Global Entrepreneurship Monitor 2012 The Estonian Report Estonian Development Fund

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Global Entrepreneurship Monitor 2012
The Estonian report
Estonian Development Fund
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Estonian Development Fund
Global Entrepreneurship Monitor 2012
The Estonian report
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Although the present report is based on data collected by the
GEM consortium, only the authors of this report are responsible
for the analysis and interpretation of these data.
Members of the GEM Estonian team:
Tõnis Arro, Estonian Development Fund (head of the team)
Tiit Elenurm, Estonian Business School
Ellen Liigus, Uuringulabor
Jaan Masso, University of Tartu
Tõnis Mets, University of Tartu
Anne Reino, University of Tartu
Kaire Põder, Tallinn University of Technology
Urve Venesaar, Tallinn University of Technology
Editor: Kristjan Rebane
Language editor: Tiina Hallik
Design and layout: Tuuli Aule
Cover design: Eiko Ojala
Estonian Development Fund, 2013
“Global Entrepreneurship Reports” series
ISSN 2228-3633 (printed)
ISSN 2228-3641 (pdf)
”Global Entrepreneurship Monitor 2012. The Estonian Report”
ISBN 978-9949-9280-9-5 (print)
ISBN 978-9949-9405-0-9 (pdf)
This report is governed by the Estonian Creative Commons
license (version 3.0)http://creativecommons.org/licences/by-nc-nd/3.0/ee/
GEM 2012. AUTHORS OF THE ESTONIAN REPORT:
TÕNIS ARRO is an entrepreneur and management consultant,
Chairman of the Board of the Development Fund and Member of
the Board of the investment company Smartcap since April 2012.
TIIT ELENURM is the Dean of the Chair of Entrepreneurship
of the Estonian Business School; he has participated in several
international research and development projects in the ?eld of
entrepreneurship, innovation and knowledge management.
MERLE KÜTTIM works in Tallinn University of Technology as
research fellow and has participated in various entrepreneurship-
related research projects and published scienti?c articles focusing
on e.g. entrepreneurship and crossborder cooperation, development
of entrepreneurship education at school, entrepreneurship needs
of the creative sector, etc.
ELLEN LIIGUS is a partner of the research company Uuringulabor;
she conducts surveys in the ?elds of management, HR and entre-
preneurship and her special area of interest is the pro?le, image
and social position of an entrepreneur.
JAAN MASSO is a senior research fellow of the Chair of Economy
of the University of Tartu. His main ?elds of study include work
economics, direct foreign investments, innovation, company
productivity and science policy. He has participated in several
international research projects organised by the EU, IBRD, OECD
and International Labour Organization.
TÕNIS METS is the Director of the Centre of Entrepreneurship
of the University of Tartu and a professor of entrepreneurship. His
main ?elds of study are related to entrepreneurship and entrepre-
neurship education as well as the internationalisation of technology
companies, intellectual property and research related to entrepre-
neurial university and knowledge transfer. He has participated as
an expert in OECD and EU projects.
KADRI PAES is an M.A. student of economy in the University of
Tartu and works in the Centre of Entrepreneurship of the University
of Tartu. As a fresh entrepreneur herself, she also has a scienti?c
interest in entrepreneurship and entrepreneurship studies.
MERVI RAUDSAAR works as an entrepreneurship lecturer in
the Centre of Entrepreneurship of the University of Tartu and has
participated in various research projects and published scienti?c
articles on entrepreneurship studies and methodology as well as
social entrepreneurship. Besides her work as a researcher, she
is also a training provider.
KRISTJAN REBANE is the Information Society expert of the
Development Fund; he has been involved with IT-related subjects
for a long time and mediated the WEF IT-surveys in Estonia as
well as headed several monitoring projects from building up the
methodology to editing the reports.
ANNE REINO is a management lecturer and research fellow of the
University of Tartu. Her main ?elds of interest are organisational
culture, values and business ethics. She has participated in various
research and application-orientated projects and published scien-
ti?c articles. Besides her work as a researcher, she is also a training
provider.
KAIRE PÕDER is a senior research fellow of the Tallinn University
of Technology; she teaches micro- and structural economics to
M.A and doctoral students. She is head of the Estonian Science
Foundation grant “School selection mechanism: Ef?ciency and
equality in the pairing of students in Estonia” and she participates
in several microdata-based projects. Kaire’s interests are related
to political economics and interdisciplinary methodologies.
URVE VENESAAR is an entrepreneurship professor and the
Assistant Dean of Research of the Chair of Economy of Tallinn
University of Technology. Her main scienti?c interest is related
to entrepreneurship and entrepreneurship studies, but also the
regional development of companies and internationalisation as
well as research related to the cooperation between universities
and companies.
The Estonian Development Fund would also like to thank Liina
Joller, Inna Kozlinska and Triin Tuisk whose help with the analysis
of research data contributed to the completion of the report.
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TABLE OF CONTENTS
FOREWORD AND SUMMARY ................................................................................................ 7
1. Introduction of GEM ......................................................................................................... 10
1.1 What is GEM? ...................................................................................................................... 10
1.2 The Research Model of the Global Entrepreneurship Monitor ............................ 10
1.3 Main Indicators Used in the GEM .................................................................................. 14
1.4 Organisation ......................................................................................................................... 16
2. ENTREPRENEURIAL ACTIVITY IN ESTONIA ...................................................... 18
2.1 Overview of Previous Entrepreneurship surveys in Estonia ................................ 18
2.2 The General Concept of Evaluating Entrepreneurial Activity and
Entrepreneurial Activity in Estonia.............................................................................. 20
2.3 Aspiring entrepreneurs .................................................................................................... 24
2.4 Nascent and New Entrepreneurs ................................................................................... 24
2.5 Established Entrepreneurs .............................................................................................. 26
2.6 Entrepreneurial Employees ............................................................................................. 26
2.7 Exited Entrepreneurs......................................................................................................... 28
2.8 Development Aspirations of Estonian Entrepreneurs ........................................... 28
2.9 Chapter Summary ............................................................................................................... 30
3. PROFILE OF AN ESTONIAN ENTREPRENEUR ...................................................... 34
3.1 Socio-demographic Description of Estonian Entrepreneurs ............................... 34
3.2 The Pro?les of Estonian Entrepreneurs Compared to Non-entrepreneurs ..... 38
3.3 Chapter Summary ............................................................................................................... 42
4. CHARACTERISTIC TRAITS OF ENTREPRENEURSHIP IN ESTONIA .......... 44
4.1 Sectors of the Economy .................................................................................................... 44
4.2 The Regional Aspect .......................................................................................................... 44
4.3 International Orientation ................................................................................................ 46
4.4 Growth Ambitions of Entrepreneurs ........................................................................... 48
4.5 Reasons for Giving Up Entrepreneurship ................................................................... 50
4.6 Innovative Entrepreneurship ......................................................................................... 50
4.7 Cooperation with Other Companies and Organisations ........................................ 53
4.8 Chapter Summary ............................................................................................................... 53
5. THE ENTREPRENEURIAL ENVIRONMENT IN ESTONIA ................................ 56
5.1 Aids and Obstacles to Entrepreneurship .................................................................... 56
5.2 Advisers to Entrepreneurs ............................................................................................... 58
5.3 Expert Evaluations ............................................................................................................. 60
5.4 Obstacles and Opportunities Related to Financing ................................................. 63
5.5 Entrepreneurship Education .......................................................................................... 65
5.6 Chapter Summary ............................................................................................................... 67
6. ROUNDUP DISCUSSION ................................................................................................ 68
FURTHER READING ................................................................................................................ 71
EXPLANATION OF TERMS .................................................................................................... 72
ADDENDA .................................................................................................................................... 74
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LIST OF DRAWINGS
FIGURE 1.1 – Traditional Model of Economic Growth ............................................................................................. 10
FIGURE 1.2 – Initial Conceptual Model of GEM ......................................................................................................... 11
FIGURE 1.3 – Causal relations between entrepreneurial processes and economic growth.......................... 11
FIGURE 1.4 – Institutional Environment and Its Connection with Entrepreneurship .................................. 13
FIGURE 1.5 – Identifying nascent entrepreneurs, managers and owners of new and established
companies and early stage entrepreneurship activity – an example from the GEM questionnaire............. 15
FIGURE 2.1 – Rates of establishment and liquidation of companies in Estonia 2004–2010 ........................... 19
FIGURE 2.2 – A general concept of evaluating entrepreneurial activity ............................................................. 19
FIGURE 2.3 – Entrepreneurship-related attitudes and plans in selected countries and groups
of countries by level of economic development ......................................................................................................... 21
FIGURE 2.4 – TEA levels of countries participating in the GEM survey by levels of economic
development........................................................................................................................................................................... 22
FIGURE 2.5 – Opportunity- and necessity-driven early stage entrepreneurship in European
countries and groups of countries by level of economic development ............................................................... 23
FIGURE 2.6 – Reasons for becoming an entrepreneur in opportunity-driven early stage
entrepreneurship in selected countries and groups of countries by level of economic development ...... 25
FIGURE 2.7 – Early stage entrepreneurs by sectors of the economy in selected countries and
groups of countries by level of economic development ........................................................................................... 25
FIGURE 2.8 – Survival rate of early stage businesses in European countries and groups of countries
by level of economic development .................................................................................................................................. 27
FIGURE 2.9 – Established businesses by sectors of the economy in selected countries and groups
of countries by level of economic development ......................................................................................................... 29
FIGURE 2.10 – Organisation type where Estonian entrepreneurial employees work ................................... 29
FIGURE 2.11 – Number of jobs that will be created by the new initiative within ?ve years ......................... 29
FIGURE 2.12 – Share of people exiting business in selected countries and groups of countries by
level of economic development........................................................................................................................................ 31
FIGURE 2.13 – Level of innovation, growth expectations and internationalisation in selected
countries and groups of countries by level of economic development ............................................................... 31
FIGURE 2.14 – Level of innovation, growth expectations and internationalisation of established
entrepreneurs in selected countries and groups of countries by level of economic development ............. 32
FIGURE 3.1 – Comparison of the attitudes of women and men to those of entrepreneurs and
non-entrepreneurs ............................................................................................................................................................... 35
FIGURE 3.2 – Division of entrepreneurs by age .......................................................................................................... 36
FIGURE 3.3 – Educational background of entrepreneurs ........................................................................................... 37
FIGURE 3.4 – The connection between level of education and evaluation of the existence of
the knowledge and skills needed for entrepreneurship ........................................................................................... 39
FIGURE 3.5 – Comparison of levels of education according to different social surveys................................ 39
FIGURE 3.6 – Comparison of average monthly net income .................................................................................... 41
FIGURE 3.7 – Comparison of the income of entrepreneurs to that of non-entrepreneurs ........................... 41
FIGURE 4.1 – Number of entrepreneurs per 100 inhabitants in various regions of Estonia ........................ 45
FIGURE 4.2 – Division of Estonia’s early stage companies betwen rural and urban areas ............................. 45
FIGURE 4.3 – Share of necessity-driven entrepreneurs in Estonia out of all early stage
entrepreneurs, by region and urban/rural area ........................................................................................................... 47
FIGURE 4.4 – The relation between a strong international orientation and openness of economy
(ratio of export and GDP, left graph) and the size of a country’s economy (GDP) in various countries ... 49
FIGURE 4.5 – Growth expectations of entrepreneurs: share of entrepreneurs who believe that there
will be at least 10 people more or 50% more than at present working in the company in ?ve years ......... 49
FIGURE 4.6 – Division of Estonian early stage and established entrepreneurs by expansion of
market and ways of doing it ............................................................................................................................................... 51
FIGURE 4.7 – The geographical markets of Estonian companies in the next three years by the
personal entrepreneurship perception index .............................................................................................................. 51
FIGURE 4.8 – Main reasons for quitting business for those who have exited business within the
last 12 months ........................................................................................................................................................................ 52
FIGURE 5.1 – Individual perception of entrepreneurship across regions .......................................................... 57
FIGURE 5.2 – Share (%) of sources of advice as estimated by entrepreneurs of various stages ................... 59
FIGURE 5.3 – Evaluations of entrepreneurship environment. Averages of 20 areas (max 5, min 1) ........ 61
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FIGURE 5.4 – Evaluations of Estonian experts compared to those of other countries, on a scale of 1–5 ... 61
FIGURE 5.5 – Division of investments into start-ups by monetary value (except own company)............. 64
FIGURE 5.6 – Division of people who have received entrepreneurial education by age across study
form and levels ....................................................................................................................................................................... 64
FIGURE 5.7 – Division of people who have received entrepreneurial education across study form
and annual income of household........................................................................................................................................ 64
FIGURE 5.8 – Relations of entrepreneurial education with indicators related to various individual
and social attitudes and knowledge across early stage entrepreneurs and non-entrepreneurs ........................ 66
FIGURE 5.9 – Geographical market preferences among entrepreneurs who have taken
entrepreneurial education across study form and level ........................................................................................... 66
LIST OF TABLES
TABLE 2.1 – Entrepreneurship activity in selected countries ............................................................................... 21
TABLE 3.1 - Division of entrepreneurs by gender in Estonia and selected countries .................................... 35
TABLE 3.2 – Entrepreneurs’ pro?le in a multidimensional model ....................................................................... 43
TABLE 4.1 – Division of different stages of entrepreneurship in sectors and comparison with
neighbouring countries ...................................................................................................................................................... 45
TABLE 4.2 – International orientation among early stage and established entrepreneurs in Estonia ...... 47
TABLE 4.3 – Main reasons for exiting business in Estonia and neighbouring countries .................................... 52
TABLE 4.4 – Innovation-related activities in regions of Estonia ............................................................................... 54
TABLE 4.5 – Business relations: frequency of cooperation with other companies and organisations
of the public and private sector. ....................................................................................................................................... 54
TABLE 5.1 – Favourable and hindering factors of entrepreneurship related to entrepreneurship
opportunities and the readiness to become an entrepreneur in various stages of developing
a company across regions of Estonia ............................................................................................................................... 57
LIST OF APPENDIXES
APPENDIX 1 – Areas of institutional environment, expert pro?les and experts of the GEM national
expert survey .......................................................................................................................................................................... 75
APPENDIX 2 – Entrepreneurial Activity in Countries Participating in the Survey, Grouped by
Level of Development ......................................................................................................................................................... 77
APPENDIX 3 – Entrepreneurship-Related Attitudes and Plans in European Countries,
Grouped by Development Level ...................................................................................................................................... 79
APPENDIX 4 – Necessity- and Opportunity-driven Entrepreneurship in European Countries,
Grouped by Development Level ...................................................................................................................................... 80
APPENDIX 5 – Modelling of a Multiple-variable Regression ................................................................................. 81
APPENDIX 6 – Nascent Entrepreneur Pro?les in the Logit Model ....................................................................... 82
APPENDIX 7 – New Entrepreneur Pro?les in the Logit Model .............................................................................. 83
APPENDIX 8 – Established Entrepreneur Pro?les in the Logit Model ................................................................ 84
APPENDIX 9 – Innovation-related Activities in Various Stages of Company Development ....................... 85
APPENDIX 10 – Distinguishing Characteristics of Innovative Entrepreneurs ................................................ 85
APPENDIX 11 – Attitudes of aspiring, nascent, new and established entrepreneurs towards
using various advisers ......................................................................................................................................................... 86
APPENDIX 12 – Statements About the Development Level of Various Areas in Estonia that
Earned the Lowest Evaluations from Experts .............................................................................................................. 87
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In about the last ?ve years, the Estonian public and politicians have recognised the need to develop entrepre-
neurship through shaping entrepreneurial attitudes and promoting corresponding education. The economic
crisis and the growth years that followed it have convinced us further that only the continuous emergence of
new companies can guarantee employment levels and develop the general welfare of society. The creation and
development of new companies depends on the population’s entrepreneurial activity and the state’s ability to
enhance that activity.
For more than ten years, the Global Entrepreneurship Monitor or GEM consortium that represents
69 countries (87% of the world economy) has been looking into and measuring entrepreneurial activity in
various countries around the world. Although we have never doubted the importance of entrepreneurship as a
social phenomenon and several of the members of the Estonian research group have made efforts to start the
national GEM survey, we have managed to follow our neighbouring countries and only joined the survey in 2012
for the ?rst time. For the members of the Estonian team, participating in GEM was a real challenge, because
we joined the process in 2012 at the very last minute. It has been a necessary process of learning for all of
us, which will hopefully help us achieve better results in the forthcoming years. The present report is based on
the data of the GEM consortium, but the Estonian workgroup is solely responsible for the entire analysis and
interpretation of the data.
We have acquired valuable experience and a lot of new knowledge about the state of entrepreneurship
in Estonia. We now have a starting line for future comparisons and for developing and evaluating the effect of
state policies.
Very high entrepreneurial activity is characteristic of countries with a relatively low development level,
being the highest in Zambia according to GEM (40%, mostly necessity-driven entrepreneurship for satisfying
basic needs). Entrepreneurial activity is lower in developed economies, with signi?cant differences among them
as well. Therefore, the USA is traditionally and historically on the entrepreneurial activity forefront of innova-
tion-driven countries alongside Singapore and Holland. Among ef?ciency-driven economies, Estonia ranks
middle in the level of entrepreneurship, this group’s entrepreneurship activity being lowest in Russia and high-
est in Ecuador. It should be noted that once Estonia transfers from the ef?ciency-driven development phase to
the innovation-driven as predicted by some researchers, the near future will bring along a remarkable decrease
in entrepreneurial activity.
It is the purpose of the GEM survey to shape an understanding how entrepreneurship in?uences eco-
nomic growth and to bring out the factors that either favour or hinder entrepreneurial activity. The information
obtained from the survey should facilitate the making of better decisions about entrepreneurship-friendly
policies and increase the levels of entrepreneurship.
Entrepreneurial activity
“Entrepreneurial activity”, a central concept of GEM ?rst of all describes the attitudes of the population towards
entrepreneurship. Entrepreneurial activity as a whole entails early stage companies (starting companies that
have been active for up to 3.5 years) as well as established entrepreneurship (companies that have been active
for 3.5 years or more). Entrepreneurial activity in Estonia is comparable to the average of countries of the same
level of development, being closest to the ?gure of Latvia – in Estonia it is 20.7% of the working-age population,
in Latvia, 20.5%.
Aspiring entrepreneurs in GEM are those that intend to become an entrepreneur within the next three
years. In Estonia, this percentage is 20.1 (in Latvia and Lithuania it is 26.9% and 19.4% respectively).
In Estonia, there is four times more opportunity driven early stage entrepreneurship than necessity driven
entrepreneurship, which is caused by the lack of employment opportunities.
Pro?le of an Estonian Entrepreneur
There are more men among entrepreneurs than women; this tendency becomes more pronounced along with
the maturity level of companies: among aspiring entrepreneurs, there are 1.4 men to every woman, whereas
among established entrepreneurs, men outnumber women by 2.5 times. It is for the survey to show whether
this is an indicator of a general growth of the percentage of women among entrepreneurs or points out the fact
that women do not get very far as entrepreneurs. The percentage of genders among early stage entrepreneurs
in Estonia is similar to that of Finland. The innovation aspirations of Estonian early stage entrepreneurs are
comparable to the average ?gure of countries of the same development level.
Foreword and Summary
8 Foreword and Summary
GEM KEY INDICATORS IN ESTONIA
• total entrepreneurial activity – 20.7% of working-age population
• average age of Estonian entrepreneur – 38.5 years
• aspiring entrepreneurs – 20.1%
• early stage entrepreneurs, i.e. TEA index – 14.3%, of which
– nascent entrepreneurs – 9.5%
– new business owners – 5.1%
• established entrepreneurs – 7.2%
• exited entrepreneurs – 2.5%
• early stage opportunity-driven entrepreneurship – 11.3%
• early stage necessity-driven entrepreneurship – 2.6 %
• ratio of men versus women
– among aspiring entrepreneurs – 1.4:1,
– among early stage entrepreneurs – 2:1 and
– among established entrepreneurs – 2.5:1.
• informal investors – 9% of population

Among established entrepreneurs, the percentage of those with a higher education is signi?cantly higher
than the average of the working-age population (almost 60%), whereas early stage entrepreneurs have about
the same level of education as other people. Interviewees with a higher education tend to value their entrepre-
neurial knowledge and skills higher, which in turn is positively related to entrepreneurial activity. In the division
of income, the percentage of higher income is higher among entrepreneurs, while most (70%) of the interviewed
starting entrepreneurs have not yet received income from their companies.
Becoming an entrepreneur is supported by high self-esteem and low fear of failure. In Estonia, more than
half of early stage entrepreneurs are within the age group 16–34, they have a higher self-esteem than other
people and are less afraid of failure.
Characteristics of Estonian Entrepreneurship
The division by sector of the economy is quite similar among the established and early stage entrepreneurs
of Estonia.
There are some regional differences in entrepreneurial activity, e.g. the level of necessity-based entrepre-
neurship is higher in regions where the employment situation is worse, like in central Estonia (where almost
a third of entrepreneurship is necessity-based). The number of early stage entrepreneurs per 100 working-age
inhabitants is highest in Northern Estonia (18.9). The number of established entrepreneurs is lowest in North-
Eastern Estonia. There are more early stage entrepreneurs in towns than in rural areas.
The reasons for giving up entrepreneurship are the same in Estonia as in the countries of Middle and
Eastern Europe – low pro?tability – which is different from the Scandinavian countries, where the main reason
for giving up entrepreneurship is retiring.
Entrepreneurial Environment in Estonia
Most early stage entrepreneurs (over 80%) consider knowledge and the opportunity to learn from a recently
started entrepreneur as factors that are favourable to entrepreneurship; a slightly smaller number, 66–77% of
entrepreneurs, value good starting conditions, whereas over a half have taken part in entrepreneurship training.
More than a third of entrepreneurs view competition as a factor unfavourable to entrepreneurship and the
number of those who are inhibited by fear of failure is slightly smaller. Nascent entrepreneurs bene?t most
(70%) from the advice of friends and from that of experienced entrepreneurs (over 60%); approximately half of
entrepreneurs have also received advice from customers and spouses. Less than a quarter of nascent entre-
preneurs have received advice from business advisors. Experts see the education, knowledge and skills level
of entrepreneurs as factors unfavourable to entrepreneurship.
Estonian experts value the entrepreneurial environment, including physical infrastructure and starting
conditions, higher than the experts of other countries. Inadequate training, weak transfer of technology,
a negative attitude towards entrepreneurs and limited access to venture capital are viewed as factors
hindering entrepreneurship. Approximately one third of Estonia’s working-age population has participated in
ENTREPRENEURIAL ASPIRATIONS
• entrepreneurship strategies of early stage entrepreneurs:
– high growth expectations – 24.2%
– innovation-orientation – 37.7%
– a strong international orientation – 30.2%
• entrepreneurship strategies of established entrepreneurs:
– high growth expectations – 5.3%
– innovation-orientation – 19.3%
– a strong international orientation – 17.6%
ENTREPRENEURSHIP-RELATED ATTITUDES
AND JUDGEMENTS
• entrepreneurship opportunities – 45.2%
• entrepreneurship skills – 43.2%
• fear of failure – 44.3%
• entrepreneurship as a good career choice – 54.8%
• entrepreneurs have high status – 62.5%
high media attention to entrepreneurship – 41.5%
•
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entrepreneurship education; of these, one third has completed it as part of their of?cial formal education and
two thirds have taken special training courses. The percentage of those who have participated in entrepreneur-
ship education is highest among young people, in the 18–24 age group (almost 50%). Of the people who have
undergone entrepreneurship training as part of their higher education, more than one half have an income
above average. Approximately half of those who have received entrepreneurship education as part of their
higher education or vocational training have internationalisation ambitions, whereas the percentage is much
lower among the entrepreneurs who have not received entrepreneurship education. Analysis of entrepreneur-
ship education also shows that the early stage entrepreneurship activity of young people who have received
entrepreneurship education is higher than in other age groups.
Tõnis Arro, Tõnis Mets
Foreword and Summary
10
1.1 What is GEM?
Global Entrepreneurship Monitor
1
is a research project carried out simultaneously in several countries since
1999; in 2012, 69 countries participated, among them Estonia for the ?rst time.
GEM studies the behaviour of people when establishing a company, looking at entrepreneurship as a
process that starts with recognising an opportunity and having entrepreneurial plans, in some cases leading
to the establishment of a company and eventually to the birth of a mature company with years of history.
A starting point of GEM is the understanding that besides large companies, small and medium-sized
enterprises also play a very important role in an economy. Before the GEM survey was started, economists
tended to attribute higher value to the contribution of large enterprises, overlooking the fact that most new jobs
in the world are created by new, small and medium-sized companies. The relationship between economic well-
being and entrepreneurship is obvious, but the exact nature of this relationship is not clear. GEM studies the
impact of entrepreneurship on the development of the economy and tries to identify the factors that in?uence
economic growth.
1.2 The Research Model of the Global Entrepreneurship Monitor
Before the GEM survey was started, macroeconomic models tended towards the idea that large enterprises
are the main driving force of economic growth. Schematically, this idea could be expressed like this:
1. Introduction of GEM
It used to be a common opinion that large companies
are the main drivers of economic growth
FIGURE 1.1 – Traditional Model of Economic Growth
(source: Reynolds et al, 1999, author’s translation)
Social
Cultural
Political
Context
National economic
growth (GDP, Jobs)
General (state)
framework conditions
Large, established companies
(primary economy)
Micro-, small and
medium enterprises
(secondary economy)
1
GEM homepage:http://www.gemconsortium.org/
11 1. Introduction of GEM
GEM assumes that economic growth is driven by entrepreneurship
FIGURE 1.2 – Initial Conceptual Model of GEM
(source: Reynolds et al, 1999, author’s translation)
Social
Cultural
Political
Context
Entrepreneurship
framework conditions
Entrepreneurship
dynamics
National economic
growth(GNP, Jobs)
Entrepreneurship
opportunities
Entrepreneurship
ability
When describing an entrepreneurial environment, GEM takes into account
statistic indicators, cultural conditions and the population’s attitudes and
expectations
FIGURE 1.3 – Causal relations between entrepreneurial processes and economic growth
(source: Reynolds et al, 1999, author’s translation)
Social
Cultural
Political
Context
• Openness
• Government
• Management
(skills)
• Technology
• Infrastructure
• Financial markets
• Employment
markets
• Institutions
ECONOMIC
GROWTH
• GNP • Jobs
(Companies / jobs)
• Starts/
growths
• Closures/
downsizings

ENTREPRENEURSHIP
ABILITY
• Skills • Motivation
• Existence of
opportunities
• Perception of
opportunities
• Financial
• Government policies
• Government
programmes
• Education and training
• Knowledge transfer
• Business and legal
infrastructure
• Openness of
domestic market
• Availability
of physical
infrastructure
• Cultural/
social norms
GENERAL (STATE)
FRAMEWORK CONDITIONS
ENTREPRENEURSHIP
OPPORTUNITIES
ENTREPRENEURSHIP
FRAMEWORK CONDITIONS
ENTREPRENEURSHIP
DYNAMICS
12
According to this idea, the main aim of state policy should be to create as favourable conditions for these
companies as possible.
The GEM survey, however, sets off from the idea that entrepreneurship is an important driving force behind
economic growth – new, small companies being started by people – the ones where most people work and
where most national added value is created (in Estonia, 78% and 72% respectively).
According to the initial model of GEM, there are a number of factors in?uencing entrepreneurship – these
are the framework conditions of entrepreneurship, such as the availability of entrepreneurship education and
start-up ?nancing. Entrepreneurial activity is a function of two components – entrepreneurship opportunities
and the ability (motivation and skills) of people to use these opportunities. The more opportunities there are in
an environment and the more people use these opportunities, the more new companies and jobs are created.
This increases competition and eventually the number of companies that go out of business, which leads to
some job losses. These are the entrepreneurship dynamics that accompany economic growth and partly causes it.
The viewpoints complement each other to an important extent – economic growth is in?uenced by large,
proven enterprises as well as starting small companies; new ventures are born outside of large companies as
well as from them.
As mentioned, GEM aims at understanding the relations of entrepreneurship and economic growth. The
model shows the main elements of this relation and their interactions. The ?gure shows the main variables,
from left to right:

