STARTING A NEW BUSINESS: STARTING A NEW BUSINESS: MYTHS AND REALITIESMYTHS AND REALITIES

A Presentation by Steven E. PhelanDirector, UNLV Center for Entrepreneurship

WHO AM I?WHO AM I?

An aussie A pracademic• Professor & PhD• Executive & MBA• Consultant

Director, UNLV Center forEntrepreneurship• Teaching• Research• Outreach

Steve

WHY AM I HERE?WHY AM I HERE? To dispel the myths about starting a

business based on recent data To obtain a realistic portrait of the life of

an entrepreneur To help you make an informed decision

about starting a business To improve your chances of success• Successful entrepreneurs do a lot of

things differently than failed entrepreneurs

SOURCESSOURCES

Global Entrepreneurship Monitor (GEM)• An annual survey of national entrepreneurial activity in

42 countries

Panel Study of Entrepreneurial Dynamics (PSED)• Longitudinal studies of people intending to start a

business• An initial sample of 64,000 people in 1998 (PSED I)• A sample of 34,000 people in 2005-6 (PSED II)

Kauffman Firm Survey (KFS)• A longitudinal survey of ~5,000 businesses started in

2004

Scott Shane, Illusions of Entrepreneurship

Myth:

Reality: Up to 40% of the US population will be self-employed at some stage in their career About 1 in 10 are self-employed at any given time

I will never start a business.

Myth:

Reality:The proportion of American households owning a business has declinedSelf employment is only 58% of what it was in 1948 (the Wal*Mart effect?)

There has been significant growth in startups and small business in the last 50 years

Myth:

Reality:Turks and Thais are three times as likely to be self employedRicher countries have lower self employment

The US is the most entrepreneurial country on the planet!

Myth:

Reality:Entrepreneurs select industries with the highest failure rates because they are familiar and easy to enter (e.g. personal services)

Entrepreneurs choose the most profitable industries

Myth:

Reality:Ideas are a dime a dozenInvestors will laugh if you want an NDAExecution is what counts

Build a better mousetrap and the world will beat a path to your door

Myth:

Reality:The typical entrepreneur starts a business because he doesn’t like working for someone elseMaking a living is more important than striking it rich

Entrepreneurs start businesses to get rich

Myth:

Reality:People are statistically more likely to become self employed if they are unemployed, change jobs often, or earn less money

Entrepreneurs have a record of success

Myth:

Reality:The typical entrepreneur is married, white, and in his fortiesDemographics are more important than psychology

Pretty much anyone can become an entrepreneur

Myth:

Reality:92% of owners have prior experience in the industry (10+ years on average)Certain industries generate more self-employment (think plumber vs. librarian)

Pretty much anyone can become an entrepreneur

Myth:

Reality:Most are home-based businesses with a well-known product or serviceMost startups don’t have a business planTeams are rare (more likely to be mom and pop)

Most startups are innovative hi-tech teams chasing profitable opportunities

Myth:

Reality:Only 1/3 of people who initiate the start-up process had positive cash flow after seven years

Starting a business is easy

Myth:

Reality:75% of startups do not employ anyoneOnly 10% have more than 5 employees81% of startups have no desire to grow

Startups create employment

Myth:

Reality:The median startup required ~$25-$30K

You need a lot of money to start (or buy) a business

Myth:

Reality:Half receive no external financing at allMoney tends to come from personal savings and personal debtOnly 1 in 12 startups received equity from family & friends

Entrepreneurs use “other people’s money”

Myth:

Reality:VCs funded only 0.03% of all new businesses in a given year92% in IT and healthcare

Venture capitalists fund new ventures

Myth:

Reality:Angels contribute twice as much as VCsOther informal investors fund seven times as much but are less wealthy, make smaller investments, and expect lower returns

Angel investors fund new ventures

Myth:

Reality:Around 25% fail in a year, about 50% in five years, and 70% in ten.

Most businesses fail within a year!

Myth:

Reality:One study found entrepreneurs earn 35% less over ten years with more uncertainty and lower benefits (18% if matched)They also work 13+ more hours a week on average but are more satisfied

You earn more working for yourself and work less

Myth:

Reality:On average, business owners have 5x the net worth of non-ownersThe wealthiest 10% have 75% of all business wealthMost founders are over-optimistic about their prospects

Starting a business can make you wealthy

Myth:

Reality:An IT firm is 600 times more likely to be in the Inc 500 than a restaurant firmSurvival rates vary by industry too

Work hard and you can be successful

SECRETS TO SUCCESSSECRETS TO SUCCESS

Get some education Get experience in your industry Start marketing early Work with a team Get external financing Form a corporation Enter an attractive industry Seek a competitive advantage Write a plan Do something Persevere!