Not Making a Profit in Your Start-Up? You're Not Alone

Most start-ups don't see revenue in their first year of business and more than half show a loss during their first year, according to new data released (pdf) from the Kauffman Foundation.

The group has been tracking about 5,000 businesses founded in 2004 to get a better snapshot of how start-ups function, innovate and survive.

The foundation, which released the first findings last week, is looking at a variety of issues endemic to start-ups including debt and equity financing, employee benefits, business innovations and outcomes such as sales and profits.

Men owned nearly 70 percent of the businesses in the study. Whites owned more than 81 percent of the start-ups, while blacks owned 9 percent. Hispanics owned 6.6 percent, with the remainder owned by Asians, Native Americans, Pacific Islanders and other racial groups.

"New businesses play an important but not-well-understood role in our dynamic economy," said Robert Litan, vice president of research and policy at the foundation. "These insights into the earliest years of a firm's existence are essential for creating public and private programs that encourage new business development, innovation and sustainability."

Some highlights from the study:

* Most of the equity invested in the businesses came from the business owners themselves. Parents were the most common source of external equity at 3.4 percent, followed by spouses at 1.6 percent.

* Nearly 44 percent of new businesses had no debt financing during the first year of operation. Seventeen percent started with $5,000 or less while about 11 percent started with $100,000 or more.

* About 9 percent of firms closed during 2005. Eighty-eight percent of black-owned business survived, compared with 92 percent of white-owned firms and 91 percent of Asian start-ups. Women-owned businesses showed a 89 percent survival rate, which was about three points lower than new firms owned by men.

* Just over 2 percent of businesses owned patents during their first year of operation - most of them being from the high tech sector. About 9 percent reported having copyrights. Thirteen and a half percent had trademarks, regardless of their tech status.

By Sharon McLoone |  March 25, 2008; 9:15 AM ET Data Points
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Interesting study on survival. What I do know is that many woman start one company that evolves into something else. Several of the members on MyWomanOwnedBusiness.com have done so. Evolution is the key.

Posted by: Kimberly | March 26, 2008 2:08 PM

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