Number Of U.S. Business Start-Ups Drop 24%, Leading Global Decline

Politicians love to repeat that small businesses are the "engine of our economy." But, according to a new report, that engine is in need of serious repair.

The number of new businesses launched in the U.S. declined 24 percent in the United States in 2009 and 10 percent in the 20 most affluent countries over the same period, according to the annual Global Entrepreneurship Monitor.

The GEM conducted 180,000 interviews in 54 countries in 2009 and found a year-over-year decline in the number of people around the world who thought there were attractive opportunities for business formation.

For an increasing number of people in the world's richest countries, the impetus to start a business was driven by necessity. But interestingly, a small number perceived an increase in opportunity during -- and because of -- the recession. Of this optimistic segment of survey respondents, Niels Bosma, the report's director of research, told the WSJ:

"What surprised me was that as much as one in four new entrepreneurs in wealthy countries believed that the global slowdown had created more opportunities for their business, not less. This is a significant and interesting group. They are more likely to be young, well-educated and expect to create a lot of jobs for others."

Another particularly striking finding in the study was that the rate of Americans entering into entrepreneurship seemed to slow even before the financial crisis started. Based on the data, "the American population acted from around 2006 as if it anticipated trouble ahead." Here's the report:

"From 2006 through 2009, fear of failure rose, as did the share of necessity-driven entrepreneurship, while nascent entrepreneurial activity dropped from a high of 8% in 2005 to 5% in 2009. While new entrepreneurial activity is a smoothed measure, it too showed a decline."

For would-be start-ups, the report found, funding remains tight. Venture capital investment declined considerably in 2008 and 2009. Actually, according to the report, "in the United States a person has a higher chance of winning a million dollars or more in a state lottery than getting venture capital to launch a new venture." In 2008, venture capital helped to fund only about 15,000 start-ups, but informal investment -- from founders and/or their friends, family, and colleagues -- helped pay for tens of millions of new business initiatives.

Read the full report here.

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Comments

[Matthew Putman]

05:02 PM on 01/16/2010

As someone who often tries to start businesses without venture capital, I find this article to be important. Like the need to be inventive in technology and management, there is a need to be inventive in getting a company to revenue and profit in new ways. A more boot strapping it approach to entrepreneurship will force founders to deal with engineers and clients , without long meetings with investors. This is hard to do, but worth the thought and effort. This is not to say that there is not an extremely valuable role for VC, or that I always succeed on my own (I ever succeed on my own, just not with vc). It is a great invention in a productive economy in itself. It is just to say to look elsewhere sometimes.

[Alpha11]

02:29 PM on 01/18/2010

I find that news terrifying. We aren't going to get ahead in the global economy until we can fix small business. We all need to patronize them more often, also. The banks are a start. I have recently been made more aware of my own choices and how I could have been better about patronizing my local folks, and seeing them all go under has been really sad.

[iowamiddleguy]

01:44 PM on 01/15/2010

Hmm I've built out 3 very solid business cases..... 2 of them were cut short because I was the sole provider to my family and I could not weather both a pay cut and no medical/dental insurance.

the third one was cut short due to a lack of technology we needed..... once the tech was available there were multiple business of similar style...but being 5 years ahead of my time and not technically savvy enough to develop the needed IT items sunk me.....

[BuckCarson]

11:15 AM on 01/15/2010

One last comment. If you are looking for Obama bucks you are training your company to be sloppy and inefficient and you likly will die in prosperity.

If you can provide a commercial company value, your companies DNA will be very strong. Remember this:

TODAY companies are looking to cut costs big time. IF you can help them, you'll be golden.

IN PROSPEROUS times, companies will be looking for Cheif Diversity Officiers and HR crap.

NOW is the time if you can deliver something meaningful.

[Hdaryl01]

11:06 AM on 01/15/2010

Part 1.

Duh. Talk about an article that states and discusses the obvious.

Why would anyone with half a brain voluntarily subject themselves to the unfettered hell of actually starting and/or running a business in this environment? Let alone attempt to actually continue running an existing one?

Not some hang your shingle in your bedroom zero capital required "consulting" business. But, a business that requires capital, a physical location, real estate, vehicles, plant, equipment, possibly inventory, employees, long term investment..... Like the businesses that build the country and employ our people.

The country, including its entrepreneurs has been bankrupted. And, self employed no capital required consultants hanging shingles in their bedrooms are not going to restore our economy, employment, etc. After all we can't all be self employed zero capital consultants working in our bedrooms. Some of us need to make long term investment in real estate, buildings, plant, equipment, inventories, employees, and start and operate tangible "physical" businesses to make the whole system work.

[Alpha11]

02:32 PM on 01/18/2010

Let's not knock consultants, although I agree in general with what you said. Everybody has to start somewhere, though. We do need those smaller folks around to grow business. Not everybody has the capital from the bank of mom and pop.

[Hdaryl01]

11:06 AM on 01/15/2010

Part 2.

