WSU Online MBA

Three Things First-Time Entrepreneurs Should Know

Knowing business stats are helpful when starting a business.

Did you know that, according to the Global Entrepreneurship Monitor, 27 million working-age people in the United States are starting or already running new businesses? Some 80 percent of those who plan to start a new business in the next three years are even going so far as to register their business ideas with the U.S. Small Business Administration or secure leasing space.

Business statistics are essential to entrepreneurs because they offer insight into determining which data and conclusions are trustworthy when moving forward with a business. Without stats, entrepreneurs may be forced to make decisions based on gut feelings and educated guesses. Online Executive MBA students and others looking to set out on their own and increase their opportunity for sustained business success should know the answers to three key entrepreneurial questions.

1. Who is Starting a Business?

Knowing who is starting a business is important to entrepreneurs because they need to be aware of who is securing funding, how they can go about expediting their own process, and if the time is indeed advantageous for them to undertake starting their own business.

The Kauffman Foundation’s 2016 Index of Startup Activity notes that 84 percent of people willingly take risks when beginning their own business, as opposed to the 16 percent who deem it necessary because of unemployment or other financial hardship. In 2014 and 2015 alone, more than 550,000 individuals per month began their own business.

Diversity of entrepreneurs is also on the rise – 2016 saw the highest rate of women starting their own businesses in almost 20 years, rising from 220 businesses per 100,000 women to 260 businesses, for an earning average of $72,529. Kauffman senior research analyst Arnobio Morelix believes that the nation’s awareness about underserved minority demographics is good news for a more diverse entrepreneurial community.

“Anecdotally, we’ve seen a lot of economic anxiety across a lot of different demographic groups,” he said. “At first it came as a concern to the shakeup of business infrastructure, but soon enough individuals who hadn’t previously been invested in the possibility of starting their own business became fascinated by the idea and began applying what they had learned.”

Those who are not inclined to woo angel investors or venture capitalists are likely to find that securing the necessary funds from a traditional bank is easier said than done. And despite the growth in diversity, men still led the way when it came to building their own startups – 420 businesses per 100,000 men, leading to 60 percent higher gross earnings than female-owned businesses.

2. What is the Forecasted Growth in Technology?

Entrepreneurs need be aware of the latest technology trends for marketing a business. First, company executives now look to video as a key way of receiving business information. According to a recent study conducted by Forbes:

• More than 80 percent of executives said they are watching more video than they did just one year ago.
• 75 percent of executives said they watch work-related videos on business-related websites weekly.
• 52 percent of executives watch work-related videos on YouTube weekly.
• 65 percent have visited a vendor’s website after watching a company video.
• 55 percent of users say they watch an entire video, as compared to 29 percent who read short blogs in their entirety and 33 percent of executives who read longer articles in their entirety.

“Video will be all over [different platforms] in 2017,” said Mike Arce, founder of Loud Rumor Marketing Agency in Scottsdale, AZ, “and businesses need to keep up. This includes Facebook Live, Snapchat, YouTube, video series, and more.”

Joselin L. Estevez, a digital marketing and social media director at X Factor Media, believes video broadcasts through social media platforms will increasingly be used as a sales platform referred to as live video commerce.

“You can now buy through Facebook and even Instagram through third-party apps,” he said. “This is great for startups and those who don’t have the resources for an e-commerce store.”

As opposed to traditional broadcast outlets, live video commerce provides advantages to businesses, especially startups, because little capital outlay is needed and the message is delivered quickly and directly to consumers.

Secondly, social media integration is not new, but the importance it plays in small businesses is. Forty million businesses have already established a social media marketplace for themselves to take advantage of the more than 1 billion people who visit Facebook business pages each month. Facebook itself estimates that 75 percent of all brands on the site pay to promote their posts.

Business Insider estimates that 64 percent of all brands follow other businesses on social media to find solutions to their needs. Whether seeking clientele, keeping an eye on the competition, or sharing company briefs and advertisements with others, the Internet will continue to be a driving force for business relations, especially for entrepreneurs.

Finally, with the advent of smartphones, the ability to reach customers anytime, anywhere has increased. Radware, a cloud-based security firm headquartered in Tel Aviv, Israel, finds that more than half of all e-commerce traffic comes from mobile use. Clutch, a software and financial advisory firm in Washington, DC, notes that almost 50 percent of all small businesses expect to have a mobile app in 2017.