1) Social, cultural and political context
2) General state framework and entrepreneurship framework conditions
3) Entrepreneurship opportunities and ability
4) Entrepreneurship dynamics and
5) National economic growth
Social, cultural and political context
The general context in?uences the state conditions as well as entrepreneurship framework conditions;
key roles for economic growth are played by demographic structure, investments into education, social norms
and attitudes, including attitudes towards entrepreneurs.
Entrepreneurship conditions
This group includes the role of ?nancial institutions, the level of research and development activities,
physical infrastructure, the ef?ciency of the employment market, but also the availability of ?nancing for new
companies, governmental support measures for new companies, entrepreneurship education and training,
the ef?ciency of technology transfer and the availability of professional services.
Entrepreneurship opportunities and ability
Opportunity means both the existence of an opportunity on the market and noticing it; ability entails both
the ability to use the opportunity and the motivation to do it.
Entrepreneurship dynamics
This group of characteristics contains data about the birth and growth of companies as well as their downsizing
and death.
Economic growth
Contains various indicators, like GNP and employment percentage.
According to Michael Porter (2002), three development stages are distinguished in the grouping and
comparison of GEM data:
1) Factor-driven economy is characterised by a large amount of small businesses or self-employed
entrepreneurs active in agriculture and focusing on satisfying their own basic needs. Economies on this
development level compete by producing cheap goods with little added value. The main concerns of
government are healthcare, economic stability and basic education. Most countries go through this
development stage; these economies show little innovation on domestic markets as well as in exports.
2) In an ef?ciency-driven economy, competition is based on investments, productivity and access to large
markets; production companies with little added value dominate. Competitive advantages are created
by investments; the role of self-employed entrepreneurs decreases. Governments should be focused on
a higher education system and the market of goods and workforce.
1. Introduction of GEM
13 1. Introduction of GEM
When describing an entrepreneurial environment, GEM takes into account
statistic indicators, cultural conditions and the population’s attitudes and
expectations
FIGURE 1.4 – Institutional Environment and Its Connection with Entrepreneurship
(source: Bosma et al, 2012, author’s translation)
BASIC NEEDS
• institutions
• infrastructure
• macroeconomic stability
• healthcare and basic
education
EFFICIENCY FACTORS
• higher education and
additional training
• effciency of goods market
• effciency of employment
market
• complexity of fnancial market
• technological readiness
• market volume
SOCIAL,
CULTURAL
AND POLITICAL
CONTEXT
SOCIO-ECONOMIC
DEVELOPMENT
(JOBS, INNOVATION,
SOCIAL VALUES)
INNOVATION AND
ENTREPRENEURSHIP
• fnancing
• state policy
• state programmes
• entrepreneurship education
and training
• transfer of results of
R&D work
• openness of domestic market
• physical infrastructure
• business services
infrastructure
• cultural and social norms
FROM OTHER
AVAILABLE SOURCES
ACTIVE
COMPANIES
ENTREPRENEURIAL
PROFILE
FROM THE GEM
NATIONAL EXPERT
SURVEY (ES)
FROM THE
GEM ADULT
POPULATION
SURVEY (APS)
FROM THE
GEM ADULT
POPULATION
SURVEY (APS)
Entrepreneurial
activities of
employee
ATTITUDES:
perception of
opportunities
and abilities, fear
of failure, position of
entrepreneurship
in society
ACTIVITIES:
opportunity or necessity
driven, early stage
established, exiting
business
ASPIRATIONS:
growth, innovation,
internationalisation
14
3) In the stage of innovation-driven economy, knowledge and innovation become paramount, competitive
advantage is based on intellectual capital and in?uential companies create innovative products with
high added value. Technological innovation is instrumental in creating jobs and in general economic
development.
Data collection for the GEM survey is carried out using two very different tools: an Adult Population Survey
(APS) and a National Expert Survey (ES):
The Adult Population Survey (henceforth APS) studies the entrepreneurship-related attitudes of at least
2,000 adults in each country as well as their own activities and aspirations in entrepreneurship. The guiding
principle of GEM is to measure individual participation in company creation – as distinct from other surveys
that collect data from companies.
There are various reasons as to why people start a company. They may become entrepreneurs because of
necessity: a wish to employ themselves in a situation where no better alternatives for ?nding employment are
available. Their efforts may also be driven by a need to maintain or grow their income or increase independ-
ence. GEM aims at ?nding out the motives of entrepreneurs and measuring their aspirations – these may ?nd
expression in the innovation of products and services, plans of export or growth.
Entrepreneurs are also in?uenced by the attitudes
of the people around them, which form a part of the
society’s entrepreneurship climate. Entrepreneurs must
be ready to take risks and use the opportunities avail-
able to them. At the same time, they also need clients
ready to purchase, interested suppliers and investors
eager to invest. A positive social attitude towards entre-
preneurship is an indirect facilitator of all these factors.
The indicators measured in GEM help understand
which people participate (or don’t participate) in entre-
preneurship. Data are collected about those that regis-
ter their companies of?cially as well as those that don’t.
The national Expert Survey (henceforth Expert Survey or ES) is a qualitative survey that aims to follow the
conditions of the entrepreneurship environment and framework conditions for entrepreneurship: ?nancing,
state policy, state programmes, entrepreneurship education and training, transfer of research and development
(R&D), business services infrastructure, openness of domestic market, physical infrastructure and cultural and
social norms (Appendix 1 describes the professional pro?les of experts selected to represent these areas in
the GEM Expert Survey).
In the course of the Expert Survey, all experts evaluate various aspects of entrepreneurship framework
conditions, but also other topics such as the social image of entrepreneurship, intellectual property, growth-
orientated entrepreneurship and innovation. This way, a picture is created of the main strengths, weaknesses
and challenges of the economy.
Regarding each entrepreneurship framework condition, at least four experts have been chosen for their
experience and expertise; also, at least one of the
experts for each area must be an entrepreneur. The
experts must be permanent residents of the country
conducting the survey; their list is coordinated with
the central research team of GEM.
The survey results of each country are checked by
the data team of GEM after they have been submitted.
All submitted data go through an error check to ?nd and
eliminate all faults in data recording and to even out
discrepancies between countries; in the event of de?ciencies, additional data must be collected.
1.3 Main Indicators Used in GEM TEA – early stage entrepreneurship activity.
GEM focuses on the entrepreneurship stage that combines the time immediately preceding the establishment
of a new company (nascent entrepreneurship) and the period immediately following it (owner or manager of a
new company). These two together form a stage that is called early stage entrepreneurship activity (TEA).
Additionally, people with an entrepreneurial attitude or aspiring entrepreneurs who could establish a company
are sought out as well as owners of established companies. Categories distinguishing the stages of entrepre-
1. Introduction of GEM
PARTICIPANTS OF THE 2012 ESTONIAN ES:
• 41 experts in all
• from 9 areas (4 from each except 5 from education and R&D,
7 from fnancing)
• each of whom responded to 136 statements divided into
20 subjects
2004 INTERVIEWEES PARTICIPATED
IN THE ESTONIAN 2012 APS, OF THOSE
• 48% men and 52% women,
• 22.5% entrepreneurs, average age 38 years,
• of those, 53% nascent and new entrepreneurs (TEA)
(12% of the whole sample),
• 74% Estonians and 26% non-Estonians
• 86% younger than 65 years of age and 14% over 65 years,
3% of the latter entrepreneurs
15
TEA, the main indicator of GEM is reached through several answers
FIGURE 1.5 – Identifying nascent entrepreneurs, managers and owners of new and established companies
and early stage entrepreneurship activity – an example from the GEM questionnaire
(source: Bosma et al, 2012, author’s translation)
Have not been
paid yet
Kas praegu on käsil üksinda
uue ettevõttega alustamine?
Have there been entrepreneurship-related
activities in the last 12 months?
Are you an owner or a co-owner?
Have salaries or similar been paid
in the last 3 months?
When was salary paid the ?rst time?
TEA or total early stage entrepreneurship activity
Are you an owner/manager of
a company now?
Owners of the
company got
the ?rst
remuneration
more than
3.5 years ago
Owner/manager
of an established
company
(has been active
for more than
3.5 years)
Yes / Don’t know
Yes / Don’t know
No
Are you in the middle of starting a
new company alone?
Yes / Don’t know
Are you in the middle of starting a
new company for an employer?
Yes / Don’t know
Yes / Don’t know
Are you the owner of the whole
company or a part of it?
Yes
Don’t know
Within the
last 3.5 years
More than
3.5 years back
Yes
Yes
No
Nascent entrepreneur: in the
middle of starting a new company
Owner/manager of a new
company (younger than 3.5 years)
1. Introduction of GEM
16
neurship are deduced as shown on Figure 1.5, where answers given to the population survey are used to ?nd
nascent entrepreneurs, fresh business owners and established entrepreneurs and business owners.
It should be noted that early stage entrepreneurship activity (TEA) is not linearly relational to economic
development (Acs, 2006) and does not re?ect entrepreneurship activity in mature, established companies.
Therefore, TEA has its limits as a general indicator of a country’s entrepreneurship activity; countries should
not be ranked in entrepreneurship activity on the basis of TEA. Based on the GEM research model, it cannot be
said that a higher TEA is always better. For instance, in a low development factor-driven economy, a decrease
in TEA may be a good sign of the decrease of necessity-driven entrepreneurship. On the other hand, the growth
of TEA can be caused by a general growth cycle of economy and the broadening of market opportunities.
In investment-driven economies, a high TEA may be characteristic of the economic, demographic or cultural
circumstances of a certain region. The same level of TEA may re?ect very different entrepreneur types and
aspirations in different countries.
Opportunity- and necessity-driven entrepreneurship. GEM differentiates between motives for starting
a company. Necessity-driven entrepreneurship is distinguished from opportunity-driven entrepreneurship.
Opportunity-based entrepreneurs are those interviewees who have been drawn into entrepreneurship by a
wish to take advantage of an opportunity and to increase income and independence, as opposed to those who
become entrepreneurs because of the lack of a better alternative or for a wish to maintain their income level.
In innovation-driven countries, opportunity-driven entrepreneurship that is undertaken in order to increase
one’s welfare tends to dominate. In these countries, more alternatives exist for people to make a living, and
entrepreneurship means taking advantage of a good opportunity or improving one’s welfare, whereas necessity-
driven entrepreneurship tends to dominate in countries and regions with a lower level of economic development.
Entrepreneurship-related attitudes, views and plans. GEM is one of the ?rst surveys to study entrepreneur-
ship-related attitudes, views and plans. Interviewees are asked to talk about the attitudes in their circle of
friends towards taking advantage of an opportunity, success, failure and entrepreneurship.
In the entrepreneurship-related plans section, aspiring entrepreneurs are identi?ed (who think that they
will take steps towards establishing their own company in the coming years) as well as nascent entrepreneurs –
those that are already doing something to establish their own company, e.g. compiling a business plan, looking
for partners, resources, etc.
Entrepreneurial aspirations. GEM distinguishes between the following entrepreneurship-related aspirations:
1) high growth expectation entrepreneurship,
2) innovative entrepreneurship,
3) internationally orientated entrepreneurship.
It is not uncommon for all three to be present simultaneously, but this is not always the case – for example,
there are entrepreneurs who are not orientated towards high growth in spite of having an innovative product.
Giving up entrepreneurship or exiting business.
Exiting business is a natural part of the entrepreneurial process. GEM records both the fact of exiting and its
main reasons. An important indicator here is whether the company continued activities after the owner left.
Exiting decisions are not always a result of negative developments; they may also be caused by e.g. the entre-
preneur using an opportunity to sell the business pro?tably.
1.4 Organisation
GEM is a consortium made up of national teams that are the of?cial representatives of their respective
countries. A national team is responsible for the annual collection of GEM data, compilation of the national
report on its basis and answering all GEM-related queries in their country.
The activities of the national teams are coordinated by the central Global Entrepreneurship Research
Association (GERA) – an umbrella organisation registered as a private non-pro?t organisation in Great Britain.
In Estonia, GEM partners with the Development Fund, which organised the data collection and work of the
expert group behind the present report.
The following chapters give an overview of the main ?ndings of the 2012 Estonian GEM survey in this order:
• Chapter 2 discusses general entrepreneurial activity levels in Estonia,
• Chapter 3 describes the characteristic traits of entrepreneurship in Estonia,
1. Introduction of GEM
17 1. Introduction of GEM
• Chapter 4 charts Estonian entrepreneurs on the basis of socio-economic characteristics,
• Chapter 5 lists the favourable and hindering factors for entrepreneurship that emerge from the survey,
• Chapter 6 deals with social and innovative entrepreneurship and the main challenges facing entrepre-
neurship and
• Chapter 7 brings out the main conclusions and policy recommendations of the report.
18
This chapter presents an overview of entrepreneurial activity in Estonia compared to other European countries
and to the average ?gures of groups of countries on various levels of development. The overview entails the
population’s attitudes towards entrepreneurship, activity in starting a company and being an entrepreneur as
well as the aspirations of entrepreneurs. The following stages of entrepreneurship are viewed: aspiring entre-
preneurs, early stage entrepreneurs (including nascent and baby entrepreneurs), established entrepreneurs,
entrepreneurial employees and exited entrepreneurs.
2.1 Overview of Previous Entrepreneurship-surveys in Estonia
Entrepreneurial activity has mainly been measured in Estonia and compared to other countries on the basis of
data from Statistics Estonia, using these indicators: the number of active companies per thousand working-
age inhabitants, the numbers of created and closed companies, changes in the turnover of companies and
the proportion of research and development expenditures in GNP. Several earlier publications have referred to
low entrepreneurial activity in Estonia. For example, a survey conducted within the Phare programme frame-
work showed that the number of companies per 1,000 inhabitants in Estonia is approximately two thirds of
the average ?gure of Central and Eastern Europe (31) and 72% of the average of the European Union (EU) (43)
(Statistics Estonia, 1999). In 2006, Estonia’s entrepreneurial activity was estimated at 23 business ventures per
1,000 inhabitants, which was over two times lower than the European average (52) (TTU, 2006). These compari-
son results have been in?uenced by differences in the statistics calculation methods of the compared coun-
tries, e.g. when evaluating entrepreneurial activity in Estonia, the number of active companies was taken into
account, leaving out self-employed and aspiring entrepreneurs. Calculations have often been used involving
the total number of inhabitants instead of the number of working-age inhabitants (aged 18-64). The relatively
low number of companies per 1,000 inhabitants in recent years compared to other EU countries has also been
due to the speci?cs of the transfer to the market economy in Estonia and other Central and Eastern European
countries.
The only survey of the entrepreneurship activity of the inhabitants of Estonia comparable to GEM (Estonian
Institute of Economic Research, 2004) collected information about attitudes and involvedness in entrepreneur-
ship. It showed that 11.9% of the 1,000 interviewed people identi?ed themselves as entrepreneurs and 9.1% as
aspiring entrepreneurs (thinking about starting a company or in the process of doing it). Almost four ?fths of the
respondents were not interested in entrepreneurship and over 60% had never thought about establishing their
own company. In the same survey, 2/3 of respondents preferred paid employment and less than one third pre-
ferred being self-employed (an entrepreneur). Comparing this number to the Eurobarometer survey (European
Commission, 2004), it is closest to Finland, where 70% of the population preferred paid employment and 26%
preferred entrepreneurship. In the pre-expansion EU (15 countries), an average of 49% preferred paid employ-
ment and 47% of the population preferred being an entrepreneur.
Estonia has been one of the most active countries in Eastern Europe with regard to creating companies
(Statistics Estonia, 2003). In the years 2004–2010, the number of active companies per one thousand working-
age inhabitants increased by almost a third: from 49 companies to 72 (Statistics Estonia, 2012). In the same
period, there were several ?uctuations in Estonia’s entrepreneurship activity caused by the economic crisis
(Figure 2.1). The number of started companies grew in the years 2004–2006, began declining in mid-2006 and
regained a growth trend in 2009. The number of company closures began increasing in 2007 and decreasing
again from 2009.
Information about entrepreneurship activity in Estonia in 2011 can be obtained from the Estonian people
and residential space census and workforce survey. According to the census, a total of 7.4% of employed people
in the age group of 15–64 are entrepreneurs in Estonia, including 3.5% of entrepreneurs with employees and
3.8% without (database of Statistics Estonia). According to the workforce survey (Statistics Estonia, 2012),
in 2011, 8.4% of employed people in Estonia were entrepreneurs, including 4.4% of entrepreneurs without
employees. In the GEM framework, active entrepreneurs include the so-called new entrepreneurs and
established entrepreneurs who are active during the survey. According to the workforce survey, the share
2. Entrepreneurial Activity in Estonia
19
Important changes took place in the entrepreneurship activity of Estonia
during the years of the economic crisis
A general concept of evaluating entrepreneurial activity
FIGURE 2.1 – Rates of establishment and liquidation of companies in Estonia 2004–2010
(source: Statistics Estonia, 2012)
FIGURE 2.2 – A general concept of evaluating entrepreneurial activity
(source: Kelley et al, 2012, 5)
Quitting
entrepreneurship
Established
entrepreneur
New
entrepreneur
ENTREPRENEURIAL STAGES
ACTIVITY STAGES OF AN ENTREPRENEURIAL EMPLOYEE
Nascent
entrepreneur
Developing an idea Preparation and application
Early stage entrepreneurship
activity (TEA)
A plan to become
an entrepreneur
Aspiring
entrepreneurs:
principles and
attitudes
Aspiring internal
entrepreneurs, i.e.
activities of an
entrepreneurial
employee
2004
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
2006 2009 2005 2008 2007 2010
company
establishment rate
company
liquidation rate
2. Entrepreneurial Activity in Estonia
20 2. Entrepreneurial Activity in Estonia
of entrepreneurs has grown a little since 1995 – the number of entrepreneurs with employees grew by 2.2%
and the number of entrepreneurs without employees by 3.3%. In 2000, the percentage of entrepreneurs in the
employed population was 9% and has slightly decreased as of today (8.4%). Meanwhile, the number of entre-
preneurs with employees has risen a bit so far this century (from 3.1% to 3.8%) and the number of entrepre-
neurs without employees has decreased (from 5.2% to 4.4%). This indicates an increase in the number of jobs
caused by the growth of new businesses as well as a growth of medium size companies.

2.2 The General Concept of Evaluating Entrepreneurial Activity
and Entrepreneurial Activity in Estonia
Entrepreneurial activity in the most general sense entails people’s attitudes towards entrepreneurship and
their activities towards starting their own business as well as entrepreneurs’ aspirations using entrepreneur-
ship strategies (innovation, growth, internationalisation). The population’s attitudes show how many people see
an opportunity to start a business. Also important are judgements of one’s own knowledge, skills and experi-
ence, attitudes towards failure and the understanding of an entrepreneur’s status in society. A positive attitude
towards entrepreneurship may lead to a plan to start one’s own business and to see entrepreneurship as a
career option.
In the Adult Population Survey (APS) framework, (Figure 2.2) aspiring entrepreneurs are those that have
expressed a plan to start a new business alone or with companions within the next three years. So that the
existence of aspiring entrepreneurs is a prerequisite for the growth of entrepreneurship. What characterises a
nascent entrepreneur is activities performed in starting a new business within the last 12 months (e.g. buying
equipment, building a team and a business plan, etc). New entrepreneurs are those that have been active as
entrepreneurs for 4–42 months, i.e. up to 3.5 years. The early stage entrepreneurial activity TEA index includes
both nascent and new entrepreneurs, with those that have marked themselves as belonging to both phases
being subtracted from the latter set. Those that have been active for more than 3.5 years are considered
established entrepreneurs.
When exiting entrepreneurship is discussed in the survey, a sale of a company, ending its activities in some
other way or leaving a company within the last 12 months is implied. While exiting entrepreneurship generally
diminishes entrepreneurial activity, for a certain percentage of entrepreneurs, it gives new them motivation to
continue their entrepreneurial career when new business opportunities arise. This in turn supports aspiring
entrepreneurship. An entrepreneurial employee is characterised by his/her involvement in the development
of new activities for his/her main employer within the last three years, i.e. the activities of an entrepreneurial
employee in developing and deploying new ideas, which may in some cases lead to the appearance of an
independent company.
The following is a general overview of entrepreneurial activity based on the general concept of entrepre-
neurial activity, starting from attitudes towards entrepreneurship, entrepreneurial activities in its various
stages and extending to an overview of entrepreneurial aspirations. The entrepreneurial activity of Estonia’s
populace in different stages of entrepreneurship has been compared to that of other European countries,
with a special focus on comparisons with the corresponding indicators of neighbouring countries (e.g. Latvia,
Lithuania, Finland and Sweden).
Based on the causal relationship of entrepreneurial activity with the country’s level of economic develop-
ment as pointed out in earlier studies (e.g. Wennekers et al, 2005; Sternberg & Wennekers, 2005; Bosma et al,
2008), the present study compares Estonia’s entrepreneurial activity with the average entrepreneurial activity
indicators of various groups of countries classi?ed according to Europe’s economic development. Based on
the methodology of the 2011 GEM survey, countries are grouped into three groups according to their stages of
economic development as described in Porter’s typology (Porter et al, 2002) – factor-, ef?ciency-, and innova-
tion-driven economies (Kelley et al, 2012, 7). This division re?ects the in?uence of the entrepreneurial environ-
ment on a country’s entrepreneurial activity in various stages of economic development. Generally, it is cheap
labour and easy access to natural resources that gives a competitive advantage in a factor-driven economy;
in an ef?ciency-driven economy, it is the cost ef?ciency of production and in an innovation-based economy an
advantage is gained by research and development as well as designing new technological solutions. In the 2012
survey, a ?ve-fold division is used, i.e. there are separate groups for countries that are in transition from one
stage to another. For example, Estonia, along with Hungary, Latvia, Lithuania, Poland and Croatia, belongs in the
group of European countries that are in the transit zone from ef?ciency-based economies to innovation-based
ones. The present survey uses the average indicators of countries with ef?ciency-based and innovation-based
economies for comparison, and those of the countries that are in transition from a ef?ciency-based economy
to an innovation-based one (see Appendix 2).
The total entrepreneurial activity of Estonia, counting both early stage and established entrepreneurs, is
20.7%, which is a medium value among the countries comparable to us (see Table 2.1 and Appendix 2). Latvia
has a level of entrepreneurial activity comparable to Estonia. The larger part of Estonia’s entrepreneurial activ-
21
In the group of countries of comparable development level, business
opportunities are seen most positively in Estonia
Estonia’s entrepreneurial activity is close to the average of countries
comparable to us
FIGURE 2.3 – Entrepreneurship-related attitudes and plans in selected countries and groups of countries by level
of economic development (% of people answering “yes”)
(source: authors’ calculations based on the APS 2012 data; Appendix 3)
TABLE 2.1 – Entrepreneurship activity in selected countries (%, of people answering “yes”)
1
EA index includes both nascent and new entrepreneurs, with those that have marked themselves as belonging to both phases
being subtracted from the latter set.
2
The cell “Total entrepreneurs” includes everyone that has identifed themselves as nascent, new or established entrepreneurs,
with those subtracted who identifed themselves as members of multiple groups (i.e. repetitions)
(sources: authors’ calculations based on the APS 2012 data; Appendix 2)

Early stage
entrepreneurial activity Established Total Exited
(TEA
1
) entrepreneurs entrepreneurs
2
business