And, one needs to be a complete and utter masochist to even attempt to do this now. And, having been through the last zero support, change the rules mid stream, stand back while the banks renege on their funding commitments and fleece businesses with massive rate and fee increases and reduced or eliminated credit, and increased taxes, fees, unemployment, work comp, withholding, etc., and absolutely zero positive government support or concern round, many of us entrepreneurs who have serially started multiple "physical" businesses have been burned to the point that no only are we not starting new ones, we're shuttering the ones we have.

Take for instance a motorcycle dealer friend of mine-3 dealerships-$10,000,000 per year in sales. $100,000,000 in sales over 10 years-all run through his bank-largest single customer. 2008 had $600,000-$1,000,000 credit line at PRIME. 2009 credit line proposal-$400,000-$600,000 at 10.25%. 168 employees in 2008. 29 employees in 2009. Now, who can possibly weather virtually a 50% reduction in credit line-with which inventory is purchased, and an over 100% increase in the cost of the capital? The government-doesn't care. Problem is, they have him by the short hairs. His entire life investment over decades is in the physical land, buildings, business, inventory, going concern. He can't just walk away-unless he wants to lose everything......

Then again, maybe we should all become self employed zero capital consultants who jhang our shingles in our bedrooms......

[desertman]

12:55 PM on 01/16/2010

Very funny, insightful and states the obvious for those that need it.

[DecouplefromWallSt]

02:18 AM on 01/15/2010

of course the number of start ups declined. There's no seed capital. Talk to any start up founder looking for less than $1million for his/her company. They're pounding the pavement for YEARS and STILL can't find that investment. If America wants jobs, a diversified economic base and future revenues to pay down these deficits, it better get majorly behind start ups. Every state should have a seed capital fund to fund the promising companies in their state. Creating jobs for the future is slow work and you have to keep at it all the time, not just when it is politically expedient.

[BuckCarson]

11:10 AM on 01/15/2010

This is probably the best time to start a company. I've raised 1.2 mil for my company. Smart money is on the sidelines now - liquid.

Your competition is fearful and clinging to their jobs because they're afraid.

Sorry to say the oppisite of what everyone else is saying but I really believe this is the truth. Last thing I'd want to invest in is a feeding frenzy for start-ups like we saw in the 90's. Smart money knows this.

[Alpha11]

02:34 PM on 01/18/2010

I agree with what Buck said, just be real careful on capital expenditures you don't need right now.

[sueinmn]

01:56 AM on 01/15/2010

If your a small business, their is no money. If your a large business, you are monopolized or driven out. Large businesses do not want to be saddled with what they consider as high paid Americans and unions, well dirty word to them!

[RandVictims]

11:11 PM on 01/14/2010

The whole economic system is based on a giant lie. "Trickle Down" turned out to be "Trickled ON".

Those who oppose reforming Capitalism are killing it. So don't blame voters when Socialism fills the void.

[BuckCarson]

11:17 AM on 01/15/2010

Victim,

You live within a rationalization.

Best regards,

Buck

[Alpha11]

02:36 PM on 01/18/2010

Socialism isn't the answer for the market. Neither is trickle-down or over-reliance on outsouring all our jobs.

[jerrypl]

10:07 PM on 01/14/2010

The bankstas, the Fed, and Treasury, and now it appears our government, as a whole, has stolen away the opportunities for bringing this country back through innovations, start-ups, and entrepreneurship by creating a non-free market environment in the financial-investment banking sector. It has become a welfare state for the rich corporatists, through TBTF, and the war profiteering sector. War is another stimulus package for the rich corporate royalists.

http://eye-on-washington.blogspot.com

[SimJack]

09:55 PM on 01/14/2010

Bad strategies lose to more effective ones. It became too easy for the American corporate machine to ship manufacturing and its associated technology overseas. That this state of the art technology has been developed by mostly liberal American scientists, engineers and other technology professionals at our publicly funded universities, non-profit research institutes and publicly traded corporations that hire the same, seems to escape the dialectic and isn't captured at home for a longer period of time and increased US economic benefit. Too bad people, knowing the price of everything and the value of nothing has helped in choosing the wrong option for a once great nation that wishes to maintain its prominence. This has diminished the incentive of anyone with intellect and creativity in this country to contribute at their maximal level. We are below average and continue our descent relative to not only other industrialized nations but the emerging ones as well.

[MaximMaximus]

10:03 PM on 01/14/2010

I agree completely. And let me add this: The me-me-me generatation (aka Babyboomers) dropped the ball.

[SimJack]

10:59 PM on 01/14/2010

Yes, perhaps, but should we lay all the responsibility for this at their feet or is there some generational laxness and the rise of the corporate media that has done so only for profit at the expense of our collective societal/intellectual strengths and national security? Food for thought, thanks.

[Realization]

06:41 AM on 01/15/2010

Basically right but I would disagree with the idea that we have a 'strategy" at all, at least one based on common sense and an honest assessment of what is going on in the world.

