Entrepreneurship Going Strong
But The Odds Are Against You Without Help

By Bob Norton

Although the market for capital is still bad in 2005 for small companies, the spirit of entrepreneurship is alive and well. In fact it is growing rapidly in some segments. This many be a function of job stability being poor and people wanting the "security" of owning their own business. Although the failure rate of new businesses is usually estimated at between 80% and 90% during the first couple of years, once you are over the first two years that failure rate drops pretty dramatically.  So if you have the resources and/or revenue to last that long your chances really increase dramatically.

By far the lowest risk way to start a business is to sell your expertise and time as a service so you do not need as much time and capital for product development, marketing and other larger expenses. I like what I call the "Service to Product Flip" model. In this scenario you are starting a business as a service with the idea of building product(s) that will have more financial leverage and growth potential along the way. Often you can get paid by others while doing things for them and still preserve the right to keep the intellectual property you develop.  Or you can work on the side and allow the consulting to pay the bills and support your other work while developing the products.  With each additional customer this gets easier because you are bringing more product to the table that saves them time and money. Software is a great industry to do this in, but this can work in most industries. Wherever there is value in a third party (not competitors) in an industry to provide a service that might have an economy of scale there is usually an opportunity for a nice protectable business.

With 500,000 new business launched each month that means about 50,000 new sustainable businesses are created each month, or 600,000 per year. With about 350 million people in the U.S. this means that 0.17% of people will start a "successful", or sustainable business each year. That is about one in every 300 people starting a new business each year and implies one in 3,000 creating a sustainable business. Not exactly the kind of odds you like to hear about, you have a better chance of winning at the roulette table I think?  Yet some people start successful businesses one after the other every few years. The obvious conclusion is you can beat the odds with the right experience, mind set, training and resources. See our CEO and Entrepreneur Boot Camp and home study programs to increase your odds and reduce the risk of starting and growing your business. All of this material is developed and screen by me personally with the experience of eight startups and two hyper-growth companies that exceeded $100 million in sales.

Source: Kauffman Foundation

More Than 500,000 New Businesses Launched Each Month
Says New Kauffman Foundation Study

Immigrants and Latinos Show Strong Business Start-up Activity; African-American Rate Low but Increasing

KANSAS CITY, Mo., (PRIMEZONE) -- More than half a million new businesses are started each month with the number of businesses started by immigrants and Latinos showing strong start-up activity and the rate for African-Americans growing, according to a new national assessment of entrepreneurial activity launched by the Ewing Marion Kauffman Foundation.

The Kauffman Index of Entrepreneurial Activity is the first study to measure business start-up activity for the entire U.S. adult population at the individual owner level. The data are derived from the monthly Current Population Survey (CPS), a national population survey conducted by the U.S. Bureau of the Census and the Bureau of Labor Statistics.

Two especially surprising findings from the study are: (a) that the Latino rate of entrepreneurship increased from 0.38 percent in 1996 to 0.48 percent in 2004, which was higher than the white, non-Latino rate of 0.39 percent; and (b) that immigrants have substantially higher rates of entrepreneurship than native-born individuals. The average rate of entrepreneurship for immigrants was 0.46 percent compared to 0.35 percent for the native-born.

The Kauffman Index of Entrepreneurial Activity finds that over the period from 1996 to 2004, an average of 0.36 percent of the adult population created a new business each month, representing approximately 550,000 new businesses per month. The rate of overall entrepreneurship activity remained relatively constant over the period despite major changes in the economy, with the rate of business creation generally between 0.3 and 0.4 percent. The average rate of entrepreneurship was 0.36 percent in 1996, 0.35 percent in 2001, and rose to 0.4 percent in 2004. It is too early, however, to know whether the recent increase in the entrepreneurship is due to cyclical or structural factors.

"Although research on entrepreneurship is growing rapidly, there are very few large national datasets other than the Kauffman Index of Entrepreneurial Activity that provide information on recent trends in entrepreneurial business creation," said Robert W. Fairlie of the University of California, Santa Cruz, who developed the Kauffman Index.

Unlike other studies which capture young businesses that are more than a year old, the Kauffman Index of Entrepreneurial Activity captures all adults 20-64 who initially start a business, including those who own incorporated or unincorporated businesses and those who are employers and non-employers. The Kauffman Index of Entrepreneurial Activity, which is defined as the percent of the adult U.S. population of non-business owners who start a business as their main job each month, will be conducted annually.

"The United States continues to be a very entrepreneurial nation," said Carl Schramm, president and chief executive officer of the Ewing Marion Kauffman Foundation. "The large portion of entrepreneurial firms and the significant number of jobs created by smaller, newer, and growing firms in America are a strong indication that the entrepreneurial sector, with its flexibility and capacity to adapt quickly, is poised to become an even more important factor in our nation's economic growth."

Among the other findings in the Kauffman Index of Entrepreneurial Activity:

 -- Entrepreneurship activity is substantially higher among men than
    among women. From 1996 to 2004, the average rate of
    entrepreneurship for men was 0.46 percent and the average rate for
    women was only 0.28 percent.

 -- The rate of entrepreneurship increased in the early 2000s for men, 
    but not for women. The male entrepreneurship rate was 0.43 percent
    in 2001 and rose to 0.50 percent in 2002.

 -- Entrepreneurship activity is much lower for African-Americans than
    other ethnic/racial groups; however, rates appear to be increasing.
    The average rate of entrepreneurship for blacks was 0.29 percent in
    1996 and 0.35 percent in 2004.

 -- New entrepreneurship activity is highest in the West. Other regions
    have similar rates of entrepreneurship.

 -- Entrepreneurship activity increased the most in the West and South
    in the past few years. The entrepreneurship rate in the West
    increased from 0.42 percent in 2001 to 0.49 percent in 2004, and
    the entrepreneurship rate in the South increased from 0.35 percent
    to 0.41 percent.

 -- The construction industry has the highest rate of entrepreneurship
    of all major industry groups.

The Kauffman Index of Entrepreneurial Activity differs from the recently released 2002 Survey of Business Owners (SBO) conducted by the U.S. Census Bureau in several major ways. First, it is based on household survey data and measures individual business owners. The SBO includes all firms operating during 2002 that filed tax forms as individual proprietorships, partnerships, and any type of corporation. Second, the Kauffman Index captures business entry, whereas the SBO captures numbers of existing businesses. Increases in the number of existing businesses over time may be a result of more business creation, less business closure, or a combination of the two. Third, the Kauffman Index only includes individuals starting businesses as their main work activity with a substantial hours commitment. The SBO includes all firms with receipts of $1,000 or more, which may include side or "casual" businesses owned by wage/salary workers, the unemployed, or retired workers. Finally, the Kauffman Index includes all new business owners, whereas the SBO excludes agricultural and a few other types of businesses.

The Ewing Marion Kauffman Foundation of Kansas City is a private, nonpartisan foundation that works with partners to advance entrepreneurship in America and improve the education of children and youth. The Kauffman Foundation was established in the mid 1960s by the late entrepreneur and philanthropist Ewing Marion Kauffman. Information about the Kauffman Foundation is available at www.kauffman.org.

CONTACT: 
Kauffman Foundation
Wendy Guillies
(816) 932-1046
wguillies@kauffman.org
or
Communication Partners
Tom Phillips
(212) 935-4655
comptwp@aol.com



 

 

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