COUNTRIES IN TRANSITION FROM AN EFFICIENCY-DRIVEN TO AN INNOVATION-DRIVEN ECONOMY
Estonia 14.3 7.2 20.7 3.9
Lithuania 6.7 8.2 15.2 2.2
Latvia 13.4 7.9 20.5 3.4
Poland 9.4 5.8 17.0 3.9
Hungary 9.2 8.1 14.7 3.8
Group average 10.6 7.5 16.6 3.6
INNOVATION-DRIVEN ECONOMIES
Finland 6.0 8.0 13.6 2.0
Sweden 6.4 5.3 11.4 1.9
Group average 6.8 6.5 13.1 2.4
average of countries in transition
from an ef?ciency-driven to an
innovation-driven economy
average of innovation-driven
economies
Estonia
Lithuania
Latvia
Sweden
Finland
0% 20% 40% 60%
entrepreneurial opportunities
entrepreneurial skills
fear of failure
entrepreneurship as a good career choice
entrepreneurs have high status
high media attention to entrepreneurship
2. Entrepreneurial Activity in Estonia
22
Early stage entrepreneurial activity is on an average level in Estonia compared
to other effciency-driven countries, but higher that the average of the so-called
transition group
FIGURE 2.4 – TEA levels of countries participating in the GEM survey by levels of economic development
(source: Xavier et al, 2013)
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
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INNOVATION-DRIVEN
ECONOMIES
EFFICIENCY-DRIVEN
ECONOMIES
FACTOR-DRIVEN
ECONOMIES
2. Entrepreneurial Activity in Estonia
23
There is more opportunity-driven entrepreneurship in Estonia
than any other European country
FIGURE 2.5 – Opportunity- and necessity-driven early stage entrepreneurship in European countries and groups
of countries by level of economic development (% of people answering “yes”)
(source: authors’ calculations based on the APS 2012 data)
opportunity-driven entrepreneurship
necessity-driven entrepreneurship
Estonia
Latvia
Slovakia
Holland
Romania
Hungary
Austria
Poland
Greta Britain
Croatia
Bosnia and Herzegovina
Portugal
Macedonia
Greece
Norway
Lithuania
Ireland
Sweden
Spain
Switzerland
Finland
Slovenia
Germany
Denmark
France
Belgium
Italy
0% 4% 8% 2% 6% 10% 12%
average of ef?ciency-driven economies
average of countries in transition from an ef?ciency-driven
to an innovation-driven economy
average of innovation-driven economies
2. Entrepreneurial Activity in Estonia
24 2. Entrepreneurial Activity in Estonia
ity is made up of early stage entrepreneurial activity or TEA (14.3%, the larger part of which – 9.5% – is
nascent entrepreneurship), which essentially expresses the actual attempts of entrepreneurs in the nascent
stage to start a company (entails tangible steps taken towards starting a business or short-term activity), but
which, for various reasons, often remains short-term and is not sustainable. Also, a part of early stage entrepre-
neurs have not registered their entrepreneurial activities in the business registry. Excluding these unregistered
early stage entrepreneurs, Estonia’s TEA index would be 9.3%, of which 4.38% are nascent entrepreneurs who
have registered their businesses and 4.99% are fresh entrepreneurs. As the entrepreneurship activity indicator
used in GEM includes entrepreneurship-related plans and informal entrepreneurship (mostly nascent entre-
preneurship), the early stage entrepreneurial activity indicators of GEM are higher than in other studies. Several
researchers have pointed this out, referring to the mentioned difference in the measurement of the entrepre-
neurial activity of countries of different development levels (e.g. Acs et al, 2007).
Therefore, the GEM survey con?rms the conclusion of several earlier surveys that there are few estab-
lished entrepreneurs in Estonia. Estonia’s entrepreneurial potential is high, but it is not realised in the long
term – many people take real steps towards starting their own company and even act as entrepreneurs for a
short time, but only half of them reach the stage of established businesses.
2.3 Aspiring entrepreneurs
Attitudes and plans related to entrepreneurship. Entrepreneurial activity is largely based on aspiring
entrepreneurs, their attitudes, knowledge, skills and belief in their success. There are slightly fewer aspiring
entrepreneurs planning to start a business within the next three years in Estonia than the average of the group
of countries comparable to Estonia
1
(Appendix 2).
There are certain views and attitudes that favour starting a business. Compared to other countries, the
opportunities to start a business are seen substantially more positively in Estonia than in other countries of the
transition group from ef?ciency-driven to innovation-driven economy, e.g. the difference between Estonia and
Hungary is more than four times in favour of Estonia (see Appendix 3). At the same time, in innovation-driven
countries like Finland and Sweden, the business opportunities are seen even more positively. It is safe to say,
however, that in spite of the experiences of the economic crises, optimism about entrepreneurship opportuni-
ties is higher in Estonia than in most European countries (Appendix 3).
One’s knowledge and skills for starting a business are evaluated somewhat lower in Estonia than the
average of the group of countries with similar economic development. Fear of failure (i.e. not starting a business
because of the fear that it will not be successful) is somewhat lower in Estonia than in the group where Estonia
belongs on the basis of economic development, but Estonian entrepreneurs still fear failure more than their
counterparts in Finland, Sweden and several other developed European countries.
Latvians and Lithuanians value entrepreneurship as a good career choice higher than Estonians, although
Estonians’ valuation of an entrepreneur’s social status is higher than in Latvia or Lithuania (Figure 2.3).
Compared to Finland, Estonians value an entrepreneur’s social status, media attention to entrepreneurship
and opportunities to start a business signi?cantly lower. In Finland, almost one tenth of the whole population
is aspiring entrepreneurs (see Appendix 1), which is over two times lower than in Estonia (20,1%), although
starting opportunities, entrepreneur status and media attention to entrepreneurship are regarded much higher
by the Finnish respondents. These differences can be explained with help from the characteristic traits of
entrepreneurs and entrepreneurship and a characterisation of the entrepreneurial environment of Estonia (see
Ch 3 and 5). Therefore, there is considerable entrepreneurial potential in Estonia. Opportunities offered by the
entrepreneurial environment, one’s own abilities to be an entrepreneur and the social status of entrepreneurs
are viewed rather positively, but there is still a fear of failure. This could be one of the main reasons why so
few aspiring entrepreneurs become real entrepreneurs.
2.4 Nascent and New Entrepreneurs
The section of the working-age population presented in this part includes nascent entrepreneurs (those that
believe they have done something to start a business or have been active as entrepreneurs for up to three
months) and fresh entrepreneurs (those that have been active as entrepreneurs for 4–42 months, i.e. up to
3.5 years). 14.3% of Estonia’s working age population is early stage entrepreneurs, 9.5% being nascent
and 5.1% new entrepreneurs (Appendix 2). Early stage entrepreneurial activity is on an average level in
Estonia compared to other ef?ciency-driven countries, but higher that the average of the so-called transition
group (see Figure 2.4). There are many nascent entrepreneurs in Estonia; they form a considerable share of
early stage entrepreneurship, but only 4.38% of them have registered as businesses. This means that the rate
1
The group of countries in transition from an ef?ciency-driven to an innovation-driven economy includes (European countries in bold) besides
Estonia, Argentina, Barbados, Brazil, Croatia, Lithuania, Latvia, Malaysia, Mexico, Poland, Trinidad and Tobago, Chile, Turkey, Hungary, Uruguay
and Russia.
25
In Estonia, increase of income is more valued than in Finland
and increase of freedom is valued less
Of the early stage entrepreneurs of Estonia, the largest part
operates in the consumer-orientated services sector
FIGURE 2.6 – Reasons for becoming an entrepreneur in opportunity-driven early stage entrepreneurship in selected coun-
tries and groups of countries by level of economic development (% of people answering “yes”)
(source: authors’ calculations based on the APS 2012 data)
FIGURE 2.7 – Early stage entrepreneurs by sectors of the economy in selected countries and groups of countries by
level of economic development (% of people answering “yes”)
(source: authors’ calculations based on the APS 2012 data)
more freedom
increase of income
maintaining income
other, incl. family business, no answer
Estonia
Lithuania
Latvia
Sweden
Finland
Average of countries in transition
from an ef?ciency-driven to an
innovation-driven economy
Average of
innovation-driven economies
0% 40% 20% 60% 80% 100%
supplying sector
processing sector
business-orientated services
consumer-orientated services
Estonia
Lithuania
Latvia
Sweden
Finland
Average of countries in transition
from an ef?ciency-driven to an
innovation-driven economy
Average of
innovation-driven economies
0% 40% 20% 60% 80% 100%
2. Entrepreneurial Activity in Estonia
26 2. Entrepreneurial Activity in Estonia
of closure in the business start-up stage is high. Figure 2.4 shows that Estonia’s early stage entrepreneurial
activity is closest to that of Latvia when compared to neighbouring countries, but higher than that of other
countries of the same development stage and higher than the early stage entrepreneurship activity of all
European countries.
An analysis of the motivation of early stage entrepreneurs shows that more people have started entrepre-
neurship in Estonia because they see a suitable opportunity for it than out of necessity, which is also the case
in all other countries in the same group of countries in transition from ef?ciency-driven to innovation-driven
economy (Figure 2.5 and Appendix 4). Among the countries of Europe, Estonia stands out not only with the high
cumulative indicators, but also for the difference in the ratio of opportunity-driven versus necessity-driven
entrepreneurs. There are four times more opportunity-driven than necessity-driven entrepreneurs in Estonia.
An earlier GEM-analysis shows that as an economy develops, the share of necessity-driven entrepreneur-
ship decreases and the share of opportunity-driven entrepreneurship increases (especially with regard to
increasing one’s income or independence) (Kelley et al, 2012, 13). Looking at the average EU indicators, we can
also say that the higher the development level of a country, the lower the share of necessity-driven entrepre-
neurship and the higher the share of opportunity-driven entrepreneurship.
Within the motive of opportunity, the main reason for starting a business in Estonia is a drive for more
independence, while increasing one’s income is also important (Figure 2.6).
Of the early stage entrepreneurs of Estonia, the largest part operates in the consumer-orientated services
sector, followed by the processing sector (Figure 2.7). The same tendency exists in the group of European coun-
tries in transition from ef?ciency-driven to an innovation-driven economy in general. However, in an innovation-
driven economy, the share of business-orientated services usually rises signi?cantly among early stage entre-
preneurs, which is also the case in Finland and Sweden.
To summarise, Estonia stands out as a country of relatively high early stage entrepreneurship activity
among European countries, especially due to nascent entrepreneurs. Early stage entrepreneurship activity
is predominantly opportunity-driven in Estonia; the opportunity-driven entrepreneurship activity of other
European countries in lower than in Estonia.
2.5 Established Entrepreneurs
Established entrepreneurs have been active as entrepreneurs for more than 42 months, i.e. 3.5 years. There is
almost two times fewer of them among the working-age population of Estonia than early stage entrepreneurs
(7.2% and 14.3% respectively). The share of established entrepreneurs is somewhat lower in Estonia than it is
in Latvia, Lithuania and Finland (Appendix 2). In Latvia, the number of established entrepreneurs is consider-
ably smaller than that of early stage entrepreneurs, but among early stage entrepreneurs, most are nascent
entrepreneurs (active for up to three months). In the 2012 survey, the situation is similar in two ?fths of the
countries (Appendix 2). These countries include Estonia, Latvia, Peru, Chile, Singapore and Zambia. In an inno-
vation-driven economy, however, the number of nascent entrepreneurs is usually slightly smaller than that
of established entrepreneurs. Among European countries, Greece, Spain and Holland particularly stand out,
with nascent entrepreneurs numbering over 5% less than established entrepreneurs.
Dividing the number of established entrepreneurs by the number of early stage entrepreneurs, the
approximate survival ratio of early stage entrepreneurs can be found (Levie and Hart, 2011, 14). That number
is lower in Estonia than the average of European countries on the same development level (in transition
from ef?ciency-driven to innovation-driven economy) and twice lower than the average of innovation-driven
European countries, which indicates that a substantial percentage of entrepreneurs end their activities before
3.5 years (Figure 2.8). In Europe, only Romania and Croatia have a lower early stage entrepreneur survival rate
than Estonia; the indicator is higher in all other European countries. Five countries are closest to the early stage
entrepreneur survival rate of Estonia (higher by 0.1) – Latvia, Poland and Slovakia of the Eastern European
countries and Denmark and France of the innovation-based economies. One of the main reasons for the low
level of established entrepreneurship in Estonia is the low survival ratio of companies.
The established entrepreneurs of Estonia operate less in the supplying sector and more in the business
orientated services sector than their counterparts in neighbouring countries (Figure 2.9), with the exception of
Sweden. In Latvia, Lithuania and Finland, the processing sector has a more signi?cant position than in Estonia.
The role of established entrepreneurs is more important as employers and guarantors of stability and their
percentage may serve as a kind of indicator of the sustainability of entrepreneurship in a country. Comparing
the medium values of countries, it can be seen that factor-driven economies have more nascent and new entre-
preneurs, while their number is lowest in innovation-based economies in general. If this tendency will apply to
Estonia, we will see a decrease of entrepreneurial activity in Estonia in the future.
2.6 Entrepreneurial Employees
An entrepreneurial employee is someone that is involved in developing new activities for his/her main employer,
27
The survival rate of early stage businesses is lower in Estonia than
the average of the reference group
FIGURE 2.8 – Survival rate of early stage businesses in European countries and groups of countries by level of
economic development
Note: Early stage business survival rate = established businesses % / early stage businesses %
(source: authors’ calculations based on the APS 2012 data)
Greece
Spain
Ireland
Switzerland
Finland
Lithuania
Slovenia
Belgium
Macedonia
Holland
Norway
Germany
Hungary
Austria
Italy
Portugal
Sweden
Bosnia and Herzegovina
Great Britain
Latvia
Poland
France
Slovakia
Denmark
Estonia
Romania
Croatia
Average of ef?ciency-driven economies
Average of countries in transition from an ef?ciency-driven to an innovation-driven economy
Average of innovation-driven economies
0.0 0.5 1.0 2.0 1.5
2. Entrepreneurial Activity in Estonia
28
e.g. developing or launching new products or services or establishing a new unit, organisation or subsidiary.
At the time of the survey, 5.7% of employees were engaged in entrepreneurial activities in a managerial role; the
corresponding number for the last three years is 7.3%. Employees active in entrepreneurial activities are mostly
employed in privately owned pro?t organisations; there are fewer of them in the public sector and least of all in
third sector organisations (Figure 2.10).
Most of the entrepreneurial employees have had a managerial role in developing and launching an initia-
tive. As initiators of the initiative, the so-called combination of multiple initiators is named most often (33%);
then come the employer (28%), the entrepreneurial employee (28%) and colleagues (11%).
Entrepreneurial employees foresee an increase in the employment level of employee-entrepreneurship.
For example, in the most usual case, more than 20 people are foreseen to be working on the new activity within
5 years of its start (Figure 2.11). So the assumption is that the new entrepreneurial activity will employ quite a
large number of people.
Employee-entrepreneurship plays a signi?cant role in the entrepreneurial activity of a country, as it is quite
often that people act as entrepreneurs for their employers, not being entrepreneurs themselves.
2.7 Exited Entrepreneurs
When an entrepreneur exits business, the business either discontinues its activities or continues. A total of
3.9% of the working-age population of Estonia has quitted entrepreneurship within the last year according to
our survey; in the case of 2.5%, the company did not continue operations, while in the case of 1.5% it did (Figure
2.12). This ?gure is somewhat larger than the average of countries in transition from an ef?ciency-driven to an
innovation-driven economy and it is twice as large as in Finland for example. Earlier GEM surveys have shown
too that the ratio of business exiting decreases as the economy develops, because when there are many entre-
preneurs in the early stages of entrepreneurship, there are inevitably many quitters of business also (Kelley et
al, 2012, 13).
An entrepreneur who has exited business can sometimes also be seen as an aspiring entrepreneur. For
example 35.6% of the entrepreneurs that have quitted business within the last year in Estonia plan to start
a company within the next three years. The ratio of business exits in Estonia to new and established entrepre-
neurs (Levie and Hart 2011, 14) is equal to the average value of countries in transition from ef?ciency-driven to
innovation driven economies. While the ?gure is somewhat lower in Finland and Lithuania than in Estonia, it is
still quite similar by countries.
Earlier studies have shown that the reasons for exiting business differ between groups of countries,
as non-pro?tability and ?nancing issues dominate in factor- and ef?ciency-driven economies. In innovation-
driven economies, retiring, selling or other reasons account for a larger share (Kelley et al, 2012, 13). A more
in-depth analysis of Estonian entrepreneurs’ business exiting and its reasons can be found in the 4
th
Chapter.
A percentage of the entrepreneurs who have exited business are an addition to the number of aspiring entre-
preneurs, primarily those who see new business opportunities and a motivation to take advantage of these
opportunities as the reason for exiting.
2.8 Development Aspirations of Estonian Entrepreneurs
Entrepreneurial activity is characterised in the long run by the entrepreneurs’ aspirations when using
development-supporting strategies (innovation, growth, internationalisation). Innovation brings along new and
improved products and services; an increase in the number of jobs shows the company’s job-creating potential
and internationalisation measures the share of entrepreneurs who sell their products and services outside
the borders of the country (Kelley et al, 2012, 18). The development aspirations of entrepreneurs increase the
impact of the companies on the economy, so that in the case of higher aspirations, the impact of entrepreneurs
on the economy is larger than where there are more entrepreneurs but their aspirations are lower (Xavier et
al, 2013, 32). Looking at early stage and established entrepreneurship, the share of entrepreneurs aspiring
towards innovation, growth and internationalisation in the general number of entrepreneurs in the correspond-
ing stage is analysed next.
In the GEM survey framework, the innovation level of companies can be measured by the interviewees’
assessment of the innovation level of products and services and by how much or how little competition there
is on the market according to the respondents. According to this assessment, the products of almost 50% of
Estonia’s early stage entrepreneurs and 30% of established entrepreneurs are seen as more or less innova-
tive by clients. Also, 12.6% of early stage entrepreneurs and 8.7% of established entrepreneurs are offering a
product that they consider to be innovative for all clients. Almost the same ratio is expressed in the innovation
evaluation of the market. Taking into account both the evaluations of the innovation level of the products and
services, and that of the market, i.e. the combination of innovative products and market, more than a third
of the early stage entrepreneurs and a ?fth of the established companies are innovative (Figure 2.13 and
Figure 2.14). Compared to the average values of countries of the same and higher economic development
2. Entrepreneurial Activity in Estonia
29
FIGURE 2.10 – Organisation type where Estonian
entrepreneurial employees work (% of people
answering “yes”)
(source: authors’ calculations based on APS 2012 data)
FIGURE 2.11 – Number of jobs that will be created
by the new initiative within ?ve years (% of people
answering “yes”)
(source: authors’ calculations based on APS 2012 data)
Estonia’s entrepreneurial employees
are most active in the private sector
Internal entrepreneurship
creates new jobs
non-pro?t sector
9%
> 20 persons
39%
public sector
29%
0-4 persons
27%
private sector
62%
5–19 persons
34%
Established businesses in Estonia are most active in the services sector
FIGURE 2.9 – Established businesses by sectors of the economy in selected countries and groups of countries by
level of economic development (% of people answering “yes”)
(source: authors’ calculations based on APS 2012 data)
Estonia
Lithuania
Latvia
Sweden
Finland
0% 40% 20% 60% 80% 100%
Average of countries in transition from an ef?ciency-
driven to an innovation-driven economy
Average of
innovation-driven economies
supplying sector
processing sector
business-orientated services
consumer-orientated services
2. Entrepreneurial Activity in Estonia
30
level, the innovation level of the products and market of both the early stage and established entrepreneurs
of Estonia is higher than that of comparable neighbouring countries (Figure 2.13 and Figure 2.14). Considering
the fact that the number of early stage entrepreneurs is roughly the same in Estonia and Latvia, but lower by
almost a half in Lithuania, and setting this in a relation with the innovation levels, the impact of entrepreneurs
turns out to be similar by countries, even a bit higher in Lithuania. The number of established entrepreneurs
was relatively similar in these countries, and by placing this in relation to the innovation level, the impact of
Estonian entrepreneurs is highest.
The growth aspirations of entrepreneurs were evaluated in the survey on the basis of the expected increase
in the number of employees within ?ve years. The growth in employee numbers was considered high in the case
of companies where the expected growth in ?ve years was more than 10 employees and more than 50% of the
total number of employees. A large percentage of the early stage entrepreneurs who responded to the question
about the company’s growth expectations foresee a growth in the number of employees in the next ?ve years.
High growth expectations (i.e. more than 10 employees and growth of more than 50% in ?ve years) are some-
what lower in the case of Estonian early stage entrepreneurs than the average values of countries of the same
development level, being lower also than the indicators of Latvia and Lithuania. The expectations of Estonian
established entrepreneurs are also lower than the average of the reference group. Considering that the number
of early stage entrepreneurs is almost two times lower than in Estonia and Latvia, and placing this in relation
to the number of entrepreneurs who see the possibility of high growth in the number of employees, the impact
of entrepreneurs is highest in Lithuania; also Latvia ranks higher than Estonia. Taking into account the number
of established entrepreneurs, which was similar in the countries, the impact of the growth of entrepreneurs is
highest in Latvia, with Lithuania ranking second.
The internationalisation of companies was evaluated in the survey on the basis of the importance of clients
on foreign markets. According to this, two thirds of both the early stage as well as established entrepreneurs of
Estonia are internationally orientated, with almost a third (30.2%) of the early stage companies and less than a
?fth (17.6%) having a strong international orientation (i.e. over 25% of their customers are abroad) (Figure 2.13
and Figure 2.14). This is higher than the average value of countries of the same and higher development level,
but lower than the indicator of Lithuania by a quarter (Figure 2.13). The strong international orientation indica-
tor of Estonia’s established companies is lower than the average of countries of the same development level,
being also lower than in Latvia and Lithuania (Figure 2.14). Looking at the numbers of early stage and estab-
lished entrepreneurs in Estonia, Latvia and Lithuania, it can be said that the impact of the internationalisation
of companies is similar by countries.
To summarise the development aspirations of entrepreneurs, it can be said that the development orienta-
tion of Estonia’s early stage entrepreneurs is higher than that of established entrepreneurs. In the context of
comparison with chosen countries, the early stage and established entrepreneurs of Estonia are noticeable
for their innovative products and markets. The growth expectations of companies are the lowest, especially the
expectations of established entrepreneurs in regard to the growth of employee numbers. More detailed analy-
ses of this topic can be found in Chapters 4 and 5.
2.9 Chapter Summary
Entrepreneurship activity has been addressed in this overview in a more broad manner, taking into account
the population’s attitudes towards entrepreneurship and their activity of starting their own business and run-
ning it as well as the entrepreneurs’ aspirations, by employing entrepreneurship strategies. When comparing
Estonia’s entrepreneurship activity to the corresponding ?gures of other countries, the relation to the economic
development levels of the countries have been taken into account, whereas in the case of European countries,
the comparison can be made in three reference groups: countries with an ef?ciency-driven economy, countries
in transition from ef?ciency-driven to innovation-driven economy and countries with an innovation-driven
economy. Estonia, along with Croatia, Lithuania, Latvia, Poland and Hungary, belongs in the group of countries
transitioning from an ef?ciency-driven to an innovation-driven economy. Taking into account all the stages of
entrepreneurship, 20.7% of the Estonian population between the ages 18 and 64 are entrepreneurs. However,
almost half of the entrepreneurial activity of Estonia consists of nascent entrepreneurship (9.5%), which essen-
tially expresses the real attempts of the ?rst stage of entrepreneurship to start a business or the short experi-
ence of having run a business, which is the reason why a considerable percentage of early stage entrepreneurs
have not registered their businesses of?cially. Taking out the unregistered nascent entrepreneurs, nascent
entrepreneurship accounts for 4.38% in Estonia. Because of the low survival rate of Estonian companies, the
high entrepreneurial activity is not sustainable in the long run.
The population’s evaluation of the business opportunities in the entrepreneurship environment as well as of
their own skills and abilities to be active as entrepreneurs are higher in Estonia than in countries of the same devel-
opment level and also many innovation-driven economies. However, fear of failure is also high in Estonia, in?uenc-
ing the level of the population’s activity to move from the stage of aspiring entrepreneurship to the next stages.
2. Entrepreneurial Activity in Estonia
31
The growth expectations of Estonia’s early stage entrepreneurs are
lower than the innovation and internationalisation levels
FIGURE 2.13 – Level of innovation, growth expectations and internationalisation in selected countries
and groups of countries by level of economic development (% of people answering “yes”)
(source: authors’ calculations based on the APS 2012 data)
Estonia
Lithuania
Latvia
Sweden
Finland
average of countries in transition
from an ef?ciency-driven to
an innovation-driven economy
average of innovation-driven economies
0% 5% 10% 15% 25% 20% 30% 35% 40%
innovative product and market
high employee number growth expectation
strong international orientation
Besides high early stage entrepreneurial activity,
Estonia also has a high rate of business quitters
FIGURE 2.12 – Share of people exiting business in selected countries and groups of countries by level of economic
development (% of people answering “yes”)
(source: authors’ calculations based on the APS 2012 data)
0.0% 0.5% 1.0% 2.0% 1.5% 2.5%
Estonia
Lithuania
Latvia
Sweden
Finland
average of countries in transition
from an ef?ciency-driven to
an innovation-driven economy
average of innovation-driven economies
exited business
(company continued activities)
exited business
(company discontinued activities)
2. Entrepreneurial Activity in Estonia
32
The established entrepreneurs of Estonia are more innovative than
their counterparts in other countries
FIGURE 2.14 – Level of innovation, growth expectations and internationalisation of established entrepreneurs
in selected countries and groups of countries by level of economic development (% of people answering “yes”)
(source: authors’ calculations based on the APS 2012 data)
Estonia
Lithuania
Latvia
Sweden
Finland
average of countries in transition
from an ef?ciency-driven to
an innovation-driven economy
average of innovation-driven economies
0% 5% 10% 15% 25% 20% 30% 35%
innovative product and market
high employee number growth expectation
strong international orientation
2. Entrepreneurial Activity in Estonia
33
Looking at the entrepreneurial activity of Estonia, a high level of aspiring entrepreneurship can be pointed
out (a ?fth of the population), which is still lower than the ?gures in Latvia and Poland and lower than the aver-
age level of aspiring entrepreneurship in countries of the same development level. To a certain extent, entre-
preneurs who have exited business (whose business ended activities within the last year and did not continue
activities) can be considered aspiring entrepreneurs. There are somewhat more exited entrepreneurs in Estonia
than the average number in countries of the same development level.
Early stage entrepreneurship activity or TEA is relatively high in Estonia (14.3%), being an average value of
ef?ciency-driven countries, but higher than the entrepreneurship activity of European countries. Also, Estonia
has an especially high number of nascent entrepreneurs (9.5%) compared to other countries, but their extinc-
tion rate in the company establishment stage is high, which is why a large portion of them do not reach of?cial
registration. Taking out the unregistered nascent and new entrepreneurs, the TEA index of Estonia would
be 9.3% (of that, nascent entrepreneurs that have registered their businesses account for 4.38% and new
entrepreneurs for 4.99%). Estonia’s early stage entrepreneurship is largely opportunity-driven and the number
of those who see entrepreneurship as an opportunity is the highest in Europe. Within seeing the opportunity,
the aspiration towards greater freedom and increased income dominates in Estonia, which is also the case in
the reference group in general. Of the early stage entrepreneurs of Estonia, the largest portion operates in the
consumer-orientated services sector, followed by the processing sector. In innovation-driven economies, the
share of business-orientated services increases.
The number of established entrepreneurs in the working-age population of Estonia is almost half of the
number of early stage entrepreneurs. The survival rate of Estonia’s early stage companies is lower than the
average of the countries in the reference group and for instance, twice lower than in the group of innovation-
driven economies. Therefore, the relatively high entrepreneurial potential of Estonia does not get realised in the
long run.
Long term entrepreneurial activity is characterised by the development aspirations of entrepreneurs.
Compared to the average values of countries of the same and higher level of development, Estonia has more
entrepreneurs with innovative products and markets. The internationalisation level of Estonian early stage
entrepreneurs is the same as the average of countries of the same development level, but it is lower in the case
of established companies. The expected growth in employee numbers is lower in Estonia than the average of
countries of the same development level.
2. Entrepreneurial Activity in Estonia
34
Who are the entrepreneurs of Estonia? To ?nd an answer to that question, we look at the gender, age, education
and individual and social attitudes of just starting or nascent, new and established entrepreneurs. In order
to make the results more expressive, we will compare the 2012 survey with the results of earlier studies and
surveys. We will also look at the income of entrepreneurs, using data from the 2012 autumn omnibus-survey
and the Estonian Social Survey (Eesti Sotsiaaluuring, ESU, 2011).
3.1 Socio-demographic Description of Estonian Entrepreneurs
The methodology of GEM makes it possible to look at the relations between entrepreneurial activity, attitudes
and background characteristics – age, gender and education – in various stages of entrepreneurship.
Division by gender
According to data from Statistics Estonia
1
, women account for 51% of the population between the ages of
15–64 in Estonia, but among entrepreneurs, this number is clearly smaller. The situation is the same in most
other European countries, where the entrepreneurial activity of women has been historically and continues to
be signi?cantly lower than that of men. However, the results of the GEM surveys for recent years show that the
difference in entrepreneurial activity between genders is slowly starting to diminish and some countries are
close to a balance (e.g. Switzerland, where there are 1.2 men to every woman among early stage entrepreneurs).
In Estonia, there are twice as many men among early stage entrepreneurs as there are women (see Table 3.1).
With a ratio like that, Estonia is similar to a lot of other developed countries where the percentage of men is
signi?cantly higher than women among entrepreneurs. The average EU ?gure for nascent and new companies
is 2.1 men to 1 woman entrepreneur and 2.3 men to 1 woman among established companies.
One ?fth of the respondents have entrepreneurship-related plans (aspiring entrepreneurs), out of whom
59% are men. According to the Estonian survey, the ratio among aspiring entrepreneurs is 1.4 men to 1 woman.
It remains for future surveys to determine whether this shows a trend of increase of the share of women among
entrepreneurs.
Men and women differ in evaluating their entrepreneurial skills. Men evaluate their knowledge consider-
ably higher than women, and men have less fear of failure (see Figure 3.1). Comparing women’s and men’s
evaluation pro?les to those of entrepreneurs and non-entrepreneurs, it can be seen that the women’s pro?les
bear a signi?cant resemblance to a non-entrepreneur’s pro?le, while the pro?les of both men and women
entrepreneurs differ from the pro?le of a non-entrepreneur. The difference of women entrepreneurs from other
women is clearest in their evaluation of their skills: most women entrepreneurs ?nd that they have the skills
and knowledge needed for starting a company.
Age
The average age of an Estonian entrepreneur is 38.5, years, but the ?gure is different in different stages of
entrepreneurship (nascent, new, established). Proportionally, the largest part of all entrepreneurship groups is
formed by the 25–44-year-olds (see Figure 3.2), but unlike the other groups, the group of established entrepre-
neurs has most of the over-45-year-olds and the share of 55–64-year-olds is also the largest. The age pro?le of
the entrepreneurs follows the age of the company: there are more young people among those who are starting
entrepreneurship and more older people among those whose company has been active for more than 3.5 years.
This kind of age division is to be expected. For comparison with earlier periods, only a survey conducted by
the Estonian Institute of Economic Research in 2005 is available, but the age divisions used there are different.
When mapping the GEM results to the same scale, we get proof that people start entrepreneurship younger
now than they used to in 2005.
Comparing to the EU average, Estonian early stage entrepreneurs are younger: there are more of them in
the 18–24 and 25–34 age groups and fewer in the over-45-year-olds, while only 6% of Estonian early stage
1
www.stat.ee
3. Pro?le of an Estonian Entrepreneur
35
The attitudes of women and men differ
FIGURE 3.1 – Comparison of the attitudes of women and men to those of entrepreneurs and non-entrepreneurs
(source: APS, 2012)
There are more male than female entrepreneurs
TABLE 3.1 - Division of entrepreneurs by gender in Estonia and selected countries
(source: GEM, 2012)

