Editor’s note: This article was first published in February 2014, and describes Spain then: about €1,000 to set up a company plus €3,000 minimum share capital, a flat monthly self-employed contribution regardless of income, and Rajoy as prime minister. The SL minimum capital was later reduced, and Spain has since moved to income-based contributions.
- To succeed, you first have to fail. 2. Failure is part of success. 3. Success is the ability to go from failure to failure without losing your enthusiasm. 4… (insert another quote about the romance of failure here).
I have to agree (up to a point) with many readers when they tell us these phrases must have been coined by someone who isn’t Spanish, because the truth is that failing in business in Spain is anything but romantic. Quite the opposite: it’s much harder than in most developed countries. Of course, once you’ve failed, you only have two options: 1. Go under. Or 2. Learn the lesson.
However much it’s sold otherwise, Spain is not an easy country for entrepreneurs. To steer clear of political debates: from Felipe González to Mariano Rajoy (Spain’s prime ministers from 1982 to 1996 and from 2011, respectively), it’s been the same old crap for entrepreneurs for decades. When I wrote about Corey Capasso, the entrepreneur who succeeded after 15 failures, I wondered what would have happened if Capasso had been Spanish. Honestly, I doubt he’d have got back up after his third failure. Why is it harder to succeed in business in Spain, and why is failure harder to absorb?
1. A problem from the start
A) In most business-minded countries, you can set up a company in 72 hours, from your own home. In Spain, the company formation system is probably the most rudimentary on the planet, matched only by third-world countries. On top of that, you have to “battle” with more than 10 different officials to get them to speed up the process (building permits, opening licence…).
B) It doesn’t matter whether you’re setting up a small business or a large one. Either way, forming a company will cost you around €1,000 before you even start operating, plus a €3,000 contribution to share capital (although you don’t necessarily need to have that €3,000 in cash). In many countries, the total cost of setting up a company is under €100.
C) Win or lose, the Spanish entrepreneur has to pay every month. In other countries, businesses pay according to what they earn: earn more, pay more; earn less, pay less. Not in Spain, thanks to that wonderful invention, the self-employed social security contribution (cuota de autónomos): a fixed cost that stays the same every month whether you’re selling or not.
(Read: The 10 commandments for guaranteed failure in business)
2. Financing the business, and the Spanish entrepreneur’s great danger
D) Because there aren’t many financing alternatives in Spain, we’re left with the banks alone, which forces Spanish entrepreneurs to put up their personal assets as collateral for a business loan or credit line. In other words, most Spanish entrepreneurs are in debt to the banks, so if their business fails, they also risk losing what they had built up before opening it.
3. Grants for entrepreneurs
E) We boast about having grants for entrepreneurs, but the truth is that support is needed at the start, and in Spain grants take so long to arrive that the business can be put at risk in the meantime. An English friend of mine thinks I’m hilarious, convinced I’m telling him a joke, when I say there are entrepreneurs whose grants arrived after their company had gone bust. It’s no joke, and it happens very often.
4. The cost of hiring workers
F) In Spain, wages are cut, but the cost of hiring a worker stays the same: the social insurance contributions the company has to pay are too high and unsustainable for a business in trouble.
5. Once you fail in Spain…
When people talk about the romance of failure, the truth is that in Spain that failure will probably follow you financially for a long time, even preventing you from opening another business right away. There have been small business failures where the entrepreneur spent far longer sorting out the fallout than they spent fighting for the company.
So the beauty of failure as part of success is a more bitter beauty in Spain, a country where it takes 30 times longer to set up a company, at 15 times the cost, and where the financial consequences of failing are 20 times worse than in any other entrepreneurial country.
(Read: 10 reasons small businesses fail at the start)
This doesn’t mean starting a business in Spain is a bad idea. Quite the opposite (you probably won’t find any other way out for a long time), but here entrepreneurs have to aim more carefully and think much harder about how to start small. Spanish entrepreneurs should know that failure is part of success, but in Spain failure will set you back much further than your competitors in neighbouring countries.
For now, when it comes to making things easier for entrepreneurs in Spain, it has all been talk. The aim seems to be to encourage people to become autónomos (self-employed), but a self-employed person is not the kind of businessperson needed to build a competitive business sector.
Further reading
- How to fail in business without losing your dignity
- Not having a marketing plan is like planning to fail
Featured image: CarlosVdeHabsburgo, CC BY-SA 4.0, via Wikimedia Commons.
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