You’d be mad not to join a start-up right now

By Jose Cobian on September 17th, 2012

According to a study conducted by the Complutense University of Madrid, around 60 per cent of current Spanish university students are considering undergoing one of the many competitive examinations processes to try to get a place as a public servant. As I mentioned in my previous article for The Kernel, only 1.6 per cent consider entrepreneurship as a potential career path at some point in their future lives.

Only a few scholars and free thinkers, aware of what these statistics imply, have raised the alarm in the last few months. The consequences are set to be devastating. But given the lack of accurate information and guidance our youngsters have access to, and taking into account a national unemployment rate for people under 30 of over 50 per cent, who can blame them?

The most common explanation trotted out for these statistics, or the low rates of creation of new companies, is the vastly over-stated “high aversion to risk” of the Spanish population. This is more of an unfair cliché than an empirically proven fact. The truth is that the only thing we apparently lack in order to take risks is the know-how to calculate them beforehand.

To prove this point, let’s look first at the career path that is considered the most secure and stable by most Spaniards: public service. The preparation for the competitive examinations necessary to become a public servant is surprisingly exhaustive and very time consuming. The pressure and personal sacrifices required are excruciating, competition is fierce, and the economical investment needed extremely high.

Research conducted on July 2011 by Manuel Bagues shows that 42 per cent of candidates make at least five attempts to pass these examinations. By year five, only around 20 per cent have managed to get a place, 30 per cent are still trying and close to 50 per cent are about to abandon this career path.

In addition, by the end of 2011, the number of available positions had decreased by almost half. Meanwhile, most competitive examinations had seen candidate numbers increase by approximately 50 per cent. According to Bagues, the overall annual success rates of candidates in all competitive public sector examinations barely exceeds 2 per cent.

If we were to update these figures in alignment with the latest developments in the Spanish economy during 2012 and the austerity measures implemented by the government, we can only assume that the number of candidates for each examination has grown even more, thanks to the growth in the unemployment rate for people below 30.

Additionally, we know for a fact that not only have the number of placements as civil servants been reduced even more drastically than last year, but there have also been massive layoffs and salary cuts. We can only infer that success rates would have decreased significantly – hence skyrocketing the investment in time and money of all candidates

The potential return of such investments for successful candidates has plummeted considerably given the latest measures taken by our central government on headcount management and salaries.

So what about the second-safest or most recommended option, working for a large corporation?

Firstly, it is important to remember that large corporations do not create jobs. As the Kauffman Foundation demonstrated in their research study “Where will the jobs come from?”, 99.9 per cent of all net new jobs created in the US since the 1980s have been spawned by companies less than 5 years old. For every job created by US companies older than five years, there has been another job destroyed by these exact same companies.

A 2012 National Active Population Poll (EPA) pointed out there were 5,693,100 registered unemployed people in Spain which, compared to the 23,110,400 people that represent the total active population yields a 24.63 per cent unemployment rate.

If we weigh this figure against the 3,801 companies registered at the beginning of 2012 in the National Central Directory of Corporations (DIRCE) with over 250 employees, each of these would have to hire an average of 1,498 unemployed people on average to reach a utopian 0 per cent unemployment rate.

To put these numbers in perspective, these companies employed 5,262,200 people at the beginning of 2011 when unemployment was at 20.33 per cent.

Finally, let’s consider the third and supposedly far less prestigious career path option for most Spaniards with a university degree: working for a small business or a start-up.

According to a study coordinated by professor Juan A. Maroto, “99.9 per cent of companies [in Spain] are of small or medium size [without including micro-companies without employees]”. These businesses are currently responsible for “68.4 per cent of our economy’s added value and 79.1 per cent of its employment rate”.

We can see immediately that joining a small business is a much smarter option for young Spaniards. That said, as I’ve written before, company creation in Spain has decreased by over 40 per cent in the last five years. You don’t need a PhD in statistical analysis to see what’s going on.

The only hope we have to right our unemployment and economic situation is to encourage more Spaniards and foreigners to take the leap and build more companies in Spain, go global and successfully compete in those countries. If each of our current 3,064,494 registered business owners and self-employed professionals hired 1.86 unemployed Spaniards on average today, we would reach 0 per cent unemployment by tomorrow.

Undeniably, while this premise might be utopian, it clearly shows which career path is far more likely to create jobs both short-term and in the long run. The worst thing to happen would be for our graduates to end up like Portugal’s: 69 per cent of all university graduates in that country are planning to emigrate this year.

Based on the Harvard paper “Performance Persistence in Entrepreneurship”, success rates for first-time American entrepreneurs lie around 17 per cent and for the 82.9 per cent that fail the first time but try again they are around 21 per cent.

But even in the unlikely scenario that these success rates were to be far lower for Spain, they would have to be 10 times worse than in the US to justify entering a competitive examination for a public servant placement as a “safer” choice.

Spain’s “aversion to risk” is a fallacy that avoids us from embracing a scary new reality for Europe: there is no such thing as job security and, if it ever existed, it is now forever dead. There’s one hope alone: that hope lies in renewed entrepreneurship.

José María Cobián is co-founder of Startup Spain, a partner at Okuri Ventures and chief executive of Tetuan Valley