Number of men to Number of men to
Country one woman in early stage one woman in established
entrepreneurship entrepreneurship

Latvia 2.3 1.8
Lithuania 2.3 2.9
EU average 2.1 2.3
Estonia 2.0 2.5
Finland 1.9 2.7
Sweden 1.7 2.4
Russia 1.6 1.1
USA 1.5 1.6
Switzerland 1.2 1.4
knows
an entrepreneur
skills for
starting
fear of
failure
good conditions
for starting
men
women
non-entrepreneurs
women entrepreneurs
men entrepreneurs
100%
80%
60%
40%
20%
0%
3. Pro?le of an Estonian Entrepreneur
36
Most entrepreneurs are in the 25–44 age group
FIGURE 3.2 – Division of entrepreneurs by age
* – Participants in the 2005 study of Institute of Economic Research were between the ages of 16–64
(source: APS, 2012, and entrepreneurship survey by the Institute of Economic Research, 2005)
18–24
25–34
35–44
45–54
55–64
non-entrepreneurs
entrepreneurial employees
nascent entrepreneurs
new entrepreneurs
established entrepreneurs
entrepreneurs (IER 2005)*
0% 30% 10% 20% 40% 50% 70% 60% 80% 90% 100%
3. Pro?le of an Estonian Entrepreneur
37
There are more people with a higher education among established entepreneurs
FIGURE 3.3 – Educational background of entrepreneurs
(source: APS, 2012)
master or higher
higher education
(including bachelor
degree and professional
higher education)
secondary education
(incl. vocational)
basic or un?nished
secondary education
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
nascent
entrepreneurs
new
entrepreneurs
men
entrepreneurs
established
entrepreneurs
women
entrepreneurs
non-entrepreneurs
3. Pro?le of an Estonian Entrepreneur
38 3. Pro?le of an Estonian Entrepreneur
entrepreneurs are over 55 years old. The division is more uneven among established entrepreneurs. In the
25–34 age group, Estonia’s numbers are higher than European average, while in the 35–44 age group they are
slightly lower; in other groups, they are quite similar to the EU average.
Although the GEM methodology excludes people older than 64 years, we still have data about 283 persons
of that age group. Only nine of them are entrepreneurs. The analysis did not ?nd signi?cant characteristics that
make people become entrepreneurs in that age, but hopefully it will become possible to pay more attention to
this topic in the future.
Education
The GEM methodology classi?es the respondents into four main groups on the basis of their education:
1) basic education or un?nished secondary education,
2) secondary education, incl. vocational,
3) higher education (bachelor, professional higher education) and
4) master’s degree or higher (incl. MA, MBA, PhD).
Most entrepreneurs have at least secondary education and the division between classes of education is similar
in different stages of entrepreneurship. Established entrepreneurs are noticeable by having the highest level of
education.
Entrepreneurs ?nd that they have the skills and knowledge needed for entrepreneurship. This is in major
contrast to non-entrepreneurs, of whom only one third thinks that they have the skills and knowledge needed
for entrepreneurship. The level of education also correlates to entrepreneurship-related knowledge: more than
a half of those who think they have the knowledge required for entrepreneurship have a bachelor’s degree or
higher, and three quarters of the respondents who think they don’t have the knowledge needed for entrepre-
neurship have secondary education or lower (see Figure 3.4).
Also, the education level difference between male and female early stage entrepreneurs should be noted.
More than half of female early stage entrepreneurs have at least a bachelor’s degree, while the education level
of men is notably lower (see Figure 3.3).
Comparing the general educational division of Estonians to that of people earning their main or partial
income from entrepreneurship (see Figure 3.6), our entrepreneurs have a higher education level. At the same
time, the educational divisions are very similar to what was published in the entrepreneurship survey by the
Institute of Economic Research in 2005.
Income
To determine how large is the part of income that comes from entrepreneurship, the Development Fund
commissioned an additional survey in the autumn of 2012 (a so-called omnibus survey) (see Figure 3.6).
Compared to non-entrepreneurs, more than a half (approximately 60%) of established entrepreneurs
belong to the upper division of income, while only a bit more than 30% of non-entrepreneurs belong to that divi-
sion (see Figure 3.6). This almost twofold difference in the upper part of income division makes it likely that the
difference is partly caused by income generated from entrepreneurship, although early stage entrepreneurship
often does not generate immediate income.
This claim is backed up by the results of the omnibus-survey and the 2011 Social Survey (Sotsiaaluuring,
ESU). The ?rst of them shows that even if the sample is different (which is not representative, as in the case of
the GEM sample), the income of early stage entrepreneurs (the so-called TEAs) is in the top division. The for-
mulation of the question makes it possible to make the higher category more transparent, showing that 12%
of early stage entrepreneurs earn a net income of 2,000–3,000 euros. Only a marginal portion of the employed
population earns the same kind of income. According to ESU, slightly less than 3% of employees fall into the
upper three categories, i.e. earn more than 1,500 euros. Therefore, we claim that the income earned from entre-
preneurship is in the higher-than-average division and does not differ considerably in the different stages of
entrepreneurship (Figure 3.7).
3.2 Pro?les of Estonian Entrepreneurs Compared to Non-entrepreneurs
In this part, we will look at the individual background characteristics and socio-economic and attitude-
indicators that characterise the pro?les of nascent, new and established entrepreneurs. The concurrent impact
of indictors is taken into account when analysing the data, i.e. the impact of several factors is checked. For the
sake of readability, the results have been summarised into Table 3.2 and the method is described in more detail
in Appendix 5.

39
There are very few entrepreneurs with elementary or basic education
FIGURE 3.5 – Comparison of levels of education according to different social surveys
(sources: Estonian Social Survey ESU, 2011; APS, 2012; entrepreneurship study of the Institute of Economic Research, 2005;
author’s calculations)
A higher level of education means a higher evaluation of one’s
entrepreneurial skills
FIGURE 3.4 – The connection between level of education and evaluation of the existence of the knowledge and
skills needed for entrepreneurship
(source: APS, 2012)
general educational division in Estonia according to ESU (n=4750)
entrepreneurs according to ESU (full or part time, n=448)
entrepreneurs according to GEM (n=365)
entrepreneurs (Entrepreneurship study 2005, n=120)
elementary and
basic education
secondary
and vocational
higher education
60%
50%
40%
30%
20%
10%
0%
master or higher
bachelor
secondary education
basic or un?nished secondary education
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
entrepreneurial
knowledge exists
entrepreneurial
knowledge is absent
3. Pro?le of an Estonian Entrepreneur
40 3. Pro?le of an Estonian Entrepreneur
Does gender matter?
Gender does matter in the case of a model with a relatively simple structure (see Appendix 6, column 1), as
well as with alternative models. At the same time, the gender impact (an entrepreneur is a man) is only 1%
in the case of nascent entrepreneurs, i.e., when different attitudes, human and social capital are taken into
account, the gender effect becomes marginal. Men tend to be slightly more entrepreneurial, but this circum-
stance is not more in?uential than place of residence, size of family, experience of living abroad, fear of failure
smaller than that of women and a higher evaluation of one’s own skills. Gender has less effect in the case of
new entrepreneurs than with established entrepreneurs.
Which age groups have more entrepreneurs?
The probability of ?nding a nascent entrepreneur is highest in the youngest age group (18–24 years); the age
effect is less noticeable in other stages of entrepreneurship. It should be pointed out that it is in the case of
nascent entrepreneurs that age matters. The age group with the highest number of new entrepreneurs is 25–34
years and the highest number of established entrepreneurs can be found among those older than 45 years.
Belief in one’s own skills and abilities matters most
Skills and abilities that are suf?cient for starting a new company have the largest impact on becoming a
nascent entrepreneur. Furthermore, this effect is statistically important in the case of any model speci?cation.
New and established entrepreneurs also consider their skills important when compared to non-entrepreneurs.
However, the corresponding percentages differ: in the case of new entrepreneurs, they are smaller and in the
case of established entrepreneurs, the largest.
Entrepreneurs are not afraid of failure
Like the previous point, a low fear of failure is an important factor as well and it is larger in the case of nascent
entrepreneurs than with non-entrepreneurs. It is also important that the mentioned effect exists and has an
impact when any kind of variables are added. The effect is slightly smaller in the case of new entrepreneurs
and stronger in the case of established entrepreneurs.
Does education level matter?
The level of education is only a statistically important indicator in the case of established entrepreneurs.
This result could also be interpreted as “the more educated survive”-effect, because this connection is not
evident with early stage entrepreneurs, i.e. education level is not an important indicator among those that start
a business. An alternative explanation could be age-related: established entrepreneurs are older; consequently,
a larger portion of them has managed to ?nish their studies. However, it is also possible that both entrepre-
neurialism and level of education are the results of a stronger determination.
Are language skills important?
Surprisingly, knowledge of Estonian and its pro?ciency level are not important compared to a lack of it when
becoming an entrepreneur. Knowledge of Russian (compared to a lack of it) is only important for nascent entre-
preneurs on the level of everyday speech. Knowledge of English (both as spoken language and a reading and
writing skills) compared to a lack of it is important for nascent and new entrepreneurs, but not for established
entrepreneurs. Knowledge of Finnish on the level of everyday usage (compared to a lack of it) is important for
nascent entrepreneurs; also, the level of writing and reading Finnish matter for new entrepreneurs. Surprisingly,
however, established entrepreneurs are generally non-speakers of Finnish (or non-speakers of Finnish are gen-
erally entrepreneurs), so that the language skills effect is negative.
Network is important; parents are not
The fact that an acquaintance has started a business within the last two years is one of the most important cri-
teria when becoming an entrepreneur. A possible interpretation of such effects is that actual entrepreneurship
is reached by those that have an acquaintance in business as a model. The effect is stronger and more positive
with new entrepreneurs than with nascent entrepreneurs. Network has an even stronger effect than belief in
one’s abilities and skills in the case of a nascent entrepreneur, but not in the case of a new entrepreneur. This
connection is not important for established entrepreneurs. Sadly, parents do not play a role in this context
(although only the status of parents as entrepreneurs was checked, not their ?nancial or moral contribution
to business); in fact, the participation of parents in business reduces the likelihood of being a new entre-
preneur.
What role do social attitudes play?
In the case of social attitudes, four conditions are checked that re?ect, through a personal prism, differences
41
The division of income of entrepreneurs tends to be higher
Entrepreneurs earn more than non-entrepreneurs
FIGURE 3.6 – Comparison of average monthly net income
(sources: Estonian Social Survey, 2011; Development Fund’s omnibus-survey 2012; author’s calculations)
FIGURE 3.7 – Comparison of the income of entrepreneurs to that of non-entrepreneurs
(source: APS, 2012)
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
nascent
entrepreneur
new
entrepreneur
established
entrepreneur
non-entrepreneur
higher income third
middle income third
lower income third
early stage entrepreneurs (n=17)
non-entrepreneurs (n=416)
Estonia’s population (ESU 2011, n=4339)
50%
40%
30%
20%
10%
0%
up t0 €300 €300–600 €900–1500 €600–900 over €1500
3. Pro?le of an Estonian Entrepreneur
42 3. Pro?le of an Estonian Entrepreneur
in the attitudes of entrepreneurs vs non-entrepreneurs about the social opinion and media re?ection about
entrepreneurs:
1) successful entrepreneurs have a high social status and are respected (henceforth “status of
entrepreneurs”),
2) business success stories ?nd heavy media coverage (henceforth “positive media image”),
3) society considers equality in living standards more important (henceforth “perceived equal income”) and
4) starting a business is considered a good career (henceforth “career”).
For nascent entrepreneurs, two from the list have a statistical importance: “status of entrepreneurs” and
“positive media image”. However, the effect of the ?rst one is negative (i.e. either there are few of those in busi-
ness who consider the status of entrepreneurs high or businessmen feel that their status in society is low). This
connection disappears in regard to new entrepreneurs. But there is a very strong connection between positive
media image and being an established entrepreneur. The effect of “perceived equal income” is negative, but
statistically negligible. Therefore, we cannot blame entrepreneurs for having a more elitist worldview than
non-entrepreneurs.
3.3 Chapter Summary
This part concentrated mostly on who are the entrepreneurs of Estonia: their education, age and gender
division as well as other background characteristics.
There are more men in entrepreneurship; there are twice as many men than women in the early stage of
entrepreneurship. In the case of established entrepreneurs, the ratio shows an even clearer dominance of men
among entrepreneurs. However, checking this against other background characteristics such as human and
social capital and attitudes, the effect of gender becomes marginal. Also, Estonia is in no way special in this; the
mentioned indicators are comparable to Finland and the average EU values in general. It will be for future stud-
ies to determine whether the different ratio described by this survey between men and women among aspiring
(1.4:1), early stage (2:1) and established entrepreneurs (2.5:1) shows a trend of more women entering business.
Entrepreneurs are more educated in comparison to the population as a whole. At the same time, according
to the APS, the effect of education is only an important characteristic in the case of established entrepreneurs.
Still, in the division of income, entrepreneurs tend to be more in the upper end, although most of the nascent
entrepreneurs (70% according to the omnibus survey) have not yet received income from their business.
Compared to the income indicators of the Estonian Social Survey (2011), 45% of our entrepreneurs are still in
the higher end of the income division, while only 3% of employed workers are there as well. Men receive more
pro?t from entrepreneurship than women. A quarter of women are in the higher end of pro?t division, and
almost one half of men; also only a ?fth of those whose monthly net income is over €1,500 are women. This
difference in income is statistically signi?cant.
The characteristic traits of the pro?le of Estonian entrepreneurs can only be compared to past data from
other countries. For example, Rastrigina (2008) shows that in Latvia, the family’s contribution (mostly ?nancial)
is the most important criterion in early stage entrepreneurship. For Estonian entrepreneurs, however, it is rather
self-esteem that matters, i.e. how people evaluate their own abilities and skills, as well as a low fear of failure.
An article by Koellinger et al (2007) shows that entrepreneurs tend to develop an inner conviction that their
skills and knowledge give them the ability to control the economic environment. The authors call this a positive
shift, because in spite of the overvaluation of their skills, this is an important trigger in becoming an entre-
preneur. As our activity in the early stage and the young age of our entrepreneurs are exceptional compared to
neighbouring countries, the high self-esteem of entrepreneurs of this stage is to be expected.
Also, as in the results of Davidsson and Honig (2003), social capital is important for Estonian entrepre-
neurs, i.e. the existence of an entrepreneur among acquaintances that serves as a role model is important when
entering business, but not later. An established Estonian entrepreneur is more educated than an early stage
entrepreneur, but he/she speaks fewer languages and has more egalitarian social attitudes.
43
Personal attitudes regarding one’s risk readiness, abilities and knowledge
explain best, why a person becomes an entrepreneur
TABLE 3.2 – Entrepreneurs’ pro?le in a multidimensional model
(source: authors’ calculations based on the APS 2012 data)
NASCENT NEW ESTABLISHED
ENTREPRENEUR ENTREPRENEUR ENTREPRENEUR
PERSONAL gender (male) + + +
CHARACTERISTICS age 18–24 years 25–34 years over 34 years

ATTITUDES skills and abilities to be an entrepreneur ++ + ++
ABOUT ONESELF risk readiness (not afraid of failure) + + +

HUMAN CAPITAL education (9 categories) +
knowledge of Estonian
knowledge of Russian everyday level
knowledge of English writing and everyday language
reading skills and writing skills
knowledge of Finnish everyday level writing and no knowledge
reading skills
SOCIAL CAPITAL acquaintance in business + +
older entrepreneurs -
SOCIAL ATTITUDES living standards should be equal
business is a good career
businessmen have a high social status -
business success stories are often
re?ected in media + +
CONTROL VARIABLES size of family
born in Estonia
mother comes from Estonia +
father comes from Estonia
place of residence and activity
Tallinn + +
Tartu
Pärnu
Viljandi
Narva
another county centre
village +
has lived abroad (at least 6 months) -
important on a 99% con?dency level ++ positive effect, more than 5%
important on a 95% con?dency level + positive effect, less than 5%
important on a 90% con?dency level - negative effect, less than 5%
statistically insigni?cant
3. Pro?le of an Estonian Entrepreneur
44
The aim of the present chapter is to provide an overview of some of the main traits that characterise entrepre-
neurial activity in Estonia, to look at the variations of entrepreneurship by economy sectors and regions, the
international orientation of entrepreneurs, their growth ambitions and reasons for exiting business. Although
the main emphasis is on Estonia, we will also provide international comparison data with all indicators –
international context helps to interpret the Estonian indicators.
4.1 Sectors of the Economy
Structural changes are considered an important prerequisite of productivity and increase in living standards
in general in Estonia (Estonian Development Fund, 2008). In addition to changes in the activity areas of present
companies and moving in the value chain, the appearance of new, innovative companies in high added-value
sectors is required. While considering the international comparison of entrepreneurship indicators, we must
keep in mind the different forked structure of different countries’ economies.
Table 4.1 shows the division of entrepreneurs between the main sectors of the economy in Estonia and
neighbouring countries, using the sector division of the GEM survey.
1
In general, it can be said that in different
countries the division of entrepreneurship between sectors of the economy re?ects to some extent the division
of established companies, i.e. the economy’s general structure. Differences between the two indicators are
probably related to differences in entry barriers (like the investment needed for starting a business, average
size of companies, etc.) in different sectors of the economy. So, early stage entrepreneurship generally tends
to be lower in the supplying sector and higher in the sectors orientated to the end consumer. At the same time,
the differences between sectors are not very big. Maybe the most noticeable difference between Estonia and
Latvia lies in the services orientated to the business sector, where the share is signi?cantly higher in Estonia.
Looking at the importance of different sectors across the regions of Estonia, it can be seen that there are more
early stage entrepreneurs in the supplying sector in Central Estonia (a quarter of all entrepreneurs) and in the
transforming sector in South Estonia (38.3% of all entrepreneurs).
4.2 The Regional Aspect
Entrepreneurial activity was compared in ?ve regions of Estonia:
1) North Estonia (Harjumaa),
2) Western Estonia (Läänemaa, Pärnumaa, Hiiumaa and Saaremaa),
3) Central Estonia (Järvamaa, Raplamaa and Lääne-Virumaa),
4) North-Eastern Estonia (Ida-Virumaa) and
5) South Estonia (Jõgevamaa, Põlvamaa, Tartumaa, Valgamaa, Viljandimaa and Võrumaa).
Table 4.1 characterises the entrepreneurship activity of regions, showing the number of entrepreneurs per
100 inhabitants. For example, in North Estonia, there are approximately 27 entrepreneurs per 100 inhabitants,
counting early stage as well as established entrepreneurs. The number of early stage entrepreneurs per 100
inhabitants is below average in Central Estonia and the number of active entrepreneurs is below average in
North-Eastern Estonia.
Looking at early stage entrepreneurs only, Figure 4.1 shows the regional TEA index. It is only higher than the
average of Estonia in Northern Estonia; in other regions, early stage entrepreneurial activity is average. Leaving
North Estonia out of the analysis, the TEA index of Estonia would be 11.02% instead of 14.3%.

1
The supplying sector includes sectors like agriculture, forestry, ?shing and mining. The transforming sector includes the processing industry,
construction, transport, communication, communal services and wholesale trade. Business-orientated activities (business services) include ?nances,
insurance, real estate and other business services. Consumer-orientated services include retail trade, repair of vehicles, housing, food, personal
services, health and leisure.
4. Characteristic Traits of
Entrepreneurship in Estonia
45
The division of early stage entrepreneurs in different sectors of the economy
refects the division of established companies in the sectors
TABLE 4.1 – Division of different stages of entrepreneurship in sectors and comparison with neighbouring countries
(source: authors’ calculations based on the APS 2012 data)

Transfor- Business Consumer
Entrepreneurs Supplying ming orientated orientated
Country by stage sector sector activities activities

Estonia established entrepreneurs 12.0 26.5 30.0 31.5
early stage entrepreneurs 6.3 29.1 26.5 38.1
Latvia established entrepreneurs 21.7 31.5 12.4 34.4
early stage entrepreneurs 10.9 35.7 16.9 36.6
Lithuania established entrepreneurs 12.3 32.2 21.9 33.6
early stage entrepreneurs 9.3 26.3 28.8 35.6
Finland established entrepreneurs 23.4 29.4 21.8 25.5
early stage entrepreneurs 15.7 19.5 27.9 36.9
Sweden established entrepreneurs 9.6 25.0 37.7 27.7
early stage entrepreneurs 9.5 14.1 38.2 38.1
Early stage companies are most often located in urban areas
FIGURE 4.2 – Division of Estonia’s early stage companies betwen rural and urban areas
(source: authors’ calculations based on the APS 2012 data)
100%
80%
60%
40%
20%
0%
North
Estonia
Western
Estonia
North-Eastern
Estonia
Central
Estonia
South
Estonia
whole of
Estonia
urban area
rural area
The number of early stage entrepreneurs per 100 inhabitants is highest
in North Estonia, while Central Estonia has most established entrepreneurs
FIGURE 4.1 – Number of entrepreneurs per 100 inhabitants in various regions of Estonia
(source: authors’ calculations based on the APS 2012 data)
early stage entrepreneurs
established entrepreneurs
20
18
16
14
12
10
8
6
4
2
0
North Estonia Central Estonia South Estonia Western Estonia North-Eastern
Estonia
urban area rural area
4. Characteristic Traits of Entrepreneurship in Estonia
46
From the regional aspect, it is important to look at the division of companies between rural and urban
regions; the corresponding results are shown in Table 4.2. Early stage companies are more often active in urban
areas; in Central and Western Estonia, this difference is insigni?cant.
Another characteristic of entrepreneurship is the share of necessity-driven entrepreneurship among early
stage entrepreneurs. As shown in Figure 4.3, the percentage of necessity driven early stage companies does not
differ signi?cantly between rural and urban areas, but the share is larger than average in Central Estonia, yet
only different to a statistically signi?cant extent when compared to Western and North-Eastern Estonia.
North Estonia has more early stage entrepreneurs than average, but the share of established entrepre-
neurs are not signi?cantly different from the average of Estonia. A larger percentage of entrepreneurs is located
in urban areas. Among the inhabitants of Northern Estonia, the index of individual perception of entrepreneur-
ship
2
is above the average of Estonia and this is mainly because of the good business opportunities and per-
ception of own good knowledge and skills. In the case of all other regions of Estonia, the percentage of people
perceiving good business opportunities is below Estonia’s average, therefore signi?cantly lower than in North
Estonia.
In Western Estonia, the share of early stage and established entrepreneurs is rather average and on a
similar level in both cases. The value of the index of individual perception of entrepreneurship is brought down
by a below-average perception of good business opportunities. Of established entrepreneurs, more than one
half are located in rural areas; there is no such distinction in the case of early stage entrepreneurs. There is less
necessity-driven entrepreneurship than in South and Central Estonia.
In Central Estonia, as in Western Estonia, the share of established entrepreneurs is on the same level as
that of early stage entrepreneurs. The share of early stage entrepreneurs is lower than Estonia’s average and
around one third of them are necessity-driven, which is signi?cantly more than in other regions of Estonia
(except South Estonia). There are more established companies in rural areas. Early stage entrepreneurs are
distributed evenly between rural and urban areas.
In North-Eastern Estonia, there are fewer established entrepreneurs than average, while early stage entre-
preneurship is as widespread as in the rest of Estonia. The index of individual perception of entrepreneurship is
also very low in this region (lower than other regions, including Central Estonia, at a con?dency level of 0.9) and
this is in all components where the proportions are lower than average. Only fear of failure is higher than aver-
age: more than half of the inhabitants of North-Eastern Estonia would refrain from becoming an entrepreneur
because they are afraid of failing. Entrepreneurs are mainly active in urban areas. In spite of the employment
market situation, which is more dif?cult than in the rest of Estonia, the share of necessity driven early stage
entrepreneurship is not high in North-Eastern Estonia (13.3% of early stage entrepreneurs) and is lower than
the corresponding indicators for South and Central Estonia. The share of early stage entrepreneurs out of total
inhabitants is higher in Southern Estonia than that of established entrepreneurs. There is quite a high percent-
age of necessity-driven early stage entrepreneurship. The entrepreneurial activity of rural areas of Southern
Estonia is low compared to urban areas and the share of Tartu in the entrepreneurship of this region is quite
high.
4.3 International Orientation
Estonia has a small domestic market and an open economy; therefore, an international orientation is important
and essential for a company to be successful. Companies usually start by selling on the domestic market and
only later expanding to other markets, starting with those that are geographically and culturally closest. There
are not many companies that are born international.
In the GEM survey, an entrepreneur’s international orientation is considered low if less than a quarter of
the company’s clients are located outside Estonia, and strong if these clients number over a quarter. Table 4.2
shows that 30.2% of early stage entrepreneurs have a strong international orientation, and 17.6% of estab-
lished entrepreneurs.
Compared to other countries, the international orientation of the new companies of Estonia is relatively
high (Figure 4.4), re?ecting the openness or small size of the economy – there is a recognisable cross-country
trend of an international orientation being tightly related to both of these indicators (being stronger in more
open and smaller countries). At the same time, even taking into consideration the small size and openness of
the economy, the international orientation of Estonia’s companies is stronger than average. However, ?gures
also show that the relation between the openness of an economy, i.e. the ratio of export and GDP on the one
hand and the indicator of international orientation used in the GEM survey on the other hand is not very strong.
This may be because a relatively small number of large exporters often dominate the exports of a country,
2
The individual entrepreneurship perception index shows whether a person sees good business opportunities, possesses skills needed for becom-
ing an entrepreneur and knows someone who has started a company recently. A person’s individual perception of entrepreneurship is considered
strong if at least two indicators out of three are answered af?rmatively.
4. Characteristic Traits of Entrepreneurship in Estonia
47
The share of necessity-driven early stage entrepreneurship is highest
in Central Estonia
FIGURE 4.3 – Share of necessity-driven entrepreneurs in Estonia out of all early stage entrepreneurs,
by region and urban/rural area
(source: authors’ calculations based on the APS 2012 data)
35%
30%
25%
20%
15%
10%
5%
0%
Western
Estonia
North
Estonia
Central
Estonia
rural area North-Eastern
Estonia
South
Estonia
urban area whole of
Estonia
The export intensity of early stage companies is only slightly lower than
that of established companies
TABLE 4.2 – International orientation among early stage and established entrepreneurs in Estonia
(source: authors’ calculations based on the APS 2012 data)

