Contacts:
Barbara Pruitt, 816-932-1288, bpruitt@kauffman.org, Kauffman Foundation

Engagement in Internet activities positively affects young companies' capitalization, sales and survival

(KANSAS CITY, Mo.) Oct. 20, 2011 — The Internet's profound effect on how U.S. businesses operate is even more pronounced among young companies, according to a research report released today by the Ewing Marion Kauffman Foundation. The study, "Casting a Wide Net: Online Activities of Small and New Businesses in the United States," reveals that new businesses have a higher propensity to use websites, email, and to sell online, and that these inclinations have an impact on capitalization and longevity.

The research compares data from the Kauffman Firm Survey, which follows 4,928 firms from their founding in 2004 through 2009, with recently released data from various government sources on businesses overall.

While adoption and use of online activities differed depending on the business type, owner characteristics, industry and other factors, the study showed that new businesses tended to implement e-business activities at higher rates than existing businesses did. In 2007, for example, young businesses were more likely than not to have a website, as compared to only about a quarter of U.S. businesses overall. Six percent of all U.S. businesses had online sales that year, while more than 25 percent of young businesses were selling online.

"Startup companies often are at the forefront of technology implementation that streamlines productivity and gives them a competitive advantage in the marketplace," said Alicia Robb, Kauffman Foundation Senior Research Fellow and co-author of the report.

In addition to new businesses' higher likelihood of selling online, new businesses were also much more likely to generate more than half of company sales online. Among online sellers, a quarter of young businesses generated more than 50 percent of their revenues online, almost double the rate seen in the general business population. 

"It's clear that many young businesses are integrating online sales into their strategies for reaching customers and generating revenues," said E.J. Reedy, Kauffman Foundation Research Fellow and report co-author. "But it's important to realize that in addition to Internet-only sellers, many young businesses also report sales generated through other channels."

New businesses that used websites, email and online sales generally were starting bigger, with greater financial capitalization at birth (almost $55,000 more if a firm had a website, almost $46,000 more if the business owner had email and more than $25,000 more if the firm later reported online sales) and also higher levels of employment, especially for firms starting with a website.

Founders whose companies had websites at startup tended to be younger and more educated than were founders who did not have websites. They more frequently had previous entrepreneurial experience but less industry work experience, and were dedicating about eight more hours per week to the venture than were entrepreneurs whose companies launched without a website.

High-tech startups were most likely to begin operations with websites and email, but were no more likely to be selling online than were non-high-tech companies. Across industry types, companies in Manufacturing; Wholesale Trade; Professional Services; Retail Trade; Finance, Insurance, and Real Estate (FIRE); and Arts, Entertainment and Recreation were most likely to begin business with websites and email. The lowest level of Internet sales was among Professional Services and FIRE.