From their own local communities to the U.S. economy, small businesses are the heart and soul of entrepreneurship, job opportunities, and diversity in America. Small businesses create two out of every three jobs in the private sector, and in 2018, 99.9 percent of all companies in America were classified as small businesses.
Small businesses are the backbone of the American economy, but starting one isn't without its challenges. The U.S. ranks 53rd in the world for entrepreneurs looking to launch their enterprises, and just 69 percent of small businesses successfully make it past their second year.
Starting a business is a dream for millions of Americans, but launching a new project and making it profitable is much easier said than done. For an inside look at the different stages of starting a business and keeping it going, we surveyed over 660 entrepreneurs across the country, including those who'd already started their business and others who were planning to. Read on as we explore what encourages people to start their own business, how many hours they expect to put in, how they fund their ventures, and the hardest part of being a businesses owner.
A majority of the American population may not have experience playing professional sports, but starting a business might not be very different. With similar stress and anxiety triggers, starting and running a successful business is in no way guaranteed. Only 1 in 3 ventures survive past 10 years, and that doesn't consider how much energy and sacrifice it takes to get there.
With so much work necessary for success and so much risk tied to failure, what inspires Americans to bet on themselves and their small business dreams? According to 26 percent of future business owners and 27 percent of current entrepreneurs, the motivation was the same: being their own boss. Running your own business often means being in charge of every element from branding to marketing and sales techniques.
While men were more likely to start a business to be their own boss or to make more money, female entrepreneurs were more likely to start a business to pursue their passions. Women were also most interested in having a flexible schedule and making a difference in the world. Would-be business owners may not be underestimating the task ahead, either. More than 83 percent of people planning to start their own business assumed it was difficult, compared to more than 65 percent of current business owners who said the same.
Starting a business is a major commitment. The first thing you'll need in abundance is a commodity that money can't buy: time. No matter how passionate you are about your brand or how good your idea is, small businesses won't run themselves, and it often takes twice as long as you expect to get things off the ground.
While the amount of time an entrepreneur will need for his or her new business varies based on their experience and the industry, 89 percent of people looking to start new ventures expected to work full time on their businesses.
Their assessment wasn't far off, either. Eighty-four percent of current business owners worked full time, although full-time business owners still worked less than when they were employees elsewhere. Even when they clocked 51 hours or more a week on their own brand, business owners worked nearly 14 hours less, on average, compared to before starting their own business.
Small business owners represent a diverse landscape across the U.S. but may not always approach entrepreneurship the same way. In 2018, women were more likely than men to start a small business and significantly more likely to launch businesses in retail, health care, and education.
In some cases, women may expect to put in more hours starting their own business compared to men. While aspiring female business owners working 35 hours or less a week expected to work fewer hours as business owners than men, women working 51 hours or more a week at their current employer painted a different picture.
Compared to men who anticipated shaving 14 hours a week off their time cards as business owners, women currently working over 51 hours a week only expected to work four hours less after starting their own business on average. Men might have a more accurate expectation of how much time they'll need to be a business owner. Of those who worked 51 hours or more a week after starting their own venture, men worked nearly 13 hours less, on average, and women reported 15 hours less during the workweek.
In addition to time and energy, starting a new business takes a certain level of financial funding. The amount of capital an entrepreneur will need to launch his or her startup is different from industry to industry, but everyone needs at least some money to get things started. Considering most aspiring business owners expected to work full time at their new venture, it's important to remember a startup may not be profitable for months or even years after it's launched.
Experts say you don't just need enough money to cover overhead, either. Business owners need a plan in case unexpected expenses pop up and backup funding in case they've underestimated how much it really costs to keep things running.
Nearly 80 percent of aspiring business owners anticipated using their personal savings to fund their business, while another 31 percent expected to take out a small-business loan and 26 percent would use family funding. According to current business owners, these estimations weren't far off. Sixty-six percent of current business owners dipped into their personal savings, followed by family funding (26 percent), credit cards (23 percent), and small-business loans (20 percent).
Aspiring business owners know they need funding for their projects, but they may not always know the best ways to secure capital. There are more than a few resources for finding financial backing. From bank loans to Small Business Administrations (SBA) loan guarantees and "boot-strap" loans, there are a variety of options for bankrolling a new business opportunity without having to take money out of your personal savings or from friends and family.