Export
intensity % Cumulative % % Cumulative %

Over 75 % 11.0 11.0 10.2 10.2
25–75% 19.2 30.2 7.4 17.6
Up to 25% 36.7 66.9 49.1 66.6
No export 33.2 100.0 33.4 100.0
EARLY STAGE ENTREPRENEURS ESTABLISHED ENTREPRENEURS
4. Characteristic Traits of Entrepreneurship in Estonia
48
so that the general relation between export and GDP is not necessarily related strongly to the international
orientation of single companies.
4.4 Growth Ambitions of Entrepreneurs
New companies tend to be quite small compared to the average company size in the sector (e.g. Caves, 1998);
this is due to either limited resources or an unwillingness to take large risks at the beginning. In order to
become competitive, a company has to grow. New companies have a lower level of productivity than established
ones (Bartelsman et al, 2004; about Estonia see e.g. Masso et al, 2004). At the same time, it is hard to distin-
guish between differences in physical productivity from differences in pricing: new companies may be forced to
sell their products for a lower price (Foster et al, 2008).
The growth expectations of entrepreneurs can be described through how many people they hope to employ
in the future. The number of employees is one of the most often used indicators of company size. Results show
that 38% of early stage entrepreneurs plan to create more than ?ve new jobs within the next ?ve years. 11.4%
of early stage entrepreneurs and 10.9% of established entrepreneurs plan to create more than 19 new jobs
within the next ?ve years.
Figure 4.5 shows the growth expectations of early stage entrepreneurs and established entrepreneurs in
various countries of the EU. There are signi?cantly more of those who see growth potential in the future among
early stage entrepreneurs. Almost a quarter of Estonia’s early stage entrepreneurs want to grow the business
in the future. The scale of the answers is wide: e.g. only 6% of Spanish and over 40% of Latvian early stage
entrepreneurs believe that there will be signi?cantly more workers in their company in ?ve years’ time. 19% of
EU’s early stage entrepreneurs believe that their company will grow substantially within the next ?ve years.
The growth expectations of established entrepreneurs are signi?cantly lower. This may be a result of bet-
ter knowledge of the market situation or the company having reached its optimal size and ful?lled the growth
potential by the time of the study. It is easier for early stage entrepreneurs to attain quick growth than it is for
established entrepreneurs; companies often start quite small and growth is needed for their survival and ef?-
ciency. The established entrepreneurs of several European countries see practically no growth opportunities at
all, e.g. less than 2% of the entrepreneurs of France, Belgium, Greece, Spain, Austria and Portugal foresee sub-
stantial growth for their companies. The growth expectations of established entrepreneurs in European coun-
tries are quite homogeneous; only the established entrepreneurs of Romania and Latvia are almost two times
more optimistic than those of other countries. A part of the difference between the growth expectations in vari-
ous countries can probably be explained by differences in expected economic growth and the level of business
trust. This would explain lower growth expectations in the South European countries that are most affected by
the debt crisis on the one hand and the higher growth expectations of Middle and Eastern European countries
where expected economic growth is higher because of the low level of GDP on the other hand. The variations in
growth expectations can also be due to differences in the regulative environment that doesn’t let the new com-
panies of South European countries grow, as regulations may be more lenient on smaller companies, thereby
causing new companies to remain small.
4. Characteristic Traits of Entrepreneurship in Estonia
ENTREPRENEURSHIP IN NORTH-EASTERN ESTONIA

North-Eastern Estonia (Ida-Virumaa) is generally considered a region with one of the most complicated economic situations in Estonia:
diffculties in adopting the market economy because of a large concentration of heavy industry in the region, a large proportion of
Russian-speaking inhabitants and their adoption diffculties during the transition process, a more complicated situation on the job
market, including unemployment fgures considerably higher than Estonia’s average, e.g. in 2010 16.9% and 25.8% respectively. One of
the solutions to these problems could be the development of entrepreneurship, but earlier studies have shown a lower entrepreneurial
activity in the region. According to the data from Statistics Estonia, there were 748 companies per 10,000 inhabitants in Estonia as a
whole, but only 346 in Ida-Virumaa, which is the lowest fgure among the counties of Estonia. Based on the present study, it can be said
that while the share of active entrepreneurs, like other indicators, is quite low in Ida-Virumaa, the number of early stage entrepreneurs
is not very different from other regions. At the same time, people’s evaluation of their own understanding of entrepreneurship is some-
what lower and fear of failure is higher. In spite of the employment market situation, which is more diffcult than in the rest of Estonia,
the share of necessity driven early stage entrepreneurship is not high (13.3% of early stage entrepreneurs, 18.2% in the whole of Estonia).
Also, the innovation level of companies is lower than average in North-Eastern Estonia – the share of entrepreneurs who hope to come
up with a new product or service for the Estonian market within the next three years (11.4% of respondents, e.g. in North Estonia 28%)
or for international markets (5.2%, in North Estonia 12.2%). So perhaps one cannot say that the people of Ida-Virumaa are not entrepre-
neurial, but there are several problems with being an entrepreneur, growth of companies, innovation and survival. In political measures,
a specifc approach to the problems of this region is therefore required, including entrepreneurial education and the development of
advisory services.
49
The growth expectations of entrepreneurs in European countries
vary considerably
FIGURE 4.5 – Growth expectations of entrepreneurs: share of entrepreneurs who believe that there will be
at least 10 people more or 50% more than at present working in the company in ?ve years
(source: authors’ calculations based on the APS 2012 international data)
growth expectations of early stage entrepreneurs
growth expectations of established entrepreneurs
45
40
35
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20
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FIGURE 4.4 – The relation between a strong international orientation and openness of economy
(ratio of export and GDP, left graph) and the size of a country’s economy (GDP) in various countries
(sources: authors’ calculations based on APS 2012 data; IBRD database World Development Indicators)
A company’s international orientation is related to the general openness
and size of the economy
45
40
35
30
25
20
20
15
10
5
0
HRV
LTU
IRL
EST
SVN
LVA ZAF
FRA
PRT
PTH
MKDAUT
CHE
KOR
SWE
DNK SVK
HUN
NLD
PRI
PAN
THA
BEL
MYS TUN
KAZ
DEU
ZMB
JPN
TUR
ESP
USA
UGA
CRI
ECU BRA
ARG
CHN
IND
NOR
GRC
NGA
FIN
20 40 60 80 100 120
45
40
35
30
25
20
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15
10
5
0
LTU
HRV
LVA
EST
MKD
BIH
SVK
HUN
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COL
NGR
PER
BEL
PAN
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SLV
KAZ
TUN
BRA
CHN
IND
ECU
THA MEX
URY
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SVN
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CHE
FRA
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USA
DEU
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ESO NLD
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22 24 26 28 30 32 T
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%
Ratio of export and GDP, 2010 GDP logarithm, 2010
countries
linear trend
4. Characteristic Traits of Entrepreneurship in Estonia
50
Besides increasing the number of employees and growth expectations, plans for extending the market geo-
graphically are also an indicator of entrepreneurs’ growth ambitions. Figure 4.6 shows that most entrepreneurs
do not foresee expansion of their market, but the tendency of not planning to expand the market is somewhat
clearer with established entrepreneurs.
It can be seen on Figure 4.7 that entrepreneurs with a strong individual perception of entrepreneurship
plan to sell their products or services on a geographically wider market compared to entrepreneurs with a weak
individual perception of entrepreneurship. Only in the case of the domestic Estonian market does this indicator
not play a signi?cant role.
4.5 Reasons for Giving Up Entrepreneurship
Starting and ending companies are closely related processes – up to a third of new companies end their
existence within their ?rst years. In many cases, the end is unavoidable. There is no other way to test the
successfulness of a business model than by experimenting. Therefore, it is a natural process, while studying
the reasons for failure gives important information about the entrepreneurship environment.
The most important reason for exiting business is that the company was not pro?table (Figure 4.8). The
importance of various reasons differs by country. Estonia seems to be more like the countries of Middle and
East Europe (see Table 4.3), while in Scandinavia the pro?tability of a company is a much rarer reason for exiting
business. It has been said often that at least during some period, Estonian entrepreneurship has been limited
by a lack of investment ?nancing opportunities (Mickiewicz et al, 2004; Masso, 2002), but our study shows that
problems with ?nding ?nances was a smaller reason for exiting business than in other Baltic or Middle and
Eastern European countries.
4.6 Innovative Entrepreneurship
Differentiating between factor-driven, investment-based ef?ciency-driven and innovation-driven, i.e. directed
at creating and deploying new knowhow, as three types of economy on the basis of the approaches of Michael
Porter (1998) and World Economic Forum (Schwab, 2012) is one of the central concepts of the GEM methodol-
ogy (see more in Chapter 1). For Estonia, which is aspiring to become one of the innovation-driven economies,
one of the challenges is to increase the number of companies whose international competitiveness is not based
on cost ef?ciency alone, but which achieve a competitive advantage through new products, services and tech-
nologies. Product and process innovations make it possible to compete on developed markets where clients are
ready to pay more for an innovative solution not yet offered by competitors. On the markets of developing coun-
tries, innovation may help make a product more accessible for a numerous but less solvent group of consumers,
to follow the logic of capturing a market “at the bottom of the pyramid”, which has been introduced to Estonian
entrepreneurs by the Estonian Development Fund (Esko, 2012).
According to the EU innovation study (CIS 7), new or signi?cantly improved products, processes, organisa-
tional or marketing innovations were applied or corresponding investments made by 56.8% of Estonian com-
panies in the period 2008–2010 (Eurostat, 2012). This is a good indicator compared to the EU average (52.9%)
and Latvia (29.9%) and even to one of the innovation leaders in Europe, Finland (56.2%). Product innovations
were made in 27% of Estonian companies in the years 2006–2008, which was somewhat less than in the pre-
ceding period (Reid et al, 2011, 53). However, innovations that are only ef?cient subcontractors of products and
technologies developed elsewhere are not suf?cient for attaining an international competitive advantage in an
innovation-driven economy. We should offer new products to the market ourselves. According to CIS 7, 10.8% of
Estonian, 4.5% of Latvian, 13% of Finnish and 20.1% of German companies (the latter being the leader in this
regard) offered innovative products to the market between 2008–2010.
In the Estonian Human Development Report, Terk and Reid (2011) stress the importance of co-operation
between companies and universities as well as a wider innovation-consciousness, and also the need to change
the structure of the economy and business models in a way that would increase the share in revenue of new
products brought to the market. The GEM 2012 APS results show quite large optimism among aspiring and
early stage entrepreneurs in designing new products for domestic and international markets when compared
to the data about established entrepreneurs in CIS 7. 27.7% of nascent and 29.2% of new entrepreneurs hope
to offer innovative products to the Estonian market within three years. The innovation ambitions of established
entrepreneurs are signi?cantly lower: 12.6% of them hope to offer new products to the Estonian market. A
tenth of all entrepreneurs hope to offer new products to international markets and although established entre-
preneurs are less optimistic about foreign markets, the number of respondents is also too small to permit the
statistically trustworthy distinction of differences between stages of entrepreneurship. While one out of ?ve
new entrepreneurs applies new technologies that have been available for less than a year, the number is only
3% in the case of established entrepreneurs (see Appendix 9). This implies that new technologies and products
developed elsewhere are used widely during the ?rst years of activity of a company.
4. Characteristic Traits of Entrepreneurship in Estonia
51
Early stage entrepreneurs plan more extensive expansion of the market
than established entrepreneurs
FIGURE 4.6 – Division of Estonian early stage and established entrepreneurs by expansion of market and ways of doing it
(source: authors’ calculations based on the APS 2012 data)
will not expand market
some expansion of market
(no new technology)
some expansion of market
(with new technology)
thorough expansion of market
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
early stage
entrepreneurs
established
entrepreneurs
Entrepreneurs with a strong individual perception of entrepreneurship plan
to be active on more extensive markets in the next three years
FIGURE 4.7 – The geographical markets of Estonian companies in the next three years by the
personal entrepreneurship perception index
(source: authors’ calculations based on the APS 2012 data)
strong individual
perception of entrepreneurship
weak individual
perception of entrepreneurship
domestic Estonian market
whole of Estonia
other EU countries
countries outside EU
0% 20% 40% 60% 80% 100%
4. Characteristic Traits of Entrepreneurship in Estonia
52
The main reason for exiting business is too high proft expectations
FIGURE 4.8 – Main reasons for quitting business for those who have exited business within the last 12 months
(source: authors’ calculations based on the APS 2012 data)
1 – entrepreneurship was not pro?table
2 – exiting was preplanned
3 – personal reasons
4 – other employment or business opportunity
5 – problems ?nding ?nancing
6 – opportunity to sell the business
7 – retiring
8 – an incident
40%
30%
20%
10%
0%
1
2
3
5
7
4
6
8
The reasons for exiting business in Estonia are similar to those in
Central and Eastern Europe
TABLE 4.3 – Main reasons for exiting business in Estonia and neighbouring countries
(source: authors’ calculations based on the APS 2012 data)

Problems
Business was not pro?table Other employment or Personal
Country not pro?table ?nancing business opportunity reasons

Estonia 35.43 5.51 9.73 10.72
Latvia 40.16 9.81 4.46 10.37
Lithuania 25.00 11.36 11.36 9.09
Finland 14.19 2.74 17.69 14.70
Sweden 19.01 9.76 6.51 17.24
Slovakia 42.95 7.16 7.62 10.53
Hungary 35.64 33.54 2.76 9.21
Slovenia 11.40 21.17 7.45 11.92
4. Characteristic Traits of Entrepreneurship in Estonia
53
The innovation ambitions of entrepreneurs of North Estonia are signi?cantly bigger than those of other
entrepreneurs from other regions, especially regarding the Estonian market (Table 4.4), which may re?ect the
fact that demanding, innovation-orientated consumers are more active in the capital and in its vicinity.
More than half of companies collaborate with other companies to create new products and there are no
statistically signi?cant differences between regions in this.
In order to achieve scale economy in a small open economy, one often has to think of innovations that
would also be innovative for foreign markets and would make it possible to follow the vision of a global company
from its inception. Therefore, we want to determine which characteristics distinguished other entrepreneurs
from those that intend to come up with an innovative product or service for the Estonian market within the next
three years, and those that intend to come up with an innovative product or service for the international market.
Appendix 10 shows that such entrepreneurs not only develop new products themselves but also buy new
products or services. They are more optimistic than other entrepreneurs, believing that new products or serv-
ices will make their life better within the next six months. This shows that the early stage entrepreneurs who
plan innovations are also avid consumers of innovations created by others. The new entrepreneurs who offer
new products to foreign markets are distinguished from other entrepreneurs by a more dominating motive of
increasing personal income. The percentage of men is even larger among them than it is among other entrepre-
neurs (see Appendix 10).
These days, innovation is often not limited to the company, but it is also important to follow information
sources outside the company and to combine different ideas. Nascent entrepreneurs with innovative inten-
tions differed from other entrepreneurs in that they have advisers from whom they have most often received
advice regarding the new company. Nascent entrepreneurs with innovative intentions and an orientation to
foreign markets had in 27.9% of cases received advice from a researcher or inventor, which is almost twice
more often than in the case of entrepreneurs who did not express innovative intentions (14%). Entrepreneurs
planning innovative products for the Estonian market had received advice from a spouse in 58.9% of cases.
At the same time, only 23.8% of entrepreneurs planning new products for foreign markets had received advice
from a spouse. It looks like innovative entrepreneurial ideas with an international grasp are more often born in
a wider contact network than the family. From the point of view of a company’s growth opportunities, there is
an important distinction in receiving advice regarding potential investors. Two thirds of entrepreneurs who are
planning innovations orientated towards foreign markets, half of the entrepreneurs planning innovations for the
Estonian market and less than a quarter of nascent entrepreneurs who have no innovative ambitions even for
the Estonian market have received advice from them. In the case of banks as advisers, the differences are not
so big. The percentage of those who have received advice from public advisory of?ces does not differ consider-
ably either among entrepreneurs with different innovation intentions.
4.7 Cooperation with Other Companies and Organisations
The APS-questionnaire of 2012 contained, for the ?rst time, questions about cooperation with other companies
and organisations of the public as well as private sector in a broader sense. Cooperation with other companies
may cause some problems, e.g. intellectual property issues in the case of innovation-related cooperation, but
it helps overcome the lack of internal resources and share costs. Therefore, in the area of innovation, for exam-
ple, the concept of open innovation is becoming more and more popular, while cooperation problems between
companies and universities are emphasised often. As this is the ?rst time that these questions are being used,
an evaluation is needed as to how well they work. Differences between countries are obvious in the viewed
sample, but they are not very big. The cooperation frequency of Estonian companies is generally higher than
in Latvia and Lithuania. Comparing established and early stage entrepreneurs (see Table 4.5), in the case of
Estonian early stage entrepreneurs, cooperation is more frequent for achieving better ef?ciency or for tenders,
while for established entrepreneurs it is for the production of goods. However, this pattern is not the same in all
countries. Cooperation in creating new products and services happens a bit less frequently in the area of sell-
ing products, but this is probably because all companies are not creating new products at all periods. Anyway,
these numbers show that innovation-related cooperation is rather frequent. For comparison, according to the
innovation survey (the data of which are from various years and are not completely comparable to the APS data
because of different samples), almost half of innovative companies participated in innovation-related coopera-
tion in the years 2006–2008 (Masso et al, 2011). There was less of it present in the group of small businesses.
Therefore, the APS data presented here indicate rather frequent cooperation. But, as said before, the accuracy
of the answers given to these questions requires additional analysis.
4.8 Chapter Summary
Division by sector of economy is quite similar among the established and early stage entrepreneurs of Estonia.
Certain regional differences, like a larger share of necessity-driven entrepreneurship in regions with a more
dif?cult job market situation, are to be expected. Compared internationally, Estonian new companies are
4. Characteristic Traits of Entrepreneurship in Estonia
54
Cooperation with other organisations is active in Estonia
TABLE 4.5 – Business relations: frequency of cooperation with other companies and organisations of the public and
private sector.
(source: authors’ calculations based on the APS 2012 data)

To create To create To sell own To sell own
products products To produce products products
or services or services To increase goods or or services or services Cooperation
Entrepreneurs for present for new ef?ciency of offer to present to new for obtaining
Country by stage customers customers business services customers customers supplies

Estonia established entrepreneurs 42.0 40.8 48.2 74.8 55.0 60.2 56.5
early stage entrepreneurs 71.1 65.3 68.6
Latvia established entrepreneurs 34.1 30.7 55.8 71.8 53.0 46.7 59.1
early stage entrepreneurs 65.9 60.6 54.7
Lithuania established entrepreneurs 27.3 24.7 39.5 53.5 40.8 31.8 40.9
early stage entrepreneurs 43.1 39.3 42.3
Finland established entrepreneurs 27.2 22.8 57.6 69.0 44.3 38.3 51.2
early stage entrepreneurs 43.1 43.3 43.7
Sweden established entrepreneurs 31.5 40.9 27.7 61.2 49.7 47.0 30.9
early stage entrepreneurs 62.3 48.2 56.7
TABLE 4.4 – Innovation-related activities in regions of Estonia
(source: APS, 2012)
Innovation ambitions are stronger in North Estonia than in other regions

Development of North Western Central North-Eastern South Whole of
innovative entrepreneurship Estonia Estonia Estonia Estonia Estonia Estonia

Will you come up with an innovative 28.0 18.9 12.3 11.4 19.8 22.3
product or service that is new for the
Estonian market within the next
three years
Will you come up with an innovative 12.2 8.6 7.0 5.2 9.1 10.0
product or service that is new for the
international market within the
next three years
SHARE OF PEOPLE ANSWERING “YES” (%) IN REGIONS OF ESTONIA
4. Characteristic Traits of Entrepreneurship in Estonia
55 4. Characteristic Traits of Entrepreneurship in Estonia
characterised by a strong international orientation, even when taking into account the small size of Estonia’s
economy. The growth expectations of entrepreneurs are smaller than those of neighbouring countries. The
reasons for giving up entrepreneurship are the same in Estonia as in the countries of Middle and Eastern
Europe – low pro?tability -, which differs from the Scandinavian countries where the main reason for giving up
entrepreneurship is retiring. So, on the basis of these main characteristics it can be said that Estonia belongs
in the group of ex-transitional countries and these characteristics show Estonian entrepreneurship in a rather
good light. Quite a large share of Estonia’s aspiring and early stage entrepreneurs hopes to offer new products
to either the Estonian or international markets.
In order to move towards an innovation-based economy, a better connection between international orienta-
tion and innovative entrepreneurship should be achieved. Increasing the share of ambitious entrepreneurship
that is able to stand out from competition on foreign markets through a new product in other regions of Estonia
besides North Estonia could be one of the goals of measures directed at developing innovative entrepreneur-
ship, but also increasing the share of women among entrepreneurs, which can be achieved by e.g. a further
spread of entrepreneurship in creative industries. In developing advisory services to entrepreneurs and men-
torship, differences between the information required by innovative entrepreneurs and the prerequisites of
entrepreneurship that focus on ef?ciently copying best practices should be kept in mind. Cooperation between
businesses and organisations is rather active in Estonia, in the ?eld of innovation as well as in other areas.
56
Institutional environment plays a key role in studying and developing entrepreneurship. Various institutions
and predominant beliefs in society in?uence the conditions that entrepreneurs have to consider in their activi-
ties and that policymakers should change in a direction favourable to entrepreneurship. The Adult Population
Survey (APS) of GEM addressed these favourable and hindering factors directly that are related to existing
knowledge respondents as well as entrepreneurship opportunities and readiness to start and develop entre-
preneurship. We will also consider the respondents’ views on the wider population’s perceptions about entre-
preneurship as favourable and hindering factors in this chapter. A portion of the questions of APS was directed
at determining whose advice had been taken when starting entrepreneurship. The Expert Survey (ES) took as
its basis a full concept of conditions for entrepreneurship, which relies on the results of earlier GEM projects.
Comparing ES and APS helps clarify the needs and opportunities for strengthening the factors that are favour-
able to entrepreneurship and diminishing the hindrances.
5.1 Aids and Obstacles to Entrepreneurship
To determine the aids to entrepreneurship, we ?rst compared the answers of respondents who were in various
stages of starting or developing a business, with those of all respondents and those of nascent entrepreneurs
in various regions of Estonia (see Table 5.1).
It transpires that new entrepreneurs know people who have started a business within the last two years
more often than aspiring and nascent entrepreneurs, and also more often than established entrepreneurs.
The evaluations of new entrepreneurs of regional opportunities for starting entrepreneurship are
signi?cantly higher than those of established entrepreneurs, who have been in business for over 3.5 years.
Interestingly, the evaluations of established entrepreneurs are closer to those of the whole population than
to the optimistic evaluations of business opportunities shown by early stage entrepreneurs.
As can be expected, established entrepreneurs are most often the ones who have the knowledge and skills
needed for becoming an entrepreneur: 89% of them think they have these skills. The evaluations of nascent
and new entrepreneurs of their own knowledge are also higher than those of the whole population and non-
entrepreneurs. The evaluations of aspiring entrepreneurs of their own knowledge are signi?cantly lower than
those of nascent entrepreneurs. More than a half of nascent, new and also established entrepreneurs have
participated in entrepreneurial courses, which is signi?cantly higher than the average of all respondents.
Compared to the general number of all respondents, the percentage of those who have lived abroad for at
least six months within the last three years is highest among nascent and new entrepreneurs. Hazans (2008)
has concluded from the Latvian data that although the low quali?ed workforce has been dominant in the
emigration from Latvia since accession to the EU, those who return to Latvia have a higher level of education
and are not likely to be employed in physical labour. The proximity of Finland to Estonia increases the share of
commuting, the impact of which on entrepreneurship still needs to be studied.
Of factors hindering entrepreneurship, fear of failure is characteristic of the whole sample of respondents,
being mentioned by slightly more than half of the non-entrepreneurs. However, the fear of failure among entre-
preneurs is signi?cantly lower. The existence of heavy competition was mentioned by established entrepre-
neurs more often than by nascent entrepreneurs, which shows how the perception of competition deepens in
the course of developing a company.
Comparing the answers of nascent entrepreneurs by region of Estonia (Table 5.1), the existence of numer-
ous competitors was most often mentioned in Central Estonia (45%) and least often in North-Eastern Estonia
(19%), which shows an understanding that the market there has development potential. In North-Eastern
Estonia, the share of respondents who personally know somebody who has started a company within the last
two years is signi?cantly smaller than in North and West Estonia. The evaluation of entrepreneurship oppor-
tunities is also a lot lower there than in North or South Estonia. North-Eastern Estonia stands out by a higher
rate of fear of failure than average, and especially compared to North Estonia. The people of North Estonia have
the best perception of business opportunities in their own evaluation as well as think they have good skills and
knowledge for becoming an entrepreneur; they also have the least fear of failure.
5. The Entrepreneurial Environment
in Estonia
57
Sharing of experience favours becoming an entrepreneur,
and fear of failure hinders it
A strong individual perception of entrepreneurship can be met most often
in North Estonia and least often in North-Eastern Estonia
TABLE 5.1 – Favourable and hindering factors of entrepreneurship related to entrepreneurship opportunities and the readi-
ness to become an entrepreneur in various stages of developing a company across regions of Estonia
(source: APS, 2012)
FIGURE 5.1 – Individual perception of entrepreneurship across regions
(source: authors’ calculations based on the APS 2012 data)
perception of good business opportunities
good skills for becoming an entrepreneur
knowing someone who has started a business within the last 2 years
fear of failure in entrepreneurship
strong individual perception of entrepreneurship

