Study follows startup businesses over time

New firms are critical to economic growth, but there is little data on how to encourage new business development and growth.

Now a study by the Kansas City-based Ewing Marion Kauffman Foundation hopes to determine what startup decisions make a difference.

The private, nonprofit foundation that focuses on advancing entrepreneurship and innovation has been following nearly 5,000 businesses nationwide since they were founded in 2004.

"One of the real things that we lack is understanding how new businesses develop," said E.J. Reedy, manager of research and policy at the foundation. "Very few studies follow the same set of businesses over time. For example, financing issues. We're creating a lot of new data to try to understand how businesses finance themselves in the early years and how that might contribute to success."

Nearly 70 percent of the businesses under study are owned by men. Whites own more than 81 percent of the business. Many are in the high-tech field.

Some highlights:

• A little more than 2 percent said they owned patents during their first year of operation, while nearly 9 percent had copyrights. High-tech businesses had more patents and copyrights, while about the same percentage (13.5 percent) had trademarks regardless of their tech status.

• Nearly 60 percent of the businesses had no employees their first year. About 25 percent had two or more employees, and less than 4 percent had more than 10 employees.

• Thirty-seven percent had no revenue in their first year of operation. But about 45 percent had a profit and about 17 percent had profit in excess of $100,000.

• Nearly 44 percent of new businesses had no debt financing during their first year, and many were started with very little debt financing. About 17 percent of the businesses started with $5,000 or less, and nearly 11 percent started with $100,000 or more.

• The vast majority of equity invested came from the business owners. Just 10 percent of the businesses used external equity, while spouses provided equity to 1.6 percent of the businesses. Nonfamily informal investors and venture capitalists were used very infrequently.

• A little less than 9 percent of the firms closed in 2005. Women-owned businesses had a survival rate of 89 percent, while men-owned businesses had a survival rate of about 92 percent. About 88 percent of black-owned businesses survived, compared with 91 percent of Asian-owned businesses and 92 percent of white-owned businesses.

In the coming months, researchers hope to investigate ongoing financial infusions, changes in strategy and innovation, and survival and growth.

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