The combination of inexpensive technology, accessible virtual markets, and easy funding through crowdsourcing is changing the face of entrepreneurship. Today’s new business starters are socially sophisticated, willing to bear more risk than previous generations, and more likely to work out of a home or small office and rely on others for business processes. Some are small guerrilla outfits surfing from one hot concept to the next, and some are venture capital-funded geniuses with disruptor ideas.
It is a great time to start a new business – the best time in history.
The Keys to Success
America has always been the land of opportunity, the Mecca for entrepreneurship. While great fortunes have been made by immigrants and first-generation Americans such as Andrew Carnegie in steel, John D. Rockefeller in oil, and William A. Clark in copper, thousands of others formed successful small companies that provided financial security and employment for hundreds of thousands of their fellow citizens.
The possibility of being responsible for one’s own fate has never been greater in the history of the country. Latent opportunities for new ideas and businesses have exploded exponentially, each new concept and novel interpretation of old methods pregnant with possibility, just waiting to be birthed. There are several key reasons why this is so.
1. Cultural Accommodation
For much of history, capitalism was restricted to the beneficiaries of high birth, ancestral wealth, and exclusive education. The wide-open spaces and untapped resources of the new continent in the 19th century shattered cultural norms that had existed for hundreds of years. Entrepreneurs flooded the country, exploiting new resources, new markets, and new technology to create the greatest industrial nation in the history of the world.
Despite the success, access to these new possibilities was unfortunately generally limited to white males. Minorities (except in their limited communities) and women were excluded, restricted by racial prejudice, cultural stereotypes, and inefficient educations.
America in the 21st century is a more open society and access continues to broaden regardless of sex or ethnicity – anyone smart enough and brave enough to create a new business can try. According to a 2013 American Express report, there are 8.6 million women-owned businesses in the country, generating more than $1.3 trillion in revenues and providing jobs for 7.8 million employees. The rate of growth between 1997 and 2013 in new women-owned businesses has been one and a half times the national average. In a U.S. Census News release in 2011, Tom Mesenbourg, deputy director of the U.S. Census Bureau, proclaimed, “The growth in the number of minority-owned firms – both employers and non-employers – has far outpaced that of businesses overall.”
Led by federal and state governments, programs to assist potential new business owners are readily accessible and generally free. An entrepreneur can access classes ranging from basic accounting, to sophisticated product and service contracting. Face-to-face onsite mentoring is available from organizations such as S.C.O.R.E., while municipalities, colleges and universities, and private businesses offer incubator facilities with administrative and accounting assistance at low cost. Federal laws require that a percentage of federal contracts be subcontracted to small businesses and provide detailed contracting assistance for those individuals and companies who seek such work.
2. Open Markets
The overwhelming ubiquity of the Internet has opened worldwide markets for companies of all sizes. A one-person operation with a website and a presence on social media can reach consumers across the world as easily as the neighbors down the street. People in all countries are exposed to the same news and cultural phenomena, so a popular product or service can easily go viral across borders. Traditional distribution channels are under pressure to expand and eliminate barriers of cost or exclusivity that once existed. In short, an entrepreneur today can sell anything to anybody any place on the globe.
While mass markets are more available, the ability to use demographic and social media data to identify small, specific, specialized markets has never been greater – or easier. A specialty dog food company can target dog owners by breed and age, a design artist can market to self-publishing e-book authors, and a garage rock band or a fledgling movie maker can create a worldwide presence via sites like YouTube. A mobile phone app such as Candy Crush becomes an overnight sensation and is the impetus for a public stock offering. Whether the entrepreneur’s aim is the local community or buyers across the oceans, the opportunity is there.
3. Inexpensive Technology
As the Internet has spawned open markets, technological advances have driven down costs, improved quality, and increased access to those who are less mechanically or production-inclined. Few businesses today produce 100% of their products or services with company-owned equipment, facilities, or employees.
Scores of specialty manufacturers are available, whether on the next block or half a world away. Robotic machines can cut, mill, weld, shape, and paint materials of every sort to the most demanding specifications. Third-party logistics companies can source, store, and deliver products of all sizes, fragility, and duration at low cost in local and remote facilities. Even more personal and intimate aspects of business, such as customer service and technical support, can be provided transparently and multilingually from foreign lands.
Software translators can interpret and simplify the most complicated computer language, expanding its utility and providing extraordinary computational power to the most technology-averse users. Printed materials can be provided remotely, on-demand by customer-owned printers; art and photographs can be manipulated easily by sophisticated programs available for free over the Internet; and one-of-a-kind physical prototypes to complete parts and models can be created from multiple materials by 3D printers.
Technology has changed the face of employment across the world, introducing telecommuting, job-sharing, and video conferencing to the old world of centralization, standardization, and limitation. Entrepreneurs selling their services and talents, whether business consultants, administrative specialists, artists, or writers, can efficiently serve clients and customers as easily as before with much less expense.
