2/8/2011 6:04:56 AM By
I have spent a good deal of time over the last four years working on surveys asking individual companies about how their business activities are financed. It’s been amazing in that process to see how differently the topic must be discussed in Europe and the United States. Specifically, topics like credit card financing, which are a mainstay of U.S. surveys, don’t event make an extended pick-list of financing types used by most European small businesses. I bring this up to illustrate that international comparisons of financing mechanisms for small business are a tricky thing. And yet, we all yearn for more comparable data (or any data at all!). Today I wanted to describe a couple of fairly recent surveys focused on small business financing data internationally.
Asking the Firm about Financing
Completed every six months, the European Central Bank Access to Finance of SMEs
is a large-scale survey of establishments in the EU zone looking at changes in conditions but not gathering nominal values of loans. It has a nice questionnaire
that keeps things simple although the overall effort is a bit limited in that it's bypassing official statistical systems and doesn't have the ability, as I understand it, to link reported credit conditions to firm outcomes in later periods. It's most recent report summarized that “between March and September 2010 the proportion of SMEs reporting a worsening in access to bank loans, at 24%, almost halved compared to the previous survey, when it stood at 42%. At the same time, 12% of SMEs reported an improvement in access to bank loans, compared with 10% in the previous round.” This seems to show that the debt financing options for European SMEs are still getting worse but not as quickly. This is a good example of a survey gathering perceptions from businesses. The recently reviewed NFIB survey
also comes to mind here.
Asking the Regulator (or Bank) about Financing
The other route that can be followed in gathering data is to go to the providers of capital. In most cases, in small business financing this means looking to providers of debt capital. A new paper by the World Bank titled “Small and Medium Enterprises: A Cross-Country Analysis with a New Data Set
” describes an aggregation of SME financing data of this types from multiple countries around the world. This arises from some of the efforts of the World Bank and G-20 to aggregate data from central banks and other administering agencies about the size and quantity of loans to small businesses in their country. Asking regulators about loans is quite different than the above described establishment surveys. The advantage of the second approach is that it’s much cheaper but as the authors outline, there are huge definitional differences across countries in how SMEs are defined.
From table 2 of “Small and Medium Enterprises: A Cross-Country Analysis with a New Data Set”
The above shows the U.S. definition which centers on loan size, not employees or revenues of the business; I find this to be highly unsatisfactory. So while I applaud this G-20/World Bank effort, I personal still don’t think it’s a full substitute for a quality establishment survey. That said, outlining some of these differences in definitions is the first step in pushing towards further agreement on appropriate definition and comparability. The authors have tried to make global estimates on the size of small business lending, finding that $10 trillion flows annually to small business loans but that this is disproportionately higher in developed economies. Additionally, they believe the differences in definitions are not driving the difference between developed and developing economy levels of small business financing.
While there is much to applaud in the ECB survey, they still have work to do in regard to their sample. Specifically, it does not appear to me that their sample is adequately covering new and young firms. While they have about 2 percent of firms responding that they are under 2 years of age, that is dwarfed by those firms age 2-4 years (8 percent of their sample). This would appear low by all estimates I can think of coming out of the OECD and other international sources. And indeed, in this turbulent time we have shown the importance of tracking new business finance separately as these are the firms most likely first effected by the downturn and any credit tightening. Take a look at Spain’s statistics on new business registrations, as an example, which have halved in the last year. The discussions about small business financings too often are portrayed as the same as new business financing. They are not and more effort needs to be made to have samples which allow for representative studies of credit conditions faced by new businesses.
A Compliment and A Call
But it’s great to be squabbling on the details of the ECB effort while the U.S. remains devoid of meaningful ongoing federal collections at the establishment level. Our own Kauffman Firm Survey is the only longitudinal effort collecting annual debt and equity injection information on U.S. businesses but it’s only one cohort. How we are not demanding more on business financing is baffling to me. Communities everywhere in the U.S. want to know what is happening with their small business credit conditions.
6/3/2010 10:00:00 AM By
Understanding entrepreneurial exit at smaller businesses is a really complex and important topic given the aging entrepreneurial population of most developed economies. While the term "exit" in entrepreneurship is most often reserved for high-growth companies with large outside equity investors that want to cash out an investment, the majority of "exits" happen in small firms in manners which we know very little about. The topic is most important in family-owned firms but in reality it should be relevant in all businesses, particularly with the aging of new entrepreneurs
in the U.S. over the last decade.
