In his State of the Union address, President Biden said, “Over the past two years, a record 10 million Americans have applied to start new small businesses.” While the numbers are accurate, this is not his 17 million new business that Intuit predicted for his 2022 alone. Still, the data are still promising. After “his lost decade” of American entrepreneurship, it looks like startups are on the rise again in America.
The challenges these new businesses face can be daunting. According to data from the U.S. Bureau of Labor Statistics, one-fifth of new businesses go bankrupt within the first five years, and “only 25% of new businesses survive more than 15 years.” often attributed to Other reasons include lack of market demand and untimely products.
Perhaps harder for business owners to easily quantify is the cost of time and effort required to understand and comply with state and federal regulations. By some calculations, small business compliance costs as much as $12,000 a year. For companies with fewer than 50 employees, these costs are nearly 20% higher than the average for all companies. In a state like New York with a heavy regulatory burden, the cost of compliance is probably even higher.
That so many Americans still pursue entrepreneurship despite these challenging statistics says something about the American psyche. And it is vital for the economic growth of the state and the nation that these Americans continue to do so. New businesses generate nearly all net job creation in America, and 44% of America’s economic activity is generated by small businesses each year.
Given this tension between startup vulnerability and job growth, states that want to strengthen their economies should take specific steps to encourage and facilitate the growth of new businesses. Reforms that cut unnecessary regulations or create regulatory sandboxes that allow companies to temporarily circumvent certain regulations are policy solutions worth considering.
ALEC’s Start to Start Act is our Essential policy solutions for 2023 It is also intended to provide additional assistance to new businesses during the first five years of operation. Create an Office of Entrepreneurship to provide entrepreneurs with resources and support, including technical support. The model includes additional reforms that can be used alone or in combination to accelerate entrepreneurship. For example, Section B requires states to track information such as “number and total amount of contracts with states.” [new] business. Section C encourages the state to give his 5% of state contracts to new businesses.
States across America are considering legislation to implement reforms like the Right to Start Act, as shown in the map below. Maryland is considering similar legislation, and just last week testified before the Maryland Commission on Ways and Means about the importance of policies that promote entrepreneurship found in HB 1152, the Entrepreneurial Capital Act.
America needs Americans to keep opening new businesses, but doing so is a risky business.As job creators continue to prove their grit and determination, the state is We can help these efforts by passing reforms like the Right to Start Act to help them succeed.