Accidental entrepreneurs a side effect of a weak economy
The number of accidental entrepreneurs, who started businesses after finding themselves unemployed and unable to find work, has doubled over the rate found before the recession began (from 9 percent to 18 percent). And a good chunk of those are struggling to make end's meet.
Several new studies of small business owners today show that tough times continue for entrepreneurs.
Two surveys released yesterday offer some disturbing results. Wave Accounting, a cloud based accounting software company for micro and SMB’s, released a survey of their 250,000 micro and SMB customers, and Pepperdine University’s Graziadio School of Business and Management joined with Dun & Bradstreet Credibility in a survey released yesterday of 6,000 small business owners.
The Wave survey reinforced what a lot of us suspected. The number of accidental entrepreneurs, those who started businesses after finding themselves unemployed and unable to find work, has doubled over the rate found before the recession began (from 9% to 18%).
And the role that government incentives played in their decision to launch their business? Only 2% of respondents in the Wave survey said government incentives fed the decision to go into business for themselves. And in the Pepperdine survey, only 1% said the highly publicized crowdfunding JOBS Act would have any impact on their ability to raise needed funding. So don’t let politicians fool you into believing that their attempts to steer and guide the economy have an impact!
And speaking of financing, only 41% of the businesses looking to raise capital were successful.
A shocking figure from the Wave survey relates to how well the business owners were able to meet their basic needs through their business. An incredible 52% of American small business owners can’t put food on the table through the earnings from their business over the past twelve months.
Even though many said they can’t make ends, it is not due to a lack of effort. Two thirds (66%) of business owners in the Wave survey reported struggling with time management and work/life balance with 43% of respondents having to work after normal business hours to take care of administrative tasks like accounting and bookkeeping.
All of these results shed light on why business owners remain gloomy about the outlooks of the economy. Last week the NFIB small business optimism survey continued to show weak results.
“In the last year, small-business optimism has limped along, and today the sector is no better off than it was just over a year ago,” said NFIB Chief Economist William Dunkelberg. “The lack of progress is discouraging, producing no signs that economic activity will pick up this year at all. The calculus of spending decisions requires an estimate of future sales, tax rates, interest rates and credit availability, labor costs, health-care costs, regulatory compliance costs, all of which are very uncertain. Most of this uncertainty is the result of what is happening—and not happening—in Washington.”
A survey released earlier this month by Citibank suggests that entrepreneurs are not giving up in spite of all of the challenges they now face. 53% of respondents of this survey say they have reinvented their business models “to stay afloat or competitive.” This strategy is reinforced in the current competitive climate that 38% of respondents describe as “extremely intense.”
As I have pointed out in the past, we need to keep in mind that all of these results come from surveys of business owners who have survived the recession. Imagine what all of those who are casualties of the Great Recession