Business Startups
Virginia is home to a significant number of new businesses, and the growth in new firms is about on par with the national average.
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?
Business startups have dropped signficantly across the U.S. since 2007. Although economic downturns often lead to an increase in entrepreneurship, one major characteristic of the Great Recession was the tightness of credit and financing typically needed to start a new business.
Virginia was ranked 13th in the nation for business startups in 2008-09, with a growth rate for new employer establishments of 9.5 percent. The national average was 9.3 percent. Virginia's rate was higher than all its peer states: Maryland (9.0%), North Carolina (8.8%), and Tennessee (8.5%). In 2008-09, Nevada again had the highest rate of new employer establishments at 12.4 percent.
Within Virginia, the growth rate for small business startups (consisting of 1-250 employees) per 10,000 residents has generally been increasing again in most regions since 2009. The Northern region had the highest rate per 10,000 residents in 2011 with 16.2, while the Hampton Roads region had the least with 8.3 business startups per 10,000 residents. The Southside region overall has seen the most dramatic improvements in new business growth since the early part of the decade.
The volatility of very small businesses (with 1-4 employees) is shown in their large shifts in employment due to growth or decline. For example, in 2008-09, there was an 11.6 percent increase in the number of jobs created by new small firms -- but jobs lost due to small business closings was 15.6 percent for the same period.
Larger firms (with over 500 employees) tend to be more stable. In 2008-09, new startups of this size created a 5.4 increase in employment and a 4.2 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.
State rankings are ordered so that #1 is understood to be the best.
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 Unemployment Insurance 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.
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
See the Data Sources and Updates Calendar for a detailed list of the data resources used for indicator measures on Virginia Performs.
