The New-Economy Almanac, Starting a Business Article

A statistical and informational snapshot of the business world today

The Big Picture

How many businesses are there?

The population is growing.
The gross domestic product continues to expand.
The number of business enterprises outpaces the number of business closings.

Sources: Office of Advocacy, U.S. Small Business Administration; Bureau of the Census, Bureau of Economic Analysis.

Population, Production, and Businesses with Employees, 1991 and 1995
Year	Total population	Gross domestic product (in current $)	Total number of businesses
1991	252,138,000	$5,917 billion	5,687,000
1995	262,755,000	$7,254 billion	6,220,000

Source: Office of Advocacy, U.S. Small Business Administration.

The Population of Business Enterprises, 1992-1996
Year	New incorporations	Successor businesses	Business terminations	Year-end total businesses
1992	737,000	138,000	819,000	5,741,000
1993	776,000	136,000	801,000	5,851,000
1994	807,000	137,000	803,000	5,992,000
1995	812,000	162,000	869,000	6,057,000
1996	820,000	171,000	823,000	6,220,000

Businesses include all active unemployment-insurance taxpayers, including virtually all nonfarm employers, except households, railroads, and selected religious organizations.

The Mood

How confident are business owners?

A big majority--68%--of small-business owners expect to grow in 1997.
Although they are not having trouble getting the financing they need, they see no reason to increase their debt.
Most--61%--small-business owners have no plans to enlarge their workforce this year.
Nearly 70% expect to expand their customer lists, increase revenues, and enhance profits.

The Greatest Challenges Facing Small Business in 1991

Avoiding a cash-flow squeeze
Keeping costs under control
Coping with the continuing recession
Finding qualified employees
Paying for health insurance

The Greatest Challenges Facing Small Business in 1996

Finding qualified employees
Handling increasing insurance costs
Coping with regulations and high taxes
Dealing with increasing domestic competition
Evolving with the changing business climate

Source: Annual Survey of Small Businesses, Dun & Bradstreet Corp., Murray Hill, N.J., 1991, 1997.

The Internet

Does fact match hype?

Only 5% of small companies regard the Internet as key to business, but in the past two years alone, the percentage of companies using on-line services has nearly doubled, approaching 40%.
By 2000, the World Wide Web may be a significant distribution channel: $95 billion in sales.
Companies are making money on the Web: 36% of on-line newspaper publishers report that their Web-based business is or will soon be profitable.

How Many Sites?
Number of World Wide Web sites responding to Web Server survey

 199518,9571997739,706Source: Netcraft Web Server Survey

The first World Wide Web site was launched in 1993.

Users and Buyers
Estimated number of World Wide Web users and the percentage of those who buy products or services on the Web

 199516 million users29% buyers199634 million users26% buyers2000163 million users45% buyersSource: International Data Corp.

Total On-Line Commerce
Commerce on the Web

 1995$318 million2000$95 billionSource: International Data Corp.

Newspapers On-Line

Number of North American dailies on the Internet in 1997: more than 500
Number of newspapers charging subscriptions for all user access in 1997: 2
Percentage of on-line publishers who report profits for 1996 or 1997: 36%
Source: Newspaper Association of America.

Advertising On-Line

 Total online advertising revenue1997$400 million-$750 million2000$3.1 billion-$4.8 billionSource: Internet Advertising, Forrester Research, Cambridge, Mass, 1996; Credit Suisse First Boston.

Outsourcing

How many companies do it?

65% of companies with revenues of less than half a million dollars say they do not outsource.
But of a group of companies characterized as the fastest growing in the United States, 83% do outsource.

U.S. Market for Outsourcing Services

 1996$100 billion1998$165 billion2001$318 billionSource: Outsourcing Institute, 1996

Small businesses may not be outsourcing yet, but they will be before long.

Top Five Reasons Companies Outsource

To reduce and control operating costs
To improve company focus
To obtain resources they lack
To free their own resources for other tasks
To gain access to "world class" capabilities

Source: Outsourcing Institute, 1996.

Fast-growth companies, like companies overall, cited cost savings as the primary reason they began outsourcing: 63% perceived outside providers as more efficient or better able to achieve economies; 43% expected a reduction of overhead or debt; and 33% sought savings on the costs of benefits and administration.

Failure

How risky is it to own a business?

Most business deaths are not failures. They are "voluntary dissolutions," according to Bruce Kirchhoff, of the New Jersey Institute of Technology.
From the results of an eight-year study of 812,000 small, young companies, Kirchhoff discovered that well over half the businesses survived at least that eight-year period. Only 18% of them closed because of financial difficulties with creditors.
Of those businesses that disappear, only 20% to 25% end up owing money to their creditors.

