Startups Staying Leaner

Susan Hall

I think my colleague Ann All called it last fall by saying that startups alone can't save the U.S. economy. Yet we hear all the time that that's where the real job creation takes place.


However, a new study from the Ewing Marion Kauffman Foundation, which studies entrepreneurship, found, as the Huffington Post put it:

new businesses are starting smaller, folding faster, and adding fewer jobs to the economy than before. ...
Since 2006, according to the study, the annual number of new startups has fallen by about a quarter. They're starting out with fewer employees than they used to - a trend that began sometime around the year 2000 - and they're not lasting as long. Only 61 percent of firms established in 2007 survived longer than two years, compared with 65 percent of firms that got their start in earlier periods.

So this all started before the recession.


The report includes these Labor Department statistics:

  • In 2010, 2.5 million jobs were created by startups, compared with 4.7 million jobs annually between 1997 and 2000.
  • Startups created about 2.6 percent of total jobs annually across the nation in the 2000s, compared with 3.5 percent in the 1980s.
  • A new business today starts with an average of 4.9 jobs, compared with an average of 7.5 employees in the 1990s.


U.S. News & World Report quotes Michael Mayernick, co-founder of the startup group Proudly Made in DC, saying of the trend toward staying lean:

There's a huge culture around outsourcing or finding service online, like to do your accounting. Anything that's non-core, I think there's a desire to outsource it, not necessarily internationally, but just find some other tool or some other resource that's outside the formal employment structure of the company ... It's a huge part of the early-stage business community that I've seen and I can only imagine it's a trend that will continue to accelerate.

He's talking specifically about IT startups. Elsewhere, it's hard to get a handle on the true picture of general small-business hiring.


A report released Thursday by payroll company Automatic Data Processing Inc. and consultancy Macroeconomic Advisers found hiring picking up in businesses that employ 50 or fewer workers. It said small businesses added 88,000 jobs in June, up from just 27,000 in May, which conflicts with the Labor Department numbers.


Meanwhile, the National Federation of Independent Businesses reports that 75 percent of business owners made no change in employment during June. Only 9 percent hired, while 16 percent cut jobs. Only 5 percent of those surveyed viewed the next three months as a "good time to expand."


And the U.S. Chamber of Commerce reported Monday from a survey of 1,409 small-business executives that 64 percent do not expect to add positions in the next year. Nineteen percent said they would expand their work forces and 12 percent planned to cut jobs, according to The Wall Street Journal.

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