STARTING A NEW BUSINESS: MYTHS AND REALITIES A Presentation by Steven E. Phelan Director, UNLV Center for Entrepreneurship
WHO AM I? • An aussie • A pracademic • Professor & PhD • Executive & MBA • Consultant • Director, UNLV Center forEntrepreneurship • Teaching • Research • Outreach Steve
WHY AM I HERE? • To dispel the myths about starting a business based on recent data • To obtain a realistic portrait of the life of an entrepreneur • To help you make an informed decision about starting a business • To improve your chances of success • Successful entrepreneurs do a lot of things differently than failed entrepreneurs
Sources • Global Entrepreneurship Monitor (GEM) • An annual survey of national entrepreneurial activity in 42 countries • Panel Study of Entrepreneurial Dynamics (PSED) • Longitudinal studies of people intending to start a business • An initial sample of 64,000 people in 1998 (PSED I) • A sample of 34,000 people in 2005-6 (PSED II) • Kauffman Firm Survey (KFS) • A longitudinal survey of ~5,000 businesses started in 2004 • Scott Shane, Illusions of Entrepreneurship
Up to 40% of the US population will be self-employed at some stage in their career • About 1 in 10 are self-employed at any given time • I will never start a business.
The proportion of American households owning a business has declined • Self employment is only 58% of what it was in 1948 (the Wal*Mart effect?) • There has been significant growth in startups and small business in the last 50 years
Turks and Thais are three times as likely to be self employed • Richer countries have lower self employment • The US is the most entrepreneurial country on the planet!
Entrepreneurs select industries with the highest failure rates because they are familiar and easy to enter (e.g. personal services) • Entrepreneurs choose the most profitable industries
Ideas are a dime a dozen • Investors will laugh if you want an NDA • Execution is what counts • Build a better mousetrap and the world will beat a path to your door
The typical entrepreneur starts a business because he doesn’t like working for someone else • Making a living is more important than striking it rich • Entrepreneurs start businesses to get rich
People are statistically more likely to become self employed if they are unemployed, change jobs often, or earn less money • Entrepreneurs have a record of success
The typical entrepreneur is married, white, and in his forties • Demographics are more important than psychology • Pretty much anyone can become an entrepreneur
92% of owners have prior experience in the industry (10+ years on average) • Certain industries generate more self-employment (think plumber vs. librarian) • Pretty much anyone can become an entrepreneur
Most are home-based businesses with a well-known product or service • Most startups don’t have a business plan • Teams are rare (more likely to be mom and pop) • Most startups are innovative hi-tech teams chasing profitable opportunities
Only 1/3 of people who initiate the start-up process had positive cash flow after seven years • Starting a business is easy
75% of startups do not employ anyone • Only 10% have more than 5 employees • 81% of startups have no desire to grow • Startups create employment
The median startup required ~$25-$30K • You need a lot of money to start (or buy) a business
Half receive no external financing at all • Money tends to come from personal savings and personal debt • Only 1 in 12 startups received equity from family & friends • Entrepreneurs use “other people’s money”
VCs funded only 0.03% of all new businesses in a given year • 92% in IT and healthcare • Venture capitalists fund new ventures
Angels contribute twice as much as VCs • Other informal investors fund seven times as much but are less wealthy, make smaller investments, and expect lower returns • Angel investors fund new ventures
Around 25% fail in a year, about 50% in five years, and 70% in ten. • Most businesses fail within a year!
One study found entrepreneurs earn 35% less over ten years with more uncertainty and lower benefits (18% if matched) • They also work 13+ more hours a week on average but are more satisfied • You earn more working for yourself and work less
On average, business owners have 5x the net worth of non-owners • The wealthiest 10% have 75% of all business wealth • Most founders are over-optimistic about their prospects • Starting a business can make you wealthy
An IT firm is 600 times more likely to be in the Inc 500 than a restaurant firm • Survival rates vary by industry too • Work hard and you can be successful
Secrets to success • Get some education • Get experience in your industry • Start marketing early • Work with a team • Get external financing • Form a corporation • Enter an attractive industry • Seek a competitive advantage • Write a plan • Do something • Persevere!