Source: Office of Advocacy, U.S. Small Business Administration; Economic Analysis Department, Dun & Bradstreet.

Failures and Financial Liability, 1991-1996
Year	Business terminations	Total number of failures	Average liability per failure
1992	819,000	97,069	$971,653
1993	801,000	86,133	$554,438
1994	803,000	71,520	$410,477
1995	869,000	71,128	$524,175
1996	823,000	71,811	$473,759

Last year's average liability per failure was about half the size of the hefty debts creditors shouldered in 1992.

Business Failures by Age, 1996

 1-5 years42%6-10 years25%10+ years33%Source: Office of Advocacy, U.S. Small BusinessAdministration; Economic Analysis Dept, Dun & Bradstreet.

Labor Force and Wages

How fast is pay rising?

Unemployment was down last year.
Earnings of both men and women are rising, but women aren't catching up with men.
Variable pay is rising as a percentage of total compensation.

Source: Bureau of Labor Statistics.

Employment and Unemployment, 1991-1996
Year	Number of civilian workers (in thousands)	Number of unemployed (in thousands)	Unemployment rate (% of labor force)
1991	126,346	8,628	6.8%
1992	128,105	9,613	7.6%
1993	129,200	8,940	6.9%
1994	131,056	7,996	6.1%
1995	132,304	7,404	6.6%
1996	133,943	7,236	5.4%

Unemployment rates and totals have been falling since 1992, even as the working population continues to grow.

Source: Bureau of Labor Statistics.

Median Annual Earnings (in current $)
	1991	1992	1993	1994	1995
Men	$25,844	$26,260	$26,728	$27,144	$27,976
Women	$19,136	$19,812	$20,540	$20,748	$21,112

Women's earnings continue to lag behind men's . . .

1996 Earnings for College Graduates with Advanced Degrees: The Top 10%

 Men$99,944 or higherWomen$76,544 or higherSource: Bureau of Labor Statistics

. . . no matter how long they stay in school.

Sources: Hewitt Associates; Bureau of Labor Statistics.
Annual Salary Increases, Variable Compensation, and the Consumer Price Index (CPI), 1991-1996
Year	Annual salary increases for salaried, exempt employees	Variable compensation as a percentage of payroll	CPI Dec.-Dec. change
1991	5.0%	3.8%	3.1%
1992	4.6%	5.7%	2.9%
1993	4.3%	5.9%	2.7%
1994	4.0%	6.4%	2.7%
1995	4.0%	7.6%	2.5%
1996	3.9%	7.5%	3.3%

The future is never assured: sales rise and fall, the economy takes surprising turns, and employees' performance may or may not be consistently reliable. To protect their bottom line and to account for the vagaries of time and tide, many employers have established a variable compensation component (one-time bonuses, performance awards, and so on).

Home-Based Business

How many home-based businesses are there? What kinds?

No one knows with certainty how many people are running businesses from their homes. Estimates range from 5.6 million to 30.7 million. The most reasonable estimates are closer to 15 million.
Almost half of last year's new enterprises took form in their owners' homes.
No one knows how long home-based start-ups stay home-based.

How Many Home-Based Workers?

 199112 million199616 millionSource: Find/SVP.

Estimates of the number of self-employed home-based workers continue to rise.

Source: County Data Corp.
Home-based start-ups, 1996
	Home-based start-ups	Total start-ups	Percentage home-based
Men	350,308	903,563	39%
Women	236,473	433,069	55%
Total	586,781	1,336,632	44%

Source: County Data Corp.
Top Start-at-Home Businesses
Type of business	Number of start-ups
Construction	19,149
Cleaning services (residential, commercial)	14,238
Retail Store	13,707
Consultant	11,078
Designer	9,279
Computer services and repair	7,899
Real estate	7,749
Painter	6,600
Lawn maintenance	6,320
Arts and crafts	6,139
Landscape contractor	6,136
Automotive services and repair	5,173
Building contractor (remodeling, repairing)	5,167
Management and business consulting	5,117
Marketing programs and services	5,090
Trucking	5,043
Wholesale trade, nondurable goods	4,956
Communications consultant	4,949
Restaurant	4,801
Audiovisual production services	4,792

Job Creation

Who's creating jobs, and who isn't?

Small companies in every sector of the U.S. economy are growing. Big ones aren't.
The larger the company, the more employment growth slowed.
The home health-care industry grew the fastest.

