By Patrick Boulay
Publisher
Remember Mark Twain’s famous response to the New York Journal mistakenly publishing his obituary? “The reports of my death are greatly exaggerated.”
The same can be said in response to the frequent misstatements about startup business survival rates. Every month, New Business Minnesota is delivered to 8,000 recent startups. If you believe the misinformed, then 80 percent of you won’t survive to file a second tax return.
Starting a business is damned hard, not damned impossible. The truth is the there will be risks in any endeavor you undertake.
Let’s look at two familiar choices. Start a new business or start a new job working for someone else. What are your chances for surviving either one over five years?
If you believe the conventional wisdom, you’ll find security and longevity working for someone else. That same wisdom says that you’ll fizzle and fail in your own business in the first year.
As a new employee, you first have to survive the 90-day probationary period. That shouldn’t be too hard. Your continued tenure with that company will be controlled by several factors: you might not like it or things might change so much that you’ll leave for a greener pasture, you might get laid off or you might get fired.
According to the Bureau of Labor Statistics, half of all workers have been with their current employer for less than four years. Longevity, depending on the job and the industry, is about three to five years with one company.
Another study by the Society for Human Resource Management reports that 76 percent of employees are seeking new employment opportunities. Half of them are “actively” seek jobs by sending out resumes to recruiters, online job boards and talking to friends. The other half is more passive, but is very open to invitations for new opportunities.
That doesn’t sound very secure to me.
As a startup business, your future looks pretty good by comparison. Contrary to what you may have heard, these are the numbers most cited as the success rates for startup businesses.
• Year One: 85%
• Two: 70%
• Three: 62%
• Four: 55%
• Five: 50%
But the story gets better. Research into the circumstances behind a business closing found that one third consider themselves to have closed while successful. If you count businesses still in operation and those that closed successfully in the first five years, you get a success figure close to 66 percent.
The outcome after five years is decidedly positive for the entrepreneur. In fact, 67 percent said they would do it again. And 65 percent reported that they were better off financially than when they started.
According to the SBA Office of Advocacy that produced much of this research:
“These results suggest that potential entrepreneurs, particularly those planning very small ventures, have less to fear than what is commonly believed. Their prospects of survival are reasonable, and if they close, their prospects for being successful at closure are reasonable.”
Think of all the people who have told you how much they admire your courage for forsaking the security of a job and starting your own business. Armed with this information, feel free to return the complement. It appears as if they are the ones who have taken the riskier route.
NBM
New Business Births are Vital
More research is coming out supporting the importance of new business formation to state economies.
This from the Small Business Research Summary of the SBA Office of advocacy "Small Business and State Growth: An Econometric Investigation":
This from the Small Business Research Summary of the SBA Office of advocacy "Small Business and State Growth: An Econometric Investigation":
Small firm establishment births have a larger impact than any other factor examined on GSP (Gross State Product), SPI (State Personal Income), and total state employment. In fact, the authors find that small firm establishment birth rates and death rates have equal and opposite effects on state economic growth....
The authors conclude that this general finding reveals that state efforts to promote small business formation will be more fruitful in terms of generating economic growth than virtually any other policy option in our models.
The thousands of new business that start up each month do matter. New businesses are a serious source of growth in income and employment. The more research I come across about new business formation only proves the value of entrepreneurship to the economy.
PB
A Business Is Born
Patrick Boulay and Scott Plum are pleased to announce that on the afternoon of July 20, 2007 their new company was born: New Business Minnesota Publishing Inc.
The birth was preceded by extensive planning and discussions, creation of the partnership, arranging for financing, completion of the business plan, creation of the marketing materials and countless hours of research, interviews and pre-sales presentations to business leaders in the Twin Cities.
All kidding aside, we have taken that great leap into the unknown. I told my wife Carolyn that starting a business is like building a glider. You study and research. Pick the best design you can find. Modify it to fit your needs. Check it with engineers and seasoned pilots. Everybody says it looks great. The right materials were selected. The pilot has more than 20 years experience. Now all we have to do is push it off a cliff and hang on. It should fly.