Coming out of WWII the U.S. was dominant but in large part because we had not suffered the damage that Europe and Japan had (Korea and China had other issues, too). Allowing out market to be open and help support "free world" economies as a buffer against Communism was a good idea and seemingly with little cost - we were simply better (arrogant).

Keeping an open economy while Europe and Japan targeted industries and protected their markets stopped being a viable policy at least by the '70s but instead of responding and demanding equal opportunity we begged for others to open markets while allowing them to access our tech and expand in the U.S. We are still more open and have allowed (yes, allowed) trade deficits and FDI imbalances for over 30 years. We even have economists who say this "free trade" is good. (Such shills don't really exist anywhere else that matters.)

Result, we are quickly on the way down and it is our own fault. Competitive advantage is created. We have not played the game.

[Donnat]

09:45 PM on 01/14/2010

Start ups are down while simultaneously, banks aren't lending. I think I see a connection. Can I be a financial analyst now?

[lippylaroux]

09:32 PM on 01/16/2010

Even the banks know that socilaism is not profitable...

[desertman]

12:51 AM on 01/17/2010

During a depression banks are never in a lending mood. Everyone is a bad risk. Besides it's easier just to load up on T-bills.

[sthomas170]

09:01 PM on 01/14/2010

So help me understand, I can take my MSEE/MBA and 15+ years of IT experience and go to work for peanuts for a company and be treated like a rented mule, no promotions, no pay raises, etc. Or, I can get out and create my own business, be my own boss, run things better than 90% of the pathetic management in this country. No one with a high level of intelligence/ambition/education/experience will continue to work in the death trap called corporate america. They have become the instruments of their own demise - RIP Corporate America. No one is going to miss you.

[Viper]

09:04 PM on 01/14/2010

You could but now thats hard to do since they can with the internet have more and more of what you do , done in India by a PHD for 7K per year... and that means a surplus of your talent builds here driving your value here down.


Regards

[Viper]

09:12 PM on 01/14/2010

Also note as you send your MFG out to other countries, the support functions such as the factory MIS departement/accounting departments and plant engineers are also lost, again reducing the need for your services here.

Regards

[statementOfIncensed]

09:00 PM on 01/14/2010

""in the United States a person has a higher chance of winning a million dollars or more in a state lottery than getting venture capital to launch a new venture"

2006? That's when all capital began flowing into "innovation" , leaving no capital for innovation.

This is sabotage.

[rad21]

08:29 PM on 01/14/2010

Ed Schultz had a recent interview with Mort Zuckerman (NY financier) on MSNBC. Mort and (quoting) Bill Gates (Microsoft) had specific recommendations to get this country out to this economic slump, without an economic stimulus and deficit financing. They suggest to permit highly skilled IT professionals to stay in the USA after completing their research; instead of being forced to leave the US and work for competitors.

Another win-win scenario is for USA to open up the restrictions on foreign physicians from working in USA. These skilled individuals will fill the shortage of doctors - especially with the new healthcare system requiring all to have insurance. Every physician is a small business owner and employs four to five people - nurses, receptionists, transcribers, billing staff etc.

Imagine giving 100,000 visas to foreign physicians. That is 100,000 new home-owners needing cars, furniture, refrigerators, washing machines, computers etc. What could be a better stimulus to our economy? This stimulus would be achieved without costing the taxpayer a dime. In fact the high-income earners with the middle-income employees will be contributing tax dollars to the US treasury. These jobs are long-term, cannot be exported and will provide needed services to Americans. These jobs would be distributed throughout the country in big cities and small towns. Properly designed, the jobs would start being produced about six months after the government issues the work visas / green cards and foreign physicians start working.

[Viper]

08:49 PM on 01/14/2010

Ignorance. We have been allowing 3 imes the H1B actual limits in for the entire BUSH years.

They go mainly to 4 Indian firms that then place them in companies here as subcontratcors who work for significantly less. They are at least on paper so they can be paid less, not the best and brightest.. but of average skill.

We do allow foreign DOCs and have and as many as you want for decades,... have you been to a Hospital...? They can get green cards and become citizens

75% of our college graduates in the sciences and engineering cant find jobs in those fields. 3 million high tech positions outsourced. The Dean of Georgia tech said in 2002, he is not even sure we need enginering schools any more since they cant place anything but civil engineers.

The ones that come in our trained, sent back to run the department they were trained in back in India, transfering our technology. MIS departments that had 100 workers here , now have 20 in the oil services businesses in Houston.

If they buy appliances and etc not made here, just like we do.. no big deal.. and its not a gain if others are out of work and not buying.

We produce 450K Science and engineers graduates for the 250K positions we create per year.

Regards
.

[rad21]

09:53 AM on 01/15/2010

We are where we are because we have done some of the things you outlined.

As regards, US graduates not getting jobs, that is because many want top dollar the day they get their graduate degree.

Most US medical graduates only seek jobs with a four-day work week and a 6-8 week vacation. And they need a high salary contract to pay off the loan on their education and their multi-million dollar starter home..

We need to get real.

[CommonSens]

07:48 PM on 01/14/2010

Thanks a lot Obama! We're a small