mission.

"There are ups and downs through entrepreneurship, whether you gotta go through regulatory hoops or figure out financing or operations aren't working exactly as you expected," Gomel explained.

But when you have a "clear sense of purpose," Gomel concluded, it's easier to fall back on that -- as opposed to a business without purpose and without passion.

From Benzinga

8 Habits of Successful Entrepreneurs

There are certain habits the best entrepreneurs practice every day.

Business is a skill, and those that have become extremely successful exhibit different work habits and tactics than most people do. Success is not an easy thing to achieve, and everyone works differently. Most successful entrepreneurs and business owners have gained success through trial and error, and along the way they have learned what actions and practices help them achieve success most effectively. There are definitely some helpful tactics you can pick up that highly successful people tend to exhibit however and so here are the eight best business habits.

1. Start at the end.

Successful people are motivated by their goals. In the beginning decide where you want to end up – what is your end goal? From there work backwards by laying out the steps that it will take you to get to that goal. Go big or go home, make sure your goal is something that is hard to achieve and will make you stand out as a successful business owner. Once you achieve your goal, create another one. Remember the sky is the limit, and every step you take forward is just helping you become even more successful. For example you could have the goal to create ten new network contacts within the next month. Once you network with ten new people your next goal should be to leverage those contacts for useful information or good vendor deals. Think of running your business as running a decathlon, once you win one leg of the race you have to keep going to achieve full-blown success!

2. Exercise.

Regular exercise keeps your body and mind in good shape, making you overall more motivated and productive. Creating this habit can prove to be quite difficult, in fact researchers say it can take up to 66 days to form an exercise habit. But once you do you will improve your physical and mental health. Exercising is a great way to increase your overall motivation; if you are motivated to make changes in your body and how you feel, and you succeed you will realize that you can succeed at anything you put your mind to.

3. Wake up early.

Going to bed at a decent hour and subsequently waking up early (without being groggy and tired from staying up or out late) can make you a lot more productive. First, being awake before most people gives you quite time to think clearly and set up a plan for the day without feeling like your running late. Waking up early gives you the opportunity to take a few hours out of your regular day as well to relax and reset, which coincidentally also makes you more productive! The co-founder of Ecquire a computer software company located in San Francisco, Paul DeJoe rises each morning at 4 a.m. He does this because he says it gives him the opportunity to step away from all the hustle and bustle and have a few hours just to himself to truly work on things he finds important. Remember the early bird catches the worm!

4. Ask questions.

Ask the right questions all the time. Asking questions allows you to get a birds-eye view on every aspect of your work. Asking questions also gives you a mode for self-reflection, which is extremely valuable when it comes to business. Without self-reflection and questioning you would be blindly moving towards a destination. To make that destination success and not failure be sure question what it is your business is doing (overall goal), how you're getting there and what you need to stop doing and do differently. These questions will help you understand the most basic aspects and core concepts of your business way better and help steer you towards success.

5. Be honest.

Business is more than just wheeling and dealing, a large part of running a business is running it with integrity. Business ethics are a really important aspect of any business and the number one thing every business owner should keep in mind is that honesty is the best quality. Be honest with your customers, your employees and yourself. Being honest with yourself is a really important part of staying productive and motivated. Ask yourself every single day if you did everything possible to keep your business running smoothly, or did you slack a little bit? Slacking is okay sometimes, but when it goes unchecked it tends to increase in frequency. By questioning your own work ethic you will definitely get more done.

6. Focus.

Maintaining focus can be a difficult thing to achieve, especially when you are trying to focus on multiple tasks at once. Things can start to slip through the cracks if you try to multi-task. Multi-tasking also results in less quality work. Give your full attention to any one project at one time, this way you can turn out the best quality work possible.

7. Organize.

Highly successful people tend to be incredibly organized. Organization is the key to staying on track and focused. If you are constantly writing things down, you wont forget anything. If your desk is clean and put together, you wont lose anything and if your calendar and computer are organized you wont lose time looking for missing documents, or missing meetings. Taking notes helps you outline your goals for the day and helps you achieve those goals by keeping your brain organized as well.

8. Lead instead of demand.

Being the owner of a small business you are the boss, but what does that really mean? If you want to run a successful small business being the boss translates to leading instead of dictating. Being a leader means you push your employees in the right direction and help them pull you to success. You take charge, but you also bear a large portion of responsibility and work. Don't demand perfection from your employees because you aren't perfect either, in fact try to stray away from dictating at all. Your employees will be a lot happier, work a lot harder and have better quality work as well if they feel as if you guys are a team instead of a dictatorship.

There are many useful habits you can take on to live a more productive and motivated life. These habits will help you stay focused and on track for building your business. What are some habits you exude that have helped you towards your success?

From Business Insider

BEE does not make good entrepreneurs

Vusi Thembekwayo says entrepreneurs are made in the school of hard knocks - and BEE isn’t helping.  

I have pondered on this article for some time now simply because I don’t know if I want to be the one to say this. However, having pondered this, I have realised that writing the article and sharing with you may help us address the issues I am going to raise.

We know South Africa needs more “entrepreneurs”. We know South Africa needs more medium-sized businesses. We know South Africa has among the lowest rates of entrepreneurial activity in the world, according the TEA (The Early-stage Entrepreneurial Activity) report on entrepreneurship in the continent. Perhaps our president can ponder this fact: we are even lower than Malawi.

Why? Are we lazy? Are we too scared to fail? Do we not have the drive? Do we not have the education?

The answer is all of these and none of these. Yes, our education needs some work. You know that. Yes, we need to address the issues of work ethic among young professionals. You know that, too.

But here is my reason: BEE. And here are three reasons why.