New Business Minnesota will launch its first monthly issue this fall. Going through the process of starting a business -- I filed for my business name in June -- has given me great insights into what the content should be. Stories need to respect the limited time available to startup entrepreneurs. And advertising should speak directly to the resource needs of new businesses.
As I was planning my budget, it would have been great to have had a copy of New Business Minnesota on my desk. I would have called dozens of the advertisers to get bids on printing my sales materials, health care, legal and accounting, etc.
I still need to get a payroll service. I desperately want to consolidate all my telecom -- cell phones, land line, cable modem, AOL. My inkjet printer is going to wear out soon. A short cut to suppliers and services would have been nice.
Starting a business will be easier once New Business Minnesota is delivered to every new business in the Twin Cities.
NewBizMinn
(nfp)
The birth was preceded by extensive planning and discussions, creation of the partnership, arranging for financing, completion of the business plan, creation of the marketing materials and countless hours of research, interviews and pre-sales presentations to business leaders in the Twin Cities.
All kidding aside, we have taken that great leap into the unknown. I told my wife Carolyn that starting a business is like building a glider. You study and research. Pick the best design you can find. Modify it to fit your needs. Check it with engineers and seasoned pilots. Everybody says it looks great. The right materials were selected. The pilot has more than 20 years experience. Now all we have to do is push it off a cliff and hang on. It should fly.
New Business Minnesota will launch its first monthly issue this fall. Going through the process of starting a business -- I filed for my business name in June -- has given me great insights into what the content should be. Stories need to respect the limited time available to startup entrepreneurs. And advertising should speak directly to the resource needs of new businesses.
As I was planning my budget, it would have been great to have had a copy of New Business Minnesota on my desk. I would have called dozens of the advertisers to get bids on printing my sales materials, health care, legal and accounting, etc.
I still need to get a payroll service. I desperately want to consolidate all my telecom -- cell phones, land line, cable modem, AOL. My inkjet printer is going to wear out soon. A short cut to suppliers and services would have been nice.
Starting a business will be easier once New Business Minnesota is delivered to every new business in the Twin Cities.
NewBizMinn
(nfp)
Entrepreneurs are Remarkably Common
When my first child was born, I felt it was the most remarkable thing I had ever witnessed. It was a miracle. It was beyond comprehension. For a very brief moment (I was very tired) I actually wondered if anyone else on the planet had experienced such a thing.
Turns out every parent on the planet had.
The exceptional can be commonplace. We all know how hard it must be to write a book. Then you walk into Barns & Noble and see the scads of titles and wonder if its really that difficult. Am I the only one who hasn't written a book?
Now I'm starting a business that is a newspaper for people starting a business. Three months ago, I would have seen entrepreneurs as a rare breed. When studying the research on entrepreneurs you quickly realize that there must be something in our human makeup that leads to new business ideas.
I think it has to do with freedom. We are free to think, dream, imagine. We can see a future we want to pursue. What a gift I must have, to be able to imagine something and then make it happen.
Well, the gift is not all that rare. According to the National Panel Study of U.S. Business Start-Ups (Babson College, 1999) there were 202 million individuals in the U.S. 18 years of age or older. 3.8% of those contacted qualified as nascent entrepreneurs. That means 7,700,000 people were involved in trying to start a business.
We are all doing something remarkable. And something remarkably common. It's a good thing to keep in mind when you start wondering if you'll survive the experience. It's been done before.
NewBizMinn
(nfp)
Turns out every parent on the planet had.
The exceptional can be commonplace. We all know how hard it must be to write a book. Then you walk into Barns & Noble and see the scads of titles and wonder if its really that difficult. Am I the only one who hasn't written a book?
Now I'm starting a business that is a newspaper for people starting a business. Three months ago, I would have seen entrepreneurs as a rare breed. When studying the research on entrepreneurs you quickly realize that there must be something in our human makeup that leads to new business ideas.
I think it has to do with freedom. We are free to think, dream, imagine. We can see a future we want to pursue. What a gift I must have, to be able to imagine something and then make it happen.
