KfW Start-up Monitor 2013: Fewer start-ups, but opportunity entrepreneurs are a silver lining

• Fewest start-ups in Germany since 2000
• One third more entrepreneurs consider their new business as an opportunity than in 2011
• More entrepreneurs report financial risks; want better work-life balance

In 2012, 775,000 persons started a business in Germany. This was the lowest number of start-ups in the country since the year 2000 (http://bit.ly/106Y9KZ). At the presentation of the annual representative analysis of start-up activity in Germany in Frankfurt today, Dr Jörg Zeuner, Chief Economist of the KfW Group, said: "The decline in start-up activity is worrying because entrepreneurs help to safeguard our competitiveness and create employment". There is a silver lining, however: 47% of entrepreneurs (against 35% in 2011) indicated in 2012 that they were putting into practice a specific business idea with their start-up project and, thus, seizing an opportunity. "Opportunity start-ups promise to be more sustainable in the long term than other start-ups", said Dr Zeuner.

The share of start-up entrepreneurs from liberal professions (such as consultants, lecturers, educators) in overall start-up activity has risen from 15% in 2005 to 39% in 2012. "The remarkable increase in entrepreneurs providing advisory and educational services shows how supply responds to the transformed demand of a knowledge economy", said Dr Zeuner.

The multi-year analysis shows that the share of full-time start-up entrepreneurs who perceived bureaucracy as an obstacle to self-employment increased from 33% in 2008 to 40% in 2012. As well, concern that self-employment would place a heavy burden on their own family is today more widespread than five years ago, having increased from 23% to 30%. Following the overall trend in society, an improved work-life balance is apparently becoming more important to entrepreneurs as well.

More full-time entrepreneurs perceive the financial risk associated with self-employment as a problem (31%, up from 18%). This is associated with a higher share of entrepreneurs reporting financing difficulties – both in full-time and in part-time self-employment (20% in 2012 against 13% in 2008). The pattern observed was the more financing they required, the more likely they were to have financing difficulties (21% up to EUR 25,000, above this sum 33% in 2012). Ultimately, two thirds of entrepreneurs financed their ventures with equity or debt capital.

While entrepreneurs achieve slightly higher average income than employees, their arithmetic hourly earnings rate is often very low as they work more hours per week (48 hours for full-time entrepreneurs vs. 38 hours for employees). Nevertheless, being self-employed pays off for many entrepreneurs. Net household income has increased for 42% of them, and only 16% reported a decrease.

Entrepreneurs starting a business from unemployment were analysed separately. It became evident that their number dropped sharply after the change to the grant provided by the Federal Labour Office (-32% against 2011). As well, entrepreneurs who had been out of work complained more about financing difficulties (34% against 21% in 2008-2011). Nevertheless, there are positive aspects too. Almost 19% of these entrepreneurs (14% in 2008-2011) reported being innovators, that is, having brought something new to the market.

Note:

Further information on start-up activity (financing requirements, gender split etc) and the study (in German language) can be accessed at www.kfw.de/Gründungsmonitor2013.

Details on the study:

The KfW Start-up Monitor is a representative annual population survey of start-up activity in Germany. It is based on a very comprehensive startup concept (full-time and part-time entrepreneurs; commercial and self-employed entrepreneurs; new business formations, company takeovers and participations in enterprises) and provides an all-encompassing account of startup activity. The survey has been conducted since the year 2000. The 2012 survey period was from 7 August to 6 December 2012.