One of the first pieces of research that I remember reading in my current position at the Foundation that caused a bit of an ah-ha moment for me was a piece by Brian Headd at the Small Business Administration
about the need to redefine success (and really failure) in entrepreneurship research. Brian’s main point was that when we look at firms that go out of existence the common perception is that the only outcome which can be deemed positive from a business demography perspective is one in which the firm continues to survive, not one in which the firm ceases to exist. But in reality, close to 30 percent of U.S. business owners whose business had ceased to operate still reported the business as being a success at closure. For me, this study was one of the first that really helped to challenge my own assumptions in building surveys because it made me realize that I was implicitly assuming all business exits were failures and I would have at the time used the terms interchangeably.
In hindsight, probably our biggest failing in the design of the Kauffman Firm Survey
was of the questions asked businesses who reported having exited the marketplace. Only through dialogue with researchers like Fabrice Cavaretta
has it become apparent to me how much more effort we should have put in determining what type of exit a firm had. But anyone that has tried to talk with a respondent about something which has failed, like a business, will know that it’s often not an easy conversation. Indeed, most of the times we have attempted to collect more information from exited businesses, our survey vendor on the project, Mathematica, has not had much success.
I haven’t come across many surveys specifically targeting recently exited businesses in the course of this job, but I did come across one recent effort from Belgium
which looks only at recently exited microbusiness owners. In general, I’ve seen a lot more interest in Europe in understanding how today’s business owners plan to transition their ownership stakes as many near retirement. I suspect that this research emerges (or at least was funded) to support policy efforts in this regard.
I am not sure that I have a lot more to say on the subject at this time but I am hoping others out there can point me to similar efforts internationally or more work here in the U.S. NFIB has some interesting factoids from a couple of their small business polls that I’d like to end with.
Families in Business, Volume 2, Issue 6, 2002, ISSN - 1534-8326
Owners and Managers, Volume 8, Issue 8, 2008, ISSN - 1534-8326
- Forty-eight (48) percent of family business owners would like to have a family member eventually take over operation of their venture. The number rises to five in eight among those whose firm employs 20 or more people. However, just 13 percent believe it is “very likely” that a family member actually will take over, though another 23 percent believe it is “likely.” Yet, only 7 percent of all operating businesses were inherited.
- About 9 percent intend to transfer business ownership to one or more family members within the next five years. Those planning the transfer average a little less than 60 years of age.
- Thirty-nine (39) percent say that they originally went into the business with one or more family members. Almost three-quarters of inherited businesses were transferred to more than a single family member.
- The principal owner still works for professionally-managed businesses in 55 percent of cases. He/she is semi-retired or retired in 19 percent of them; 17 percent work in another business that he/she owns; and 6 percent work for an organization that they do not own.
- Sixty-one (61) percent of professional managers think that it is “highly likely” that they will own and operate their current business at some point and another 11 percent think it is “possible.” However, just 35 percent of owners who are not managers in professionally-managed firms think that the professional managers in their enterprises are “highly likely” to own and operate the firm some day and another 8 percent think it is possible. It appears a considerable number of professional managers will not realize their quest.
- Twenty-eight (28) percent of professional/paid managers are family members of one or more current owners. Family members are much less likely to think they will eventually take-over (own) the business than non-family managers.
3/10/2010 1:00:00 PM By
This year the Census Bureau finally received full funding of their plan to expand coverage of the service sector. On Friday, March 12, the Brookings Institution will host a workshop
that will examine this expanded service sector work. I won't be there but this is without a doubt among the most important improvements underway to our timely measurement of the economy.
1/21/2010 2:24:37 PM By
To follow up on November’s post on green jobs, I attended another webinar hosted by the LMI in the Green Jobs series. The title was: Managing a Green Jobs Survey. Researchers from Washington and Oregon (Greg Weeks and Charlie Johnson, respectively) who completed green jobs surveys in their states presented results and gave pointers to future surveyors on green jobs survey design and collection.
The presentations broke into two parts: results and advice.
The two surveys have different definitions and different methods, but general trends can be seen in both surveys.
- Of all the industries that contain green jobs, the construction industry has added the most green jobs out of any other. These construction jobs are those that are either geared to energy efficiency or are related to renewable energy.
- Green jobs have a higher than average wage, and many green jobs don’t require a bachelor’s degree. However, the highest paying green jobs do require higher education.
- Individual occupations are becoming green, but the often-talked-about green industry is generally non-existent. Most green jobs today are old jobs with a green focus. Few are brand-new, and just about all of them retain the same title as before (exceptions are those like wind turbine technician). Both researchers refer to this as the “greening” of the economy.
