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Fresh Data Paints a Picture of Startup Environment

Posted by: Mark Marich on March 04, 2013 Source: Policy Dialogue on Entrepreneurship

Part of the challenge of analyzing data and research while making policy decisions is that the figures are typically based on a not-quite-so-current set of data. A new survey of owners who formed their companies in 2012 is out and it helps shine a light on the environment most startups encounter in the early stages.

The Startup Environment Index 2012, based on the survey of 1,431 business owners conducted by LegalZoom and the Ewing Marion Kauffman Foundation, corresponds to other surveys on questions like gender (69% male to 31% female) and age (the most frequent startup rate comes from those aged 30-49).

Perhaps the most interesting finding is that 60 percent of entrepreneurs in the sample spent more than six months working on their business idea before forming their entity. This highlights the blurry boundaries between paid employment and self-employment, demonstrating the necessity for public policy to be flexible in recognition of this economically vital stage of business creation.

“Policymakers, understandably, want to discern how public policy might be able to help remove obstacles entrepreneurs commonly face,” said Dane Stangler, director of research and policy at the Kauffman Foundation. “Forty percent of the respondents reported facing no regulatory or policy barriers at all and while this is encouraging, policy issues remain. Tax complexity and licensing regulations, as well as continued economic uncertainty, impede many of the entrepreneurs in the survey.”

Beyond age, owners tend to be a more experienced group. 57 percent had six or more years of prior industry or work experience before starting their companies and 44 percent had started companies in the past. Of those who had founded companies, 52 percent had started more than one.

Personal funds were by far the most common source of business financing for entrepreneurs, with only 20 percent receiving loans from family members, bank or home equity loans or funds from outside investors.

“With 80 percent of early-stage business owners using personal funds to finance their companies, founders are decidedly willing to take on risk,“ said John Suh, CEO of LegalZoom “However, these business owners need additional financing if they are to succeed in helping drive our economy forward. Of the 60 percent of respondents who said they faced business difficulties, 45 percent cite lack of access to credit.”

About a third of startup owners in the survey were women. Although companies that reported higher revenues were far more likely to be owned by men, those run by individuals with higher education levels tended to be woman-owned. Consulting and other service-based businesses dominated the represented industries.

As would be expected of businesses that had operated for a year or less, the companies were small in terms of revenue and employees. Only 10.5 percent had revenues above $100,000, including 18 businesses with revenues greater than $1 million. For 70 percent of the companies, the owner was the only employee. Another 26 percent of the companies had between one and four employees.

“While the survey cannot be considered an entrepreneurship barometer,” Stangler said, “it does provide insights into the makeup and thought processes of startup business owners.”

Category:  General  Tags:  LegalZoom, Startup Environment Index

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