Why Do Most of Small Start-up
Businesses Fail Within 3 years in Saudi
Arabia?
Motaz Alsolaim
Supervisson
Prof. Marc Cowling
Dr. Cathrine Mathews
Background of Saudi
Arabia
• One of the world’s largest oil exporters and the
region’s only member of the G20 group of
industrialized countries
• Rich country , dependent on oil
• One of the largest market in the region.
• Strategic location in middle east
Facts !
• 87% of the country’s GDP comes from oil (World Bank, 2016)
• Over 1.97 million SMEs created 4.5 million jobs in 2014, as stated
by the Council of Saudi Chambers (2015).
• The contribution to total industrial production 35% of the GDP
(Ministry of Economy and Planning, 2015).
• High unemployment rate of 11.5% (Central department of
Statistic in Saudi Arabia , 2015)
• Youth generation: two third of the population less than 30 years,
(Central department of Statistic,2015)
• 60 % of SME stops after a year in operation. (Saudi chamber of
commerce, 2015)
• Employment growth of the government sector is just 3.27%,
compared to the private sector at 14.88%
• Among the region, SA in the first of fear toward failure 39%
(GEM)
• Among the region SA scored the highest in perceived opportunity
75.8% (GEM)
• Total early-stage entrepreneurial activity in SA is 9%, as compared
to 13.8% in US and 16.8% in Qatar. ( GEM, 2014)
Why its Important and Unique?
• Saudi Government believed that Entrepreneurship is the panacea of its
economy.
• There is a clear lack of research into entrepreneurship in developing countries
in general, especially where SA is concerned (Darley and Khizindar, 2015)
• The country needs to protect itself economically and financially from the
volatility of revenue derived from petroleum and its related products.
• The national transformation plan ‘2030’ focuses on how to secure the future of
SA’s economy and create sustainable development within the country.
Aim and Objectives :
• The aim is to reduces entrepreneurial small start-up businesses failure in Saudi
Arabia, to improve the economic growth in the light of the governmental
“Vision Plan 2030”
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Research objective
Discover the current situation of entrepreneurship in Saudi Arabia.
Identify entrepreneurs ‘demographic factors
Explore enterprises factors
Explore environmental factors on entrepreneurship in Saudi Arabia.
Probe the challenges the light of the governmental “Vision Plan 2030’” according
to entrepreneurs’ perceptions.
Research Questions
Q. Why most of small startup business fail within three years in Saudi Arabia?
1) What are the significant (personal/entrepreneurial) factors that influence the
small startup business failure?
2) What are the significant (enterprises) factors that influence the small startup
business failure?
3) What are the significant (environmental) factors that influence the small startup
business failure?
Definitions
adopted :
• Entrepreneurs: any individual how take risk to
start their own business.
• Business Failure: business that starts and did
not last more than 3 years of operation.
• Start up: new company, aged less than 4 years
• Small Business in S.A : business that has an
income less than 800 Thousands USD, and has
less than 25 employees. (Saudi SME Authority
definition)
Previous studies ..
• Various researches focused on the success factors of SMEs (Al-Salamain, 2015; Alotibi, 2014;
Alsalah, 2012; Al-Faadalh, 2010).
• The majority of the research has narrowly focused on female entrepreneurship in Saudi
Arabia, as a gender issue (Abdelmegeed, 2015; Nieva, 2015; Alessa, 2013; Alkhaled, 2013; Shmailan,
2011; Syed, 2011; Sadi and Alghazali, 2010; Eraqi, 2012).
• Few research focused on government policy and economic development in Saudi Arabia
(Alsheikh ,2009; Aldossari,2013; Alsakran , 2014; Algarni, 2016)
• It should pointed out that the present study differ than other previous studies in the
aspect it takes a broader look at the population of small start-ups in a wider sense. The
study will focus on the difficulties and the challenges facing small start- up
entrepreneurs.
Theories of Entrepreneurship…
• The Entrepreneurship theories are deeply linked to other social scientific disciplines such as economy,
management, psychology, anthropology and sociology.
