[Business Scene] Marko Kolaković: Why New Entrepreneurs Prefer to Use Expensive Loans for Financing

Prof. Dr. Marko Kolaković has an excellent understanding of the conditions in entrepreneurship. He has been studying it for years. He is a full professor at the Faculty of Economics in Zagreb, at the Department of Business Economics. He teaches a range of courses on entrepreneurship. Therefore, he is the right interlocutor for a discussion about the state of small businesses in Zagreb.

Could you assess what the entrepreneurial climate is like for starting a new business and survival in Zagreb, or what rating (1-5) would you give compared to other parts of Croatia?

– We can say that weak regional policy has led to an excessive concentration of business, and thus small businesses, in the city of Zagreb. According to some indicators, Zagreb today already accounts for half of the Croatian economy with a tendency for further growth. This is certainly not good from the perspective of other regions in Croatia that are lagging behind. However, from the entrepreneur’s perspective, this concentration of business in the city of Zagreb allows for easier finding of partners, cooperators, and thus new business opportunities and possibilities. Therefore, this trend is understandable, and I rate the entrepreneurial climate for starting new business projects and/or opening new companies in the city of Zagreb as very good (4). A significant drawback remains excessive administration and bureaucracy.

And where does Zagreb stand compared to other countries in the region?

– In some countries in the region, there is also a noticeable trend of concentration of business and small economy in the capitals, which automatically leads to the lagging of other regions and areas within those countries. However, we also have good examples, such as Slovenia, which pursues a good regional policy and strives to develop its regions evenly. Driving through Slovenia, we have the opportunity to see numerous entrepreneurial companies and crafts along the roads and in smaller towns and places.

What are the main advantages and disadvantages of Zagreb as a headquarters for (small) companies?

– As I have already mentioned, the advantages lie in the easier finding of new business opportunities and possibilities, a larger base of potential business partners and cooperators, while the disadvantages are the high costs of business premises, warehouses, and labor. Therefore, efforts are being made to assist through entrepreneurial support institutions (entrepreneurial centers, incubators, and entrepreneurial zones) where entrepreneurs are positioned with the best infrastructural prerequisites for uninterrupted business operations.

Are newly minted entrepreneurs (not limited to startups) still doomed to classic sources of financing known as ‘3F’ – family, friends, and fools – or is something changing?

– Alongside self-financing, new entrepreneurs today have various other sources of financing available, such as business angels or venture capital funds. The drawback of such sources of financing may be that investors thereby enter the ownership capital of young entrepreneurs. Therefore, new entrepreneurs prefer relatively more expensive financing methods such as: commercial loans, leasing, but also increasingly popular factoring.

Should we further encourage people to enter entrepreneurship, or is that perhaps a waste of resources considering the survival rate of new firms?

– In the situation in Croatia as we have it, with a significantly devastated industrial production and difficulties in opening new jobs, entering entrepreneurship presents itself as the only solution. The new digital economy has opened up new virtual spaces and numerous entrepreneurial opportunities and possibilities (which many Croatian entrepreneurs have already well utilized). In addition, Croatia has traditional comparative advantages in agriculture and tourism, which the state largely encourages, so there is no shortage of opportunities for entrepreneurial activity.

What are the main moments in transitioning from a small to a medium-sized company (when crossing about 50 employees, or 50-80 million kuna in revenue)?

– This is an old question viewed through numerous theoretical and practical analyses of entrepreneurship. There is no unique answer and/or even a rule regarding when an entrepreneur should transition from a small to a medium-sized enterprise. The transition from a small to a medium-sized enterprise often entails a significant increase in operating costs and the loss of numerous advantages that small enterprises have (speed, flexibility, and various incentives), but it also carries advantages such as security and easier access to loans. Therefore, medium-sized enterprises are often viewed merely as a transitional phase in the development of a company from small to large.

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