Pennsylvania Ranked Dismal 48th in Start-up Activity
The recently published 2015 Kauffman Index of Start-Up Activity brought continued bad news for Pennsylvania and especially the Pittsburgh region. The Index intends to measure entrepreneurial activity in a variety of regions. Entrepreneurship is one of the most important activities of modern economic life. The creation and growth of new companies, as well as the closure and shrinkage of existing companies, are at the heart of our economy. The focus of my practice is on entrepreneurs from start up, to growth, to cashing in on their life’s work either through the execution of a succession plan or sale of the business. These entrepreneurs and the information in the Index are important because recent studies by the U.S. Census Bureau and other researchers have revealed that new and young firms are the principal sources of net job creation in the United States. So what are the low-lights for Pennsylvania?
Pennsylvania ranks 48th for start-up activity and tied with Wisconsin for last place for the rate of creating new entrepreneurs. Out of 40 major metropolitan areas around the country Pittsburgh came in last; Philadelphia fared better at No. 31 of 40. New York City, only two hours away from Philadelphia ranked No. 7. The Index has some great information about start-ups and entrepreneurs, breaking them down by gender, age, educational background and other data points. So why did Pennsylvania fare so poorly? My view from the front-line of assisting clients everyday is that entrepreneurs are not sufficiently connected to needed resources.
The one thing that entrepreneurs have in ample supply is ideas. I continue to marvel as the variety of ideas people have and how much time and energy they devote to thinking and imagining new business ideas. The difficulties lie between idea and success. Entrepreneurs lack financing, knowledge about getting their business off the ground and management skills to sustain it for the longer term.
Financing is always an issue for new and young business owners. They do not have an adequate idea of the sources of financing, how lender/investors make decisions about loans and investments or what it takes to even apply.
Getting a business off the ground can be a daunting task. I’m not talking about filing papers to form an LLC (not a task easily done correctly). Rather I’m talking about everything that comes after that. Finding and leasing a place of business, negotiating contracts with vendors and customers, hiring and managing employees. There are so many traps for the unwary in any of these tasks. One mistake for a new business that is running on zero margin can kill the business before it ever gets going.
Entrepreneurs who are fortunate enough to get through the first one-three years need to grow. With growth comes even bigger challenges. Managing the books, strategic planning, more employees and human relations issues and many other growth related topics. Entrepreneurs are very frequently focused more on getting new customers and contracts (rightly so) and fail to take the time to put structure and process in place. Those things serve as the framework that will allow the business to experience sustainable and manageable growth over the long haul.
Regional organizations like the Small Business Administration, Small Business Development Centers and community business development funds are great resources but either there are not enough of them or they are not well-publicized. Pennsylvania needs to adopt more of a “meet them where they are” mentality and aggressively seek out entrepreneurs with offers of assistance and resources. Attorneys, accountants and other professionals can do their part too by becoming more aware of their clients’ needs and then connect them with regional resources.
Those are what I see from the perspective of my practice with my clients. I always hope to be able to bring my advice to them in a proactive way in order to avoid some bumps (and major potholes) along the way. But I do my fair share of crisis management alongside them as well.