Well, the gift is not all that rare. According to the National Panel Study of U.S. Business Start-Ups (Babson College, 1999) there were 202 million individuals in the U.S. 18 years of age or older. 3.8% of those contacted qualified as nascent entrepreneurs. That means 7,700,000 people were involved in trying to start a business.
We are all doing something remarkable. And something remarkably common. It's a good thing to keep in mind when you start wondering if you'll survive the experience. It's been done before.
NewBizMinn
(nfp)
New Business Formation Research
Gathering information on new business formation in Minnesota hasn't been easy. Here is my research so far, based on data from the Minnesota Secretary of State's office, the Minnesota Department of Revenue, the U.S. Census Bureau and the Small Business Administration.
Filings with the Secretary of State (not sole proprietorships) -- 44,000 in 2006
Registrations with the MN Department of Revenue -- 39,000.
Census Bureau count of new business with at least one employee (most recent study was 2004) -- 15,167
SBA count of non-employer business with at least $1,000 in revenue (same study period as above) -- 12,353.
When it comes to counting business births, the method varies. The Census Bureau requires the presence of an employee (determined by the opening of an unemployment insurance account)
The SBA requires at least $1,000 in revenue.
Approximately 62.5% of new businesses that file with the Secretary of State become "real" by those standards.
Based on my breakdown of the zip codes of all the new business filings in 2006, approximately 75% were in the Seven-County Metro Area.
Using that to extrapolate from the statewide totals, approximately 11,375 new business were created in 2004 with at least one employee, and another 9,265 reported at least $1,000 in revenue.
As a market segment, assuming that each business spent at least $1,000 in setting up their business, people starting a new business in the Twin Cities will spend $20,640,000. If the average is $5,000, the spending would be closer to $103,200,000.
I went with $1,000 after reviewing very small business startup examples in the 2007 edition of Business Plan Pro.
This is about as close as I can get to describing as objectively as possible the impact of business startup spending.
NewBizMinn
(nfp)
Filings with the Secretary of State (not sole proprietorships) -- 44,000 in 2006
Registrations with the MN Department of Revenue -- 39,000.
Census Bureau count of new business with at least one employee (most recent study was 2004) -- 15,167
SBA count of non-employer business with at least $1,000 in revenue (same study period as above) -- 12,353.
When it comes to counting business births, the method varies. The Census Bureau requires the presence of an employee (determined by the opening of an unemployment insurance account)
The SBA requires at least $1,000 in revenue.
Approximately 62.5% of new businesses that file with the Secretary of State become "real" by those standards.
Based on my breakdown of the zip codes of all the new business filings in 2006, approximately 75% were in the Seven-County Metro Area.
Using that to extrapolate from the statewide totals, approximately 11,375 new business were created in 2004 with at least one employee, and another 9,265 reported at least $1,000 in revenue.
As a market segment, assuming that each business spent at least $1,000 in setting up their business, people starting a new business in the Twin Cities will spend $20,640,000. If the average is $5,000, the spending would be closer to $103,200,000.
I went with $1,000 after reviewing very small business startup examples in the 2007 edition of Business Plan Pro.
This is about as close as I can get to describing as objectively as possible the impact of business startup spending.
NewBizMinn
(nfp)
Greetings to Ham and Eggs
Here I am struggling with this new business thing. Turns out people do it all the time. Take the Ham & Eggs club in Edina, Minn. Though most of the members are retired, many were entrepreneurs and launched their own startups. Nothing is new. It's all been done before. And that knowledge doesn't make it any easier. It just helps me realize that starting a company never killed anyone. The world is full of business survivors.
NewBizMinn
(nfp)
NewBizMinn
(nfp)
Wait! Minnesota is a Great Place for Business!
OK, I'm about done with the business climate studies. There are good ones that look at specific, trackable qualities. The NAIOP Minnesota Chapter's annual survey of commercial real estate taxes is a solid example. So, here is my last post on softball surveys.
