The entrepreneurs who have no idea what will hit them

Every business has a life span and a human story. When we reach the end, we see things never noticed at the start.

This story is about entrepreneurship in Vietnam. Not large-scale, multi-national business, but the everyday shops and services around us, especially those controlled and operated by a single individual. A 2021 study commissioned by the European Union notes that, in the last 30 years, this sector “has grown exponentially.” True, it is difficult to define the term “small and medium enterprise” exactly, but this study cited the General Statistics Office to say that there were 758,610 active SMEs in Vietnam. For comparison’s sake, one can find a post-Covid figure from the Ministry of Planning and Investment listing the total number of business enterprises in Vietnam is roughly 900,000.

Thus, while the numbers change according to definitions, it is clear that small-scale businesses are extremely important for Vietnam’s economy and society. Yet, how well do we know what happens to them and what it means for them to come and go?

Here is a story about a single entrepreneur, a young woman who came from Vinh to Da Nang and followed her dream by opening a restaurant in the My An beach district. I first became acquainted with Lien (name has been changed) in the last months of 2022. I was struck by the way that she operated a multi-faceted business by herself. To be sure, she had some assistance from her mother and younger brother. And she told me about the generous help she received from an older brother, an architect who converted the house into a place for business and even made the tables. But she was the one who came every day to do the cooking, serving and cleaning. She was the one who taught herself English and learned to prepare food that Western people like. And she was the one that – right before the pandemic – signed the loan.

Let’s say a few things about the economics of small businesses, noting these points are about psychology as much as commerce.

Small businesses are almost always more vulnerable to changes in the immediate environment, and they must take into account that these changes are impossible to predict consistently. That’s one of the reasons why there is no effective way to stop everyday businesses from rising and falling. Their growth and contraction is a reflection of the activity around them. This may sound obvious, but the matter is linked to two additional academic issues that deserve more attention.

Though a great deal of time and energy is spent trying to understand and control business cycles, the expansion and contraction of the interlinked microeconomies – to say nothing of the national and global economy – is something that nobody can entirely predict. Indeed, the technical term used by economists to describe such cycles statistically “stochastic” comes from an ancient Greek word meaning “to guess.” We make a big deal of successful entrepreneurship, but it keeps perspective if we realize practically all business operators make do by guessing where things are heading.

This leads to another difficulty. I could see for myself that insufficient customers came to Lien’s restaurant. Should she have guessed differently? The answer to that depends on your definition of what it means to know better. She made her wager on becoming a business owner right before Covid, signing the loan papers in 2020. Several months later, the restaurant, in lockdown, sat empty – while, nevertheless, rent had to be paid. In a sense, Lien’s November 2023 announcement that the place was up for sale is one of the late causalities of the pandemic.

But I don’t think we should oppose her decision. This is the second point. For more than a decade, prominent economists, including Nobel Prize winners like Daniel Kahneman, have emphasized that most economic decisions are not made through a clear calculation of goals and risks. Rather, decisions are made in an atmosphere of incomplete information. How could Lien fully know what to expect? In hindsight what we were supposed to do is clear. Beforehand, not so much.

Hence, instead of confining our questions to what a business owner should do, it helps to reconstruct what it is like to make decisions under conditions of incomplete information. In Lien’s case, why not visualize her situation as it unfolds: what it felt like to unpack the utensils and equipment for the first time; how she surfed the internet for recipes and decided which ones to practice cooking herself; how the business felt on a good day, when it seemed like a post-pandemic recovery was happening, what it was like on a bad day, when nobody came, and what it will feel like, on the last day, when she packs up her things for the final time.

If such questions seem too subjective, consider that on the individual level entrepreneurial decisions are fully mixed with subjectivity. Of course, this does not mean we should make no effort to be objective. It is possible to view the rise and fall of small and medium businesses academically, and make recommendations for change. I will close with trying out a few of my own.

First, data on this topic is valuable, and I support collecting and publicizing it in detailed form. That means, tracking businesses across regions, industries, age of proprietor, gender of proprietor, and even more categories. Perhaps such data is already collected in Vietnam, but it does not seem to be readily available. While large generalizations are partially helpful, more specific and granular data means we understand what’s happening to businesses in Vietnam even better.

Second, even though classes in entrepreneurship have the potential to be very useful, I disagree that there are educational solutions to the problems discussed. There are too many variables involved to prepare people by sitting in a classroom. However, there are a few areas of exception. I think entrepreneurs like Lien will benefit from informational seminars on borrowing, taxes and the basics of rent and real estate. Perhaps banks and municipal governments could cooperate with local universities to arrange this.

Third, Lien chose to start a business in a place where there is much interaction between Vietnamese and foreigner visitors, and one might say that her problems are ones of the tourist industry. However, I’m not sure the situation is not radically different elsewhere. Because there are versions of the same problems all over Vietnam, I recommend that the subject be discussed more frequently, particularly by people who live in the same neighborhoods and cities as the businesses they observe. A wide range of people, discussing the situation from many angles, will provide more opportunities for productive exchange between entrepreneurs and the wider community.

Finally, there is a last, important point. Businesses must rise and fall. There is no viable way to stop this process. In the U.S. it is said that only 20% of restaurants survive until their fifth year, and that’s without a pandemic. But while businesses disappear, the people who took a chance on them remain and many of them show the endurance to try again. Indeed, most entrepreneurs wind up better because of the burdens they took on and the courage they showed in facing them. Lien does not know where she’s heading to next, but people like her are a kind of precious national resource. They’ve gained essential skills from their efforts and deserve our respect.

*David Pickus received his Ph.D. in history from the University of Chicago. He taught at Arizona State University, RenMin University in Beijing and other institutions in the U.S., China and Europe. He has published books and academic essays on topics related to history, education and globalization. He is currently an Associate Professor of History at a university in Da Nang, Vietnam.

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