American Express, IBM, and National Small Business United have gotten together on a study of business startups that projects a decline in startups over the next ten years. The reason is a decline in the demographic group that traditionally starts businesses -- twenty-five to forty-four-year-olds
The study also suggests that there's a significant churn rate in startups today, and that nine businesses close for every ten that open. They predict that churn rate will drop and perhaps the numbers will reverse themselves.
Finally, the study predicts that the flood of money pouring into dot coms will start to be more broadly dispersed among a range of business types.
WALLY's COMMENT . . .Two of those findings make a lot of sense to me. Changing demographics have almost always driven rises and declines in certain activity measures. Increase the number of sixteen to twenty-four-year-olds, for example, and crime rates go up.
It makes sense to look at why the twenty-five to forty-four-year-old group is the group that starts businesses. In part, it's because they get to a point where they've worked for awhile, and decide that working for someone else is not the way to go. In recent years, that may have happened involuntarily through down sizing, re-engineering, and other efficiency building but organization gutting tactics.
This is also an age where energy is up, there are more resources available than when people emerge from the educational pipe, and there's not a lot of vesting yet in pension plans and immovable benefit packages.
Okay, that one makes sense. The other one that makes sense to me is the change in the flow of capital from dot coms to other kinds of businesses.
First of all, the idea of a dot com as a particular kind of business is going to disappear, too. It will continue to exist in the same way that a catalog is a particular kind of business. It's just part of the business landscape if that's all you do, but lots of businesses will do dot com things just like they do catalog things.
Also, you can't expect even the most hallucinogenic investors to continue to value shares based on revenue when no profits are flowing in. You can't continue to see an economy grow, based on a burn rate of venture capital. This has got to stop, and it will.
When it does, there will be available investment money looking for places to light. Some of it will light in other parts of the stock market, but some of it will go to small-business startups.
Published 4/2000
Reviewed: 2/15/03
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