The Entrepreneurial Sector in Times of Crisis

Ignacio de la Vega

23 January 2003

Despite a tough economic situation, indicators say that creating companies in Spain is not as difficult as it seems. While Spain has traditionally been a tight market for bankrolling business projects, things appear to be changing. The author concludes that opportunities exist for entrepreneurs; their success or failure hinging on what they can offer the market.

Recent months have seen continuous debates and forecasts on an economic cycle that, at the least, is proving difficult. Sluggish markets (despite the recovery of the Spanish stock market in the last weeks of 2002), weakness of the German giant, signs of a meagre recovery in U.S. economic activity, financial scandals, the ever-increasing workforce cutbacks in major corporations, the threat of war in the Persian Gulf and its unforeseeable consequences, continuous reductions in growth forecasts, the by no means positive inflation rate in 2002 – in short, a poor international economic progress affected entrepreneurial activity in our country in 2002 and will continue to do so. Despite this, optimists point to the fact that we in Spain still enjoy growth figures far in excess of the European average.

In Spain 2002 saw creation of 4.3% more companies than in the previous year, though the destruction rate also rose (by 11%) over the same period. We should ask ourselves what the factors are that influence entrepreneurial activity figures in Spain. Several answers have been obtained, thanks to the GEM Project carried out by Instituto de Empresa, in collaboration with Babson College and London Business School. According to GEM, factors that facilitate entrepreneurial activity are:

· a high level of development within a country.

· economic prospects, analyzed at an individual level, are their driving force.

· financial support, the existence of public and private mechanisms, and agile, flexible financial markets that permit the financing and recovery of investments (or exit strategies).

· government policies and programs – and the degree of knowledge of the same – assist and foster the creation of companies.

· R&D transfer, and availability of technological resources, permit creation of firms that can be competitive globally.

· access to commercial, professional and physical infrastructure - particularly the training of entrepreneurs and executives.

Of these elements identified by GEM, four are key and we must consider them in relation to any company-creation activity. The model is applicable to both development of new business initiatives and to promoting new projects within established firms. My analysis of the situation in Spain will follow:

· The business opportunity. Application of innovation to a sector’s value chain, as opposed to technological or product innovation. The Business Idea is closely linked to attractive sectors. There are still opportunities to be found in technology-related sectors; proof is the success of Project Neti, a competition for business plans that make use of innovative technologies, sponsored by AMENA and Instituto de Empresa. While it would appear that, until 2008, the software sector will not experience growth, we cannot overlook the inexorable advance of Microsoft – whose revenue grew 200% in two years – or Cisco – whose orders for this quarter have risen by $1.400 billion. Who says the Internet is dead? If we consider the results of companies like Ebay, Expedia, Yahoo or Amazon, we find that a good business model, with capacity for sound management and adapting to the marketplace, will find opportunities in any sector. In any case, opportunities exist in numerous sectors, many closely related to traditional activities, such as leisure, risk society, new social services, services to companies, biotechnology, or new energy sources.

· The entrepreneurial team is a key piece in this puzzle. Without the best team, one that guarantees correct management of resources and adaptation to the market’s changing demands, it is difficult to come close to success.

· A viability analysis of business opportunities and a correct diagnosis of models for future development introduce us to the need for the entrepreneur to possess specific training. The Business Plan, and its execution and interpretation, make it possible for management schools such as Instituto de Empresa to play a prominent role in the development of new business projects.

· A fourth element – decisive for experts and entrepreneurs – the existence of sources of financing is gaining ground. From the standpoint of financing business projects, Spain has traditionally been a tight market. Three factors have contributed to this: cultural problems, the inexistence of fiscal incentives and the lack of liquidity. Even so, partly thanks to the dotcom phenomenon, the market has been revitalized in recent years, with the entry of individual or informal investors, who support new projects (with seed and start-up capital), and the appearance of new fund managers who have raised huge amounts destined for venture-capital investment in companies.

When we examine the evolution of investments earmarked for new business projects, we see that while 2002 was a year of significant backtracking, a total of € 262 million was captured in the first half and € 230 million invested over the same period. Despite the wait-and-see strategy of many investors, these are relatively healthy figures. The principal destination of these investments proved to be development capital projects and the acquisition of stakes in companies through buyouts. We must bear in mind that official figures do not reveal the growing weight of informal investment via friends and family or business angels. By sectors, most noteworthy is the reduced investment in information and communications technologies and the increase in consumer, industrial, hotel/catering and leisure products.

From the panorama outlined above, one may conclude that, while difficult, the outlook for entrepreneurs depends largely on what they have to offer the market. A fine concept, with innovative content, in a market with considerable potential, based on a viable business model, with a good team capable of managing the project and carrying it through, together with a decent level of prospective appreciation, still has plenty of opportunities in the marketplace. At Instituto de Empresa, we provide leading-edge training to our present and former students, facilitate the execution of business plans and provide access to the investment sector through numerous forums. We have developed tools such as ICEVED ( or, in collaboration with AMENA, project NETI (, which provide a global gateway to those with an entrepreneurial spirit, thus facilitating the execution of their projects.


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