Employment by Sector, 1995

 Percentage oftotal employmentManufacturing20%Trade26%Finance, insurance, real estate8%Services32%Other14%

Job Growth by Sector, 1991-1996

 All companiesManufacturing0.4%Trade2.2%Finance, insurance, real estate -0.3%Services3.4%Other0.8%

Companies with 1-99 employees in 1991

 Manufacturing9.9%Trade3.9%Finance, insurance, real estate3.0%Services7.2%Other4.4%

Companies with 100 or more employees in 1991

 Manufacturing -2.4%Trade0.2%Finance, insurance, real estate -2.2%Services0.8%Other -3.2%

Employment by Company Size, 1995

 Number ofPercentage ofemployees in 1991total employment1-1930 -9917%100 or more53%

Job Growth by Company Size, 1991-1995

 Number of Changeemployees in 1991 by 19951-199 -991%100-4,9990%5,000+ -2%

New jobs were in the small, smaller, and smallest companies.

Employment by Company Age, 1995

 YearsPercentage oftotal employment*0-46%5-1423%15-2924%30+46%*Because of rounding, numbers do not add up to 100%

Job Growth by Company Age, 1991-1995

 Company ageChange by 1995in 19910-4 years13%5-146%15-291%30+ -1%

Sources: Who's Creating Jobs? and Corporate Almanac, Cognetics Inc., Cambridge, Mass., 1996

Source: Bureau of Labor Statistics.
The Top Job-Creating Industries, 1991-1996
Industry	Number of jobs gained (in thousands)	Rate of change
Personnel supply services	1,149	77%
Eating and drinking places	1,008	15%
Computer and data-processing services	402	50%
Misc. amusement and recreation services	360	47%
Department stores	328	16%
Home health-care services	313	91%
Miscellaneous business services	296	24%
Management and public relations	288	47%
Offices and clinics of MDs	267	19%
Nursing and personal-care facilities	249	17

The home health-care industry nearly doubled, growing from 344,500 to 657,500. Its 91% growth rate ranks it in first place, above the 77% growth rate of the personnel-supply-services industry.

Source: Bureau of Labor Statistics.
The Biggest Job-Losing Industries, 1991-1996
Industry	Number of jobs lost (in thousands)	Rate of change
Aircraft and parts	215	-32%
Savings institutions	119	-31%
Search and navigation equipment	103	-46%
Guided missiles, space vehicles, and parts	74	-44%
Womens' and misses' outerwear	72	-22%
Electric services	62	-14%
Women's clothing stores	58	-15%
Commercial banks	58	-4%
Computer and office equipment	57	-14%
Crude petroleum and natural gas	52	-27%

The rubber and plastic footwear industry is a mere shadow of its 1991 self. In only six years, employment declined 49%, to a scant 5,600.

Start-ups

Where are the hot spots?

The country's most entrepreneurial urbanites live west of the Mississippi River.
Men are more than twice as entrepreneurial as women.
Most new businesses are unincorporated sole proprietorships. New incorporations account for less than half of new business formations.

Formations and Incorporations, 1996

Number of new business formations (start-ups): 1,336,632
Number of new incorporations: 820,000
Sources: Office of Advocacy, U.S. Small Business Administration; County Data Corp.

New incorporations include many tax-sheltering entities, which are not considered new business formations. Most new formations are unincorporated sole proprietorships.

Source: County Data Corp.
The 10 Hotbeds of Entrepreneurial Activity, 1996
Metropolitan statistical area (MSA)	Number of start-ups	Start-ups per 100 people	Population rank in 200 MSAs
Anchorage, AK	4,876	2.15	177
Boulder-Longmont, CO	4,312	1.91	179
Austin-San Marcos, TX	13,705	1.62	64
Houston	53,249	1.60	7
Denver	25,651	1.58	26
Colorado Springs, CO	6,147	1.55	115
Las Vegas	12,756	1.50	63
Dallas	39,944	1.49	10
Boise City, ID	4,350	1.47	147
Provo-Orem, UT	3,619	1.37	162

The 10 most entrepreneurial metropolitan areas are all west of the Mississippi River.

*Also included in the women's top 20 start-ups.
Source: County Data Corp.
Most Popular Start-ups, Overall and by Women, 1996
Type of business	Number of start-ups	Started by women*
Construction	24,787
Restaurant	22,781	23%
Retail Store	21,081	35%
Cleaning services (residential, commerical)	19,642	45%
Real estate	17,549	20%
Automotive services and repair	16,158
Consultant	13,835	26%
Beauty salon	11,762	66%
Computer services and repair	11,111
Designer	10,676	51%
Management and business consulting	9,665	23%
Arts and crafts	9,412	74%
Painter	9,156
Lawn maintenance	8,498
Marketing programs and services	8,314
Landscape contractor	8,268
Investment broker	8,206
General contractor	8,137
Communications consultant	8,022
Building contractor (remodeling, repairing)	7,998

Only 9 of the 20 industries most attractive to female entrepreneurs made the top 20 of all new businesses.

