Jul 20, 2010

Startup Businesses Growing Jobs.

As the economy and unemployment continue to make headlines, it is refreshing to find some upbeat news…especially when it concerns some of our Codero customers who are startup businesses.  A recent study by the Ewing Kauffman Foundation shows job growth in the United States is driven entirely by startups. New firms add an average of 3 million jobs in their first year, while older companies lose 1 million jobs annually. The study was conducted from 1977 to 2005 and defines startups as firms younger than one year old.

Job growth patterns at both startups and existing firms are pro-cyclical. But during recessionary years, job creation at startups remains stable. Net job losses at existing firms however, are highly sensitive to the business cycle during a recession.

The data suggests that “growth would be best boosted by supporting startup firms” according to Robert E. Litan, vice president of Research and Policy at the Kauffman Foundation. He thinks the findings indicate America should be thinking differently about the standard employment policy paradigm.

Does that indicate venture capitalists are taking more interest in startups? Not necessarily according to a study by Pepperdine University. Although the vast majority of privately held companies are dependent on venture money to help them stay in business, investors are not taking much interest. The study reports 72% of the venture capitalists had a decreased interest for risk and that more than half of those polled expect their firms to do between zero and three deals in the next year.

The research does note that shake-outs are good for the industry and once the valuations stop falling, less desirable companies are closed or sold at a loss, and venture firms that cannot raise new funds close down, the venture capital industry will be much healthier because of it.

The tech sector in particular, is seeing a recovery that is underscored by the growing importance of the Internet. In fact, Forrester Research is upbeat and states global IT spending growth at 7.8% this year.

Are you a startup business? Do you aspire to be? What do you think could be done to enhance the outlook for startups? Comments are welcome.

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