There was a lot of advice given on how to run a survey and how the researchers might have run their own surveys differently. Major points break down as follows:
- The Bureau of Labor statistics has not issued a standard definition of a “green job” yet, but there are already a lot of guidelines out there (both from surveys like these and other sources). If a researcher were to develop his/her own definition, a good jumping off point would be to examine a paper put together by the Workforce Information Council which can be found here.
- As stated above, there is no specific green area of the economy; all parts of the economy are experiencing “greening” to some extent. Therefore, in future studies, individual jobs must be the unit of analysis. Aggregating to the firm level (or even across occupations with the same title) will tend to bias results.
- Response rates of surveys mailed to firms (who then tally green occupations) are typically low. Both surveys had response rates of about half. Therefore, when conducting future surveys, substantial follow-up efforts are necessary to try to minimize non-response bias.
- Other ways to increase the response rate are to:
o Design simple and easy-to-complete surveys.
o Provide example answers.
o Make the survey available to complete online.
The Washington report can be found here with addendum here.
The Oregon report is here.
11/25/2009 9:00:00 AM By
Last week I viewed a Webinar by the Labor Market Information Training Institute (LMI). The subject of the presentation was Green Jobs: Definitions and Analysis, and in it, researchers in Michigan and California reviewed surveys that were being conducted in each of their respective states. The goal of conducting these surveys was to find out more about each state’s green job market. A brief snippet of the results is at the bottom, but first I discuss some points that stood out.
Before diving into the results themselves, I should note that both presenters stressed that the definition of a “green job” was not standardized when the surveys were started. Since then, standardization has apparently been worked out by the Work Force Information Council (report here), but at the time, these definitions did not exist; therefore, the California and Michigan committees came up with separate definitions of what makes a job “green.” Though the general idea of a green job is present in both definitions, without a common, specific definition, there are two important problems that arise when interpreting the results of both surveys.
First, having different definitions means that results from the California survey cannot be immediately compared to the results from the Michigan survey. Both surveys report how many green jobs exist in each state, but without a common definition of a green job, we really cannot determine which state is doing better.
Second, without specific definitions, some “green” qualifications end up seeming a little too broad. For example, in the California survey a company can qualify as having a green position if the job involves “[creating] products using natural materials.” Not only is this definition overly encompassing, but it leaves a substantial amount of wiggle room on the part of the companies filling out the survey. Without providing companies specific definitions, results get skewed as each company has to come up with their own ideas on what is “green.”
Despite these two problems, the general gist of the results can be seen, and some of the results are quite striking.
In Michigan, green jobs make up 3.4% of all private sector employment, and in California, this number is 3.3%. The surveys predict that a majority of green workers will be gathering their skills from on-the-job training as opposed to formal schooling. In addition, Michigan researchers conducting a separate analysis on a sample of green-related firms found that between 2005 and 2008, green-related firms increased their number of positions by 7.7% while over the same time period, Michigan’s private employment had a -5.4% growth rate.
As a new and necessarily innovative industry, the growth in the number of green jobs is encouraging. The high growth that green jobs have seen shows that new ventures and ideas are being pursued successfully in spite of what the larger economy is doing. Given the economic crisis, if these results are carried over at all into 2009, it would appear that Entrepreneurship in this industry is alive and well.
Furthermore, since much of the training for these jobs is informal (on-the-job), the jobs that are becoming available will be open to a large share of the labor market. As Bob Litan over at Growthology points out, while Wall Street has rebounded from the recession fairly quickly, the pace at which Main Street is recovering is quite slow. The existence of a growing industry with jobs available to a majority of Americans, such as many of these green jobs, will help America on its way to recovery.
· 6,400 responses of 13,000 firms given the survey
· 109,000 green jobs forming 3.4% of all private employment
· 68% of future training is predicted to be conducted informally.
· In a separate analysis, researchers found that from 2005 to 2008, green-related firms increased their number of positions by 7.7%.
· In the same time period, the number of private jobs decreased by 5.4%.
California Survey: (These results are preliminary. The survey is not 100% complete.)
· 9,000 responses
· 9.2% of employers report employees working on green products and services
· 3.3% of all workers are working on green products and services.
· 60% of current training was done on-the-job.
The full Michigan report can be found here.
The slides for the California presentation are here.
Both questionnaires can be found here.
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E.J. Reedy is a manager in Research and Policy at the Kauffman Foundation. Learn more ...