GENERAL STARTUP STATISTICS
- 69 percent of U.S. entrepreneurs start their businesses at home.
- According to the National Association of Small Business’s 2017 Economic Report, the majority of small businesses surveyed are LLCs (35 percent) followed by S-corporations (33 percent), corporations (19 percent), sole proprietorships (12 percent), and partnerships (2 percent).
- 51 percent of people asked, “What’s the best way to learn more about entrepreneurship?” responded with “Start a company.”
“Start a company.” Easy, right?
Small Business Trends aggregated a series of such data points and in their March 2019 release of the data, shared that and more… it’s the more the struck me….
Who’s starting businesses today?
- 73 percent identify as male; and
- 25 percent identify as female.
- Age Range:
- 50-59 years old: 35 percent;
- 40-49 years old: 25 percent;
- 60-69 years old: 18 percent;
- 30-39 years old: 14 percent;
- 18-29 years old: 4 percent; and
- 70+ years old: 4 percent.
- High School / GED: 33 percent;
- Associates Degree: 18 percent;
- Bachelor’s Degree: 29 percent;
- Master’s Degree: 16 percent; and
- Doctorate: 4 percent.
- White/Caucasian – 71 percent;
- Hispanic/Latino – 6 percent;
- Black/African American – 7 percent;
- Asian/Pacific Islander – 11 percent;
- Other – 5 percent.
- 82 percent of successful business owners did not doubt they had the right qualifications and proper experience to run a company.
As if you couldn’t from there tease out some already troubling observations, let me throw one more your way:
The most popular funding methods, in 2018, were according to Lendio…
- Personal funds 77 percent;
- Bank loan 34 percent;
- Borrowing from family/friends 16 percent;
- Other funding 11 percent;
- Donations from family/friends 9 percent;
- Online lender 4 percent;
- Angel investor 3 percent;
- Venture capital 3 percent;
- Crowdfunding 2 percent.
What does it cost to start a business?
It’s a straightforward enough question. We can refine it of course, to ensure we’re asking, “in the United States.”
What does it cost to start a business in the United States?
What is the fundamental risk that one must take simply to TRY working for themselves, potentially creating jobs?
Before we go on, let’s be clear about what we’re asking… there isn’t just a fixed cost of starting a business, they’re a period to overcome so that the business you start might find success. That is, there are a number of months/years you have to plan to operate before finally finding enough success, no?
STARTUP FAILURE RATE
- Of all businesses started in 2014:
- 80 percent made it to the second year (2015);
- 70 percent made it to the third year (2016);
- 62 percent made it to the fourth year (2017);
- 56 percent made it to the fifth year (2018).
“Startup founders are in high-pressure environments, and we ask them to build these disruptive companies that will change the world, and yet we are not really providing support on this front. We’re putting all of it in a box for founders to deal with alone. And that didn’t make sense to us.”Felicis Venture’s founder Aydin Senkut
Tying these varied statistics and thoughts together, one simple question struck me. One simple way of supporting the risk we’re all taking and the work we’re doing.
What does it actually cost?
Can you give us an accurate, ballpark answer?
What does it cost to start a business?
Sound right? I don’t really have an accurate answer and I’d agree, reading your mind a bit, that we’d all agree there really isn’t an accurate number.
Yet, $30,000 is the magic number the Kauffman Foundation found in 2018.
With that in mind though, here’s a list Fundera put together:
- Equipment: $10,000 to $125,000
- Incorporation fees: Under $300
- Office space: $100-$1,000 per employee per month
- Inventory: 17-25% of total budget
- Marketing: 0-10% of total budget
- Website: About $40 per month
- Office furniture and supplies: 10% of total budget
- Utilities: About $2 per square foot of office space
- Payroll: 25-50% of total budget
- Professional consultants: $1,000 to $5,000 per year
- Insurance: An average of $1,200 per year
- Taxes: Variable, but 21% corporate tax rate
- Travel: Variable
- Shipping: Variable
So… somewhere between $500 and $150,000
What does Business News Daily advise? SBA data which suggests as little as a few thousand dollars.
Uncertainty now manifesting as insecurity.
If we don’t know, if we can’t plan, we can’t conceive of starting.
Forget for a moment the actual cost.
Take a look at the statistics and let’s reach a more tangible conclusion.
HALF of all businesses fail in about 4 years meaning it reasonably takes you a good few years to figure out if you have a 50/50 shot. Overwhelmingly businesses are started thanks to personal funds and the 40 y/o plus, GED / Bachelor’s degree in most cases, means that starting new businesses is a direct result of people having the means with which to start them.
And even if BANKS were still there to close the gap for those who don’t have that personal wealth, Kauffman Foundation went on in their study to note that, “Large banks have become larger, and small- and medium-sized banks are disappearing. As one example, the number of small community banks totaling under $50 million in assets has declined 41 percent since the Great Recession of 2008, either through consolidation or closing. According to industry experts, the $30,000 in average funds needed to start a firm does not hit the vast majority of banks’ radars. Loans of around $100,000 or less are hard for banks to make profitably.“
$30,000 a year, if that’s the number.
Adjust that from first year costs including more equipment of legal investments required just to START, to later year costs being taxes, some staff, and more, it’s safe to say it costs a hundred thousand dollars to capably start a business with the few years it takes to get going… and banks aren’t an option for most, personal wealth is unavailable to too many, and investors, investors apply to the precious few applicable to funding.
Might we not ask and address if rather than it being a matter of access to the capital (which is of course ultimately paramount), if an issue we could first tackle is the tremendous disparity in KNOWING what it will cost.
How can anyone capably assess taking the risk, saving the money, or seeking it from others, when the range varies from $3000 to $150,000 JUST TO START without being secure in the costs (risk) and potential reward.
And that doesn’t even explore the cost of doing business in place like Des Moines, Iowa vs. Austin, Texas, vs. San Francisco, California.
- We know we have a tremendous challenge in addressing how the economic challenges (wealth gaps) with which most struggle prevents people from starting businesses from which they might create wealth and enable others.
- We know the exploding cost of a college education, for those who can managing to get themselves to/through University, saddles potential entrepreneurs with debt.
- And we know Angel and Venture Capital isn’t the answer for the great majority.
Begging this simple question for which I don’t have much of an answer… how can we alleviate the insecurity of costs so that we might enable the majority to assess what it takes to start a business of their own, without the risk of unknowns putting them further in debt?