Startup Activity at Record Low: Challenger

Posted by: John Tozzi on July 20, 2010

The share of high-level job-seekers exiting an outplacement program who start their own businesses dropped in the first half of 2010 to the lowest two-quarter rate on record, according to data from the outplacement firm Challenger, Gray & Christmas released July 19.

Challenger, which provides training and counseling to job seekers, says just 3.7 percent of job seekers leaving its outplacement program are going into business for themselves in the first half of 2010, compared to an average of 8.6 percent in the full-year 2009. The data is based on a quarterly survey of 3,000 people, including 75 percent to 80 percent former managers or executives, Challenger spokesman James Pedderson says in an email.

Scarce financing and improving job prospects are steering more of these workers away from entrepreneurship, says Daniel Cohen, a lecturer at Cornell University’s ILR School. “Whether you’re starting a small business or you want to make a more scalable business and raise venture funding, either way the capital is harder to come by,” Cohen says.

But the lower startup rate might be a good sign. The unemployment rate, at 9.7 percent, remains high, but job losses have abated and some companies resumed hiring in 2010. The private sector added 593,000 jobs in the first half of 2010, compared to a loss of 968,000 in the last half of 2009, according to seasonally adjusted data from the Bureau of Labor Statistics. “For those that were thinking of doing a startup as a last resort…there’s more opportunity now,” Cohen says.

Startup activity tends to drop at the beginning of a recession, spike at the end when unemployment is highest, and drop when hiring resumes, Challenger CEO John Challenger says in a statement. (See chart below.) “Right now, we are in the early stages of recovery when the fundamentals of the economy are still pretty shaky, but employers are just starting to add workers back to their payrolls,” he says. Startup activity increases again as the economy improves, he said.

The Challenger survey, which began in 1986, showed the highest rate of startups over two quarters in the first half of 1989, when the unemployment rate was under 5.5 percent. At that time, 21.5 percent of Challenger’s exiting job-seekers opted to start businesses, the group says.

challenger_chart.jpg

Reader Comments

Lee Smith

July 21, 2010 8:06 AM

Don't bet on start up activity returning to historical levels. The Obama administration has made it increasingly unattractive to start new businesses. Obviously higher taxes in the immediate future, the need to pay for healthcare insurance (more taxes), lack of loans/funding available to small businesses, and the general governmental sentiment that the rewards of "those who work hard" will be summarily taken and given to "those who don't want to work." The problem is in the administration's "wealth redistribution" policies which are wholly un-American and are creating a country of lazy, unmotivated, and entitled people.

Resourceguy

July 21, 2010 10:38 AM

Go ahead and pass card check so we can get a look at how low the number can go. As it stands now we will have to wait a few years to see how Nobamacare hits small biz, especially the labor intensive categories of small biz.

John

July 21, 2010 12:15 PM

I'm a small businessman with five employees and since Obama became President, my taxes have not gone up one cent. I already offer my employees a basic health care plan so I'm actually expecting a tax credit next year, which will make it easier to hire more workers. And because I dont make anywhere near $250,000 a year I dont expect to pay more taxes for years to come, and by the time I do make that amount a year, Ill be happy to pay the additional taxes.

Anyway, if I see an opportunity to make money, I'll make the investment to grab it, regardless whether I have to pay 5% more on my tax bill--but I'm a businessman, not a right wing propagandist.

Joseph Ayon

July 21, 2010 1:20 PM

We understastand money makes money
and the people who have will continue
to surface but lee you must understand
the not so wealthy , weak , old , young
are the loborers , the foundation of this
country, they must remain idle so they
can rebuild and this is good for all of us because the flipside that you speak of
spreads like a cancer ...

The Engine !
Joseph Ayon

Resourceguy

July 21, 2010 3:03 PM

Good comments John, except for the fact that your tax credits and several million others are from borrowed money. Also,the cost of the health care program was raised above $1 trillion shortly after it was signed into law and even that figure is a monumental fudge factor when you take into account the traditional 10-year budget cost evaluation measure was manipulated with the use of a delay factor to make it a six year cost number presented as a 10-year cost figure and then raised above the $1T mark later. In small biz parlance this is equivalent to being burned by a sales pitch by a service contractor trying to win your business. Except in this case there are more paying parties involved in the marketing scam. After reading you comment, I doubt you are moved by the cost factor for the Federal budget changes whether they are the original sales pitch amount, the revised number, a true 10-year estimate, or 5x any of those numbers. I wonder where the extra $1, $2, or $5 extra trillion will come from?

Freda lewis

July 22, 2010 8:34 AM

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Ashley

July 23, 2010 6:51 AM

SBA 2009 new business formation data shows that in 2009 1 million new businesses were started in US, which is about 500K more compared to 2008.

Also, an interesting study by Tim Kane @ Kauffman Foundation shows that in the last 20 yrs, with the exception of several yrs., startups were net job creators.

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What's it like to run your own company today? Entrepreneurs face multiple hurdles new and old, from raising capital and managing employees to keeping up with technology and competing in a global marketplace. In this blog, the Small Business channel's John Tozzi and Nick Leiber discuss the news, trends, and ideas that matter to small business owners. Follow them on Twitter @newentrepreneur.

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