Knows Has
a recently Good participated in
started starting Knowledge Lived 6 m entrepreneurial Fear of Many
entrepreneur opportunities for starting abroad courses failure competitors

aspiring entrepreneurs 58.2 63.6 66.1 14.8 48.0 32.2 –
nascent entrepreneurs 69.0 66.4 80.5 12.6 55.2 29.8 33.0
new entrepreneurs 84.3 77.3 84.8 10.3 52.2 20.8 30.9
established entrepreneurs 41.0 54.9 89.1 3.5 54.1 27.5 20.7
North Estonia 42.0 57.2 50.2 8.3 33.5 43.2 37.7
Western Estonia 41.0 34.4 39.4 4.5 37.0 46.9 29.5
Central Estonia 31.0 41.4 42.7 4.0 32.2 46.2 45.4
North-Eastern Estonia 25.7 27.9 32.5 7.0 25.0 59.8 19.1
South Estonia 37.6 41.9 39.2 5.8 32.7 46.7 35.7
all respondents 37.5 42.5 43.2 6.7 32.5 46.9 –
non-entrepreneurs 30.7 39.5 32.3 6.1 26.9 52.4 –
FAVOURABLE FACTORS HINDERING FACTORS
60%
50%
40%
30%
20%
10%
0%
North Estonia Western Estonia Central Estonia North-Eastern Estonia South Estonia
5. The Entrepreneurial Environment in Estonia
58
The individual entrepreneurship index demonstrated in Figure 5.1 shows whether a person perceives good
business opportunities, whether he/she has the skills needed for becoming an entrepreneur and whether he/
she knows anyone who has started a company recently (see also footnote 2 on page 40). A person’s individual
perception of entrepreneurship is considered strong if at least two indicators out of three are answered af?rm-
atively. Fear of failure is a factor with adverse impact, having a negative effect on entrepreneurship activity.
Figure 5.1 shows the percentage of people living in a speci?c region who perceive good business opportuni-
ties and have the skills needed for becoming an entrepreneur. It can be seen that there are most people with a
strong individual perception of entrepreneurship in North Estonia and least in North-Eastern Estonia. Another
difference of North-Eastern Estonia is that more than half of its inhabitants (56.1%) would rather refrain from
becoming an entrepreneur because they are afraid to fail. The general individual perception of entrepreneur-
ship of a region re?ects the actual entrepreneurial activity of the region to a certain extent.
In an international comparison, the fear of failure is rather high in Estonia. 44% of respondents feel it,
which ranks us 14
th
out of 56 countries. The highest ?gures for this indicator can be found in Western European
countries, e.g. 72% in Greece and 49% in Germany; low values can be seen in many developing countries.
Social attitudes
When analysing social attitudes that in?uence entrepreneurship, we have compared the answers of respond-
ents in various stages of entrepreneurship to those of all respondents. Although entrepreneurship opportuni-
ties were given a higher evaluation in North Estonia than in other regions, entrepreneurship is most often seen
as a good career choice in North-Eastern Estonia (difference 0.9 on con?dency level). Obviously, there are
several other career opportunities in North Estonia.
By age groups, 25–34-year-olds have noticed stories in Estonian press about new successful companies
most often. The opinion that most people in Estonia consider starting a new company a desirable career choice
is also most widespread in that age group. They value a career in entrepreneurship more than 35-44-year-olds,
whose university studies and ?rst years of adulthood fell into the period of transition to the market economy.
Slightly more than half of all respondents attribute the preference of the same living standard for all to
most people. Regionally, this opinion is most apparent in Central Estonia (64%) and least widespread in North-
Eastern Estonia (45%). When interpreting the answers to this question, it must be kept in mind that it was not
the respondent’s own preference that was asked but what the respondent thought the preference of most
people in Estonia to be. It is the youngest respondents that attribute the preference of an equal living stand-
ard to the people of Estonia – two thirds of the 18-24-year-olds claimed it. This could lead to the conclusion
that young people have more egalitarian attitudes when it comes to analysing the relations between living
standards and entrepreneurship than the respondents whose work experience and entrepreneurship-related
attitudes were formed during the transition period from planned economy to market economy. A preference
of equal living standards may turn out to be a factor adverse to entrepreneurship if it leads to the collectivist
principle of “don’t be an entrepreneur, because that is wanting to be better than others”.
5.2 Advisers to Entrepreneurs
Receiving advice in the initial phase of starting as an entrepreneur can be considered a factor supportive of
becoming an entrepreneur that can compensate for the lack of knowledge and skills of the nascent or new
entrepreneur. In the case of aspiring entrepreneurs, access to advice and the supportive attitude of surrounding
people may be important factors that encourage a person to become an entrepreneur. Established entrepre-
neurs who have been in business for a longer time also need advice.
The GEM survey presents a substantial list of possible advisers to starting entrepreneurs, from friends and
family to banks and business advisory of?ces. The survey collected information about the sources from which
aspiring and acting entrepreneurs have received entrepreneurship-related advice. Access to information and
the experiences of other entrepreneurs may turn out to be extremely important in the entrepreneurial process.
An analysis of the responses is presented on Figure 5.2 and in Appendix 11.
For aspiring entrepreneurs, friends are an important source of advice. 69.4% of respondents who plan
to become entrepreneurs say they have received advice from their friends (see Figure 5.2). Slightly more than
half of the aspiring entrepreneurs who took part in the survey have used people with extensive entrepreneurial
experience as sources of advice. The role of close people (spouse or partner and other family members and
relations) is also quite important: almost 40% of respondents mention them as advisers.
Least of all, aspiring entrepreneurs have turned to banks and lawyers for advice. Also, the role of a com-
peting company as a source of advice is practically non-existent. The role of business advisory of?ces can be
pointed out separately, as they have not been very popular among respondents with entrepreneurial plans: only
12.7% of aspiring entrepreneurs say they have received advice from business advisors.
The survey shows that like aspiring entrepreneurs, nascent entrepreneurs have also received advice from
their friends (see Figure 5.2). The role of people with extensive entrepreneurial experiences is important – over
5. The Entrepreneurial Environment in Estonia
59
Nascent entrepreneurs primarily receive advice from their friends
FIGURE 5.2 – Share (%) of sources of advice as estimated by entrepreneurs of various stages.
Note: the fgure shows the share of those respondents who have used advice from the listed sources
(source: authors’ calculations based on APS 2012 data)
established entrepreneurs
new entrepreneurs
nascent entrepreneurs
aspiring entrepreneurs
friends
client
spouse or partner
accountant
starting entrepreneur
cooperation partner (company)
present colleagues
other family members or relatives
somebody from another country
supplier
potential investor
somebody who has come from abroad
lawyer
parents
present superior
researcher or inventor
competing company
bank
0% 20% 10% 30% 40% 60% 50% 70%
public business advisor
(consulting services for companies)
somebody with a lot of
entrepreneurial experience
5. The Entrepreneurial Environment in Estonia
60 5. The Entrepreneurial Environment in Estonia
60% of nascent entrepreneurs have used it. More than a half of nascent entrepreneurs have used the advice
of a spouse or partner. Compared to aspiring entrepreneurs, nascent entrepreneurs have received more advice
from an accountant. Other starting entrepreneurs are equally important as a source of advice. Over a half of the
nascent entrepreneurs mentioned customers as a source of advice.
Least of all, nascent entrepreneurs have asked banks and researchers/inventors for advice. Also, the role
of competing companies can be considered moderate. While aspiring entrepreneurs seldom mentioned busi-
ness advisory of?ces as a source of advice, nascent entrepreneurs have received advice from business advisors
more often: almost a quarter of all nascent entrepreneurs.
Interestingly, however, business advisors are not equally popular among new entrepreneurs. The survey
showed that less than a tenth of new entrepreneurs have received advice from business advisors. Business
advisors and banks are clearly the least important sources of advice for new entrepreneurs. It is easiest for new
entrepreneurs to get advice from people with extensive entrepreneurial experience: two thirds of new entrepre-
neurs have received advice from this source. Also, the roles of cooperation partners and accountants as advis-
ers can be considered important.
The answers of established entrepreneurs show somewhat different experiences with advisers.
There is no one most important adviser for this group, but rather an array of different advisers has been used
whom the respondents consider equally important. Friends and spouse or partner belong to the circle of most
important advisers. Also, almost half of established entrepreneurs have received advice from present col-
leagues, an accountant, customers and cooperation partners.
Like other respondents, established entrepreneurs also consider the role of banks as advisers less impor-
tant. The same can be said about potential investors, lawyers, researchers and inventors, from whom few
established entrepreneurs have received advice. The unimportance of public business advisors as a source
of advice is visible here as well: just 11% of established entrepreneurs have received advice from them.
It can be summarised on the basis of the survey that personal contacts (friends, spouse or partner) are
more important when seeking advice than the institutions meant for it (banks, business advisories etc.). The
importance of close people, above all friends, but not so much family, is the highest among aspiring and nas-
cent entrepreneurs. According to the respondents themselves, cooperation with researchers and inventors is
moderate. This result is not surprising, as in the European Union innovation result table, for example, Estonia
lags behind the EU average in business sector research and development spending, but also in the spread of
doctoral studies, patenting and licence and patent fees received from other countries (Pro Inno Europe, 2011,
30). A study of the sources of innovative knowledge in Estonia (Masso et al, 2011, 42) shows that the share of
companies that did not use knowledge from research and development institutions rose during the period
1998–2008 (an increase from 20% to 26%).
It can be inferred from the survey that nascent and new entrepreneurs probably feel the highest need for
outside professional advice: they have sought it more than others and they have used various opportunities for
getting advice. The survey also shows that both aspiring and established entrepreneurs need advice. Therefore,
if the network of entrepreneurs and availability and professionalism of services grew, entrepreneurs would
probably also start listening more to the advice of mentors with entrepreneurial experience.
5.3 Expert Evaluations
A part of the GEM survey was the national Expert Survey (ES), in which experts (see list in Appendix 1) were
asked to evaluate the circumstances in?uencing Estonia’s entrepreneurial environment and point out factors
favourable to and hindering the development of entrepreneurship within the framework of the GEM conception
(see Chapter 1). Among all the groups of entrepreneurship environment conditions, physical infrastructure
and opportunities for starting a business were rated highest; the main hindering factors pointed out were the
education, knowledge and skills of entrepreneurs (see Figure 5.3).
On the basis of the statements of the GEM Expert Survey, opportunities for starting a business mean,
among other things, that according to the experts, there are more opportunities for starting new businesses
than there are people able to use these opportunities. Equal treatment of immigrants who want to start a busi-
ness in Estonia or participate in a support programme was also valued highly. The questions did not deal with
the length or complexity of obtaining a living permit nor the general developing or encouragement of immigra-
tion. Of the entrepreneurship environment condition groups as a whole, the skills and knowledge required
for becoming an entrepreneur were judged the weakest, along with entrepreneurship-related education and
training, transfer of results of research and development work and ?nancing opportunities.
Compared to experts from other countries, Estonian experts estimate the Estonian entrepreneurship
environment on more or less the same level or higher. Compared to the opinions of experts of other countries,
Estonian experts show a higher appreciation of intellectual property rights (incl. legislation, protection of
intellectual property and patents, trademarks), opportunities for starting a business, state policy, cultural and
social norms, physical infrastructure and transfer of results of research and development work (see Figure 5.4).
61
Experts see hindering factors in the knowledge and skills of entrepreneurs
Estonian experts evaluate entrepreneurship environment higher
than experts of other countries
FIGURE 5.3 – Evaluations of entrepreneurship environment. Averages of 20 areas (max 5, min 1)
(source: ES, 2012)
FIGURE 5.4 – Evaluations of Estonian experts compared to those of other countries, on a scale of 1–5
(source: ES, 2012)
factor-driven
from factor to ef?ciency
ef?ciency-driven
from ef?ciency to innovation
innovation-driven
Estonia
intellectual property
rights
cultural and
social norms
transfer of results
of R&D work
opportunities
for starting
physical
infrastructure
state
policy
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
education
knowledge and skills for starting
immigration and entrepreneurship
transfer of results of R&D work
?nancing of entrepreneurship
business relations
attention to quick growth
entrepreneurship and young adults
state programmes
state policy
openness of market
business services infrastructure
entrepreneurship and youth
entrepreneurs’ social image
cultural and social norms
intellectual property rights
interest in innovation
support for women
opportunities for starting
physical infrastructure
2.0 2.5 3.0 3.5 4.0 4.5
5. The Entrepreneurial Environment in Estonia
62
Attention to quick growth, the social image of an entrepreneur, education and training, business relations,
entrepreneurship and young adults, and immigration and entrepreneurship, received an evaluation only slightly
lower than the average of international GEM experts.
Hindering factors
The experts valued people’s skills, knowledge and expertise for starting and managing a company and organis-
ing resources lowest, being especially critical about the management skills of quickly growing companies.
Entrepreneurship-related education was also deemed low-value both on basic education and university level,
as well as transfer of knowledge between universities and entrepreneurs; it was also pointed out that cultural
and social norms are not supportive of entrepreneurship or risk-taking (see Appendix 12). Experts’ commentar-
ies show that insuf?cient entrepreneurship-related education and training was an area that hinders the
development of entrepreneurship. An insuf?cient level of entrepreneurship education, formality of school stud-
ies and lack of creativity at school were pointed out most often, as was the shortage of specialists with profes-
sional skills on the employment market. Education on the level of elementary and basic education was pointed
out as another problem area because of its lack of focus on entrepreneurship, creativity, self-suf?ciency and
development of initiative. The knowledge needed for starting and managing a quick-growth company was
deemed lowest. The population survey showed that respondents who are actively involved in entrepreneurship
have participated in entrepreneurial courses more often than other respondents. There are also regional
differences in this subject area. Good regional opportunities for starting a business were seen in Northern
Estonia, but the level of knowledge and skills as well as participation in entrepreneurial education courses
got a low assessment in that region.
In the area of the transfer of results of research and development work, the transfer of technologies
and knowledge from universities and public research centres to new, growing companies was seen as weak; the
same applies to support for engineers and researchers to commercialise their ideas through new and growing
companies. This conclusion of experts is also corroborated by the results of the population survey, where the
role of researchers and inventors as advisers was considered small.
Hindering factors related to cultural and social norms were, according to the experts, a general nega-
tive attitude towards entrepreneurs and failing as well as low skills of communication and cooperation. Experts
?nd that cultural and social norms discourage people from taking risks. The media’s negative attitude towards
entrepreneurs was also brought out by experts as a problem. The population survey con?rmed this view of
experts, especially about the media coverage of successful new entrepreneurs.
Lack of ?nancing choices is another hindering factor according to the experts, especially in the initial
and growth stages. Too little and venture capital that is too hard to access hinders the starting of companies.
Another factor pointed out by experts was too little or lacking equity capital when starting a company.
Factors favourable to entrepreneurship
The infrastructure of professional services was considered a very important favourable factor by experts.
They also pointed out the ease and speed of establishing a company, the existence and functioning of electronic
channels, convenient communication with state institutions and small amount of bureaucracy as positive fac-
tors. As seen from the population survey, there is room for development in the role of public business advisories
and banks as advisers of a larger number of nascent and early stage entrepreneurs.
State policy and a simple tax system above all are also conducive to entrepreneurial activity according to
the experts. Low taxes and the stability of the tax environment in general were also pointed out. Most experts
found that it is very easy to start a company in Estonia and information needed for starting a company is easily
accessible for most people. A comparison of the GEM countries shows that there is less necessity-driven entre-
preneurship in countries where state policy was evaluated higher, as the general level of unemployment was
lower.
The cultural and social norms are favourable to entrepreneurship, experts think, in particular the readi-
ness for quick change and individual values. Coverage of success stories and “a way of thinking that favours
innovation and doing things in a new way” were pointed out. It is interesting that experts view cultural and social
norms as both hindering and favourable factors, bringing out arguments for both sides. When interpreting the
population survey, the preference of an equal living standard for all is a norm that facilitates multiple interpre-
tations – its meaning in North-Eastern Estonia may not be the same as in other regions. One may assume that
the respondents of North-Eastern Estonia see Estonia as a whole as less orientated towards a similar living
standard than is considered normal in their region. Further study is needed as to why in North-Eastern Estonia,
where the valuation of a similar living standard for all is lower than in other regions, this is not matched with
a higher level of early stage entrepreneurship than in other regions, although this relation has been noted in
an international comparison.
5. The Entrepreneurial Environment in Estonia
63
Proposals for Development of Entrepreneurship
Experts made proposals in the ?eld of entrepreneurship-related education and training more than else-
where. Almost two ?fths of all proposals concerned this area. Experts suggested that more attention should be
paid to increasing entrepreneurship-related knowledge in the educational system, both in mandatory school
programmes and by raising the quali?cation of teachers. Experts brought out the need to increase the share
of people with practical experience among teachers as well as the need to “guarantee the availability of high-
quality entrepreneurial education in all education levels and make it mandatory in some”.
Developing the political, institutional and social environment is also considered important by experts.
Over one third of proposals belonged to this subject area: the importance of immigration policy and its mod-
ernisation were mentioned repeatedly as well as “making it easier for foreign investors and specialists to come
into the country”, the importance of setting strategic goals for the state, but also decreasing employment costs,
supporting export and developing cooperation opportunities and networks.
The experts made many proposals about state programmes, including prolongation of support
programmes, increasing supportive measures to small businesses, increasing the share of regional support
programmes, decreasing bureaucracy related to supportive measures and larger support to key sectors of the
Estonian economy.
5.4 Obstacles and Opportunities Related to Financing
Evaluations of ?nancing-related entrepreneurship environment conditions by the experts were not as negative
as those concerning the skills and knowledge needed for becoming an entrepreneur, entrepreneurship-related
education and transfer of the results of research and development work. At the same time, experts related
obstacles concerning ?nancing to speci?c stages in the creation and growth of companies. Over a tenth of
experts pointed out the absence of starting capital and low availability of ?nancing in the early stage of com-
pany creation, 14% mentioned the lack of venture capital, 15% problems increasing equity capital and 18%
more general ?nancing.
The adult population survey shows that 37.3% of nascent entrepreneurs come from households with
an annual total net income of more than 18,000 euros. Also, a relatively large proportion, 19.9% came from
the income group 12,012–18,000 euros annually. 42.8% of the families of nascent entrepreneurs were in lower
income groups. It is obvious that in the case of a low income level, starting a business means a risk to the
income of the whole household, especially in the ?rst months when there is no income from the business. This
is especially true if the nascent entrepreneur has contributed all of his/her time and energy to the business and
given up employment as well as the possibilities of receiving unemployment support for the sake of becoming
an entrepreneur. Therefore, to increase the level of nascent entrepreneurship, thought should be given to
decreasing the poverty risk of families of new entrepreneurs.
The main ?nancing sources for nascent entrepreneurs are either personal means (including loans from
family and friends), state and local support or capital offered by an external investor in the form of equity capi-
tal or a loan. So far, personal means and starting support from Enterprise Estonia and the Unemployment Fund
have been used most in the case of nascent entrepreneurs in traditional sectors of the economy (so-called
“lifestyle companies”) and personal means plus venture capital offered by external investors in the case of
innovative, quick-growth companies. For starting businesses in traditional sectors of the economy, the support
funds are quite easily available and can be obtained via a standard application procedure – e.g. the collateral
of Kredex can be used for getting a start loan. In the case of innovative, quick-growth start-ups, where the risk
level of the business model is harder to evaluate, access to start support, Kredex collateral and loans is compli-
cated, because these companies do not ?t in the traditional support applicant’s evaluation model.
The APS shows that almost 9% of the population has made informal investments into starting companies.
The investment sums vary from 50 to 50,000 euros, a median investment being 2,250 euros. Investments were
made into the companies of relatives and friends mostly, only 8% of “business angels” have invested into some-
body else’s good business ideas. Compared to other European countries, the share of “business angels” is quite
high in Estonia, e.g. in Finland the percentage is 3.1% of the whole population, in Sweden, 4.3%. The share
is similar to ours in Latvia and Lithuania, the average share of “business angels” in EU is also lower than in
Estonia – 4.4%.
In the case of start-ups, the main source of capital is considered to be the prize fund of a support pro-
gramme (e.g. Prototron, Ajujaht, etc.) or venture capital offered by the Development Fund and “business angels”.
In the last couple of years, “business angels” have become signi?cantly more active in Estonia: in November
2012, the Estonian Business Angels Network EstBAN was established with the aim to offer more early stage
capital to young, innovative companies. There could be around 100 active “business angels” in Estonia, investing
around 3 million euros in the seed stage of a start-up, thereby being a considerable source of additional capital
for them. Start-ups can also apply to business accelerators (e.g. Startup Wise Guys), which will mean a small-
scale equity investment to participants in the accelerator’s programme.
5. The Entrepreneurial Environment in Estonia
64
Most investments into starting companies are below 5,000 euros
FIGURE 5.5 – Division of investments into start-ups by monetary value (except own company)
(source: APS, 2012)
1–100
101–500
501–1,500
1,501–5,000
5,001–15,000
15,001–100,000
Of the people who have undergone entrepreneurship training as part
of their higher education, more than half have an above average income
FIGURE 5.7 – Division of people who have received entrepreneurial education across study form and annual income of household
(source: authors’ calculations based on the APS 2012 data)
higher income third
middle income third
lower income third
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
vocational
and secondary
education
higher
education
courses
FIGURE 5.6 – Division of people who have received entrepreneurial education by age across study form and levels.
(source: authors’ calculations based on the APS 2012 data)
courses
higher education
vocational and
secondary education
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
18–24 35–44 25–34 45–54 55–64
The share of those who have taken formal education is highest among young people
5. The Entrepreneurial Environment in Estonia
65 5. The Entrepreneurial Environment in Estonia
There are new, additional instruments that could potentially be applied, including a so-called entrepreneur
salary or applying start support to start-ups in a larger volume than is being used at present, or applying suc-
cess-based loans. It is also important to create an additional instrument for supporting the investments made
jointly by “business angels”.
5.5 Entrepreneurship Education
The following will treat the entrepreneurship-related education of the working-age population of Estonia,
its share in the working-age population, division into levels and relations to different aspects related to entre-
preneurship. Entrepreneurship-related education can be formal or informal.
Formal entrepreneurship-related education has taken place in the course of formal education, whether as
a vocational training course of entrepreneurship or via taking the corresponding classes. Educational levels in
which formal entrepreneurship education has been taken will be divided into vocational and secondary educa-
tion and higher education in the following analysis.
Informal entrepreneurial education includes those who answered to the question “At which education level
have you received entrepreneurial education or courses?” by saying that they have taken special courses or
training sessions. The respondents could have entrepreneurship-related training courses in mind, like manage-
ment, accounting or marketing, as well as special entrepreneurship courses. The latter are organised for e.g.
nascent entrepreneurs or those with growth plans.
Approximately one third of Estonia’s working-age population has participated in entrepreneurship educa-
tion; of these, one third has done it as part of their of?cial formal education and two thirds have taken special
training courses. It should be kept in mind here and in the following that a portion of the respondents may
have received entrepreneurship-related education at formal education levels as well as courses, but we may
presume that, in such cases, formal education retained dominance. Formal entrepreneurship-related educa-
tion has more often taken place on the level of higher education (61.6%) and less on the level of vocational and
secondary education (38.4%).
The share of those who have taken entrepreneurial studies is even in all age groups, but in the case of for-
mal studies, the share of people who have taken it decreases with age (see Figure 5.6), which is to be expected,
as entrepreneurial education only became available in Estonia after independence was restored. As with entre-
preneurs, there are more men (36.3%) among those who have taken entrepreneurial education than women
(29%), but this difference is not big and division by study form and levels is similar.
There are more people with a lower income among those who have attended entrepreneurial courses. It is
the other way round with those who have taken entrepreneurial education as a part of their higher education.
This result is to be expected, as people with higher education tend to have a higher income; the relation may
also be turned the other way round – a higher income makes it possible to take entrepreneurial courses on a
higher level (see Figure 5.7).
Among working-age people who have not received entrepreneurial education, 14% are entrepreneurs,
while the percentage is almost double among those who have taken the corresponding courses (34.7%).
It is possible that receiving entrepreneurial education facilitates becoming an entrepreneur and keeping the
company in business; on the other hand, plans for becoming an entrepreneur may be the reason why the
courses were taken. Let’s take a closer look at the differences between the attitudes and knowledge of
early stage entrepreneurs and non-entrepreneurs who have taken entrepreneurial education and who haven’t
(see Figure 5.8).
Of entrepreneurs of the same stage, those that have received entrepreneurial education, evaluate their
own entrepreneurial knowledge, skills and experience higher; they also know other early stage entrepreneurs
who participated in the courses. This is also true for the non-entrepreneurs who took the courses. Differences
can also be seen in other indicators, including the perception of good business opportunities in their region
and plans to start a new business within the next three years.
Surprisingly, non-entrepreneurs who have not taken part in courses think more often that most people in
Estonia consider starting a new business a desirable career choice. Therefore, participating in entrepreneurial
courses may in?uence the way people who have probably not had much contact with entrepreneurship before
will perceive entrepreneurship-related social attitudes. The reason may also be that entrepreneurial education
often introduces various drawbacks related to business and inevitable hardships; it also gives a chance to
communicate with other people who are taking entrepreneurial courses, which will again diminish the illusions
related to being an entrepreneur.
Entrepreneurial education has no statistically signi?cant relation to fear of failure, which may mean that
the latter is based on something other than fear of activity in an unknown ?eld.
We will now take a look at some aspects related to growth and international orientation from the perspec-
tive of entrepreneurial education. There is a positive relation between entrepreneurial education and a strong
international orientation of early stage entrepreneurs: the share of early stage entrepreneurs with a strong
66
Entrepreneurial education on the highest level supports internationalisation
Participation in entrepreneurial education has most effect on the attitudes
and knowledge of non-entrepreneurs
FIGURE 5.9 – Geographical market preferences among entrepreneurs who have taken entrepreneurial education across
study form and level
(source: authors’ calculations based on the APS 2012 data)
don’t know
local or regional
Estonian domestic market
whole of Estonia
other EU countries
countries outside EU
courses
second level of higher education
?rst level of higher education
vocational secondary education
secondary education
0% 30% 10% 20% 40% 50% 70% 60% 80% 90% 100%
FIGURE 5.8 – Relations of entrepreneurial education with indicators related to various individual and social attitudes
and knowledge across early stage entrepreneurs and non-entrepreneurs.
Note: The opinions of early stage entrepreneurs were statistically signifcant in only two categories and those of established
entrepreneurs were not signifcant in any categories.
(source: authors’ calculations based on the APS 2012 data)
Thinks that there are good opportunities for starting
a business in his/her region within the next 6 months
Claims to have the knowledge, skills and experience
needed for starting a new company
Personally knows someone who has started
a company within the last 2 years
Intends to start a new company
within the next 3 years
Thinks that most people in Estonia consider
starting a new business a desirable career choice
0% 20% 40% 10% 30% 50% 60% 70% 80% 90% 100%
early stage entrepreneurs who have
taken entrepreneurial education
early stage entrepreneurs who have
not taken entrepreneurial education
non-entrepreneurs who have taken
entrepreneurial education
non-entrepreneurs who have not
taken entrepreneurial education
5. The Entrepreneurial Environment in Estonia
67
international orientation is 37.9% among those who have received the education, while among entrepreneurs
who have not received the education, it is 21%.
The geographical market preferences of entrepreneurs characterise answers to the question: “What is the
geographical extent of the markets where you intend to sell your products or services as an entrepreneur within
the next 3 years?” Entrepreneurs who have passed entrepreneurial education on the highest level are more
orientated towards foreign markets, while in the case of secondary education, people tend to prefer domestic or
regional markets or do not have a clear point of view (see Figure 5.9). Those who have taken only special courses
or training are also more orientated towards domestic and regional markets. This is another place where the
selection effect may appear, i.e. those who are more ambitious as entrepreneurs have taken entrepreneurial
education on the highest level.
Several nuances of entrepreneurial education deserve further study, but it is possible to say on the basis
of presently available data that a higher level of entrepreneurship as well as differences in attitudes and
knowledge characterise people who have received entrepreneurial education, and in the case of those who
have received entrepreneurial education on the highest level, also a higher income. The share of entrepreneurs
with an international orientation is higher among the early stage entrepreneurs who have participated in entre-
preneurial courses, while among all entrepreneurs, plans to sell their products or services on a geographically
wider market are related to a higher level of formal education.
5.6 Chapter Summary
In spite of the fact that over a half of nascent entrepreneurs have received entrepreneurial education, their
opportunities to learn from the experience of people who have recently started a company have still been
smaller than the network of new entrepreneurs that has emerged in the course of activities. Although it is
exactly in the initial stage of starting a company that a nascent entrepreneur would ?nd the experience of peo-
ple who have recently gone through the same process useful. This indicates a need to apply more of those forms
of network cooperation and entrepreneurial education that let people in the initial stage of starting a company
learn from the experience of other people who have gone through the same process recently.
On the basis of the population survey, valuing those who start a company and overcoming the fear of failure
should be approached in a differentiated manner across age groups and regions. People who have achieved
success through starting a new company should be valued in a way that allows nascent entrepreneurs identify
with them.
The extent and character of fear of failure should be taken into account in training and mentorship pro-
grammes, where future entrepreneurs and new entrepreneurs are being motivated to develop entrepreneurship
on the one hand and directed at analysing risks and potential problems on the other hand in order to avoid
later disappointments. By providing entrepreneurial education already in elementary and secondary schools,
fears connected with entrepreneurship can be diminished. The data of the GEM survey show little information
exchange between those who have started entrepreneurship and researchers or inventors.
In order to provide the knowledge required for a quick-growth company, the relevant education should be
connected to a network needed by the nascent entrepreneur, with “business angels” and competent business
advisors in it. Informing nascent entrepreneurs of further ?nancing opportunities would help increase the share
of growth companies.
Analysis of entrepreneurship education shows that the early stage entrepreneurship activity of young
people who have received entrepreneurship education is higher than in other age groups. However, it can also
be inferred from the data that entrepreneurship education in its present form does not increase the readiness
to start a company.
5. The Entrepreneurial Environment in Estonia
68
There are a lot of people interested in entrepreneurship in Estonia – those who think they will give serious
thought to establishing a company in the near future as well as those who are already doing something towards
it. The number of established entrepreneurs is half of the number of starters in Estonia and almost one third of
the number of those who think of becoming an entrepreneur.
The GEM survey calls those that are making real preparations for becoming an entrepreneur or who are
active as entrepreneurs for the ?rst years, early stage entrepreneurs. In Estonia, more than half of early stage
entrepreneurs are so-called nascent entrepreneurs – people who think they are doing something to start a
company. Actually less than half of them will start a company of their own and, in the end, the number of estab-
lished entrepreneurs – those that have been active for more than three and a half years – is half of the total
number of early stage entrepreneurs. The long term company survival rate is calculated by the ratio of early
stage and established entrepreneurs. On the basis of presently available data, this number is lower by half in
Estonia compared to the company survival ratio of developed European countries. As this was the ?rst time
for a GEM survey to be held in Estonia, we obviously cannot claim for certain that this is the case – we cannot
overrule the possibility that we are witnessing a sudden increase in entrepreneurial interest and activity and in
three years’ time the nascent entrepreneurs of today will have become established entrepreneurs.
Estonians’ own high estimate of the business opportunities existing in the environment and their entre-
preneurial skills and knowledge serves as a background for their high interest in entrepreneurship. The main
reason for becoming an entrepreneur is seeing a good opportunity, not necessity. For becoming an entrepre-
neur, knowing entrepreneurs is important as well as a low fear of failure – most new entrepreneurs have an
acquaintance who has started a business within the last two years. It is also among advisers that experienced
entrepreneurs, friends or family members rank highest and not consultants of business advisories or bank
of?cials, whose impact as advisers can be considered marginal.
The ?rst step towards becoming an entrepreneur is the thought of an aspiring entrepreneur that he or
she could become an entrepreneur. When the thought becomes real actions towards establishing a company
– like work on a business model, searching for business partners, opportunities or other resources – in GEM
terminology, we have a nascent entrepreneur. Just half of nascent entrepreneurs reach the stage of starting
their own company and many are not able to develop the company to a level where it would remain active and
successful for a long time, grow and develop.
We can surmise on the basis of GEM that of the people that have entrepreneurial plans, those that are
lucky enough to meet an experienced entrepreneur adviser will reach the stage of actually starting a company.
An entrepreneur with thoughts of starting de?nitely needs help. Research data indicate that most of them do
not receive necessary help from the existing support system, and this probably requires further analysis. It
is also obvious that a wider and systematic engagement of experienced entrepreneurs into advising nascent
entrepreneurs is required.
Data from the GEM survey give reason to surmise that the main problem of Estonian entrepreneurship
is not little interest in entrepreneurship but the fact that most aspiring entrepreneurs never reach the stage
of actually starting a company, and that half of the people who start a company do not grow to be established
entrepreneurs for whom entrepreneurship would be the main activity and main source of income. Most compa-
nies also lack the ambitions of growing and expanding their market. Smaller companies that are orientated to
the domestic market are known to produce less added value, which is why this can be considered a structural
problem of Estonian entrepreneurship.
As in other European countries, there are more men than women among Estonian entrepreneurs. This ten-
dency is even more apparent among established entrepreneurs. The number of men is two times higher among
those who start as entrepreneurs, and it is the men who reach the stage of established entrepreneur. However,
gender is not the main reason for becoming or not becoming an entrepreneur. Attitudes and views discriminate
starters from non-starters much more clearly: there is less fear of failure among men and more of those who
judge their own entrepreneurship-related knowledge and skills higher. Whether it is for these or other reasons,
men are also more successful as entrepreneurs. This is corroborated by the fact that men receive more income
6. Roundup Discussion
69
from entrepreneurship than women. As insuf?cient pro?tability is the dominant reason for giving up
entrepreneurship in Estonia, followed by personal reasons or being employed, there is reason to suspect that
all reasons play their part in the share of women being lower among established entrepreneurs than among
starters.
Attitudes and views are crucial when becoming an entrepreneur. Attention should be paid to them when
supporting aspiring entrepreneurs and also in society in general, e.g. when entrepreneurship-related subjects
are being discussed publicly. It is possible that overvaluing oneself to an extent is even necessary for success
and helps one take the ?rst steps. Later, however, it may interfere with acquiring new knowledge and insuf?cient
knowledge may become an obstacle for developing and growing the company. Considering the fact that “small
pro?t” is the main reason for exiting entrepreneurship, it should be studied whether this is a case of inadequate
expectations caused by the times of early capitalism or an actual inability to make the company pro?table.
As many of those who start or plan to start as entrepreneurs have unrealistic expectations along the lines of
“an entrepreneur is somebody that gets rich quick with little work”, this means a wrong judgement of the effort,
stamina and dedication level required of an entrepreneur and it leads to disappointment when success comes
more slowly than expected. Establishing a company is very easy (especially in Estonia), which may also be one
of the reasons behind the growth of nascent entrepreneurship. It is much harder to keep the company alive and
develop it. This is work that requires time, dedication and determination that may have been underestimated
by the nascent entrepreneur.
According to our study, the average age of an Estonian entrepreneur is 38.5 years. Among early stage
entrepreneurs, the share of young people is considerably higher, which is to be expected – the age group of
18–24 dominates there. Among people older than 45, the number of established entrepreneurs is higher, but
that of starters is lower.
The relative youth of aspiring and nascent entrepreneurs may be one of the reasons behind the low sustain-
ability of starting companies. There are many of those among the young who have plans of entrepreneurship
among other plans for life, but it is possible that easier plans are realised ?rst – like studying or ?nding a well-
paid job. It is possible that the nascent entrepreneurship of Estonia has the face of young people of Estonia, with
all the problems and opportunities that come along with it. The lifestyle of young people is characterised by ?ex-
ibility, experimentation, wish to take advantage of arisen opportunities and reluctance to commit to something.
Changing the structure of starting entrepreneurs by engaging more middle-aged and older people may have a
positive impact on the survival ratio of companies. This topic, like the possibilities of engaging older people into
entrepreneurship, requires further study.
The expectations of Estonian entrepreneurs regarding the growth of their companies are lower than the
growth expectations of entrepreneurs in many other countries (e.g. Latvia, Lithuania, Romania, Ireland). The
expectations of our entrepreneurs regarding expansion of market are moderate as well – most do not foresee
possibilities for expanding their market. The expectations of early stage entrepreneurs regarding growth and
market expansion are somewhat higher than those of established entrepreneurs. Within Estonia, the percent-
age of ambitious entrepreneurs is higher in North Estonia. Among entrepreneurs with innovation ambitions,
the share of those who have received advice from researchers or investors is higher, the main advisers of entre-
preneurs who are orientated towards the domestic market are sooner family members.
The small ambitions of most entrepreneurs seems to be another serious problem of Estonian entrepreneur-
ship. A typical Estonian small business has six employees and is run by the owner, who is happy with the situa-
tion and does not want to grow. There is nothing wrong with it if this is a conscious choice. It can be considered
a problem if the lack of ambition to grow and expand is caused by too little knowledge and skills. Of course, the
dominance of small businesses is also a problem for the productivity of the Estonian economy, considering the
small amount of added value that is created by small companies.
Other entrepreneurs, business partners and investors are the ?rst who can help an entrepreneur. That’s
why a network of business coaches should be planned who will help aspiring entrepreneurs reach the stage of
starting their own company and established entrepreneurs set new goals and develop further.
While in Scandinavian countries the typical reason for exiting business is retiring, in Estonia the most com-
mon reason (small pro?tability) may be caused by a notion that a company has no value besides the hard work of
its owner, which may even be true in a number of cases. The fact that such a situation exists may be an indicator
of too small ambitions, but also of an inability to grow the company’s value to a level where it could be considered
a pension fund.
According to the experts interviewed by us, the main factors hindering entrepreneurship in Estonia are an
insuf?ciency of entrepreneurial knowledge and skills, lack of creativity and initiative in education, insuf?cient
transfer of knowledge from the academic sphere to entrepreneurship and widespread negative social attitudes
towards entrepreneurs. Entrepreneurship gets almost no attention at all in basic and elementary education.
The number of those who have participated in standalone entrepreneurship courses is higher among entrepre-
neurs than among non-entrepreneurs. Entrepreneurship courses seem to be related to a higher level of ambi-
6. Roundup Discussion
70 6. Roundup Discussion
tion and ability to see business opportunities. Still, it cannot be said that entrepreneurship-related education
increases a person’s readiness to become an entrepreneur.
It is interesting that according to the population survey, entrepreneurs consider their knowledge and skills
to be rather suf?cient or good, while experts think that a lack of knowledge and skills is precisely one of the
main hindering factors for entrepreneurship. Of course, both viewpoints are judgemental and may be wrong.
But they may also together describe the situation of the entrepreneurs correctly: the belief of entrepreneurs in
the suf?ciency of their knowledge helps them start companies, but it does not support the notion that knowledge
and skills should be continuously improved. At the same time, the skills, knowledge and ambitions may not be
suf?cient for growing and expanding the company, and that is why many companies never reach notable pro?t-
ability and close down.
71
Further Reading
Acs, Z. J. (2006). How is entrepreneurship good for economic growth? Innovations, 1(1), pp 97–107.
Acs, Z.J., Desai, S., Klapper, L.F. (2007). Comparison of GEM and the World Bank Group Entrepreneurship Data.http://gemconsortium.org/
(December 2012).
Bartelsman, E., Haltiwanger, J. Scarpetta, S. (2004). Microeconomic Evidence of Creative Destruction in Industrial and Developing Countries. IZA
Discussion Paper, 1374, p 49.
Bosma, N., Jones, K., Autio, E., Levie, J. (2008). Global Entrepreneur-ship Monitor: 2007 Executive Report. Global Entrepreneurship Research
Association, London.
Bosma, N., Coduras, A., Litovsky, Y., Seaman, J. (2012). GEM Manual: A report on the design, data and quality control of the Global Entrepreneurship
Monitor. Babson Park, MA, US: Babson College. Santiago, Chile: Universidad del Desarollo. Malaysia: Universiti Tun Abdul Razak.
Caves, R. E. (1998). Industrial Organization and New Findings on the Turnover and Mobility of Firms. Journal of Economic Literature, 36 (4), 1947–82.
Davidsson, P., Honig, B. (2003). The role of social and human capital among nascent entrepreneurs. Journal of Business Venturing, 18, pp 301–331.
Estonian Development Fund (2008). The Present State of Estonia’s Competitiveness and Future Prospects Short version of the report, Tallinn.
Estonian Institute of Economic Studies (2005). Entrepreneurial Activity of the People of Estonia (results of survey). Tallinn.
Estonian Social Survey (2011). Statistics Estonia.http://www.stat.ee/14948
Statistics Estonia (1999). On the Situation of Small Enterprises in Estonia. Tallinn.
Statistics Estonia (2003). Small and Medium Enterprises in Middle Europe 1995–2001. Tallinn.
Statistics Estonia (2012). Databasehttp://pub.stat.ee/px-web.2001/Dialog/Saveshow.asp (11/2012).
Esko, S. (2012). Markets and Innovation at the Base of the Income Pyramid Development Fund, Thought initiative 1/2012.http://www.arengufond.ee/upload/Editor/Publikatsioonid/sissetuleku-pyramiidi-pohi-mottealgatus.pdf (16/12/2012).
European Commission (2004). Flash Eurobarometer 160 “Entrepreneurship”. EOS Gallup Europe. Taylor Nelson Sofres.
Eurostat (2012). Results of the community innovation survey 2010 (CIS2010).http://appsso.eurostat.ec.europa.eu/ (01/11/2012).
Foster, L., Haltiwanger, J., Syverson, C. (2008). Reallocation, Firm Turnover and Ef?ciency: Selection on Productivity or Pro?tability.
American Economic Review, 98 (1), lk 394–425.
Hazans, M. (2008). Post-Enlargement Return Migrants’ Earnings Premium: Evidence from Latvia.http://dx.doi.org/10.2139/ssrn.1269728
Kelley, D.J., Singer, S., Herrington, M. (2012). Global Entrepreneurship Monitor: 2011 Global Report.http://www.gemconsortium.org/docs/cat/1/global-reports (21/11/2012).
Koellinger, P., Minniti, M., Schade, C. (2007). I think I can, I think I can: Overcon?dence and enterpreneurial behavior. Journal of Economic Psychology,
28, lk 502–527.
Levie, J., Hart, M. (2011). Global Entrepreneurship Monitor: United Kingdom 2011 Monitoring Report.http://www.gemconsortium.org/docs/download/2425 (22/11/2012).
Masso, J. (2002). Financing constraints as determinants of investment behaviour among Estonian ?rms. Baltic Journal of Economics, 3 (1), pp 8–30.
Masso, J., Eamets, R., Philips, K. (2004). Creative Destruction and Transition: the Effects of Firm Entry and Exit on Productivity Growth in Estonia.
University College London, Centre for the Study of Economic and Social Change in Europe Working Paper 38, p 40.
Masso, J., Ukrainski, K., Varblane, U., Kaarna, R., Jürgenson, A. (2011). The Innovativeness of Estonian Companies and Its Sources. – Innovative
Activities in Estonian Companies in 2006–2008. Tallinn: Enterprise Estonia. Innovation Studies, 16, pp 24–66.
Mickiewicz, T., Bishop, K., Varblane, U. (2004). Financial Constraints in Investment – Foreign Versus Domestic Firms. Panel Data Results From
Estonia, 1995–1999. Acta Oeconomica, 54 (4), pp 425–449.
Porter, M. E. (1998). The Competitive Advantage of Nations. London: Macmillan Press Ltd.
Porter, M.E., Sacjs, J.J., McArthur, J. (2002). Executive Summary: Competitiveness and Stages of Economic Development. The Global Competitiveness
Report 2001–2002, 16–25. New York, NY: Oxford University Press.
Pro Inno Europe (2011). Innovation Union Scoreboard. European Union.
Rastrigina, O. (2008). Family Interactions in the Making of Entrepreneurs in Latvia. CERGE-EI Working Paper.https://iweb.cerge-ei.cz/pdf/gdn/RRCVII_26_paper_01.pdf
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Companies in 2006–2008. Tallinn: Enterprise Estonia. Innovation Studies, 16.
Reynolds, P., Hay, M., Camp, M. (1999). Global Entrepreneurship Monitor: 1999 Executive Report.http://www.gemconsortium.org/docs/221/gem-1999-global-report
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TTU. (2006). Successful Small Entrepreneurship in Periphery. Kuressaare.
Varblane, U., Raul Eamets, R., Haldma. T., Kaldaru, H., Masso, J., Mets, T., Paas, T., Reiljan, J., Sepp, J., Türk, K., Ukrainski, K., Vadi, M., Vissak, T.
(2008). The Present State of Estonia’s Competitiveness and Future Prospects, Estonia in Focus 1/2008. Tallinn: Estonian Development Fund.
Wennekers, S., van Stel, A., Thurik, R., Reynolds, P. (2005). Nascent Entrepreneurship and the Level of Economic Development. Discussion Papers
on Entrepreneurship, Growth and Public Policy. Max Plank Institute for Research into Economic Systems Group Entrepreneurship, Growth and Public
Policy, Jena, Germany, p 35.
Xavier, S.R, Kelley, D., Kew, J., Herrington, M., Vorderwülbecke, A. (2013). Global Entrepreneurship Monitor: 2012 Global Report.http://www.gemconsortium.org/docs/download/2645 (20/01/2013)
72
ESTONIAN ENGLISH EXPLANATION
“äriingel” business angel An af?uent private person with earlier business experience investing
mainly into seed and early stage companies in a speci?c ?eld.
andmemeeskond, data team Main research team of GEM setting up the annual survey framework,
andmetiim monitoring data collection and conducting a central analysis.
efektiivsustegurid ef?ciency enhancers Factors increasing the ef?ciency of an economy such as education,
markets, healthcare, ?nancial mechanisms, etc.; the focus of ef?ciency-
driven economies. (source: U. Varblane et al, The Present State of
Estonia’s Competitiveness and Future Prospects, Ch. 2.2)
etteantud ulatusest out of range values Unacceptable answer options or values.
väljajäävad väärtused
ettevõtjate püüdlused entrepreneurial aspirations Various aspirations of entrepreneurs that may be expressed as
innovative products or services, aiming at foreign customer markets, etc.

