New Business Creation: Increasing or Declining?

   The question was recently posed to me, "Are there more businesses formed today than in years past, or less?" The answer is varied and depends on who you ask, and as important, what geographic area you are referring to. The local picture here in Orange County, California may be different than the national picture, and we also have to look at where the data comes from. Does filing a new DBA (doing business as) form constitute a "new business?" In many cases the answer is "no" since it can be a new (or additional) name of an existing business. Regardless of all that, let's look at the overall picture, shall we?

One report from a company that sells "start up kits" reports, "an increase of 30% since the recession began in 2010. This shows that people want to have independence and in many cases create their own jobs by starting a new business. These new businesses tend to be startups just like the startups we teach about in our courses..." Is this report/ review biased? Without a doubt. They are using their slant and their product disguised as a press release to declare a jaded view of hard data. There is nothing wrong with that, companies do it all the time and it is a very useful way to utilize PR and media exposure.

The Kaufmann Foundation, one of the largest and most esteemed nonprofits that does many things- including reporting on new business creating- is very specific by stating that new business creation is higher in the West and the Southwest, as much as 12% higher than the rest of the nation. Another key statistic:

"Establishments owned by younger firms grow faster, on average, than those owned by older firms. However, many young firms close shortly after they open, so the job destruction rate is also higher for establishments owned by younger firms. Hence the pattern for young businesses is one of "up or out," with rapid net growth for survivors balanced by a high exit rate." An interesting statistic and one which I personally discovered while researching a book.

One of the very sad facts that is more correct than not, is that California as a state has gone from one of the leaders in entrepreneurial creation, to the bottom-until recently. Using Bureau of Labor Statistics' data, which is highly focused and accurate, California between 2009 and 2010 went from first to next to worst among states for opening new business establishments. In 2009, California had 12,529 new business establishments and in 2010, it lost 4,632 establishments. Only Michigan was worse, losing 5,480.

How sad is that?

BUT the good news is that things improved significantly in 2011 as of a recent Kaufmann report and California has gone back to second place, with just Arizona ahead.

"The Great Recession has pushed many individuals into business ownership due to high unemployment rates," said Robert Litan, vice president of research and policy at the Kauffman Foundation. He added that economic uncertainty has made these start-up entrepreneurs more cautious so they are starting firms with no employees. "This 'jobless entrepreneurship' trend negatively effects job creation and the larger economic recovery."

So the question is raised, "Are entrepreneurs born or are they made?" Traditionally they are more genetically driven than "needs" driven, but this never-ending recession (statistics be damned, we still have it) are "forcing" many to go the self-employment route.

As a highly unemployable entrepreneur I applaud all that take that plunge, whether by genetic predisposition or necessity. The only caveats: seek knowledge first, find a mentor, and collaborate with anyone that can support your venture.


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