False Alarm

Entrepreneur, April, 1999 by Cynthia E. Griffin

The truth behind a reported drop in start-ups

IF YOU'VE read the news reports regarding a recent survey of business start-ups, you might think the small-business sky is falling. That's because according to a study by the National Federation of Independent Business (NFIB), the number of businesses started in 1997 fell 4 percent, following a 14 percent drop in 1996. "But this is a marginal change," says William J. Dennis, a senior research fellow at NFIB "There are still a lot of people out there starting businesses and looking for help."

Bruce D. Phillips, director of economic research at the SBA Office of Advocacy, agrees the statistics shouldn't be blown out of proportion. "You need six, seven or even eight [surveys] saying the same thing before there's cause for concern," he says.

What's really happening? According to Dennis, only about one-fourth of the respondents employed people other than themselves, while slightly less than half operated their businesses at least 40 hours per week.

In contrast to NFIB numbers, which primarily represent the self-employed, Phillips says SBA data on start-ups with employees showed record growth between 1993 and 1997. This, plus consumer confidence and strong growth in the economy, leaves Phillips satisfied that nothing unduly alarming is occurring.

                           The Sky's Not Falling
                                         1995  1996   1997
While the NFIB reports small-                  -14%    -4%
business starts are going down...
... the SBA reports starts are going up.       3.7%   6.7%
SOURCE: NATIONAL FEDERATION OF INDEPENDENT
BUSINESS AND SBA OFFICE OF ADVOCACY