No. 232

November 2003

SMALL BUSINESS

RESEARCH

SUMMARY

Expected Costs of Startup Ventures

by Blade Consulting Corporation, 2003

[46] pages. Vienna, VA 22182

under contract no. SBAHQ-02-M-0510

This Small Business Research Summary (ISSN 1076-8904) summarizes one of a series of research papers prepared under contracts

issued by the U.S. Small Business Administration’s Office of Advocacy. The opinions and recommendations of the authors of this study do

not necessarily reflect official policies of the SBA or other agencies of the U.S. government. For more information, write to the Office of

Advocacy at 409 Third Street S.W., Washington, DC 20416, or visit the office’s Internet site at www.sba.gov/advo.

New businesses are the life blood of our evolving

economy. They bring new techniques and vigor to

the production process. A major barrier to starting a

business is amassing the funds to cover initial startup

costs and cash flow needs. Data has been available

to show how much financing occurs but little has

focused upon how much is needed. The authors of

this report used a two-year survey of nascent entrepreneurs—individuals who are planning to start a

business or who are in the process of starting one—

which asked them what they expected the costs of

starting a venture would be.

Overall Findings

Nascent entrepreneurs felt that they needed little in

the way of startup funds to begin a venture, on average $6,000 for solo ventures. Their income expectations were in line with the equivalent of high wages,

on average $90,000 by the fifth year of existence for

solo ventures. Team ventures, by contrast, had higher

expectations in terms of initial funds needed, fifthyear wages, and fifth-year income projections. This

makes team ventures more likely to develop into

employer firms. Policies that encourage team-owned

businesses or networking among entrepreneurs might

help foster “growth startups.”

Highlights

The authors compared the expectations of solo and

team-based nascent entrepreneurs.

• The median amount of funds that solo entrepreneurs thought they needed to launch a venture was

$6,000. The median amount that team ventures

expected to need was $20,000.

• About half of solo entrepreneurs felt that they

needed $5,000 or less to make the business self-sustaining. For team entrepreneurs this figure was $10,000.

• Nascent solo entrepreneurs’ median expected

fifth-year income was $90,000; this figure was

$125,000 for a team venture. There were a few nascent businesses with much higher expectations, as

the mean was much higher: $935,000 for solo entrepreneurs and $2.4 million for teams.

• Although the median amount that solo entrepreneurs had saved was relatively low ($2,000), the

mean was high ($8,026).

• About 5 percent of nascent entrepreneurs

believed they were finished saving money to invest in

their businesses.

• Eight percent of solo nascent entrepreneurs and

16.4 percent of team nascent entrepreneurs planned

on seeking bank loans.

• Most individuals were starting slowly; only a

third of nascent entrepreneurs were devoting 35

hours a week or more to their venture.

• For solo ventures, the activity’s primary goal

appeared to be providing income for the entrepreneur.

• Twenty-seven percent of team ventures expected

to generate receipts of $500,000 or more after five

years versus 13 percent of solo entrepreneurs.
Scope and Methodology

This study relied upon data from the Panel Study of

Entrepreneurial Dynamics (PSED). A consortium of

researchers developed the PSED and in 1998, 31,261

random individuals were surveyed to identify emerging entrepreneurs. The PSED identified 830 nascent

entrepreneurs who were studied over a two-year

period. The authors used this group to conduct frequency and variance statistics for solo and team nascent entrepreneurs. One limitation of the data was its

focus on entrepreneurs that planned to open a business, when in fact some of these individuals may not

have actually opened businesses.

The Office of Advocacy was one of many original

funders of the precursor to the PSED, the

Entrepreneurial Research Consortium. Financial support for the PSED came from the National Science

Foundation and the E.M. Kauffman Foundation.

Ordering Information

The full text of this report and summaries of other

studies performed under contract to the U.S. Small

Business Administration’s Office of Advocacy are

available on the Internet at

www.sba.gov/advo/research. Printed copies are available for purchase from:

National Technical Information Service

5285 Port Royal Road

Springfield, VA 22161

(800) 553-6847

(703) 487-4639 (TDD)

www.ntis.gov

Order number: PB2004-100018

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