Report: Entrepreneurism Hits Record Low for Displaced Business Leaders

Feb. 14, 2012

Credit crunch stifles start-up activity as top-level talent looks toward traditional employment opportunities

Managers and executives re-entering the workforce started the fewest number of business ventures on record, even lower than the dot.com bust of 2001, outplacement consultancy firm Challenger, Gray & Christmas Inc. reported Feb. 14.

A tight credit market combined with soft consumer demand created a negative environment for would-be entrepreneurs, said John Challenger, the firm's CEO.

In the last six months of 2011, an average of 3.2% of jobless managers and executives started their own business, nearly the same rate as the previous two quarters, according to a survey of approximately 3,000 job seekers re-entering the workforce.

The Challenger report represented various career levels across different industries but included more responses from managerial and executive-level job seekers. The firm began measuring start-up activity by displaced workers in 1986, said Challenger spokesman James Pedderson.

The start-up rate fell to an all-time low of 2.5% in the second quarter before rebounding to 3.7% in the following three months. By the year-end quarter the start-up rate fell again to 2.7%.

Entrepreneurship during the dot.com collapse reached an average of about 8% of job seekers every quarter, Challenger reported.

Over the past two years, the average start-up rate is 3.9%.

Surveys indicating increased confidence among small-business owners could indicate a turnaround, according to Challenger.

But only 17% of small-business owners expect to hire new employees in the next 12 months, Challenger said.

"This could mean that conditions remain too weak to attract new entrepreneurs," he said.

With more midsize and large firms hiring, more potential entrepreneurs may seek positions with these companies.

"We are at a point in the recovery where employers are beginning to hire again, but the economy remains relatively fragile," Challenger said. "In this environment, we tend to see a drop in start-up activity as job seekers are more comfortable with the relative stability of traditional employment as opposed to the uncertainty of entrepreneurship. As the economy continues to gain strength, start-up activity may begin to grow again, as conditions for such ventures become more inviting."

See also:

Monthly CEO Exits Reach Highest Level Since May 2010

About the Author

Jonathan Katz | Former Managing Editor

Former Managing Editor Jon Katz covered leadership and strategy, tackling subjects such as lean manufacturing leadership, strategy development and deployment, corporate culture, corporate social responsibility, and growth strategies. As well, he provided news and analysis of successful companies in the chemical and energy industries, including oil and gas, renewable and alternative.

Jon worked as an intern for IndustryWeek before serving as a reporter for The Morning Journal and then as an associate editor for Penton Media’s Supply Chain Technology News.

Jon received his bachelor’s degree in Journalism from Kent State University and is a die-hard Cleveland sports fan.