ettevõtlus entrepreneurship GEM: Any creation of a new business or enterprise by a private person,
team or established company, e.g. self-employment, creating a new
business organisation or extending an existing one.
ettevõtlusraamistiku entrepreneurial framework Set of conditions that is needed for the creation of new
tingimused conditions (EFCs) entrepreneurship.
Globaalne Ettevõtlusuuringute Global Entrepreneurship Umbrella organisation coordinating the activities of GEM, owner of the
Assotsiatsioon Research Association (GERA) GEM trade mark.
innovatsioonipõhine innovation-driven economy The main source of economic development is the competitive
majandus advantages arising from certain unique qualities of products/services,
making it possible to charge a relatively high price for them.
(source: M. Tiits, A Nation of Merchants, Ch 3.1)
investeeringutepõhine ef?ciency-driven economy The main source of economic development is the wide use of new
majandus technology and the growth of added value stemming from a more
ef?cient organisation of economic activities and scale economy.
(source: M. Tiits, A Nation of Merchants, Ch 3.1)
kaalud weights A coef?cient of determined parts, used in a sociological survey to even
out their relative importance (e.g. using real-life data)
mitteformaalsed investorid informal investors Family, friends and acquaintances. Also called the three F-s.
(friends, family and foolhardy strangers)
omnibussi-küsitlus omnibus survey A regular sociological survey with a standardised sample, to which
every subscriber can add topics of special interest.
potentsiaalsed ettevõtjad aspiring entrepreneurs Those that plan to become an entrepreneur within the next three years.
rahvuslik ekspertküsitlus (EK) National Expert Survey One of the two surveys conducted every year in the framework of the
GEM survey, aimed at getting the qualitative evaluations of approximatel
40 experts about the entrepreneurship environment.
rahvuslik meeskond national team A research team conducting the survey, collecting and analysing data
in each country participating in the GEM survey.
ressursipõhine majandus factor-driven economy The main source of economic development is natural resources.
(source: M. Tiits, A Nation of Merchants, Ch 3.1)
seaduspärasused patterns of missing data An extensive lack of responses to a question indicates an interviewing
puuduvates andmetes error.
Explanation of Terms
73
ESTONIAN ENGLISH EXPLANATION
siseettevõtja entrepreneurial employee An employee who develops new activities for his/her main employer,
like developing or employing new products or services or starting a new
business unit, institution or subsidiary.
skip-loogika ehk küsimustest skip logic errors Asked questions that should have been skipped and skipped questions
ülehüppamise vead that should have been asked.
strata strata Using strata for grouping data.
TEA indeks TEA index The share of all early stage entrepreneurs out of respondents.
täiskasvanud elanikkonna Adult Population Survey One of the two annual surveys in the framework of GEM, conducted in
küsitlus (TEK) every country, interviewing at least 2,000 adults to determine their
entrepreneurship-related attitudes and their own activities and
aspirations.
tärkav ettevõtja nascent entrepreneur Actively related to starting a company within the last 12 months,
a (co-)owner and has not been paid yet.
usaldusnivoo e usaldustase con?dency Level Con?dency level is the probability that value x of variable X will remain
e usaldatavus within the given range. E.g. if the number of customers per day is
500±100 with a con?dency level of 0.95, this means that on 95% of the
days, the number of customers has been between 400 and 600.
uuringuraamistik Request For Proposal (RFP) Uni?ed documentation that describes the survey questionnaire,
requirements to sample, weight, data quality, etc.
uusettevõtja baby business / new business owner Owns a company that is active and started paying salaries no later
than 3.5 years ago.
vajadustest ajendatud necessity driven entrepreneurship Entrepreneurship that is started because of necessity (e.g. after loss of
ettevõtlus e vajadusettevõtlus employment) or because of a wish to retain a level of income.
varase faasi ettevõtja early stage entrepreneur Nascent and new entrepreneurs.
varase faasi early-stage entrepreneurial The acronym TEA stood originally for total entrepreneurial activity).
The word “total” was here meant to include the activities of all new
ettevõtlusaktiivsus (TEA) activity (TEA) businesses, incl. agricultural. This, however, caused confusion as it could
be interpreted as an indicator of entrepreneurial activity comprising
established companies. Therefore, when explaining the
already-widely-used abbreviation TEA, the words “early-stage” are used
now, although the essence of the indicator has not changed since 2001.
võimalustest ajendatud opportunity driven Entrepreneurship comprising those that are entrepreneurs
ettevõtlus e võimalusettevõtlus entrepreneurship because they want to use an opportunity in order to increase their
income and independence.
väljakujunenud ettevõtja established entrepreneur Has been an entrepreneur for more than 3.5 years, has been paying
salaries for more than 3.5 years.
ärist väljunud ettevõtja exited entrepreneur An entrepreneur who has owned a business and then exited either
through selling it, closing it down or bankruptcy.
74
Addenda
75
AREA NAME BACKGROUND OF EXPERTS REPRESENTING THE AREA
Entrepreneurship ?nancing Bankers, private investors, “business angels”, venture capitalists,
representatives of public funds and other experts of the area.
State policy in an entrepreneurship-related area Members of government, representatives of public entrepreneurship-
related agencies or institutions, state representatives, etc.
State programmes for entrepreneurs Policy-makers, representatives of local entrepreneurship agencies,
implementers of entrepreneurship programmes, representatives of
chambers of commerce, representatives of women’s organisations, etc.
Education and training Teachers and professors of various educational institutions, also
coaches or instructors. May be trainers or organisers connected to
entrepreneurship programmes.
Transfer of results of research and development (R&D) Researchers, employees of industrial parks, business incubators,
developers of research or technology programmes.
Business services infrastructure Consultants, lawyers, agents, accountants and other representatives
of the area.

Openness of domestic market Analysts, ?nancial analysts, journalists and economists of the subject
area researchers, intermediaries, trade agencies and representatives
of other similar areas.
Physical infrastructure Representatives of real estate ?rms, water and gas suppliers, logistics
companies, incubators, technology parks, communication companies.
Cultural and social norms Representatives of chambers of commerce, women’s organisations,
professional associations journalists, sociologists, psychologists,
institutions promoting entrepreneurship and other similar areas
APPENDIX 1 – Areas of institutional environment, expert pro?les and experts of the GEM national expert survey
Source: ES, 2012
Appendix 1
76
1. Aaro Hazak (senior research fellow, Tallinn University of Technology)
2. Allan Martinson (managing partner, MTVP)
3. Andrei Korobeinik (entrepreneur, Flirtic.com etc.,member of parliament)
4. Annar Alas (entrepreneur, Gourmet Coffee)
5. Eero Tohver (entrepreneur, Uptime)
6. Erki Varbola (area manager, Enterprise Estonia)
7. Heidi Kakko (investment manager, Development Fund)
8. Heli Raidve (CEO, Heli Raidve Tööõigusabi)
9. Jaak Ennuste (entrepreneur)
10. Juhani Seilenthal (entrepreneur)
11. Jürgo Breden (entrepreneur, Defendec)
12. Kaire Põder (senior research fellow, Tallinn University of Technology)
13. Karl Schneider (CEO, Itella Information)
14. Kristel Rõõmusaar (head of division, Competition Authority)
15. Kristjan Haller (professor, University of Tartu)
16. Kristjan Kalda (entrepreneur, Baltcap)
17. Kristjan Lepik (entrepreneur, Tarkinvestor)
18. Krõõt Kilvet (member of the board, Enterprise Estonia)
19. Linnar Viik (IT-visionary)
20. Loit Linnupõld (chairman of the board, Swedbank Investment Funds)
21. Mae Hansen (CEO, Finance Estonia)
22. Mari Rell (analyst, Center for Policy Studies Praxis)
23. Marika Popp (head of innovation policy division, Ministry of Economic Affairs and Communication)
24. Maris Lauri (analyst, Oeconomia)
25. Marko Allikson (entrepreneur, 220 Energia)
26. Markus Nisula (CEO, Elisa)
27. Mart Kikas (entrepreneur)
28. Mart Laidmets (head of department, Ministry of Education and Research)
29. Peeter Luikmel (analyst, Eesti Pank)
30. Pille Petersoo (sociologist, Tallinn University)
31. Rain Tamm (entrepreneur, Gild)
32. Rainer Kattel (professor, Tallinn University of Technology)
33. Raul Parusk (CEO, Enterprise Estonia)
34. Sten Tamkivi (entrepreneur, Skype)
35. Sven Pertens (CEO, Lemminkäinen)
36. Tarmo Jüristo (doctoral student, Tallinn University)
37. Tea Danilov (head of department, Ministry of Economic Affairs and Communication)
38. Toomas Tõniste (entrepreneur, member of parliament)
39. Tõnis Tamme (barrister, Tamme Otsman Ruus Vabamets)
40. Urmas Varblane (professor, University of Tartu)
41. an expert who requested anonymity (name known to authors)
Experts Involved in the National Expert Survey
77
Appendix 2 – Entrepreneurial Activity in Countries Participating in the Survey,
Grouped by Level of Development

Aspiring Nascent New Early stage Established Total Entrepre-
entrepre- entrepre- entrepre- entrepre- entrepre- entrepre- Exited from neurial
neurs neurs neurs neurs neurs neurs business employees

