By Pauline Estrem, June 9, 2011, reprinted by permission
The economic climate for small business startups shows immense and never-before-seen potential.
“We tend to be very optimistic about small business in general,” says Karen Kerrigan, president and CEO of the Small Business & Entrepreneurship Council. “If you’ve got a solid idea, then it’s always a great time to start a business, whether it’s good or bad economic times. Now continues to be a great time.”
Dane Stangler, director of research at the Ewing Marion Kauffman Foundation, agrees: “It is never really a bad time to start a company. There are always opportunities to be created and exploited, inefficiencies to correct and sectors of the economy to disrupt.”
In fact, many of today’s most successful, innovative corporations got started during economic downturns.
Both Kerrigan and Stangler agree that it does pay to be aware of external factors to maximize your chances of success—either to plan for challenges or to spur you to take advantage of opportunities. Consider the following factors influencing today’s entrepreneurial climate.
While access to money has always been an issue—even in great economic times—financing conditions are slowly improving. “Recent data suggest that the financing environment for small and mid-sized companies is strengthening, although the nation’s biggest banks have almost completely moved out of this, leaving it to regional and community banks,” Stangler says.
Banks are in the business of loaning money, after all, and Kerrigan points out that “for the business owner who can demonstrate profitability in their model, has sound financials, can walk through their business plan and can provide solid projections on growth, banks do want to loan money.”
According to the SBA, in mid-2010, commercial banks began to ease the tight lending conditions on small businesses that had begun in early 2007. And credit has continued to flow, as loans under $1 million totaled $695 billion in fiscal year 2009. Also, after declining over the past few years, venture capital investment dollars increased in mid-2010.
The key to acquiring funding is equal parts persistence, patience and passion, Kerrigan says. “For individuals who keep looking and are very driven, there still are angel investors, venture capitalists and individuals out there who do want to invest in solid business plans.”
One variable that will continue to improve for entrepreneurs is technology, which will enable today’s small-business owner to do more than ever before.
“It’s much easier, much more affordable and more efficient for individuals and businesses to market their products, to network and to collaborate with business partners with social media,” Kerrigan says. She points specifically to the game-changing effect that broadband technology has had on the business world, including mobile apps, cloud computing tools, online business resources and social media.
These advances have also increased access to the rich global marketplace—a major advantage for today’s small-business owner.
“A new company can be global on Day One,” says Stangler. “And, as we all know, the strongest economic growth right now is in emerging countries. Theoretically, at least, new companies in the United States should be better able to capitalize on access to global markets and the strong economic performance in other countries.”
Kerrigan agrees that the convergence of technology and globalization provides new and exciting opportunities for businesses large and small. “Ninety-five percent of the world’s consumer base lives outside of the United States, so it’s easier to sell your products and services abroad,” she says. “You not only have to look locally, regionally or within your country for a base. You can look outside.” She adds that the prospect of exporting goods is becoming less and less risky as entrepreneurial markets in foreign countries are maturing and becoming more sophisticated.
Technology also encourages better communication among business owners, which, especially in today’s economic climate, can lead to mutually beneficial collaboration, says Kerrigan.
“Entrepreneurs are looking at ways they can team up with other businesses in partnerships and alliances, and I think this culture of collaboration is growing. So, for those who feel like, ‘I can’t do this on my own. Is there someone I can partner with where it makes sense to do so, where we can accelerate our growth quicker, reach markets and bring our resources together to operate more efficiently and reach goals more and more quickly?’ So that is another really positive thing that many business owners can take advantage of today.”
Stangler and Kerrigan both say that, while still low, consumer confidence is steadily improving. In fact, in February, thanks to the slowly recovering market and growing personal income levels, consumer confidence reached its highest level in three years.
One of the biggest concerns for small businesses is inflation and the cost of “raw goods, energy and inputs into the business that chew away profitability, particularly if you have tight margins,” Kerrigan says. “Of course, for small to midsize businesses, it’s difficult to pass these costs on because of competition, and you’re always trying to give the consumer a good value for a decent price.”
Changing Policies and Laws
Very small firms with fewer than 20 employees annually spend 36 percent more per employee than larger firms to comply with federal regulations, according to the U.S. Small Business Administration. These very small firms spend 4.5 times as much per employee to comply with environmental regulations and three times more per employee on tax compliance than their larger counterparts, the SBA says.
Understandably, another concern for small-business owners are policy changes, especially where taxes and health care are concerned. “The big unknown is what are policymakers going to do on key issues that impact entrepreneurs? Most of our business owners just want stability when it comes to policy,” Kerrigan says. “Sometimes policies are made—whether in Washington or on state or local levels—that present barriers. Whether it’s taxes or certain regulations or mandates that essentially take away business resources or drive up cost of capital and that take capital off the table in this country and maybe drive investment overseas.”
However, she says bipartisan efforts over the next three to five years should fix the tax code and other issues, bringing some stability back to the small-business economy.
“Once there’s some certainty, then you have an environment for entrepreneurialism in general across the country,” she says. “There won’t be these government-imposed barriers. Everyone will be encouraged.”
So, overall, small businesses will continue to face some challenges and uncertainties as economic conditions continue to climb back to healthy levels. But Kerrigan remains optimistic—and encourages entrepreneurs to think positively as well. “The optimism of most business owners will help them thrive and survive,” she says. “And that’s what makes our country great.”