Editor’s note: This article was first published in October 2011, and reflects 2011 context: the post-crisis US labour market and the Obama administration’s plan to support new businesses.
The United States has broken its own unemployment record in its recent history, and at the same time business creation is at its highest rate in 20 years. The problem is that, according to a recent study, only 4% of new companies were started by entrepreneurs who were unemployed.
In other words, 96% of new businesses are started by people who have left their jobs to go it alone, and most of these businesses don’t need to hire anyone, so the country’s unemployment rate will keep rising.
Why does this kind of “new entrepreneur” leave their job?
We’re back to the American business mindset, where working for someone else isn’t the dream of anyone who once trained for a profession. This kind of entrepreneur knows they aren’t safe at the company. Every week they see staff cuts, so they figure it’s only a matter of time before their turn comes.
In other cases, this entrepreneur has ideas to propose to the boss that are neither listened to nor acted on, so if they’re right, the company could suffer further losses. The point is that they don’t want to leave their professional future in the hands of someone else’s management, and that’s why they decide to act.
And in most cases, there’s no particular reason at all. It’s simply called personal and professional growth. This entrepreneur has the advantage of still being actively employed, has the necessary contacts, knows the business model and could win over some of their current employer’s customers. Even if they start their business from scratch, they aren’t really starting from scratch, because they have everything they need. They’ve already drawn up a business plan and assessed the risks, finding a way to open their business without hiring staff, simply doing for themselves what they had been doing for someone else.
The problem with these entrepreneurs in the United States is that, under Barack Obama’s government plan to support new businesses, this new business owner takes advantage of some of the aid intended for job creation and sets up a company that needs no employees, while also taking customers away from their former employer. In the long run, the company not only loses a qualified worker but also some of its customers, which lowers its profitability and leads to more layoffs. So: more companies, but more unemployment.
Some people think that quitting your job to open a business in a crisis is very risky, whereas these entrepreneurs believe the risky thing during a crisis is to do nothing and wait for someone else to fix things. Even so, to make sure everything goes well and to reduce the risks, they often follow the advice we gave on starting a business with no money. When you fund your business with your own salary, the risk drops considerably.
Another striking figure is the success rate of this kind of entrepreneur: more than 80% build profitable businesses in their first year. If we apply the statistics to Spain, a 20% success rate for new businesses in their first two years is still a pipe dream today, and perhaps it’s better to start a business because you really want to than because you have to. Either way, as we’ve said before, success begins with wanting to, knowing how and being able to.
Further reading
- The advantages of starting a business in times of crisis
- Why new businesses fail
- How to overcome the fear of starting a business
- Mistakes to avoid when setting up a business
- Donald Trump: the mindset of an entrepreneur
Featured image: Josh Hallett from Winter Haven, FL, USA, CC BY-SA 2.0, via Wikimedia Commons.