From the Minnesota Department
Employment and Economic Development
Business Friendly Climate -- Minneapolis-St. Paul ranks 18th among Forbes’ 150 best places to do business; Rochester (2), Duluth(42) and St. Cloud (79) are among the top small cities. Minnesota is 14th in Site Selection’s ranking for new corporate facilities and expansions in 2005. The Twin Cities ranks 10th among major metropolitan areas; and Minnesota ranks seventh in corporate activity in micropolitan areas throughout Greater Minnesota...
Proven Performance -- Minnesota earned straight-As last year in performance, business vitality and development capacity from the Corporation for Enterprise Development. Suffolk University ranked Minnesota 10th most competitive state in 2004 based on human resources, infrastructure, technology, and business incubation. Minneapolis-St. Paul ranked 13th among the most competitive knowledge economies in the world in 2005. The Twin Cities scored particularly high in economic activity (6), human capital (6), and patents registration per one million inhabitants (10).
There you have it. Let's shout it: "Were No. 18, 13, 6, 10 and 14." That's way more than No. 1.
As you work on your marketing materials, remember, you can always be the leading provider of something if you have enough qualifiers (No. 1 Coffee Shop in Minnesota located on Chicago Ave. S. between 46th and 48th Sts.
NewBizMinn
(nfp)
What a Difference a Different Study Makes
First, you should always beware of studies that rank city or states as the best or worst at something complex or intangible. The top ten largest cities don't change from year to year. That's why there is no great fanfare when some group announces the annual Top Ten Cities Report.
You will notice that the Best Cities to Live In changes every year. Sometimes the Best City to Live In from one year falls off the charts the next as if the schools went bad, criminals moved in and day care costs trebled. And last year's hell hole suddenly broke out the street sweepers, planted flowers and mandated higher IQs and imported good judgment for all.
Likewise, the Best Business Climate lists. My last post was about how dismal things are for Minnesota's business climate. Natives have long bemoaned the high taxes, but consoled ourselves that at least were not Iowa. (My wife's folks are from South Dakota, so I have to leave the Dakotas out of these things.)
So now comes a study from the Tax Foundation, the nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937. It is the group behind Tax Freedom Day.
Minnesota had ranked 8th from the bottom in Business Friendliness in the post below. But the Tax Foundation report in March 2007 says that Minnesota is really 13th.
Now that's progress. When it comes to our "Wealth and Property Taxes" we skyrocket to 15th best.
NewBizMinn
(nfp)
You will notice that the Best Cities to Live In changes every year. Sometimes the Best City to Live In from one year falls off the charts the next as if the schools went bad, criminals moved in and day care costs trebled. And last year's hell hole suddenly broke out the street sweepers, planted flowers and mandated higher IQs and imported good judgment for all.
Likewise, the Best Business Climate lists. My last post was about how dismal things are for Minnesota's business climate. Natives have long bemoaned the high taxes, but consoled ourselves that at least were not Iowa. (My wife's folks are from South Dakota, so I have to leave the Dakotas out of these things.)
So now comes a study from the Tax Foundation, the nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937. It is the group behind Tax Freedom Day.
Minnesota had ranked 8th from the bottom in Business Friendliness in the post below. But the Tax Foundation report in March 2007 says that Minnesota is really 13th.
Now that's progress. When it comes to our "Wealth and Property Taxes" we skyrocket to 15th best.
I'll keep looking for the study that says we are in the Top Ten for business climate. I'm sure it's out there.Top Over all Cities
Wyoming - 1
South Dakota -2
Alaska - 3
Florida - 4
Nevada - 5
New Hampshire - 6
Texas - 7
Delaware - 8
Montana - 9
Oregon -10
Worst Business Climate
Arkansas - 41
Iowa - 42
Nebraska - 43
Kentucky - 44
Maine - 45
Vermont - 46
Ohio - 47
Rhode Island - 48
New Jersey - 49
New York - 50
NewBizMinn
(nfp)
Did I Pick the Wrong State to Be Born In?
What the ****! I love Minnesota. OK, I know the taxes are high, etc. But we have a vibrant business climate that seems recession proof due its economic diversity.
But I didn't expect to see us get ranked among the bottom states for being "business friendly."
This from the Microsoft Small Business site.
