Regulation and taxes are said to be the big obstacles to new business, but researchers at Duke University’s Fuqua School of Business found most potential entrepreneurs abandoned their ideas without taking even the simplest and least expensive early steps.
Their findings suggest helping entrepreneurs with simple steps earlier in the process could be just as important as assistance with complex planning later, or easing the regulatory burden on business.
“We need to put together a more structured process and help people understand the steps so they’re not lost in the ambiguity of what to do next,” Bennett said.
“People might need more basic advice about how to manage their time and how to meet critical milestones,” Chatterji said. “For example, if you’re working with someone else on a business idea, how often should you meet with them? Policies to provide mentorship and structure for aspiring entrepreneurs could be as important as efforts to create favorable regulations and tax policy.”
Bennett and Chatterji – both of whom have served as senior economists on the White House Council of Economic Advisors – surveyed total of 30,409 American adults aged 23 and older in cities across the U.S. in 2015, 2016 and 2017. They gathered demographic and professional information and asked respondents about business ideas, if any, they’d had in the previous five years. Then they asked what steps people had taken to advance their ideas.
This moved beyond traditional large-scale entrepreneurship research, which primarily relied upon measuring transitions into self-employment measured in the U.S. census.
“That doesn’t let you tell apart people who did and did not want to start a business, and it doesn’t tell you how close they got and what steps stopped them,” Bennett said.
The new approach avoided that skewing of results because researchers also looked beyond people who actually started businesses.
“We were surprised there were very early steps where people were falling off."
“We picked up people who have tried and failed, and also accounted for people who have never considered it at all,” Chatterji said. “We wanted to talk about considering, not just starting a business. There are really good reasons to talk to people who are already entrepreneurs, but if you want to understand the phenomenon of entrepreneurship, you really want to know about the people who didn’t make it, or decided not to go into business.”
They found potential entrepreneurs weren’t getting as far as the researchers expected.
“We were surprised there were very early steps where people were falling off,” Bennett said. “Things like talking to someone that they didn’t already know, or searching the internet to see if there was already a business doing the same thing. That seems to suggest that a big factor that is stopping entrepreneurship is just execution. It could be that people don’t have time after a long day at work, or that time management is really a problem.”
The researchers also found that of the people who said a lack of financing derailed their business idea, only 7 percent said they had actually sought financing.
“So we think there’s a perception that there are barriers that might not actually be there,” Bennett said. “Having a more structured process that allows people to move forward is going to be important for us to get more entrepreneurship.”
What’s needed, the researchers said, are standard step-by-step recommendations for going from an idea to a functioning business, including ways to weed out those ideas that don’t make good business sense.
“A large percentage of our entrepreneurs never actually talk about their business idea to someone they don’t already know,” Chatterji said. “A best practice would be talking to experts in the field who aren’t afraid to disappoint you.”