New Kauffman Foundation, LegalZoom Survey Captures Rare Picture of America’s Startups

Results shed light on entrepreneurs’ propensity for risk; taxes, licensing regulations and economic uncertainty cited as challenges

KANSAS CITY, Mo.--(BUSINESS WIRE)--Data on newly formed companies and their founders are hard to come by, but a vital component to measuring economic health. In an effort to learn more about the challenges facing today’s entrepreneurs, LegalZoom and the Ewing Marion Kauffman Foundation surveyed 1,431 business owners who formed their companies through LegalZoom in 2012.

“However, these business owners need additional financing if they are to succeed in helping drive our economy forward. Of the 60 percent of respondents who said they faced business difficulties, 45 percent cite lack of access to credit.”

Perhaps the most interesting finding is that 60 percent of entrepreneurs in the sample spent more than six months working on their business idea before forming their entity. This highlights the blurry boundaries between paid employment and self-employment, demonstrating the necessity for public policy to be flexible in recognition of this economically vital stage of business creation.

“Policymakers, understandably, want to discern how public policy might be able to help remove obstacles entrepreneurs commonly face,” said Dane Stangler, director of research and policy at the Kauffman Foundation. “Forty percent of the respondents reported facing no regulatory or policy barriers at all and while this is encouraging, policy issues remain. Tax complexity and licensing regulations, as well as continued economic uncertainty, impede many of the entrepreneurs in the survey.”

In analysis of early-stage startup creation by age group, entrepreneurs 30 to 49 started businesses at a higher rate than other age groups did. Of the entire sample, 57 percent had six or more years of prior industry or work experience before starting their companies and 44 percent had started companies in the past. Of those who had founded companies, 52 percent had started more than one.

Personal funds were by far the most common source of business financing for entrepreneurs, with only 20 percent receiving loans from family members, bank or home equity loans or funds from outside investors.

“With 80 percent of early-stage business owners using personal funds to finance their companies, founders are decidedly willing to take on risk,” said John Suh, CEO of LegalZoom. “However, these business owners need additional financing if they are to succeed in helping drive our economy forward. Of the 60 percent of respondents who said they faced business difficulties, 45 percent cite lack of access to credit.”

About a third of startup owners in the survey were women. Although companies that reported higher revenues were far more likely to be owned by men, those run by individuals with higher education levels tended to be woman-owned. Consulting and other service-based businesses dominated the represented industries.

As would be expected of businesses that had operated for a year or less, the companies were small in terms of revenue and employees. Only 10.5 percent had revenues above $100,000, including 18 businesses with revenues greater than $1 million. For 70 percent of the companies, the owner was the only employee. Another 26 percent of the companies had between one and four employees.

“While the survey cannot be considered an entrepreneurship barometer,” Stangler said, “it does provide insights into the makeup and thought processes of startup business owners.”

To access the full survey report, visit www.kauffman.org/startupenvironmentindex.

About the Kauffman Foundation

The Ewing Marion Kauffman Foundation is a private, nonpartisan foundation that aims to foster economic independence by advancing educational achievement and entrepreneurial success. Founded by late entrepreneur and philanthropist Ewing Marion Kauffman, the Foundation is based in Kansas City, Mo. For more information, visit www.kauffman.org, and follow the Foundation on www.twitter.com/kauffmanfdn and www.facebook.com/kauffmanfdn.

About LegalZoom

LegalZoom is the nation’s leading provider of personalized, affordable online legal solutions for families and small businesses. Founded more than 12 years ago by attorneys with experience at some of the top law firms in the country, LegalZoom has helped over two million Americans become protected with binding legal documents. Although LegalZoom is not a law firm, it can help people access an attorney through its legal plans. The company is headquartered in Glendale, California. For more information, visit www.legalzoom.com.