Taking the plunge into the waters of entrepreneurship can be invigorating, enriching and/or downright dangerous.
If a startup succeeds, it means the owner is providing a good or service that others need or want, and supplying it at a profit.
However, owning and operating a business is a risky, costly endeavor. Just consider that 31 percent of employer firms are gone after two years, and just over half do not exist after five years, according to data from the Small Business Administration’s Office of Advocacy. And in 2009, latest year available, approximately 552,600 employer firms came into existence, while an estimated 660,900 closed.
The failure rate steps up dramatically among nonemployer firms. The Office of Advocacy reports: “Nonemployer firms have turnover rates three times as high, mostly because it is much easier for them to go into business and cease operations.” But it’s not just about how easy it is to go out of business. After all, no one goes into business looking to fail.
Consider how bad did things got during the recent, deep recession. The number of employer firm bankruptcies went from 19,695 in 2006 to 60,837 in 2009 — more than tripling.
Given the inherent risk of venturing into the market with a new idea or firm, there are tools that can improve the chances for success.
The private marketplace obviously presents big challenges, from striving to serve customers well to competitors trying to do what you’re doing better and cheaper. But others in the marketplace provide services that aid start-up firms.
Consider the enormous benefits that investment and innovation in broadband Internet have supplied entrepreneurs. The smallest firms are now able to reach potential customers across the nation and around the globe. For good measure, the costs of getting a business off the ground have been reduced in substantial ways.
In mid-April, the Small Business & Entrepreneurship Council and the Internet Innovation Alliance released a report titled “Start-Up Savings: 10 Ways Entrepreneurs Can Save Money Through Broadband Internet.” (As SBE Council chief economist, I was involved in researching this study.)
Comparing traditional avenues versus online offerings, the study found that entrepreneurs could save a potential $16,000 in startup and annual costs.
In percent terms, comparisons revealed small business owners could save 87 percent in accounting services going the online and software route. In terms of printing costs, 43 percent could be saved through online services for a basic package of business cards, brochures, postcards, letterhead and envelopes.
As for setting up a website, online, do-it-yourself options can save as much as 88 percent compared to what might be considered a more traditional website designer/developer. Similarly, online logo design services can provide savings reaching 92 percent compared to the low-cost end of fees charged by freelancers or independent, smaller firms.
One of the biggest savings that broadband access can provide startups is the option of a home office. According to office rental rate data for 60 metro areas from Grubb & Ellis, the average asking rent is $20.60 for Class B office space on an annual basis. For a 300 square foot office, making the home office choice means cash savings topping $6,100.
It should surprise no one then that so many businesses initially open their doors in a home office. In fact, 52 percent of U.S. firms are home-based businesses, again according to the SBA.
And then there are travel costs. According to the latest numbers from the U.S. Department of Transportation, average domestic airfares registered $361 in the third quarter of 2011. For a startup, just a few flights a year can add up pretty quick. Compare that to online video calls/conferencing. For example, the premium service from Skype — which includes unlimited calls to a country of your choice, group video calling and screen sharing, and live chat customer support — costs $4.99 per month, or an annual cost of $59.88. For good measure, there are no headaches with long security lines and delayed flights.
The potential thousands of dollars saved by startups due to broadband Internet translates into more resources available for innovating, hiring, and additional marketing and advertising, for example. In the end, those saved dollars can wind up being the difference between life and death for a business.
But there’s still more. Namely, access to capital.
Getting the capital needed to startup or expand a business stands as one of the biggest obstacles to entrepreneurship. Congress recently passed and President Obama signed into law a measure that included the legalization of crowdfunding, which allows entrepreneurs to raise capital from small investors via the Internet and social media. The “crowd,” if you will, amounts to the many investors and analysts assessing and evaluating the value of these opportunities in an online world. It’s another exciting expansion of the technological tools available to entrepreneurs courtesy of high-speed Internet.
As bad as the recession and so-called recovery have been over the past four-plus years, think about how much worse things would have been if entrepreneurs lacked the expanded opportunities that have come with the investments made in technology, such as broadband Internet services.
Raymond J. Keating is the chief economist for the Small Business & Entrepreneurship Council. His new book is “Chuck” vs. the Business World: Business Tips on TV.