New Business Formations by Gender, 1996

 Number of formationsPercentage of totalMen903,56368%Women433,06932%Source: County Data Corp.

Men started more than twice as many businesses as women did.

Source: County Data Corp.
Women's Favorite Start-ups, 1996
Type of business	Number of start-ups by women	Number of start-ups by all entrepreneurs	Percentage started by women
Secretarial services	2,409	2,823	85%
Child guidance	2,496	3,047	82%
Arts and crafts	6,948	9,412	74%
Beauty salon	7,821	11,762	66%
Florist, retail	3,213	5,058	63%
Gift shop	4,576	7,636	60%
Manicuring	2,483	4,437	56%
Antiques dealer	2,825	5,368	53%

This sampling of the most popular businesses started by last year's female entrepreneurs seens to support simple stereotypes.

Source: County Data Corp.
San Jose's Most Popular Start-ups, 1996
Type of business	Number of start-ups
Restaurant	129
Automotive services and repair	103
Designer	93
Computer services and repair	63
Cleaning services (residential, commerical)	60
Computer systems design, consultants	58
Beauty salon	56
Consultant	55
Computer software	54
Automobile body repair and paint	49

The software and hardware-related industries of California's Silicon Valley attract considerably more venture capital than any other region of the country. Does that venture money inspire a broader range of entrepreneurial energy? Last year, nearly 5,500 new enterprises--0.69 businesses per 100 people--opened their doors in San Jose alone.

Money

Who's funding today's emerging businesses?

More capital is invested by angel investors than by venture capitalists.
For the past three years, small-cap stocks have been outperformed by large-cap stocks.
Most businesses never use angel or venture funds, and they never go public. They go to the bank.

Annual Venture Investments

 1991$3 billion1992$4 billion1993$5 billion1994$5 billion1995$7 billion1996$more than $10 billionSource: National Venture Capital Association

The Market for Initial Public Offerings

 Number of IPOs19913951996564 Dollars raised1991$25 billion1996$24 billion Average offering price/share1991$11.431996$11.81 Health-related IPOs199128%199617% Issues whose stock priceswere cut in half by year-end19919 (2%)199649 (9%)Sources: "The Year in IPOs," Inc., May 1992;Securities Data Corp.

Last year saw far more new issues than 1991, but a considerably higher percentage of the 1996 IPOs recorded disappointing results during their early days of public trading.

Stock-Market Performance

Small-Cap Performance
(average market capitalization: $421 million)

 Year-end price/ Investors' earnings ratio annual return199123.943.4%199224.516.5%199324.217.3%199419.4-3.3%199522.726.5%199624.514.8%

Large-Cap Performance
(average market capitalization: $6.1 billion)

 Year-end price/ Investors' earnings ratio annual return199120.228.8%199221.3 5.9%199319.6 7.2%199416.0-2.4%199517.434.4%199620.719.9%Source: Frank Russell Co.

From 1991 through 1993, small-cap stocks performed and delivered healthier returns than the largest companies' stocks. Then the tables turned. Is that a trend?

Banks and Lending

 Commercial loans$ in billionsoutstandingAs of December 31, 1991$459As of December 31, 1995$538As of December 31, 1996$565

Small-Business Loans Outstanding
(loans of less than $1 million)

 $ in billionsNumber of loansAs of June 30, 1994$1384,322,000As of June 30, 1995$1514,769,000As of June 30, 1996$1635,257,000Source: Office of Financial Assistance,U.S. Small Business Administration.

Source: Office of Financial Assistance, U.S. Small Business Administration.
Small Business Administration Loans, Guarantees, and Liquidation Assets ($ in millions)
	Total	Current amount outstanding	Percentage outstanding
As of September 30, 1991	$15,653	$13,121	84%
As of September 30, 1992	$17,398	$14,872	85%
As of September 30, 1993	$19,746	$17,250	87%
As of September 30, 1994	$22,523	$20,037	89%
As of September 30, 1995	$26,141	$23,543	90%
As of September 30, 1996	$28,330	$25,709	91%

Thanks to tighter lending criteria, SBA borrowers are getting better about staying up-to-date with their debt payments.

Workstyle

What new practices are being adopted?

"Alternative" arrangements account for about 15% of the U.S. workforce.
Job sharing is on the rise.

Telecommuters
People who have jobs in a corporate setting and work from home at least two to three days a month

 19915.5 million19968.7 millionSources: Find/SVP; Joanne H. Pratt, "Myths and Realities of Working at Home: Characteristics of Homebased Business Owners and Telecommuters," Small Business Research Summary, U.S. Small Business Administration, Washington, D.C., 1993

Statistics show that telecommuters get more and faster promotions than their counterparts who report to the offi