Declining Small Business Start-ups

By Richard John Stapleton

I have asserted in my writings on this website it has become harder to make a go of it starting and running a small business in the US since the crisis of 2008, due to insufficient aggregate demand, caused by insufficient disposable consumer income, despite the efforts of the Federal Reserve System to stimulate the economy with low interest rates and quantitative easing, that is, by creating new money to buy bonds to put more money in banks.  The new money was mainly lent to large corporations and the elite rich who used it to buy back their own stock and do things with it that did not result in significantly creating good jobs and increasing aggregate demand.  The stock market went up and the housing market improved but not enough purchasing power was put in the hands of most consumers to create significant economic growth.

So the Federal Reserve today did not raise interest rates because of the lack of growth.  Our new president Trump thinks he can make the economy grow and become great again by creating infrastructure jobs.  Hopefully this will work, but unfortunately it will take a year or so to make this happen if it can be done.

On the other hand, making a go of a new small business has never been easy. Here is a passage from my book Business Voyages on page 532, first published in 2008:

“While operating a small business does not result in significantly higher incomes for most people (according to W. J. Dennis in his National Small Business Policy Guide published in 2000 by the National Federation of Independent Business), millions of Americans think about starting a business every year. In 1994 Dennis estimated that 25 million American adults were taking concrete steps to start a small business. Not all of them did it, but many did. Dennis estimated that 3 to 4.5 million new small businesses are started each year, and 75 percent are started from scratch. About 30 percent have more than one owner. Most of these new businesses are moonlight and part-time businesses, but about 825,000 are businesses with employees.

“Almost as many small businesses are discontinued each year as are started. Most of these discontinuances are not failures with losses to creditors. Dennis estimates that only about 1.5 percent of discontinued small businesses fail to pay off all their debts. Most entrepreneurs who discontinue businesses simply realize after some experience that the business is not worth the time, work, and responsibility required, so they move on to something they think will be more profitable.

“About 20 percent of all new small businesses do not survive one year, about 60 percent do not make it 5 years, and about 75 percent do not last 10 years.”

Following is an article by the Economic Innovation Group with some new information, data, and analysis about current births and deaths of small businesses.  They paint an alarming picture.  A smaller percentage of the US population are now becoming entrepreneurs with serious consequences for job creation.

Read all about it by clicking here http://eig.org/dynamism.