Nevada enjoyed the nation’s highest rate of entrepreneurial activity in 2010, but those startups aren’t translating into jobs for the unemployed, a new study has found.
In the Silver State, 510 adults out of 100,000, or 0.51 percent of the adult population, started businesses in 2010, according to the Ewing Marion Kauffman Foundation, an entrepreneurship think tank based in Kansas City, Mo. That tied with Georgia for the top business-formation rate in the country. The number was also up from 0.38 percent in 2009, and it beat the national rate of 0.34 percent. During the recession years ranging from 2008 to 2010, 0.42 percent of Nevada’s adults formed businesses, compared with 0.23 percent in the boom years from 1998 to 2000. That decade-over-decade jump was second only to Georgia’s.
The problem? Most of those new businesses came from sole proprietors or self-employed owners without employees, the report found, and that could mean continued sluggish job growth in a state where unemployment has long hovered above 14 percent.
“Since it began, the recession has triggered annual declines in the rate of employer enterprise (hiring) births,” said Carl Schramm, president and chief executive officer of the Kauffman Foundation. “Far too many founders are choosing jobless entrepreneurship, preferring to remain self-employed or to avoid assuming the economic responsibility of employees. This trend, if it continues, could have both short- and long-term impacts on economic growth and job creation.”
To understand why new business owners aren’t keen on hiring, consider some local examples.
Marek Biernacinski was working in his parents’ Las Vegas florist shop in December when the “entrepreneurial bug” encouraged him to launch copy-editing business Edited By A Pro. Biernacinski proofs business documents and magazine articles, but he handles all the work himself: Hiring just isn’t in the cards, partly because his work volume doesn’t yet call for it, but also because he’s leery of the obligations that accompany bringing on staffers.
“A lot of people are cautious about taking on debt, and certainly, I’m no different. I don’t want to take too many risks,” Biernacinski said. “I realize opportunity comes when you take risks, but right now, I’m willing to go out on my own but not necessarily be responsible for someone else.”
Nor is Ted Berg ready to hire just yet.
Berg was working in the financial-planning department for a major Strip resort operator when he decided to open Freeport Investment Management, a fee-only investment advisory firm in Summerlin. Berg is the 6-month-old company’s managing director and sole employee, conducting all analysis for his clients, who include high-net-worth people, institutions and business owners looking to set up retirement plans for employees. For Berg, staying small is about managing his clients’ experiences.
“My goal is to offer institutional-level services, and to do that, I’m the one who has to provide that service,” Berg said. “I need to make sure my company’s service level is where I want it to be. I’m trying to find the right clients, and limit the clients I do take on so I can provide them with the best possible level of service.”
Dane Stangler, research manager for the Kauffman Foundation, said the relatively small number of employee-hiring new businesses has a statistical impetus as much as a strategic one. Many of 2010’s new businesses hail from sectors that call for sole proprietors, at least in companies’ early stages. Consider construction, an industry that’s generated a major chunk of new businesses nationwide since 2007. As big general contractors lost sales and laid off employees, those workers launched independent contracting and handyman operations, and those ventures typically start out as single-worker businesses.
Regardless of what’s pushing the trend, Stangler said he sees cause for concern in an economy that’s generating more companies but not as many jobs. Sure, some companies that start as sole proprietorships will eventually grow to include employees, he said, but addressing stubbornly high joblessness requires more hiring now.
“The numbers indicate that we’re getting less bang in terms of job creation,” Stangler said. “We’ve seen in past recessions and expansions, both in normal times and downturns, that new and young businesses create most of the net new jobs in the country. So when you enter a period in which new and young businesses are not creating jobs, you’re not going to see the same pace of job creation we’ve historically seen and would hope for during a recovery. It’s a very serious issue when unemployment is still at elevated levels.”
But Biernacinski and Berg both said their startups will bring important long-term benefits to the local economy.
Berg contracts out many of his administrative and clerical tasks to area businesses, and he said that in turn yields work — and jobs — for those companies.
“Even though they’re not hiring people directly, a lot of sole proprietors are supporting other small businesses in the local economy by outsourcing services to these businesses,” Berg said. “That’s certainly a positive driver for the local economy.”
Plus, Berg doesn’t expect to remain Freeport’s only employee forever. He expects the firm to grow big enough in two or so years to need junior analysts who can help with investment research.
Biernacinski said he hopes he’ll be ready to hire even sooner. He wants to expand Edited By A Pro’s services into book editing and Mandarin-to-English translation services, and growing will require extra help. He anticipates retaining freelance workers and maybe even some part-time help in the next three to four months, and perhaps converting one or two of those contractors to employees by 2011’s end.
Biernacinski said Las Vegas is full of self-employed entrepreneurs who’ve taken advantage of the recession’s lower real estate and business costs, and though their companies are small now, that won’t always be the case.
“For more employees to be hired into the work force, we need more businesses. Jobs won’t come from the consolidation of a few conglomerates. We need smaller and medium-sized businesses, and this is how they begin,” he said.
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