So you're thinking about starting your own business. But you don't have any way of knowing whether or not it will be successful. Don't you wish there was some crystal ball which could reveal if your business idea will take off or crash and burn?
(article continues below)
Well, guess what: there isn't. (But you knew that.)
So you might try to do the next best thing: look at government statistics pertaining to startup businesses. Then you could attempt to gauge your chances of success based on a combination of your analysis of current market conditions and historical data about small business success rates.
Well, guess what: that may not help you either.
Surprisingly (or perhaps not), the federal government does not specifically keep information which illuminates what types of startup businesses flourish and which ones fail to gain steam. In fact, the most recent relevant official study conducted by Uncle Sam was way back in 2002, when it examined startup financing. That's way before the advent of social media, YouTube, and other innovations which are used extensively by today's small businesses.
But wait! The Census Bureau has just released updated numbers which document the latest study on small businesses. However, the term "updated numbers" is relative – because the data was collected back in 2007! You'll recall that back then, small businesses were not dealing with the recession, a credit crunch, or complex new health care insurance rules.
In short, the stats that the federal government has on small businesses are pretty outdated – and therefore virtually useless.
Thankfully, a group of private researchers is taking up the slack. Back in 2005, the University of Michigan launched a study that targeted 1,200 startup businesses. The good news is that these researchers have been constantly tracking these startups up until the present day. So the Michigan data is incredibly relevant to those entrepreneurs who want to launch a business now.
Since the study continues through 2011, the complete report won't be available for some time. But here are some key points which summarize what has been discovered so far:
- Every year, about 7 million startup ventures are formed by some 12 million people. That means that more businesses are conceived annually than babies!
- More than four out of five startup businesses were funded in the most basic way possible: owner finances. The number of enterprises launched with money from savings, credit cards, and personal loans was far more than those backstopped by any other monetary sources.
- About one out of every six entrepreneurs received funds from personal contacts, such as family members, friends, or acquaintances.
- The average amount of money used to launch a business was $48,000. However, the median amount was less than $4,300. Statistically speaking, that implies that a relatively small number of startups had access to hundreds of thousands (or millions) of dollars, while the majority of startups tried to set up shop with $5,000 or less.
And now the most important numbers: there were two observations made by the researchers which pertained to the success of startup businesses – and they're both pretty eye-opening.
- Of the 1,200 businesses being monitored, less than 40% of them are reporting initial profits today. So you may want to consider this when figuring out your long-term plan for ditching other sources of income.
- After two years of the study, there was absolutely no correlation between the success of a business and how much capital it had to start it. So while money is great, having more of it at the outset of your enterprise does not necessarily mean that you have a corresponding advantage in terms of success.
Hopefully, this information will help you in your decision-making process about your startup business. Good luck!