We scan the globe to uncover which countries are the most - and least - friendly to small business.
Geoff Lewis
June 1 2007: 9:45 AM EDT
(FORTUNE Small Business) -- When Rodrigo Veleso launched ONE World Enterprises in Los Angeles last year, he quickly grasped why entrepreneurship was surging in the U.S.
"Within a week I had formed an LLC, incorporated in Delaware, and set up bank accounts," says the 28-year-old Brazilian, whose company has secured distribution deals with Whole Foods and Kroger, among other markets, for its natural health drinks made from coconut water and açai juice.
Veloso's experience with ONE World (oneacai.com) served as a happy contrast to the beginnings of his first startup, in Brazil. There it takes an average of 152 days to launch a new business, and Veloso had to deal with seven ministries. As the months dragged on, he began to sweat: His first big customer, a Swedish food wholesaler, was impatient for a shipment of Veloso's gourmet coffee. To keep the order, Veloso wound up hiring an exporter, which ate up the 40% gross margin he would have realized using his own company to handle the shipping. He had little choice.
"Above all else, I needed the customer," he says.
Making it easy to launch a new enterprise is one of the many ways in which the U.S. has led the world in fostering a dynamic entrepreneurial class. Other structural factors, from bankruptcy laws to tax policies and employment regulations, help small businesses thrive here. And those moves have been copied into the playbooks of other nations eager to see their homegrown entrepreneurs create jobs and spur economic growth.
So what are the best countries for entrepreneurs now? Where might American entrepreneurs think about setting up overseas? And where should they keep an eye out for global competitors? Some of the stars - such as Iceland and Denmark - might surprise you. Laggards include India.
Our quest for startup-friendly countries began with the World Bank's Doing Business reports (doingbusiness.org), which every year measure the entrepreneurial climate of 175 nations in two ways: starting and operating a business. But the lists give an incomplete picture. France, for example, ranks in the top 10% for ease of starting a business and in the top fifth for operating one, but it has notoriously low rates of entrepreneurship.
Clearly there was a missing dimension. That brought us to the Global Entrepreneurship Monitor (GEM), an annual study produced by Babson College and the London Business School. Its 2007 High Growth Entrepreneurship Report (gemconsortium.org), due this month, gave us what we needed: a glimpse at national rates of high-expectation entrepreneurship - how many American-style entrepreneurs a country produces.
Those individuals, who can get good jobs, become entrepreneurs because they see a chance to build substantial companies. They aren't starting subsistence businesses for lack of other opportunity. Only 7.4% of business launchers in GEM's 53-nation survey fall into the high-expectation bucket, but such men and women are responsible for 70% of the jobs created by small business. Our list gives equal weighting to the World Bank data and the GEM high-expectation ratings.
Our top four - New Zealand, the U.S., Canada, and Australia - place relatively few hurdles in the path of business owners. In each nation it takes between two and five days to start a business and requires five or fewer steps to do so. Those nations impose relatively low marginal tax rates too. That's critical, says William Bygrave, a professor at Babson and director of the GEM project, because it helps business launchers- and the friends, relatives, and angels who support them - accumulate savings for seed money.
Those nations also have in common legal systems that protect intellectual property, enforce contracts, and provide relatively rapid adjudication of disputes. Poland, which at No. 44 tops our bottom ten, is notorious for its sclerotic courts: To settle a claim of unpaid receivables takes upwards of 1,000 business days.
In general, Latin America fares poorly. Despite efforts to streamline launch processes in Brazil - the World Bank applauds new online systems in some states - it still takes 17 steps to register a business. Brazil has many people starting businesses, mostly entrepreneurs by necessity, but produces ambitious entrepreneurs such as Veloso at less than half the U.S. rate.