But I didn't expect to see us get ranked among the bottom states for being "business friendly."
This from the Microsoft Small Business site.
The 10 friendliest in 2003
1. South Dakota
2. Nevada
3. Wyoming
4. New Hampshire
5. Florida
6. Texas
7. Tennessee
8. Washington
9. Michigan
10. Mississippi
And, at the opposite end of the scale, the 10 least friendly:
The 10 least friendly in 2003
51. District of Columbia
50. Hawaii
49. Minnesota
48. Maine
47. Rhode Island
46. California
45. New York
44. Vermont
43. New Mexico
42. Oregon
I'll concede that these are numbers from 2003. Anybody who ever grew up poor (I'me from the bottom, upper, middle class and have no right to complain) has said at one time or another, "Oh, we were poor as dirt, but we didn't know it."
Well, that describes doing business in Minnesota. Taxes hurt. That pain is what makes us so strong. We can take some solace that there are states that rank 49th in education spending and in fact also rank 49th in educated populace. Minnesota may be inhospitable to business, according to a Microsoft freelance writer, but at least we achieve at a rate well beyond the burden and hurdles the state throws at us.
Oh, special thanks to Gov. Tim Pawlenty for wielding the veto pen like a mighty sword, slaying the tax dragon sent by the Legislature.
NewBizMinn
(nfp)
P.S. Mom, Dad, Couldn't you have had me in South Dakota? Perhaps Strandburg or even Milbank?
Tire Kickers Have Value After All
In an earlier post, I noted a negative attitude among some lenders toward new businesses. The banker referred to them as Tire Kickers, implying the hand holding and risk associated with startups isn't worth his time.
I continued to research this and came up with a very interesting study published by the Small Business Association Office of Advocacy May 2007 here.
Here is the Conclusion:
That's where relationships comes in. The people who want to do business with us, need to look at us as people in addition to scouring the data and tallying scores.
Perhaps we're not just numbers after all.
NewBizMinn
(nfp)
I continued to research this and came up with a very interesting study published by the Small Business Association Office of Advocacy May 2007 here.
Here is the Conclusion:
So there you have it. Small bankers stand to benefit most from relationships with small startups. It's curious, in an age where data is king and credit scores are ubiquitous, startups are difficult for many banks to understand. We don't have the numbers, the data behind us. We don't show up on their radar very well. We have stealth potential.The Value to Banks of Small Business Lending
Kentucky;
By Joe Peek, University of
Lexington, KY 40506-0034
VI. Concluding CommentsThis study has investigated the extent to which relationship lending enhances the market value of banking organizations. As our proxy for small business loans, we use commercial and industrial loans and commercial real estate loans with an original value of $1 million or less. We find that small C&I loans add more market value to the smallest banking organizations than do larger C&I loans, although the differential effect is not found for the larger bank size classes.
This suggests that at least for small banks, the added revenue associated with relationship lending exceeds the added information costs associated with evaluating and monitoring small business loans. Furthermore, the effect appears to be emanating primarily from the smallest size category of C&I loans, those with original amounts of $100,000 or less.
In contrast, while small commercial real estate loans add value to banking organizations, small CRE loans do not appear to enhance the market value of banks beyond that from CRE loans generally, even for the smallest set of banks. One explanation for these contrasting results is that CRE loans represent transactional rather than relationship lending; being based on collateral rather than superior private information about relationship borrowers makes the advantages arising from information-intensive relationship lending less important.
Our direct evidence that small business lending is a profitable market niche for small publicly traded banking organizations in the United States suggests that such banks should actively participate in lending to small businesses. The evidence is consistent with these banks having a comparative advantage in originating and monitoring small business loans compared to larger banking organizations. Thus, consolidation of the banking industry, insofar as it takes the form of the acquisition of smaller banking organizations by larger banking organizations that are less focused on small business lending, may be value destroying, and thus not in the interests of the shareholders of the acquiring banking organizations.
That's where relationships comes in. The people who want to do business with us, need to look at us as people in addition to scouring the data and tallying scores.
Perhaps we're not just numbers after all.
NewBizMinn
(nfp)
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