COUNTRIES WITH FACTOR-DRIVEN ECONOMY
Ethiopia 27.3 5.7 9.2 14.7 10.2 24.3 3.4 0.5
Ghana 58.6 15.4 22.8 36.5 37.7 70.0 16.2
India 10.3 2.1 0.0 2.2 0.5 2.6 1.0 0.4
Malawi 72.4 18.4 20.4 35.6 10.8 44.8 28.9
Nigeria 47.3 21.8 14.2 35.0 15.7 49.1 8.3 0.9
Pakistan 27.9 8.3 3.4 11.6 3.8 14.5 2.5 0.2
Palestine 37.5 6.2 3.8 9.8 3.0 12.3 7.7 2.1
Zambia 60.5 27.5 14.6 41.5 3.8 44.6 20.1
Uganda 71.8 9.6 27.6 35.8 31.2 64.9 25.9
Group average 45.8 12.8 12.9 24.7 13.0 36.4 12.7 0.8
COUNTRIES IN TRANSITION FROM A FACTOR-DRIVEN TO AN EFFICIENCY-DRIVEN ECONOMY
Algeria 22.4 1.6 7.3 8.8 3.3 12.0 6.9 0.5
Angola 70.6 14.9 18.9 32.4 9.1 41.0 25.5
Egypt 43.6 3.1 4.9 7.8 4.1 11.9 5.3 0.8
Iran 22.3 4.5 6.5 10.8 9.5 19.9 5.0 0.5
Group average 39.7 6.0 9.4 14.9 6.5 21.2 10.7 0.6
COUNTRIES WITH AN EFFICIENCY-DRIVEN ECONOMY
Bosnia and 24.9 4.5 3.3 7.8 6.0 13.7 7.2 3.2
Herzegovina
Costa Rica 38.8 10.0 5.3 15.0 3.3 18.1 3.5 1.6
Ecuador 54.3 16.7 11.7 26.6 18.9 43.0 7.6 0.8
El Salvador 40.7 7.7 7.8 15.3 9.4 24.1 7.8
China 21.7 5.4 7.4 12.8 12.5 25.1 3.7 0.4
Jamaica 64.2 36.1 16.1 50.1 14.1 62.2 9.6
Columbia 56.9 13.6 6.9 20.1 6.7 26.3 6.7
South 14.0 4.3 3.1 7.3 2.3 9.5 5.0 0.4
Africa
Macedonia 29.1 3.7 3.2 7.0 6.7 13.6 3.9 1.6
Namibia 49.4 11.3 7.0 18.2 3.2 21.1 11.5
Panama 16.4 7.2 2.7 9.5 1.9 10.8 1.8 1.6
Peru 51.7 14.7 6.2 20.2 5.1 24.9 6.7
Romania 30.8 5.5 3.8 9.2 3.9 12.9 3.8 2.7
Thailand 23.7 8.7 11.3 18.9 29.7 45.9 2.8 1
Tunisia 23.8 2.4 2.5 4.8 4.4 9.1 4.0 0.4
Group average 36.0 10.1 6.6 16.2 8.5 24.0 5.7 1.4
COUNTRIES IN TRANSITION FROM AN EFFICIENCY-DRIVEN TO AN INNOVATION-DRIVEN ECONOMY
Argentina 34.7 11.8 7.3 18.9 9.6 27.6 4.9
Barbados 23.8 10.0 7.2 17.1 12.1 29.1 2.9
Brazil 37.3 4.5 11.3 15.4 15.2 30.2 4.5
Estonia 20.1 9.5 5.1 14.3 7.2 20.7 3.9 5.7
Croatia 23.6 6.4 1.9 8.3 3.1 11.3 4.2 3.3
Lithuania 19.4 3.1 3.6 6.7 8.2 14.7 2.2 4.6
Latvia 26.9 8.7 4.8 13.4 7.9 20.5 3.4
Malaysia 15.7 2.8 4.2 7.0 7.0 13.6 1.6 0.9
Mexico 22.9 7.9 4.3 12.1 4.7 16.5 4.3 1.2
Poland 24.2 4.8 4.6 9.4 5.8 15.1 3.9
Trinidad and Tobago 37.8 8.8 6.5 15.0 7.2 21.7 4.5
Chile 44.9 14.7 8.4 22.6 7.8 29.8 5.0 4.1
Turkey 18.8 7.3 5.4 12.2 8.7 20.3 5.2 0.6
Hungary 15.3 5.8 3.6 9.2 8.1 17.0 3.8 1.4
Uruguay 24.3 10.2 4.7 14.6 5.0 19.3 5.0 4.6
Russia 3.8 2.7 1.8 4.3 2.0 6.3 1.0
Group average 24.6 7.4 5.3 12.5 7.5 19.6 3.8 2.9
78

Aspiring Nascent New Early stage Established Total Entrepre-
entrepre- entrepre- entrepre- entrepre- entrepre- entrepre- Exited from neurial
neurs neurs neurs neurs neurs neurs business employees

INNOVATION-DRIVEN ECONOMIES
United 16.5 8.9 4.1 12.8 8.6 20.6 4.5
States
Austria 11.6 6.6 3.4 9.6 7.6 17.0 3.5
Belgium 10.7 3.3 2.0 5.2 5.1 10.3 2.4 4.8
Spain 12.0 3.4 2.5 5.7 8.7 14.2 2.1
Holland 10.1 4.1 6.3 10.3 9.5 19.3 2.2
Ireland 8.0 3.9 2.3 6.1 8.3 13.9 1.7
Israel 14.5 3.5 3.0 6.5 3.8 10.2 4.0 3.5
Italy 11.8 2.5 1.9 4.3 3.3 7.6 2.4
Japan 5.4 2.3 1.7 4.0 6.1 9.7 1.1
Korea 14.6 2.6 4.1 6.6 9.6 16.0 3.2 1.9
Greece 10.4 3.8 2.8 6.5 12.3 18.4 4.4 1.3
Norway 6.7 3.7 3.2 6.8 5.8 12.3 1.5
Portugal 16.2 4.3 3.6 7.7 6.2 13.9 3.0
France 18.9 3.7 1.5 5.2 3.2 8.2 2.0
Sweden 11.7 4.6 1.8 6.4 5.2 11.4 1.9
Germany 8.9 3.5 2.1 5.3 5.0 10.1 1.9
Singapore 21.4 7.6 4.2 11.6 3.1 14.6 3.9
Slovakia 15.6 6.6 3.9 10.2 6.4 16.4 4.7 3.8
Slovenia 14.7 2.9 2.5 5.4 5.8 11.2 1.6 4.9
Finland 9.4 3.5 2.7 6.0 8.0 13.6 2.0
Great Britain 11.5 5.3 3.7 9.0 6.2 15.0 1.7 8.8
Switzerland 8.3 2.9 3.0 5.9 8.4 14.1 2.0
Denmark 8.4 3.1 2.4 5.4 3.4 8.4 1.3 9.4
Taiwan 26.8 3.3 4.2 7.5 10.4 17.7 5.7
Group average 12.7 4.2 3.0 7.1 6.7 13.5 2.7 4.8
(% of people who answered “yes”)
source: authors’ calculations on the basis of the GEM 2012 database
79
Appendix 3 – Entrepreneurship-Related Attitudes and Plans in
European Countries, Grouped by Development Level

Entrepreneurship Entrepreneurs High media
Perceived Perceived Fear of as a good have high attention to
opportunities skills failure career choice status entrepreneurship

COUNTRIES WITH AN EFFICIENCY-DRIVEN ECONOMY
Bosnia and 19.6 49.1 39.1 80.9 72.3 39.4
Herzegovina
Macedonia 30.8 55.1 44.9 69.6 66.7 64.1
Romania 36.7 38.3 45.1 71.2 73.6 55.2
Group average 29.0 47.5 43.0 73.9 70.9 52.9
COUNTRIES IN TRANSITION FROM AN EFFICIENCY-DRIVEN TO AN INNOVATION-DRIVEN ECONOMY
Estonia 45.2 43.2 44.3 54.8 62.5 41.5
Croatia 17.2 44.1 46.3 64.2 41.7 39.7
Lithuania 33.0 39.8 45.6 63.1 52.9 37.3
Latvia 33.1 43.6 38.1 59.7 53.3 53.3
Poland 20.4 53.9 58.7 67.9 57.1 56.3
Hungary 11.0 39.8 45.9 41.5 74.0 29.3
Group average 26.1 44.1 46.5 58.5 56.9 42.9
INNOVATION-DRIVEN ECONOMIES
Austria 49.2 49.6 43.5 46.4 75.8
Belgium 33.3 37.1 45.7 62.3 57.4 53.8
Spain 13.9 50.4 51.6 63.6 63.7 47.3
Holland 34.4 42.3 39.2 79.3 65.2 58.3
Ireland 25.6 45.2 41.2 45.4 81.4 61.5
Italy 19.8 30.0 56.6 66.7 69.7 51.3
Greece 13.0 50.0 72.4 64.4 68.3 33.1
Norway 64.4 34.4 35.6 50.4 79.5 59.3
Portugal 16.2 46.8 52.5
France 37.5 35.7 46.7 64.5 76.8 41.1
Sweden 66.5 37.0 38.9
Germany 36.2 37.1 49.0 48.9 76.4 49.0
Slovakia 17.8 49.7 48.0 50.3 74.4 59.4
Slovenia 19.6 51.3 41.5 52.7 71.1 51.1
Finland 55.3 34.3 39.3 45.1 83.4 68.4
Great Britain 32.8 47.1 40.9 49.8 76.7 47.0
Switzerland 35.7 37.3 32.2 44.2 63.5 57.4
Denmark 44.4 31.0 42.1
Group average 34.2 41.5 45.4 55.6 72.2 52.7
(% of people who answered “yes”)
source: authors’ calculations on the basis of the GEM 2012 database
80
Appendix 4 – Necessity- and Opportunity-driven Entrepreneurship
in European Countries, Grouped by Development Level

Opportunity-driven
Necessity- Opportunity- entrepreneurship (just more
driven entrepreneurship driven entrepreneurship freedom or income)

COUNTRIES WITH AN EFFICIENCY-DRIVEN ECONOMY
Bosnia and 4.5 3.1 20.1
Herzegovina
Macedonia 3.6 3.3 28.7
Romania 2.2 6.9 37.7
Group average 3.5 4.4 28.9
COUNTRIES IN TRANSITION FROM AN EFFICIENCY-DRIVEN TO AN INNOVATION-DRIVEN ECONOMY
Croatia 2.8 5.4 35.7
Estonia 2.6 11.3 49.1
Lithuania 1.7 4.8 51.5
Latvia 3.4 9.7 46.0
Poland 3.8 5.0 30.1
Hungary 2.9 6.1 35.3
Group average 2.9 7.1 41.3
INNOVATION-DRIVEN ECONOMIES
Austria 1.0 7.8 38.2
Belgium 0.9 4.0 61.6
Spain 1.5 4.1 32.5
Holland 0.9 8.6 66.4
Ireland 1.7 4.4 40.5
Italy 0.7 3.1 22.3
Greece 2.0 4.6 32.1
Norway 0.5 6.0 69.6
Portugal 1.4 5.6 53.1
France 0.9 4.2 58.9
Sweden 0.4 5.5 48.6
Germany 1.2 4.1 50.7
Slovakia 3.6 6.5 42.9
Slovenia 0.4 4.9 64.0
Finland 1.0 4.4 59.9
Great Britain 1.6 7.1 42.6
Switzerland 1.1 4.4 57.5
Denmark 0.4 4.8 70.7
Group average 1.2 5.2 50.7
(% of people who answered “yes”)
source: authors’ calculations on the basis of the GEM 2012 database
81
Appendix 5 – Modelling of a Multiple-variable Regression
There are many methods for analysing relations. The goal may be to analyse causal relations or net correlations.
In the latter case, it is not presumed that one factor causes another, only that they exist together. Multiple vari-
able models are used instead of pivot tables with two variables, because they make it possible to distinguish
the joint or concurrent effect of variables. Such models are a standard application when modelling person- or
micro-based data. The goal of such analysis is to show how the coef?cient evaluations and their statistical sig-
ni?cance changes when more explaining factors or factor groups are added to the model. A result is considered
signi?cant when the model coef?cient evaluations remain stable and are statistically signi?cant on a con?-
dency level of at least 90%.
As most DEM data are either binary (the characteristic exists or it doesn’t) or categorical (the existence of
a characteristic in a certain group), we use logistical regression (henceforth called logit) for analysing multiple
variable correlations. The results are reported as average marginal effects indicating the probability that the
dependent variable will exist when the corresponding variable manifested and other variables remain the same.
All results are displayed in percentage points. Variables are systematised into groups and added to the model
starting from the person-centred – e.g. gender, age, language skills, up to society-centred – social attitudes and
values. The pro?le of entrepreneurs is analysed compared to that of non-entrepreneurs. The latter approach
causes some peculiarities of the model:
• only these indicators can be used in the analysis that has been asked from the whole sample
(Estonian APS 2012: 2004 persons),
• the model should not be interpreted as a causal relation (although this may be the case with some
variables), but rather as a net correlation, i.e. characteristics that are considered statistically signi?cant
are manifested in the case of entrepreneurs more probably than in the case of the control group by the
coef?cient.
In the case of the APS data, the data is grouped into personal characteristics, attitudes regarding oneself and
the society and human and social capital, respectively (see Appendix 6 through Appendix 8). There are numer-
ous controls added to the models in order to avoid getting shifted evaluations. Unweighted models have been
used, although weighting will give similar results, but with slightly stronger effects. Therefore the given effects
should be interpreted rather as the lower end. The present version uses robust standard errors, so the evalua-
tion of standard error should be very conservative.
82
Appendix 6 – Nascent Entrepreneur Profles in the Logit Model

Explanatory
variables Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7

PERSONAL CHARACTERISTICS
Gender (male=1) 0.014* 0.013 * 0.014 * 0.012* 0.004
(0.008) (0.007) 0.011 (0.007) (0.007) 0.009
Age (years) 0.003 * 0.003 * 0.003 *
(0.002) (0.001) 0.002 (0.002) 0.002 0.002 0.002
Age
2
-0.000*** -0.000*** -0.000*** -0.000*** -0.000*** -0.000** -0.000*

(0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000)

ATTITUDES REGARDING ONESELF
Not afraid to fail 0.024*** 0.021*** 0.018*** 0.021*** 0.020*** 0.016** 0,013*
(0.008) (0.008) (0.008) (0.008) (0.007) (0.007) (0,007)
I have the skills and abilities
to be an entrepreneur 0.076*** 0.070*** 0.064*** 0.063*** 0.060*** 0.054*** 0.048***
(0.013) (0.013) (0.012) (0.011) (0.011) (0.010) (0.011)
HUMAN CAPITAL
Education 0.001 -0.001 -0.001
Knowledge of Estonian 0.000 -0.000
Knowledge of Russian 0.000 0.001
Knowledge of English 0.007*
(0.004) 0.004
Knowledge of Finnish 0.004 0.005
SOCIAL CAPITAL
Acquaintance in business 0.036*** 0.034*** 0.028** 0.027***
(0.009) (0.009) (0.008) (0.008)
Parents entrepreneurs -0.006 -0.007 -0.006
SOCIAL ATTITUDES
Living standards -0.011 -0.001 -0.010
should be equal
Business is a good career 0.001 0.005 0.006
Businessmen have high status -0015 * -0.015** -0.019**
(0.008) (0.008) (0.008)
Success stories are covered often in media 0.014* 0.011* 0.011*
(0.007) (0.006) (0.007)
CONTROL VARIABLES
Size of family 0.002 0.004
Born in Estonia -0.003 0.002
Mother from Estonia 0.017* 0.017*
(0.009) (0.009)
Father from Estonia -0.010 -0.006
PLACE OF RESIDENCE AND ACTIVITY
Tallinn 0.021* 0.025**
(0.011) (0.012)
Tartu 0.021 0.026
Pärnu -0.001 0.003
Viljandi -0.017 -0.010
Narva 0.006 0.006
Another county centre 0.009 0.014
Village 0.019 0.016
Lived abroad 0.024 0.016
N 1997 1984 1984 1997 1997 1985 1741
Log probability -467.64 -455.13 -445.69 -457.23 -452.24 -434.75 -366.00
pseudo R square 0.16 0.16 0.17 0.18 0.19 0.20 0.21
Dependant variable: nascent entrepreneur (yes=1), average marginal effects after logit regression
Notes: Data from the Estonian GEM study 2012. Robust standard errors are only given in brackets in the case of statistically signifcant
evaluations. Signifcance levels are respectively * 10%, ** 5%, *** 1%.
Source: APS, 2012
83
Appendix 7 – New Entrepreneur Profles in the Logit Model

Explanatory
variables Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7

PERSONAL CHARACTERISTICS
Gender (male=1) 0.011* 0.010 * 0.009* 0.009 * 0.008* 0.008** 0.007**
(0.005) (0.004) (0.004) (0.004) (0.004) (0.004) (0.003)
Age (years) 0.002* 0.002 * 0.001 0.001 0.001 0.001 0.001
(0.001) (0.001)
Age
2
-0.000*** -0.000** -0.000** -0.000** -0.000** -0.000** -0.000

(0.000) (0.000) (0.000) (0.000) (0.000) (0.000)
ATTITUDES REGARDING ONESELF
Not afraid to fail 0.019*** 0.019*** 0.016*** 0.014*** 0.014*** 0.014** 0.012*
(0.006) (0.006) (0.005) (0.005) (0.005) (0.005) (0.004)
I have the skills and abilities
to be an entrepreneur 0.036*** 0.035*** 0.027*** 0.023*** 0.023*** 0.022*** 0.018***
(0.009) (0.009) (0.008) (0.007) (0.007) (0.007) (0.006)
HUMAN CAPITAL
Education 0.001 -0.000 -0.000
Knowledge of Estonian -0.001 -0.001
Knowledge of Russian 0.003 0.003
Knowledge of English 0.006* 0.004*
(0.002) (0.002)
Knowledge of Finnish 0.003* 0.002*
(0.002) (0.001)
SOCIAL CAPITAL
Acquaintance in business 0.027** 0.027*** 0.025** 0.023***
(0.007) (0.007) (0.007) (0.006)
Parents entrepreneurs -0.008** -0.008** -0.007**
(0.004) (0.004) (0.003)
SOCIAL ATTITUDES
Living standards -0.003 -0.004 -0.003
should be equal
Business is a good career 0.001 0.001 0.002
Businessmen have high status 0.003 0.003 0.002
Success stories are covered often in the media -0.000 -0.001 -0.001
CONTROL VARIABLES
Size of family 0.001 0.001
Born in Estonia -0.002 -0.001
Mother from Estonia 0.002 0.003
Father from Estonia 0.004 0.003
PLACE OF RESIDENCE AND ACTIVITY
Tallinn 0.020* 0.014**
(0.009) (0.007)
Tartu 0.016 0.013
Pärnu 0.000 0.003
Viljandi
Narva 0.019 0.018
Another county centre 0.017 0.015
Village 0.016* 0.016*
(0.010) (0.009)
Lived abroad -0.003 -0.003
N 1997 1984 1984 1997 1997 1950 1945
Log probability -296.49 -295.30 -287.40 -278.43 -277.29 -267.05 -259.88
pseudo R square 0.17 0.17 0.20 0.22 0.22 0.25 0.27
Dependent variable: nascent entrepreneur (yes=1), average marginal effects after logit regression
Notes: Data from the Estonian GEM study 2012. Robust standard errors are only given in brackets in the case of statistically signifcant
evaluations. Signifcance levels are respectively * 10%, ** 5%, *** 1%.
Source: APS, 2012
84
Appendix 8 – Established Entrepreneur Profles in the Logit Model

Explanatory
variables Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7

PERSONAL CHARACTERISTICS
Gender (male=1) 0.023*** 0.023*** 0.024*** 0.023*** 0.021*** 0.023*** 0.024***
(0.007) (0.007) (0.007) (0.007) (0.007) (0.007) (0.007)
Age (years) 0.008*** 0.007*** 0.008*** 0.008*** 0.008*** 0.008*** 0.007***
(0.001) (0.002) (0.002) (0.002) (0.002) (0.002) (0.002)
Age
2
-0.000*** -0.000** -0.000*** -0.000*** -0.000*** -0.000*** -0.000***

(0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000)
ATTITUDES REGARDING ONESELF
Not afraid to fail 0.023*** 0.021*** 0.020*** 0.023*** 0.021*** 0.022** 0.020*
(0.007) (0.007) (0.007) (0.007) (0.007) (0.007) (0.007)
I have the skills and abilities
to be an entrepreneur 0.098*** 0.084*** 0.082*** 0.098*** 0.097*** 0.094*** 0.079***
(0.012) (0.012) (0.012) (0.013) (0.013) (0.013) (0.012)
HUMAN CAPITAL
Education 0.006*** 0.005*** 0.005***
(0.002) (0.002) (0.002)
knowledge of Estonian 5 3
knowledge of Russian 0 1
knowledge of English 5 0.006*
(0.003)
knowledge of Finnish -0.006** -0.005*
(0.002) (0.003)
SOCIAL CAPITAL
Acquaintance in business -0.002 -0.004 -0.005 -0.005
Parents entrepreneurs 0.006 0.006 0.006
SOCIAL ATTITUDES
Living standards 0.004 0.004 0.004
should be equal
Business is a good career 0.005 0.005 0.008
Businessmen have high status -0.006 -0.008 -0.008
Success stories are covered often in the media 0.019*** 0.022*** 0.019***
(0.007) (0.007) (0.006)
CONTROL VARIABLES
Size of family -0.000 -0.000
Born in Estonia -0.004 -0.006
Mother from Estonia 0.009 0.008
Father from Estonia 0.003 -0.000
PLACE OF RESIDENCE AND ACTIVITY
Tallinn -0.003 -0.006
Tartu -0.003 -0.005
Pärnu
Viljandi -0.018 -0.016
Narva -0.009 -0.001
Another county centre -0.001 0.001
Village 0.007 0.009
Lived abroad -0.023* -0.020***
(0.007) (0.006)
N 1997 1984 1984 1997 1997 1916 1911
Log probability -410.99 -397.12 -393.60 -410.81 -404.32 -387.17 -374.84
pseudo R square 0.20 0.21 0.22 0.20 0.21 0.22 0.24
Dependent variable: nascent entrepreneur (yes=1), average marginal effects after logit regression
Notes: Data from the Estonian GEM study 2012. Robust standard errors are only given in brackets in the case of statistically signifcant
evaluations. Signifcance levels are respectively * 10%, ** 5%, *** 1%.
Source: APS, 2012
85
Appendix 9 – Innovation-related Activities in Various Stages of Company
Development
Source: APS, 2012
DEVELOPMENT OF
INNOVATIVE ENTREPRENEURSHIP Nascent New Established
AND ITS EXPECTED RESULTS entrepreneurs entrepreneurs entrepreneurs
Have the technologies or procedures required for the 11.6 20.3 3.3
product or technology been available for less than a year?
Will you come up with an innovative product or service that 27.7 29.2 12.6
is new for the Estonian market within the next three years?
THE SHARE OF “YES” ANSWERS (%) DEPENDING
ON THE STAGE OF ENTREPRENEURSHIP

Appendix 10 – Distinguishing Characteristics of Innovative Entrepreneurs
Source: APS, 2012
Offering an Offering an
DISTINGUISHING CHARACTERISTICS innovative product for innovative product for All
OF INNOVATIVE ENTREPRENEURS foreign markets (%) the Estonian market (%) entrepreneurs (%)
Increasing personal income as a motive 86.3 55.3 31.3
for using an opportunity
Agree absolutely that they will probably buy products or 31.9 19.6 14.2
services that are new on the market within the next 6 months
Agree absolutely that new products or services will change 34.8 25.4 15.1
their life for the better within the next six months
Share of men 82.7 68.5 57.8
86
Appendix 11 – Attitudes of aspiring, nascent, new and established
entrepreneurs towards using various advisers
Note: “yes %” indicates the share of respondents who answered that they have used advice from the listed advisers.
Source: authors’ calculations on the basis of the GEM countries’ 2012 database

ADVISERS
spouse or partner 38.5 170 31.2 45.8 51.6 180 44.3 58.9 38.2 42 23.5 52.9 48.3 178 31.2 45.8
parents 31.7 170 24.7 38.7 24.8 179 18.5 31.1 28.0 42 14.4 41.6 15.0 178 24.7 38.7
other family 37.5 170 30.2 44.7 39.0 180 31.9 46.1 23.2 42 10.5 36.0 38.4 177 30.2 44.7
members or relatives
friends 69.4 170 62.5 76.3 75.9 180 69.7 82.2 45.9 42 30.8 61.0 51.6 178 62.5 76.3
present colleagues 36.2 169 29.0 43.4 45.7 180 38.4 53.0 42.4 42 27.5 57.3 51.7 177 29.0 43.4
present superior 16.3 169 10.7 21.9 19.0 180 13.2 24.7 14.5 42 3.8 25.1 27.2 177 10.7 21.9
someone from 20.7 166 14.5 26.9 38.0 179 30.8 45.1 41.1 42 26.2 56.0 25.5 177 14.5 26.9
another country
someone who has 13.3 168 8.2 18.5 29.7 180 23.0 36.4 20.2 42 8.1 32.3 16.7 177 8.2 18.5
come from abroad
someone starting 30.9 168 23.9 37.9 49.4 178 42.1 56.8 20.0 42 7.9 32.0 10.6 178 23.9 37.9
a business
someone with a lot 51.6 168 44.0 59.2 64.2 179 57.2 71.3 66.1 42 51.8 80.4 47.6 177 44.0 59.2
of entrepreneurial
experience
researcher or inventor 13.3 168 8.2 18.5 15.8 179 10.5 21.2 18.0 42 6.4 29.7 13.0 178 8.2 18.5
aspiring investor 24.1 169 17.7 30.5 29.7 180 23.0 36.4 25.2 42 12.1 38.3 12.5 178 17.7 30.5
bank 7.1 167 3.2 110 8.3 180 4.3 12.3 70.1 42 -0.7 14.8 11.0 177 3.2 11.0
lawyer 12.5 169 7.5 17.4 28.4 180 21.8 35.0 22.2 42 9.6 34.7 18.8 178 7.5 17.4
accountant 29.7 169 22.8 36.6 50.1 180 42.8 57.4 49.6 42 34.5 64.8 48.8 178 22.8 36.6
public business 12.7 169 7.7 17.7 25.2 177 18.8 31.6 9.5 42 0.7 18.4 11.3 178 7.7 17.7
advisory (business
consultants)
cooperation partner 28.0 169 21.2 34.8 48.8 178 41.4 56.1 56.4 42 41.4 71.4 49.5 177 21.2 34.8
(company)
competing company 9.1 169 4.8 13.4 14.8 178 9.6 20.0 12.9 42 2.8 23.0 18.5 176 4.8 13.4
supplier 16.5 169 10.9 22.1 31.6 179 24.8 38.4 29.3 42 15.6 43.1 26.0 177 10.9 22.1
customer 29.6 169 22.7 36.5 52.7 178 45.4 60.0 39.4 42 24.6 54.1 50.4 177 22.7 36.5
yes
(%)
yes
(%)
yes
(%)
yes
(%) n n n n
con?dency
limits (0.05)%
ASPIRING
ENTREPRENEURS
NASCENT
ENTREPRENEURS
NEW
ENTREPRENEURS
ESTABLISHED
ENTREPRENEURS
con?dency
limits (0.05)%
con?dency
limits (0.05)%
con?dency
limits (0.05)%
87
Appendix 12 – Statements About the Development Level of Various Areas
in Estonia that Earned the Lowest Evaluations from Experts
AREA STATEMENT AVERAGE MARK
(scale 1–5)
Financing New and growing companies have suf?cient 1.76
?nancing opportunities through public offerings (IPO-s).
Education and training Teaching in elementary and basic schools pays suf?cient 1.78
attention to entrepreneurship and creation of new companies.
Education and training Adequate knowledge about the working principles of market economy 2.00
is given in elementary and basic schools.
State policy State policy (e.g. public tenders) favour new companies. 2.03
State policy The policy of supporting new and growing companies has a high priority 2.24
on local government level.
Education and training Elementary and basic schools encourage pupils to be creative, 2.39
independent and show initiative.
Transfer of results of New technologies, research results and other knowledge 2.41
research and development is ef?ciently transferred from universities and public
research centres to new and growing companies.
Business and service infrastructure It is easy for new and growing companies to ?nd good 2.46
subcontractors, suppliers and consultants.
Transfer of results of Good support exists for researchers and engineers to 2.53
research and development commercialise their ideas through new and growing companies.
Openness of market New and growing companies can afford the costs 2.53
of entering new markets.
State programmes Almost anyone who needs help through public support programmes for 2.56
new and growing companies can get it.
Transfer of results of research New and growing companies can afford the newest technologies. 2.58
and development
Education and training Universities provide a good and adequate preparation 2.61
for creating and developing new companies.
Business and service infrastructure New and growing companies can afford 2.62
the costs of subcontractors, suppliers and consultants.
Financing Financing from private persons (non-founders) 2.63
is suf?ciently available for new and growing companies.
Cultural and social norms Cultural and social norms encourage risk-taking. 2.66
Education and training Vocational, professional and continuing training provide good and 2.72
adequate prepearation for creating and growing new companies.
State programmes The public programmes aimed at supporting new and growing companies 2.73
are ef?cient.
Education and training The level of business and management education provides a good and adequate 2.74
preparation for creating and developing new companies.
State programmes People working in state agencies support new 2.83
and growing companies in a competent and ef?cient manner.
Source: ES, 2012
88

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