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Keys to Success: The Ups and Downs of Starting a Business

Strategy

Keys to Success: The Ups and Downs of Starting a Business image Screen shot 2013 09 23 at 4.29.52 PM

Many small business owners are used to hearing “there’s good news and bad news,” and that’s certainly true with a recent roundup of headlines. Here’s a look at three recent nuggets, which show the ups and downs of entrepreneurship.

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Let’s start with some positive news, which comes from the Wall Street Journal/Vistage International Small Business CEO survey. Out of 728 businesses polled in April, 61 percent say they expect to increase hiring — up from 59 percent in March. The survey’s Small Business Confidence Index, which reflects “small business managers’ sentiment on overall economic conditions, as well as their firms’ profit projections,” is up to 108.8, compared to 107.4 in March.

The Journal’s story features Dr. Richard Curtin, a researcher with the University of Michigan. Curtin, “who reviewed the Vistage poll’s findings, said that in the past year, small business owners have been mostly focused on having to manage new regulations, such as healthcare and overtime policies, but now they appear ready to return their attention to business operations again and create jobs.”

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Forecast: Not so sunny

You know you’re in for a doozy when a story mimics the beginning of A Tale of Two Cities: “It is the best of times, and it is the worst of times.”

That’s where we start with “The Mysterious Death of Entrepreneurship in America,” by The Atlantic. Derek Thompson’s story aims to define the modern entrepreneur, from the tech wunderkinds — on the rise through venture-capital funding — to small family businesses. He likens entrepreneurs to a block of ice, and it’s not doing well:

“What’s melting, exactly? Not the kids’ apps, but the mom-and-pop stores. Derek’s Coffee and Thompson’s Corner Store would be considered startups. But a new Starbucks or Whole Foods is considered part of an existing franchise. So as chains have expanded by more than 50 percent since 1983 … startups have perished.”

Among the examples: construction and manufacturing startups, which have dropped 60 percent in 40 years, Thompson says.

His overall point is that startups should be celebrated, because their presence differs from large companies’ overseas swelling.

“Startups can be special for many reasons,” he says. “They can challenge lumbering incumbents, they can create new demand for stuff, they can introduce more ideas — but from a big picture macroeconomic standpoint, they’re also special because they’re here, and when they expand they tend to expand here.”

Entrepreneurial swagger

James Surowiecki examines “epic fails of the startup world” in a recent piece for The New Yorker. He credits angel investing and crowdfunding for making it easier to get a small business off the ground. The catch, he says, is turning that small business into a sustainable success, thanks to tough competition and “scarce” profits. In examining why so many are willing to take a risk with a new business venture, he chalks it up to overconfidence:

“David S. Rose, a serial entrepreneur turned angel investor, and the author of the new book Angel Investing, told me, ‘You have to have an unreasonable level of confidence as an entrepreneur, or you’ll never get started.’ This helps entrepreneurs keep going in what’s often a bleak and frightening endeavor. ‘Starting a company is extraordinarily difficult, even agonizing,’ Rose said. ‘You need self-confidence and ego to get through it.’”

Surowiecki concludes that such confidence contributes to the economic form of Darwinism, and that it ultimately keeps innovation alive. He quotes Brian Wu, a professor of strategy at the University of Michigan, to illustrate his point.

“Overconfidence means that many more companies start up than will ever succeed,” Wu says. “That’s unfortunate for individual companies. The paradox is that it’s really beneficial for society.”

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