Much has been said in the media about the rise and strength of the gig economy, with some debate about what constitutes a true small business startup, as opposed to a part-time side hustle that is designed to bring in supplemental income.

To further investigate this question, SCORE’s Fall 2019 small business study asked respondents to define their original intentions in starting their business. This “Megaphone of Main Street” data report focuses on the challenges facing startups, which are defined as companies in operation for less than one year.

This latest installment of the Megaphone of Main Street is the fourth in a data report series that presents a snapshot of the current American small business landscape. This particular report delves into the world of startup entrepreneurship, sourcing both qualitative and quantitative data directly from a diverse group of roughly 1,000 startup small business owners across the nation. 

The first year of operations is a critical time for any small business, with decisions made about market focus, finding financing and hiring a team that will have a significant impact on the business’s success or failure in the future.

Here are some findings of the three-part report:

Part 1: Finding Your Way, Finding Customers

Few entrepreneurs (just 15%) start their businesses due to unemployment or underemployment from a 9-5 job. Instead, many entrepreneurs have a passion for the product or service they provide (40%), or want the flexibility and autonomy of working for themselves (30%).

Most fledgling entrepreneurs do not start their businesses on a whim. Instead, they have an average of 11.5 years of experience in their particular area of industry.

New business owners take comfort in being prepared. The support of friends and family was reported to be the strongest source of support (66%), followed by having a business plan and having a mentor (43% each).

Networking is key. Startups employ a variety of marketing tactics in their first year of operations, but the most effective marketing tactics directly engage with prospective customers through personal networks (65% success rate), speaking at special events (60% success rate) and formal networking groups (54% success rate).

Part 2: Finding Financing

42% of entrepreneurs are bootstrapping, starting out with less than $5,000 in cash reserves.

However, almost half (49%) of respondents began operations with more than $10,000 in the bank, and nearly a quarter had more than $50,000.

Most startups (78%) did not seek, much less obtain, outside financing, instead relying on personal savings or income from another job. After personal savings and income, the next biggest sources of funds were bank loans (8.2% of all startups surveyed) and loans from friends and family (4.8% of all startups).

Looking at all outside funding sources (including loans from friends and family), 10% of startups received funds of more than $25,000. Outside financing was most commonly used to purchase equipment (63%), purchase initial inventory (48%), on marketing (48%) and to lease or prepare the business location (41%).

Part 3: Finding the Right Team

Startup entrepreneurs personally handle the majority of their business functions during their first year of operations, by necessity, not choice. They contract work out when specialized expertise is required, most often in the realms of legal, manufacturing, accounting/finance and technology.

Startups are hiring. Fewer than half (46%) of startups were looking to hire employees during their first year of operations; and, 8% more startups are looking to hire in the next year, compared to two years ago.

Finding competent workers is a real struggle. Half (52%) of startups cited difficulty filling job openings (up from 41% in 2017). A third (33%) of startups had job openings they couldn’t fill, which is about double the 14% who reported unfilled openings in 2017.

Dean Swanson, volunteer Certified SCORE Mentor and former SCORE chapter chairman, district director, and regional vice president for the North West Region.

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