The report from credit agency Experian noted that overall numbers of young people setting up on their own are up by nearly a quarter (22 per cent), but they are 57 per cent more likely to start up a business in a sector defined as vulnerable, such as hospitality, construction and retail, than those sectors defined as resilient.
According to the report’s data, 1,440 (eight per cent) of the 16,000 new businesses set up in the hotel and catering sector in 2010 had one or more directors aged 16-25, while four per cent had one sole director of that age group.
The two-and-a-half year failure rate of start-ups manned by one sole young person director is around 45 per cent, with an additional 22 per cent failing within three years. However, the survival rate beyond three years grows from 33 for a sole young director to 39 per cent when a young person teams up with someone aged 26 or over, increasing to 48 per cent when more than one person is on board.
Short term operating conditions are challenging
Simon Streat, managing director of Experian's UK SME business said: “Sectors such as hospitality are considered vulnerable, because the short term operating conditions are challenging and the likelihood of succeeding and growing can be lower than in resilient sectors.
“The challenge that exists for newcomers to the hospitality is lack of understanding of the sector and the challenges it faces. Successful hospitality business owners will tell you that success in the sector comes to those that marry a solid understand of what makes hospitality customers tick with core business skills such as sales, marketing and finance."
The British Hospitality Association (BHA) expressed its surprise at the findings, pointing out that finance for setting up businesses had become much harder to come by.
“Obtaining funds for start-up businesses – particularly in the hospitality sector – has become very difficult, so if young people can obtain them, all to the good,” a spokesman for the BHA told BigHospitality. “But running a hotel or a restaurant is a very tough job, involving long hours, patience, people skills, technical knowledge and business acumen.
"It also demands being in the right location and providing the right product at the right price. If you can get all that right, you have a good chance of succeeding but so many people fall down on one or two vital aspects of the business and fail – even in the good times. It’s even more difficult in the recession when competition is so tough.”
The BHA’s message to young entrepreneurs was clear: in order to succeed, you must understand the industry. “Work in the business for a year or so to get to know what it’s like before you make any business commitment,” the BHA’s spokesman added.