It has been one of business' biggest buzzwords over the last several years and has been thrown around as a reason to act—or an excuse not to act—on almost any business decision that might be brought to the boardroom table.
A recent report released by the Kauffman Foundation and LegalZoom helped drive home the notion that our economic fortunes have been modestly changing for the better since those dark days of 2008, when it seemed as if numbers were the enemy. The economic bottom line, the report says, rests in the hands of entrepreneurs willing to take the leap.
The Sample Is Small, But It Still Shines
The 2013 report was only the second year Kauffman and LegalZoom conducted such a study on the economic climate. With few shifts in data and only one other report with which to compare, interpreting the data was somewhat difficult. However, there were a few changes that give reason for optimism.
New companies that sprouted up with LegalZoom's help, a total of 720 respondents, participated in a survey titled, “Who Started Businesses in 2013?” which underscored strong evidence supporting claims of the economy steadily improving.
The strongest evidence of recovery, perhaps, was in the survey's operational findings. While 37 percent of new business owners reported no difficulties in forming or running their companies in 2013—a 3-percent drop from the previous year—of those who did cite difficulties, 36 percent noted unpredictability and 28 percent noted lack of access to credit as factors, which were 19 and 17 percentage points, respectively, lower than in the previous year.
Follow the Money – Business Funding
Two more positive signs for an improving economic climate over the past year were that small business owners found it easier to get their hands on credit, and entrepreneurs were willing to put more of their own personal savings into business ventures.
According to the numbers, 16 percent of entrepreneurs reported using credit cards—an increase of 6 percent—while 8.5 percent used retirement savings and 6.5 percent secured bank or home equity loans, with both of those figures representing increases of 2 points from 2012.
“While it's encouraging to see the smaller bumps, the big story is obviously the jump in use of personal savings,” the report says. “This is a striking and strongly heartening increase… and an indication that recovery has truly arrived.”
The data also fed into the rhetoric of a broader economy-wide shift from savings to investment.
"In previous reports benchmarking entrepreneurial confidence, various elements indicated business owners' often optimistic outlook on the economy," said John Suh, CEO of LegalZoom. "But few actions correlate more directly with economic confidence than personal investment. Investing personal savings to start a business when credit is readily available signals high conviction in the future."
Demographic Shifts in Ownership
There were not many changes in demographic measurements between the two years, although there was a clear change in the number of previous business owners who were starting a new venture. The number of respondents who had previously started businesses in 2013 were down to 41.4 percent from 44.7 percent the year prior. It also found that 48 percent of those who started companies previously had started more than one—which was 4 percent lower than 2012.
The changes were slight, which meant they were more difficult to interpret.
“Both drops cited above suggest that this cohort of founders will have less success than 2012's group did—either because they have less inherent ability, and/or because they have had fewer previous ventures from which to learn,” the report says. “It is hard to say what (if any) directional relationship this finding should have with the broader economy, and we emphasize that the drop is relatively minor, but it is something to keep an eye on for now.”
More Good News
The survey also found that businesses with one to four employees rose from 25 percent in 2012 to 26.5 percent the following year. Additionally, 12 percent of those surveyed had revenues above $100,000, a 4-percent increase over the previous year.
Start-up companies with revenues below $50,000 dipped from 82 percent in 2012 to 77.5 percent by the following year, meaning the numbers showed a modest growth over the course of 12 months.
"Entrepreneurs are on the economy's front lines daily," said Dane Stangler, vice president of research and policy at the Kauffman Foundation. "The fact that the survey shows small, positive growth among these companies suggests that economic recovery may be gaining vibrancy on a broader scale, as well."
An additional increase in female founders from 31 to 35 percent also hints at an upwardly trending economic recovery. More female entrepreneurs, the survey says, could mean that fewer men are leaving salaried work, or that more men are going back to it.
Time to Shake off the Economic Pessimism
All in all, the 2013 numbers suggest it is probably time for everyone to put those dark days of economic turmoil behind us and recognize our more positive, upward-trending reality. Modest gains show we are on a more stable economic foundation, but still proceeding with caution.
Kauffman and LegalZoom admitted there is still some lingering pessimism in regard to the greater economic picture. But in the end, the snapshot provided by a closer look into the behaviors of our entrepreneurial pioneers comes back with some positive signs of recovery and stability and should serve as good news to anyone willing to hear it.
“Entrepreneurs are engaged with the economy on a daily basis in a visceral, immediate way that most of us happily avoid,” says the report, “and when they return briefly with dispatches from the front like these, it may only be a small picture, but it is a vibrant, moving, and telling one.”
To download the full report, Who Started New Businesses in 2013? click here.
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