NCPA - National Center for Policy Analysis

Boom Times Squelch Business Start-Ups

February 16, 2000

Apparently, the economy is so good it is discouraging people from starting their own businesses. There are plenty of Internet and biotechnology companies being launched, to be sure. But fewer people are going out and founding more traditional businesses, according to the National Federation of Independent Business.

The number of businesses started or purchased fell 33 percent between 1995 to 1998 -- from 4.5 million to 3.1 million.

Several factors are responsible:

  • Fewer people are willing to give up the security of their jobs -- so they put plans to launch their own enterprises on hold.
  • In today's tight labor market, those who do get laid off -- a pool that often started home-based consulting firms in the past -- easily find new work.
  • The good economy means higher rents and competition for scarce workers.
  • A wave of mergers in many industries means that entrepreneurs who once competed with other small businesses find themselves confronted with much larger competitors.

Even the Internet plays a part. Fledgling companies which once had to compete only with local enterprises now face threats from suppliers outside their area.

Source: Sara Nathan, "Small-Business Start-Ups Drop," USA Today, February 16, 2000.


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