However, 2015 saw a rise in startup activity—a first since 2010—according to a recent study by the Missouri-based Kauffman Foundation. Between 2014 and 2015 in the United States, the rate of new entrepreneurs increased by 10 percent, which meant there were 530,000 new business owners per month during the period.
Why are more Americans hedging their future on entrepreneurship? One explanation is that despite the government’s rosy picture of five percent unemployment, the U.S. labor participation rate is at a 38-year low at 62.4 percent—which means 94 million Americans are out of work.
“In North America and across Europe, more people are taking fate into their own hands by starting a business, by trying to satisfy local demands or by taking advantage of emerging trends,” says a spokesperson for U.K.-based Rapid Formations. The company formation expert added that “unstable economic policies and the continued outsourcing of manufacturing jobs have led many people to view small business as a way to build wealth, more so than working for an employer.”
A 2016 study shows that nearly one-fifth (17 percent) of entrepreneurs are aiming for an IPO, while over half (56 percent) expect their business to be acquired in the future. That’s one major advantage of starting and growing your own firm: You can generate cash flow, own the equity, and cash out when the business gets big enough to attract acquisition demand.
And there’s another interesting trend. For whatever reason, most new entrepreneurs are male (63.2 percent) while the percentage of new female entrepreneurs has fallen from 43.7 to 36.8 percent, according to the Kauffman report. Since small businesses provide over 90 percent of new jobs in most developed economies, a weak business climate can disproportionately hurt women, especially those with a family to feed. Additionally, many fall into the danger of over-reliance on government handouts that are often insufficient in satisfying long-term personal needs or aspiration.
While many entrepreneurs are optimistic that their small business can offer a better financial path, they still need to make sound choices—such as proper legal structure (i.e., whether or not to form a limited liability corporation), competing in the right industry, and deciding whether there will be access to enough capital. Not having a steady employment paycheck requires a penchant for taking calculated risks. So if you’re looking to join the ranks of entrepreneurs, consider why you want to start your business, and if the risk-reward ratio balances in your favor.
