Business Startup Formation Declined in 2011 but Just a Little

There are a lot of ways to measure the strength of the economy but most of the measures you hear about in the financial news media are unimportant to you, the everyday consumer and entrepreneur. Strange acronyms like CPI indexes help very little when you’re deciding whether this is the year to open your business.

Each year the Kauffman Foundation, the largest foundation in the world dedicated to the growth of small businesses and entrepreneurs, measures the health of the business startup community. In March of 2012, the Kauffman Foundation released the results of the study measuring trends from 2011.

They found that although business formation was down, it was still at higher than normal rates. Additionally, they found that most business startups began as one person companies. This is largely because of the challenge of obtaining financing and the uncertainty of the economic environment. Specifically, the study found that 0.32% of American adults per month started a business in 2011. This represents a 5.9% drop from 2010 levels but still among the highest levels in 16 years.

What kept the startup rate so high? With the unemployment rate remaining high four years after the recession, workers desperate to get back in to the work force have given up on finding a job in their field. Instead, many are starting small companies of their own. With larger companies still needing workers, the unemployed have found that becoming an independent contractor is the best way to get back to work and build a business of their own.

Other notable findings of the study included:

• Immigrant and native born citizens both started fewer businesses in 2011 but immigrants were twice as likely to start a business as those born in America.
• Both women and men started less businesses in 2011. Men saw a decrease of .02% and women only .01%.
• The construction industry is recovering. There was more entrepreneurial activity in that sector than any other sector of the economy.
• The less formally educated started more businesses in 2011 than those who held formal degrees and certifications.
• Los Angeles had the highest rate of business formation of all major cities in America.

Finally

Although the rate of business formation was down last year, it still sits at a much higher rate than what would considered to be the norm. This is great news for those considering opening a business in 2012. This proves that right now truly is a great time to be an entrepreneur.