2011 Saw Lowest Start-Up Rate On Record

Start-up activity among unemployed managers and executives in the second half of 2011 failed to rebound from the record lows recorded over the first two quarters of the year, according to new survey results from outplacement consultancy Challenger, Gray & Christmas, Inc.

Download the report here.(PDF)

Over the last two quarters of 2011, an average of just 3.2 percent of jobless managers and executives started their own business.  That was about the same as the previous two quarters, when 3.3 percent of job seekers started firms.  The pace of start-up activity in the last half of the year was down significantly from the same period in 2010, when nearly six percent of managers and executives started their own business.

The Challenger survey is conducted quarterly among approximately 3,000 job seekers reentering the workforce in a variety of industries and occupations across the country.  While all career levels are represented, the survey pool tends to skew toward the more experienced, managerial and executive level job seeker.

Overall, 2011 was a dismal year for start-ups.  The start-up rate fell to an all-time low of 2.5 percent in the second quarter of the year.  It rose slightly to 3.7 percent in the third quarter, only to fall again to 2.7 percent in the final quarter.

Even in 2001, amid the dot.com collapse that was particular devastating to recent start-ups, entrepreneurship was still pursued by an average of about 8.0 percent of job seekers every quarter.  Over the past eight quarters, the average start-up rate is 3.9 percent — less than half the 2001 average.

“While big business definitely began to reap the benefits of the recovery in 2011, conditions were not nearly as fruitful for existing small business, let alone those attempting to get up off the ground.  Credit was still very difficult to come by and demand for products and services remained soft.  Basically, it was not a very inviting environment for would-be entrepreneurs,” said John A. Challenger, chief executive officer of Challenger, Gray & Christmas.

It is not just job seekers who are reluctant to start businesses; the number of self-employed Americans, in general, declined by 172,000 last year, falling from 8,759,000 in December 2010 to 8,587,000 in December 2011, according to data from the U.S. Bureau of Labor Statistics.  The December figure is nearly 1.4 million fewer than the pre-recession peak of 9,973,000 self-employed in December 2006.

However, there are some signs that 2012 could bring a turnaround for small businesses as well as entrepreneurs.  In a recent survey of small business owners by the National Small Business Association, 75 percent are confident about the future of their business, with 20 percent expecting economic expansion in the coming year.  That is a significant improvement from six months ago when 64 percent expressed confidence about the future of their business and only 12 percent predicted economic expansion.

“However, despite increased confidence, only 17 percent of small business owners expect to hire new employees in the next 12 months.  So, things are getting better, but not enough to warrant increased hiring.  This could mean that conditions remain too weak to attract new entrepreneurs.

“Additionally, while small businesses may not be planning any new hiring, many medium and large firms are starting to add new workers.  Hiring at these firms may be improving just enough to lure potential entrepreneurs toward a more traditional employment path,” said Challenger.

While net employment gains have been relatively small over the last 18 months due to continued layoffs, retirements and other separations, hiring levels are actually quite strong.  According to the Bureau of Labor Statistics, employers hired 12,220,000 new workers in the final quarter of 2011.  That was up from 11,713,000 hires in the same quarter a year earlier.

“We are at a point in the recovery where employers are beginning to hire again, but the economy remains relatively fragile.  In this environment, we tend to see a drop in start-up activity as job seekers are more comfortable with the relative stability of traditional employment as opposed to the uncertainty of  entrepreneurship.  As the economy continues to gain strength, start-up activity may begin to grow again, as conditions for such ventures become more inviting,” noted Challenger.

 

# # #

PERCENTAGE OF JOB SEEKERS STARTING BUSINESS

By Quarter, 2000 – 2011

 

Q1

Q2

Q3

Q4

Annual Average

2000

9.3%

7.8%

7.7%

3.5%

7.1%

2001

7.8%

8.0%

6.5%

9.0%

7.8%

2002

11.5%

11.2%

10.6%

5.2%

9.6%

2003

5.7%

7.1%

7.8%

6.7%

6.8%

2004

10.1%

9.9%

9.8%

6.5%

9.1%

2005

9.2%

13.1%

7.9%

6.6%

9.2%

2006

8.2%

6.2%

7.0%

9.2%

7.7%

2007

10.6%

6.0%

10.1%

5.7%

8.1%

2008

7.2%

4.3%

6.1%

2.7%

5.1%

2009

6.5%

8.7%

11.8%

7.3%

8.6%

2010

3.4%

3.9%

7.5%

3.9%

4.7%

2011

4.1%

2.5%

3.7%

2.7%

3.3%

Source: Challenger, Gray & Christmas, Inc.

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