Business Startups
Virginia is home to a significant number of new businesses, and ranks 19th highest in the nation in the growth of new firms.
Why is This Important?
Entrepreneurship is often viewed as an engine of economic growth. While the number of new business startups typically corresponds with economic expansions, the role of entrepreneurship in job creation is less clear. One view of the relationship between startups and economic growth is that entrepreneurs breed innovation. However, low rates of survival and the limited growth of most small businesses suggest that business startups do not significantly contribute to employment growth.
How is Virginia Doing?
Virginia was ranked 19th in the nation in 2005
for the number of new
employer establishments,
with a growth rate of
11.7 percent. The national
average was also 11.7
percent, as was North
Carolina's.
Virginia's rate was higher
than Tennessee (10.8
percent) and Maryland
(11.5 percent). Nevada
had the highest rate
of new employer establishments
at 16.8 percent.
Within Virginia, the number of new small business startups (consisting of 1-250 employees) per 10,000 residents has increased from 6.9 in 1998 to 14.9 in 2007. The Northern region had the most new small business startups in 2007 with 18.0, while the Southside region had the least with 9.2 new small business startups per 10,000 residents.
The volatility of small businesses (with 1-4 employees) is apparent in the great shifts of employment seen here. For example, in 2004-05, there was a 15.7 percent increase in the number of jobs created by new small firms -- but jobs lost due to small business closings was 12.3 percent for the same time period.
Larger firms (with over 500 employees) tend to be more stable. In 2004-05, new startups of this size created a 4.9 increase in employment and a 4.6 percent decrease due to firm closings.
What Influences Business Startups?
The low cost of capital and high unemployment rates that typically precede economic expansions can serve as catalysts for new business startups. Lower capital costs reduce the expense and risk involved with starting a business. Higher rates of unemployment encourage jobless individuals to opt for self-employment and can make it easier for them to find willing workers.
Additional factors that influence the rate of business startups are:
- the education level of area residents
- the local physical infrastructure
- availability of financing
- the business climate
- the presence of networks that may encourage clusters of similar startups.
What is the State's Role?
States typically offer informational resources to facilitate business startups and offer grants or subsidies to ease the financial risks. States can also minimize the time and expense required to comply with the regulations and procedures for starting a business.
Currently, Virginia's Department of Business Assistance offers a variety of services, including help with access to capital, small business counseling, workforce training and pro-active business problem-solving.
Data Definitions and Sources
State Data:
Statistics of U.S. Businesses
www.census.gov/csd/susb/susbdyn.htm
Establishment - A single physical location where business is conducted or where services or industrial operations are performed.
Enterprise - An enterprise is a business organization consisting of one or more domestic establishments that were specified under common ownership or control. The enterprise and the establishment are the same for single-establishment firms. Each multi-establishment company forms one enterprise.
Virginia Data:
Virginia Employment Commission
http://www.vawc.virginia.gov//gsipub/index.asp?docid=407
New small-business startups were firms that had at least one employee and matched the following criteria:
- Setup Date and Liability Date occurred during same the year and quarter
- Establishment had no predecessor UI Account Number
- Business is privately owned
- Average employment is less than 250
- No other accounts with the same UI Account Number existed that did not match the above criteria
- There are no other previous establishments by the same enterprise
Population Estimates: U.S. Census.
Mata, Jose, Small Firm Births and Macroeconomic Fluctuations, Review of Industrial Organization 11, (1996): 173- 182.
Audretsch and Acs, New-Firm Startups, Technology, and Macroeconomic Fluctuations, Small Business Economics 6, (1994): 439-449.
Schumpter, J., The Theory of Economic Development, Oxford: Oxford University Press, 1934.
Popkin, Joel and Company, Small Business During the Business Cycle, Small Business Administration, Washington, D.C., 2003, available at www.sba.gov/advo/research/rs231tot.pdf
Firm Startups, Technology, and Macroeconomic Fluctuations, Small Business Economics 6, (1994): 439-449.
See the Data Sources and Updates Calendar for a detailed list of the data resources used for indicator measures on Virginia Performs.
