SMALL BUSINESS NOW

AND BEFORE THE GREAT RECESSIONOctober 7, 2010

Scott ShaneCase Western Reserve University

Email: Scott.shane@case.eduPhone: (216) 368-5538

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

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

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

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

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

Fewer people work in small businesses

Source: Created from data from the ADP Employment Report

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

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

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

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

Fewer small businesses are hiring

Source: Created from data from Discover Small Business Watch

Fewer small businesses are investing in plant and equipment

 

Source: Created from data from the National Federation of Independent Businesses

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

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

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

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

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

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)

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

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)

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

Fewer VC-backed companies are exiting

 

Source: Created from data from Dow Jones Venture Source

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)

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

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