Entrepreneurs’ Propensity for Risk; Taxes, Licensing Regulations and Economic Uncertainty Cited as Challenges
Data on newly formed companies and their founders are hard to come by, but a vital component to measuring economic health emerged in a recent study of today’s entrepreneurs. LegalZoom and the Ewing Marion Kauffman Foundation surveyed 1,431 business owners who formed their companies through LegalZoom in 2012. Policy makers should heed the finding that certain barriers impede start-ups at a critical stage of development.
March 13 2013 by ChiefExecutive.net
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 blurred 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.”
In analysis of early-stage startup creation by age group, entrepreneurs 30 to 49 started businesses at a higher rate than other age groups did. Of the entire sample, 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.”