The service economy is where the most start-ups are betting their money, according to a survey by AT&T Capital Corp. and the American Institute of Certified Public Accountants. The group polled 1,000 businesses founded in 1992 through 1994. Service companies made up 46% of the start-ups in 1994, up from only 19% two years earlier. Manufacturers accounted for 54% of new businesses in 1992 but dropped to 15% by 1994.
Not only is that indicative of an ongoing fundamental shift in the U.S. economy, but it also reflects the preferences of those supplying the capital. "Service companies don't take as much money to start, so there's often less capital at risk before you know the outcome," says Marty Sutter of the Woodlands Venture Partners, in the Woodlands, Tex., a firm specializing in health care. "Successful service businesses give a return on investment sooner than successful manufacturing businesses, and there's tremendous pressure in venture capital right now to get short-term rewards for less risk."
Still, survey respondents whose companies were founded in 1994 identified inadequate funding as their biggest hurdle -- and they blamed lenders. Twenty-eight percent said lenders were too conservative, 16% reported being unable to find investors, and 12% claimed a lack of collateral. Looking homeward, 19% financed the businesses either themselves or with family money.
Here are all the obstacles cited as the "biggest hurdles" by the start-ups surveyed:
Inadequate funding 31%
Lack of business experience 13%
Time demands 8%
Building a client base 4%
Bad location 4%