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SMALL BUSINESS NOW
AND BEFORE THE GREAT RECESSIONOctober 7, 2010
Scott ShaneCase Western Reserve University
Email: [email protected]: (216) 368-5538
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How is small business doing?• The Great Recession ended in June 2009• Over a year into the recovery, how does
the small business situation compare to before the recession?
• Let’s take a look at some of the numbers
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Fewer people are self-employed
Source: Created from data from the Bureau of Labor Statistics
November 2007 August 2010 8,200,000
8,400,000
8,600,000
8,800,000
9,000,000
9,200,000
9,400,000
Seasonally Adjusted Number of Self Employed Workers
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New business creation is down
Source: Created from data from the Bureau of Labor Statistics
Q3 2007 Q4 20090
1
2
3
4
5
6
7
8
Number of New Establishment Births per 10,000 People
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A smaller share of those laid off are starting companies
Source: Created from data from Challenger, Grey & Christmas, Inc.
Q1 2007 Q2 20100.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Percentage of Job Seekers Starting their own Business
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New companies are smaller
Source: Created from data from the Bureau of Labor Statistics
Q3 2007 Q4 20093.60
3.70
3.80
3.90
4.00
4.10
4.20
4.30
4.40
Average Number of Employees Per Start-up
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Fewer people work in small businesses
Source: Created from data from the ADP Employment Report
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Small business owners are more pessimistic
Source: Created from data from the National Federation of Independent Businesses
November 2007 August 201086
87
88
89
90
91
92
93
94
95
NFIB Small Business Optimism Index
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More small business owners are suffering cash flow problems
Source: Created from data from the Discover Small Business Watch
November 2007 August 20100%
10%
20%
30%
40%
50%
60%
Percentage Experiencing Tem-porary Cash Flow Issues
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Fewer small businesses are expanding sales
Source: Created from data from the National Federation of Independent Businesses
November 2007 August 20100%2%4%6%8%
10%12%14%16%18%
NFIB Percentage with Sales Contracting Minus Percentage
with Sales Expanding
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Fewer small business owners are increasing compensation
Source: Created from data from National Federation of Independent Businesses
November 2007 August 20100%
2%4%6%
8%
10%12%14%
NFIB Percentage Increasing Compensation Minus Percentage
Decreasing Compensation
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Fewer small businesses are hiring
Source: Created from data from Discover Small Business Watch
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Fewer small businesses are investing in plant and equipment
Source: Created from data from the National Federation of Independent Businesses
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Fewer small business owners say it’s a good time to expand
Source: Created from data from National Federation of Independent Businesses
November 2007 August 20100%
2%
4%
6%
8%
10%
12%
14%
NFIB Percentage Saying It's a Good Time to Expand
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More businesses are going under
Source: Created from data from the American Bankruptcy Institute
Q1 2007 Q2 2010 -
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
Business Bankruptcy Filings
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Trade credit is lower
Source: Created from data from the National Association of Credit Managers
November 2007 September 201057.5
58
58.5
59
59.5
60
60.5
61
61.5
Index of Trade Credit Extended
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Fewer small businesses are having credit needs met
Source: Created from data from the National Federation of Independent Businesses
November 2007 August 201025
26
27
28
29
30
31
32
NFIB Percentage with Borrowing Needs Met
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Angels are financing fewer companies
Source: Created from data from Angelsoft
2007 20090.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
Share of Angel Group Submissions Funded
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VCs are investing less money
Source: Created from data from Pricewaterhouse Coopers Money Treee
Q3 2007 Q2 2010 $5,500
$6,000
$6,500
$7,000
$7,500
$8,000
Amount of Venture Capital Invested (Millions)
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VCs are doing fewer deals
Source: Created from data from Pricewaterhouse Coopers Money Treee
Q3 2007 Q2 2010840
860
880
900
920
940
960
980
1000
1020
1040
Number of Venture Capital Deals
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VC deals are smaller
Source: Created from data from Pricewaterhouse Coopers MoneyTree
Series16.97.07.17.27.37.47.57.67.77.8
Size of the Average Deal (Mil-lions)
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Valuation is rising at fewer VC-backed businesses
Source: Created from data from Cooley Godward LLP Venture Capital Report
Q3 2007 Q2 20100%
10%
20%
30%
40%
50%
60%
70%
80%
Share of Up Rounds
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Fewer VC-backed companies are exiting
Source: Created from data from Dow Jones Venture Source
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Valuation of VC-backed exits is lower
Source: Created from data from Dow Jones Venture Source
Q3 2007 Q3 2010 $-
$20
$40
$60
$80
$100
$120
Average Value of Exits (Millions)
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Summary of changes from pre-recession levels• Self-employment and new business creation are down• Fewer people are working at new and small businesses• Owner pessimism is up, with fewer business owners expanding
sales and more experiencing cash flow problems• Fewer owners are making capital investments, hiring, or
increasing compensation• More businesses are going under• Fewer businesses are having their borrowing needs met, and
trade credit is down• Angels are financing fewer companies• Venture capitalists are investing less money in fewer deals• VC deals are smaller and valuations are rising at fewer
companies• VC-backed companies experiencing fewer exits and at lower
valuations
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Conclusion
• It’s no wonder most small business owners don’t think there’s a recovery
• The small business sector is still a long way from returning to its pre-recession levels