Eighty-two percent of current business owners who funded their brands with small-business loans felt their ventures were in a solid position. People who used online alternative lenders (81 percent), credit unions (76 percent), and traditional bank loans (74 percent) were also the most likely to identify feeling stable with their businesses.
In contrast, only 51 percent of people paying for their business expenses with credit cards said their businesses were stable, and people utilizing their personal savings or retirement funds for work purposes weren't much more confident.
On average, it takes between two and three years for a business to be profitable even if revenue is flowing in before that point. While that's not to say business owners can't pay themselves a salary for the first two or three years, it's also not uncommon for business expenses to outweigh any irregular earnings in the beginning.
Aspiring business owners were most worried about two aspects of starting their own venture: slow or irregular profits (48 percent) and gaining or maintaining clients (42 percent). While current business owners were less concerned with profits and client acquisition, both elements were still their biggest challenges.
Business experts agree that the challenges business owners face can be very different for men and women. Certain hurdles, including social expectations, balancing family life, and finding a support network are exclusive to women in some ways, and even funding can be more difficult for female entrepreneurs than for men. Female business owners were 11 percent more likely than men to report stress and time management as two of their biggest obstacles.
Time and money aren't the only elements entrepreneurs need to turn their ideas or passions into profitable small businesses. Even though you won't find a field for this on your tax return or a one-size-fits-all solution for acquiring it, business executives and leaders acknowledge the importance of a less quantifiable component: inspiration.
According to more than 17 percent of people either planning to start their own business or those with existing ventures, Amazon ranked as the most inspirational business model. Amazon's dominating presence is almost undeniable, and as one person told us, Amazon carries so much influence because it's "one of the most successful companies around now."
Similar tech and e-commerce platforms including Apple (8 percent), Google (7 percent), and Etsy (7 percent) also ranked among the most motivating business stories for entrepreneurs.
Small businesses evolve in stages, and most entrepreneurs shouldn't expect their businesses to look the same in the fifth or 10th year as they did when they were first founded. From conception to the early "survival" years and on to success and growth, every year brings new challenges and opportunities.
Business owners mostly focused their long-term goals on income and finances. Staying small also ranked as a primary objective for many entrepreneurs, in addition to being a top provider for their products or services.
When asked about their goals, most current business owners expected to reach their targets for revenue and market share within the first five years and were less likely to expect that reaching success would take a full decade. Compared to 56 percent of current business owners who expected to reach their personal income goals in five years, 40 percent expected to reach those goals in 10 years. In fact, more than a third expected to either double or triple their revenue in five years, and over 1 in 4 business owners set a five-year goal for expanding locations.
Successful businesses don't happen overnight, and when things don't seem to be going as well as you hoped or as quickly as you wanted, it can help to have firsthand advice from the people who came before you.
Here, you can read some of the advice given to aspiring business owners from those surveyed. From following your passion to starting small and avoiding too much debt, read through their personal advice for an inside look at what it's really like to run a business.
Small businesses are the most important part of the U.S. economy, and they're integral to our communities. Still, it isn't guaranteed to be an easy process, and within a few years, roughly 1 in 3 small businesses will close their doors for good. As we found, time, financial funding, and business motivation were the biggest factors in both the expectations and reality of startups.
At FundRocket, we take the confusion out of applying for business funding by eliminating credit checks, bank statements, and long processing times. In just a few easy clicks, you can get funding in as little as one business day with no fixed repayment schedule by using a small portion of your business sales toward the loan. You shouldn't feel pressured to put business purchases on your credit card or to pull money out of your personal savings to keep everything afloat. Visit us at FundRocket.com to learn more.
The data presented in the project were collected via a survey on Amazon's Mechanical Turk. The survey was solely of people planning to start a business or those who were currently business owners. There were a total of 665 participants: 409 were people planning to start a business, and 256 were business owners. 53.5% of participants were men, and 46.5% were women. 7.9% of participants were baby boomers, 26.3% were Gen Xers, and 65.8% were millennials. The age of participants ranged from 18 to 72 with a mean of 35.6 and a standard deviation of 10.5. The data were not statistically tested and rely on self-reporting. Self-reporting can introduce issues such as selective memory and exaggeration. Future research could be broader in terms of sample size and granularity of the data.
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