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Maybe America has been watching a lot of “Shark Tank,” because starting a business has been a popular choice lately.
An average of 7.99% of job seekers started a business in the first quarter of 2018, down from 5.1% for the same period last year. That marked the highest quarterly average since the fourth quarter of 2013, when it was 8.6%, according to the outplacement and executive coaching firm Challenger, Gray and Christmas, which surveyed more than 3,000 job seekers last quarter.
Here’s why they’re on the rebound:
The economy is doing better
Low unemployment is a likely reason more job seekers feel confident starting their own businesses, said Andrew Challenger, the vice president of Challenger, Gray and Christmas. Unemployment is at a 17-year low of 4.1%, according to the Labor Department. Americans are also more optimistic about their finances. Consumer confidence is near an 18-year high.
“The current job market is such that a failed venture does not necessarily spell total joblessness for the entrepreneur,” he said, “as companies are scrambling for talent.”
But a tight job market could also be a reason some job seekers decide to start their own businesses, said Kaushik Sengupta, the chair of the management and entrepreneurship program at Hofstra University. Workers may be facing tough competition for the jobs they want, now that so many jobs are filled, leading them to start their own businesses, he said.
It’s also cheaper to be a business owner now. Republican-led tax reform also created lower corporate tax rates: The Tax Cuts and Jobs Act reduced corporate income tax rates to 21% from 35%, starting Jan. 1.
This is a good time for workers over 40 to start companies
The entrepreneurs starting companies in the first quarter mostly weren’t the scrappy college student with a billion-dollar idea like Facebook’s Chief Executive Mark Zuckerberg or Microsoft’s co-founder Bill Gates.
In fact, of all the new businesses started in the first quarter, more than 88% were founded by workers over the age of 40, Challenger found.
These workers may have struggled through the Great Recession and now want to be less dependent on a corporation, and finally have the means to go into business independently, said Ari Ginsberg, a professor of entrepreneurship and management at New York University’s Stern School of Business.
Entrepreneurs of this age are likely to start businesses that are in-line with their previous careers, and can leverage their networks to start their new venture, Sengupta said. “You can learn from whatever your experience is, and you’re much better positioned to figure that out at 40 or 50 than as a 22-year-old kid,” he said.
It’s also possible the entrepreneurs over 40 have previously started other businesses, and this isn’t their first go, Frishman of Netcapital added.
It’s easier to get access to small business loans
Lenders have approved more than $8.02 billion in loans to new businesses so far in 2018, a 77% rise from the $4.5 billion they approved during the same period last year, according to the Small Business Administration data cited by Challenger.
It’s possible entrepreneurs have had good ideas for businesses in previous years, but they just weren’t able to get the funding for their plans in the past, Sengupta said. “If you have a decent proposal and then you get the financing, it makes it easier to go forward,” he said.
Investors are also more willing to give capital to new businesses when they feel more secure financially themselves, said Jason Frishman, the founder of Netcapital, a platform that connects entrepreneurs and investors. “When your balance sheet gets tighter, investors raise that bar,” he said.
Whether these businesses succeed is another question
A word of caution for would-be entrepreneurs: Being able to secure funding isn’t enough to make the company successful, Sengupta said. Many startups fail, and it’s possible these new entrepreneurs will have to try several times before they find success, he said.
“You look at the athlete who wins Olympic gold, but we don’t know how many athletes were competing for that same recognition, but had to drop out earlier on,” he said.
Companies have taken notice of the growing entrepreneurial mindset of their employees. Airbnb is one such company, Eric Ries, the author of “The Lean Startup,” has said, because the company allows employees to take risks and offer new ideas.
They increasingly allow their employees to be more independent, creating systems for them to innovate more easily. “Strategically it’s important and that having these kinds of creative, entrepreneurially-minded individuals is not a threat, as it was seen 20 years ago,” Ginsberg said.