4. Accessible Funding
Historically, a person with an idea for a new business, but no money, had to go hat-in-hand to those with capital, begging and pleading for an investment. The process, including presentations, exhaustive explanations, and multiple projections, more often than not failed to achieve the sought-after funding. To their chagrin, entrepreneurs learned quickly about the financial golden rule: “He who has the gold makes the rules.”
Those seeking capital were required to deal with arcane, even nonsensical, rules about who could be solicited, the amount of funds that could be invested, and how the money could be used. It was an expensive and time-consuming system that served neither entrepreneur nor investor. As a consequence of extensive and expensive regulations, many entrepreneurs simply gave up or fell prey to unscrupulous promoters and con artists who flourished as a result of the inefficient enforcement of complicated laws.
However, today a person starting a new business has access to individual investors (sometimes called “angels”), venture capital funds created for the sole purpose of investing in new ideas and new companies, public and private offerings to groups of investors, and government-subsidized debt through the Federal Government’s Small Business Administration programs. Though investors still have to prove the merit of their ideas, their options for funding are greater and the process, generally, is less convoluted.
Several sources of funds include:
- Large Corporations. Corporations are often willing to fund and even encourage start-up companies to provide services and products to the bigger companies and discover and develop niche markets outside those larger companies’ area of interest.
- Private Banks. Banks are ready to assist new business owners with capital asset purchases, accounts receivable, and inventory short-term loans, joining traditional finance companies and factors.
- Franchisors of Proven Business Concepts. Franchisors frequently provide favorable funding to encourage new franchisees and existing small business owners (seeking to sell their business and retire), to accept long-term payment arrangements in lieu of cash, thereby allowing the new owners to pay for the company out of operations.
Relaxed government regulation has generated a new industry dedicated to start-up funding with at least two different approaches. A donation-based model is attractive to investors who share common social goals or seek products, perks, or rewards in return for investment. For example, a band or an author might provide royalties in return for investment, or a restaurateur might discount meals or provide special seating. In investment-based models, on the other hand, ownership stakes or debt are sold online so those who invest become shareholders in the funded enterprise.
According to the 2013 Crowdfunding Industry Report by Massolution, crowdfunding platforms raised $2.7 billion in 2012 – and that number was expected to almost double in 2013 to $5.1 billion. A few notable websites for entrepreneurs seeking funding include the following:
- Kickstarter. One of the earliest platforms, Kickstarter, focuses on donation-based funding for creative entrepreneurs such as authors, artists, musicians, and filmmakers.
- Crowdfunder. Crowdfunder is the leading site for businesses whose fundraising is localized to cities and regions across the United States and Mexico. It provides donation- and investment-based approaches.
- Somolend. Somolend focuses on debt-based investment funding to small businesses, providing a vehicle for entrepreneurs to attract friends and family, as well as local banks to partner with the site.
In addition to the possibility of using “OPM” – i.e., “other people’s money” – to fund a new company, individuals are often in the position to capitalize their own operations by using employer savings and investment accounts to which they have contributed for years, as well as severance payments and personal investments made during earlier employment. Of course, if the business idea or the proposed management – you – cannot justify an investment, starting a company is not a good idea.
5. Relaxed and Beneficial Regulations
In 2012, the Jumpstart Our Business Startups Act (JOBS) was passed, greatly expanding the sources of capital available to prospective and existing small business owners. The law eased federal registration requirements for small businesses with assets under $10 million and 500 or fewer shareholders. It also expanded the potential universe of investors to include those earning less than $100,000 annually (with a limit on the amount which such potential shareholders could invest), and allowed broader public marketing efforts than had previously been in place. As a consequence, the potential investment pool for start-up companies was dramatically expanded.
Although tax laws are in constant flux, Congress has shown a willingness to accommodate and encourage small business ownership. Use of the home office deduction was simplified with an alternative deduction method. Also, increased limits for contributions and benefits of qualified retirement plans, and increased credits for employee health insurance are among the 2014 regulations. Plus, the likelihood is high that favorable regulations on accelerated depreciation and the multiple-business credit which expired in 2013 will be extended before 2014 taxes are due.
Business owners with fewer than 50 employees are exempt from provisions in the Affordable Care Act of 2010 requiring certain companies to provide employees with health insurance. However, the recently created health insurance exchanges are likely to provide small businesses with better health insurance options and with better coverage at lower costs. It should be noted that the law is very controversial and is likely to be significantly amended in the coming years.
In the words of William Durant, a high school dropout who founded General Motors, “Forget past mistakes. Forget failures. Forget everything except what you are going to do now and do it.” The American Dream has always been to own one’s business, to reap the rewards of your effort and intelligence without penalty. If you have an idea or a desire to be a business owner, today is the best day to begin the process.
Are you thinking about starting a new business?