Tame lions

The greatest crime of BEE as a principle is that it has made young, hungry and intelligent black youth opt for “access, not excellence”. So the measure of early success now is no longer how well you can do something but rather who you know, who knows you and what doors you can open.

Access drives success. Not the business, the innovation, the idea or the individual. Access.

Many corporates (who of course are white) have practised BEE or enterprise development from the highly paternalistic “ag shame” perspective. The narrative is around “the poor black entrepreneur who will never make it unless we help them”.

There are two injustices here. They honestly believe this to be true so they take the approach of helping businesses to the point of incapacity.

That is why even though we spend hundreds of billions every year on education, we have little to show for it. We don’t teach entrepreneurs how to stand alone, rather we teach them that we will always be there for them.

We teach dependency.

We, too, believe it to be the honest truth because the example of the entrepreneur that has conquered outside the BEE construct is so rare. We (black entrepreneurs) begin to believe the above narrative. So Richard Maponya is celebrated as an exception and Cyril Ramaphosa as a rule.

Lowered levels of “desirable difficulty”

Ask any entrepreneur and they will tell that their early sufferings were the periods most critical in their business success. You see suffering drives “necessity-thinking”. So entrepreneurs develop skills like cash-flow management, innovation (strategy and execution of business model) and most importantly, tenacity.

All entrepreneurs have one thing in common: they believe in themselves. They developed that belief through these years of early suffering. Once you believe you can, you can.

What BEE has done is lowered the threshold of suffering (the price you pay at the door of success so that you can enter the “club”) by making it easier for entrepreneurs to get in and make money. While the ideology means well, it completely defeats its own objectives.

All entrepreneurs, regardless of race, have to endure these difficulties so that when the going gets tough (and it will) they have sufficient emotional capital (invested in the “self-belief” bank account) to weather the storm of impending doom.

Framed and limited ambition and role models

All societies and population groups that succeed have a singularity in truth; their youth had role models. Human beings emulate other human beings.

So why are most Asians (Indian in South Africa) studying commercial subjects and now more recently the chartered accounting stream? Because they grew up in the cash-and-carry environment watching mom and dad sell Chappies for 5c to make a 1c profit.

They would spend their holidays in the store behind the till keeping count of the transactions: money in must be greater than money out, they learnt.

In essence, they learnt financial literacy before they even got to high school.

My ex-girlfriend, Natalie – and yes she is Greek – used to tell me the story of how many days she spent in her father’s restaurant during her formative years, watching him manage his business. When she grew older she was assigned to operating the till and then stock management – without pay.

Today he is among the most successful entrepreneurs in South Africa, having gone on to list his business. She, too, is equally successful. She runs a media sales business and makes silly money.

Why? Well, each of these societies had role models in “true entrepreneurship”.

Creating a few very well-connected individuals who form part of the global elite and über-rich may assist Johan and his team at Bentley sell more cars in the short-term.

It may even get Fabiani to hit record sales in Africa since inception, but it will not develop and grow a culture of entrepreneurship.

So, otherwise talented, black entrepreneurs today register a company and get a tax clearance certificate before they even open a bank account, a website or a business card. Why? Think about it?

We need a higher standard. We need to model correctly.

We need to reward and develop true entrepreneurs.

Where are the risk takers, the mavericks, the wide-eyed hopefuls?

Where are the “I will not be defeated”, “I will not give up” people?

Where are those who see opportunity in squalor and hope in deprivation?

Where are the entrepreneurs?

From The Mercury

Chinese entrepreneurs excel in creativity against aging Taiwan

Models present the luxurious interior design of a yacht. (Photo/CNS)

Taiwanese businesspeople in China chose to moan and complain about their misfortune instead of trying harder to find a better marketing strategy in the face of rising domestic competition, writes our Chinese-language sister newspaper Want Daily.

China's art and creative expression was gravely damaged during the decade-long cultural revolution from 1966 to 1976, but from this unfortunate devastation was born a generation of bold entrepreneurs mostly in their 40s, at the height of their careers. The most representative personalities are shopping portal Alibaba creator Jack Ma, 49 years old, search engine Baidu's creator Li Yenhong, 45 years old and Tencent creator Ma Huateng, 42 years old. In Taiwan, the only youthful comparison is in his 60s: Hon Hai's Terry Gou.

A Microsoft Taiwanese sales manager who does presentations about his company's products both in Taiwan and China always prepares two versions of a product. The presentation made to Chinese customers targets entrepreneurs between 30 and 40 years old while the Taiwanese version targets entrepreneurs between 50 and 60 years old.

Ling Lin-kuei, a Taiwanese businessman in Shanghai who operates golf courses, said his opinion on Chinese young entrepreneurs has drastically changed. "They have become ambitious, their thinking is agile, and if the situation keeps on going like this, the competitiveness of Taiwanese enterprises will be endangered," he said.

Yang Wanzong, the chairman of Sun Chateau in Shanghai, happens to play golf at Ling's golf course. Now 39 years old (born in 1975), Yang's business spans from restaurants, trade, wine imports and finance to investment and artistic collections. Yang owns five restaurants, two in Shanghai, one in Beijing, one in Wenzhou and one in Hefei. He intends to expand his restaurant business to 20 restaurants by 2015.

Yang's relies on his creativity to grow. All his restaurants in Shanghai were designed by well-known designers, each one with a theme. To give an example, Yang had one of his restaurants in Shanghai designed by a yacht designer, with the interior recreating the feel and luxury of being on such a boat.

Yang also cooperated with jewelry designers, fashion designers and wine traders to create other sorts of environments.

In the past, Taiwanese entrepreneurs knew how to make a way for themselves in China's business world. But nowadays, they only seem to moan about their misfortune, instead of finding new ways to make more money.

From Want China Times