• Economic Entrepreneurship Theories
• Classical Theory
• New-Classical Theory
• Austrian Market Theory
• Psychological Theories of Entrepreneurship
• Personality Traits
• Locus of Control
• Need for Achievement Theory
• Sociological Entrepreneurship Theory
• Anthropological Entrepreneurship Theory
• Opportunity- Based Entrepreneurship Theory
• Resource- Based Entrepreneurship Theories
• Financial Capital Theory
• Social Capital or Network Theory
• Human Capital Theory
START-UP FAILURE
LITERATURE
REVIEW
FRAMEWORK
Factors
affecting the
survival of
businesses
THEORETICAL
CONCEPTS
Entrepreneurial
Factors
Enterprise
Factors
Environmental
Factors
RESEARCH
PILOT
TEST
DATA ANALYSIS
CONTRIBUTION
TO
KNOWLEDGE
Infrastructure
factors
Questionnaires posted to
business start-ups
DATA ANALYSIS
SPSS SOFTWARE
(QUANTITATIVE)
Economic
Factors
Political
Factors
Interviews with economic
experts and entrepreneurs
DATA ANALYSIS
ATLAS
SOFTWARE
(QUALITITIVE)
EXPECTED FINDINGS:
MOST COMMON FACTORS PRESENTING
BARRIERS TO BUSINESS START-UPS
RECOMMENDATIONS FOR ENTREPRENURS
AND POLICY-MAKERS
Social
Factors
Methodology
(Mixed Method)
Conduct subsequently mixed method
(quantitative and qualitative) in the
entrepreneurship field by :
 Integrate questionnaires as a first phase
followed by semi structured interviews as a
second phase for data collection.
Interviews gives a broader feedback
concerning questions to be addressed.
Questionnaires are preferred in social studies
for being practical in collecting more
information from large populations in short
times
Personal factor
/ Entrepreneurial
factors
Gender
Lack of motivation
Bad Location
Age
Lack of interest
Lack of Marketing
research
Education
Desire to maintain
control
Weak business planning
Hours dedicated
Lack need of
achievement
Environmental Factors
Enterprise factors
Management deficiency
Experience
Lack of creativity
Customer issue
Capital availability
Lack of risk taking
Supplier issue
Negative influence by
family
Poor quality of product/
services
Problem of
partnership/teamwork
Lack of Financial control
Economic
Socio- cultural
Political
Infrastructure
Economic
recession
Lack of social
networking
Saudi
Legislation and
law
High level of
Bureaucracy
Drop in oil
price
Lack of
supportive
national
culture
Customs and
traditional
Cost of
Compliance
Difficulty of
access to
technology
Insufficient
gov. plans
Lack of skilled
labour
Strict market
condition
High local
competition
Social
restrictions
Insufficient
gov. supports
Weak
education
system
Difficulty to
find labour
No reputation
for the
business
Entry of
foreign
investors
Lack of
financial
support from
banks/instituti
Restrictions on Lack of agency
import /
support
export
Data Gathering & Targets
• Mixed method
• (Quantitative, Qualtric survey tools , close-ended)
• Target
• Survey ( any entrepreneurs , gov. supported and not gov. supported , who has
a business (within the 10 year zone), and the business did not survive more
than 3 years ).
• (Qualitative, semi- structured interview)
• Target
• ( 5 failure entrepreneurs, 5 succussful entreprenurs, and official gov.
employee from (Authority of SME, Social development bank, Dolani Business
centre, and Riyadh region Municipal. )
Analyzing & contributions
• Quantitative
• Collected 290 were valid based on convince sample
• Will be analyzed by SPSS version 20 will be used
• Qualitative
• It will be annually analyzed to have a clear analyzing
The contribution ?
• Clear the lack of research into entrepreneurship in developing
countries in general, where SA is concerned (Darley and Khizindar,
2015).
• Improving the lack of knowledge concerning entrepreneurship
projects in the context of the developing Middle-Eastern
countries, by focusing on SA.
• The outcomes of the study, shared with agencies such as the
Ministry of Economy and Planning; the National
Entrepreneurship Institute, King Salman’s entrepreneurship
initiative; the Saudi Credit and Savings Bank; the Saudi Chambers
of Commerce, and the Saudi Industrial Development Fund
• This study will be beneficial to start-up entrepreneurs who are
still in their early stages with regard to their roles in the
contribution in the government vision of diversify its economy.