Wow! Lowest New Business Start-ups On Record?

Dateline Feb 14, 2012 – Valentine’s Day!

And here we go again. As if M&A isn’t tough enough these days convincing people to pull the trigger on a new deal opportunity a recent report from Challenger Gray & Christmas reported the number of new start-up businesses from formerly employed people dropped off quite a bit in 2011 to its lowest rate on record (3.2%).

But honestly — what does this mean?

A look behind the headline begs a look at what drives these figures in the first place. For instance, the report also cites that as employers start hiring again and business confidence climbs back, less formerly employed people start new businesses. Now that makes sense. Why risk uncertainly and your own money in a risky entrepreneurial venture when your prospects for getting a new job are increasing faster than the economy demands you start a new business, right?

At the same time I have not seen a precipitous drop in buying existing businesses for sale, so possibly the newly unemployed may not be starting new businesses, rather buying one already in business. According to Bizben the number of exiting business purchases from 2010 to 2011 increased 4.6% Nothing dramatic about that but not drop either. Another interesting distinction is the skill gap inAmerica today as many formerly employed workers don’t have the new skills to start a new business putting them on the sidelines perhaps like no time in history before. Another reason former workers may not be starting new businesses.

So there is a gap and perhaps a flaw in headlining a historical drop in new business start-ups from one source (former employees) and making hay of it. To me the market dynamics behind the scenes are far more complex in a shifting global economy than meets the eye. I believe in simple supply and demand. And as a SBA/SCORE counselor to new start-ups and exiting businesses I see what I expect to see, and that is people who need to work don’t just start a new business because they need to, rather when they have to use their own money they are far more certain to check the demand curve to measure their chances of success before jumping in. The lesson here is in order to get the whole story it’s always best to look behind the headlines.

Rick Andrade