The 10 Top must Myths of Entrepreneurship in United States

The 10 top must Myths of Entrepreneurship in United States

Entrepreneur
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Of course fear isn’t the only obstacle that stands in the way of entrepreneurs. Countless myths also block the first crucial steps.

1. A lot of money is needed to finance a start-up. Contrary to what most people believe, 10-years ago a typical start-up in the USA required about $25,000 to begin. How is it possible to start a business with such a small amount of money? Successful entrepreneurs do whatever they can to keep costs low. They borrow equipment instead of paying for it. They rent instead of buying. 

And they turn fixed costs into variable costs by doing things such as paying their employees commission instead of salaries. 

2. Venture Capitalists are a good source for start-up money. Not unless the business is in the computer or biotech industries. In the USA, venture capitalists only fund around 3,000 companies every year (one-third of which are in the start-up stage) with around 81% of all venture capital dollars going toward businesses that deal in computer hardware (and software), semiconductors, communication, and biotechnology. In fact, the odds that a start-up will receive money from a venture capitalist are about one in 4,000 (which is worse than the odds of dying from a fall while taking a shower).

3. Most business angels (i.e.: a person who enjoys giving money to someone else so that he or she can start a business) are rich. If rich means being a person with more than $1-million, or an annual income of $200,000 to $300,000, then the answer is no. Almost three-quarters of the people that provide capital to fund someone else’s start-up don’t meet SEC accreditation requirements. On the contrary, 32% have an income of $40,000 a year or less and 17% have negative net worth.

4. Start-ups can’t be financed with debt. Actually, debt is more common than equity. According to 

the Federal Reserve Survey of Small Business Finances, 53% of finances for new businesses that are two years old or younger come from borrowed money; 47% comes from equity. 

5. Banks don’t lend money to start-ups. According to Federal Reserve data, banks account for 16% of all the financing provided to companies that are two years old or younger. This is 3% higher than the next highest source – trade creditors – and a bit higher than the most common capital sources everyone talks about: friends, family, business angels, venture capitalists, strategic investors, and government agencies.

6. Most entrepreneurs start their businesses in attractive industries. Unfortunately, the opposite is true. Most entrepreneurs head straight for the worst industries when contemplating a start-up. 

For example, in the United States the correlation between the number of entrepreneurs starting businesses in an industry and the number of companies failing in the same industry is 0.77. Put another way, this means that most entrepreneurs choose industries in which they’re most likely to fail.

7. The growth of a start-up requires more entrepreneurial talent than the type of business chosen. Perhaps not surprisingly, the industry in which an entrepreneur chooses to start his or her company has an enormous influence on its growth. Between the years 1996-2006, around 4.2% of all start-ups in the computer and office equipment industry made the Inc 500 list of the fastest growing private companies in the USA. The percentage of growing companies in the hotel and motel industry averaged around 0.005. Eating and drinking establishments averaged 0.007%. This means that the odds of making the Inc 500 list were 840 times greater for a computer company rather than a hotel.

8. Most entrepreneurs are financially successful. That depends on your definition of success. While it’s true that small businesses are responsible for the majority of wealth in most countries, the wealth these businesses create is unevenly distributed and it spreads rather thinly. For example, the typical profit for an owner-managed business is $39,000 per year and only the top 10% of entrepreneurs earn more money than their employees. Put another way, the typical entrepreneur almost always earns less money than he or she would earn working for someone else.

9. A large number of start-ups achieve the sales growth projections that equity investors are looking for. Absolutely not. Of the 590,000 or so new businesses founded in the USA every year less than 200 reach the $100-million in sales in six years that most venture capitalists require. Around 500 businesses reach the $50-million in sales that top-end business angels are seeking, and only about 9,500 companies reach a target of $5-million in the same six year period.

10. Starting a business is easy. It’s unclear why anyone would believe this to be true – particularly when one takes into account that the majority of people who start a business end up failing. In the USA, for example, seven years after beginning the start-up process, only one-third of successful entrepreneurs can boast about having a positive cash flow greater than their salary and expenses for more than three consecutive months.

Therefore these are the myth of every entrepreneur in United States.