According to GoDaddy, six out of every ten small businesses are not online – even though, overall, 83 percent of small business owners believe they have a distinct advantage over their competition. A fully functioning website is just the tip of the iceberg when it comes to promoting your business’ distinct advantage and being prepared for success as an entrepreneur. Having an online source where customers can view products, services, and pertinent information any time of the day helps entrepreneurs succeed in the 21st century.

3. What are the Economic Risks and Cash Management Strategies?

According to a U.S. Bank study, 82 percent of businesses fail because of cash flow problems. Even so, a 2015 report by the National Association for Small Businesses (NASB) says that 75 percent of business owners report that they are confident in their ability to stay afloat.

Many of these entrepreneurs feel positive because they have the $80,000 that the Kauffman Firm claims is necessary for startup capital. As a best practice, entrepreneurs should know how long their cash reserves would enable them to stay open for business if their expenses exceed their sales.

Because of increasing interest rates, many entrepreneurs look for alternative investment options. The crowd-funding resource Fundable found that friends and family are the main sources of funding for entrepreneurs, investing more than $60 billion in 2015, almost triple the amount coming from venture capital sources.

For the startups that were able to secure funding, approval rates varied. In 2015, the SBA broke down the rates according to gender, ethnicity, and location:

• 29 percent approval for minority-owned businesses
• 57 percent approval for white-owned businesses
• 71 percent approval for male-owned businesses
• 29 percent approval for female-owned businesses
• 17 percent approval for rural-located businesses
• 83 percent approval for urban-located businesses

According to the NASB, many business owners are shying away from the once-popular C-corporation structure that follows stringent internal and external corporate formalities and obligations. C-corporations are good for business owners who plan to raise money through venture capital funding or stock offers. The disadvantages of C-corporations include expensive fees that are part of filing the Articles of Incorporation, no deduction of corporate losses, double taxation on earnings of the company and regulations on how shareholders must pay taxes on dividends received.

The majority of new businesses are organized as S-corporations (43 percent), and limited liability companies, or LLCs (23 percent).

Many entrepreneurs prefer to take advantage of these corporate structures because of the protection and tax incentives they offer. Both feature pass-through tax incentives, meaning no income tax is paid at the business level, instead profit or loss is passed along through the owners’ personal tax returns.

Entrepreneurial Know How

Entrepreneurs who take the time to research the appropriate statistics will see the benefit in the strategy and planning phase of launching a new business. While developing a plan can be time consuming, it provides the framework and success measures that can keep a new business on track.

ABOUT WSU’S ONLINE EMBA PROGRAMS

Online Executive MBA students at Washington State University can learn to craft high-level business strategies and develop a strong foundation in problem solving, ethics and leadership. The program has a full-featured curriculum designed to help executives and entrepreneurs successfully analyze and synthesize information. For more information, visit WSU’s EMBA degree website.

Sources:

• NIFB: http://www.nfib.com

• NSBA: http://www.nsba.biz/wp-content/uploads/2016/02/Year-End-Economic-Report-2015.pdf

• SBA: https://www.sba.gov/sites/default/files/2014_Finance_FAQ.pdf

• https://www.sba.gov/sites/default/files/advocacy/SB-FAQ-2016_WEB.pdf

• Entrepreneur: https://www.entrepreneur.com/article/275813

• Forbes: http://images.forbes.com/forbesinsights/StudyPDFs/Video_in_the_CSuite.pdf

• Business News Daily: http://www.businessnewsdaily.com/7605-business-trend-predictions.html

• Forbes: https://www.forbes.com/sites/forbesagencycouncil/2017/02/09/why-live-video-commerce-is-a-game-changer-for-marketers/#6283e388719c

• Biz2Credit: https://www.biz2credit.com/research-reports/women-owned-businesses-improved-2015

• HBR: https://hbr.org/2014/02/scaling-up-is-a-problem-of-both-more-and-less

• Radware: http://www.webperformancetoday.com/2015/02/04/11-reasons-care-mobile-performance-2015-infographic/

• Clutch: https://clutch.co/app-development/resources/small-business-mobile-apps-2016-survey

• GEM: http://www.gemconsortium.org/report

• Fundable: https://www.fundable.com/learn/resources/guides/investor-guide/types-of-investors

• Green Candy Media: http://www.greencandymedia.com/services/

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