Just recently, KfW announced that more than half a million small and medium-sized enterprises will face a leadership transition by 2022. For over 100,000 companies, the situation is even more urgent: In these cases, the succession must be completed by the end of 2019. However, the problem is more complex: The number of people interested in taking over a business is declining. For the past three years, there have been more existing owners looking for a buyer than the other way around.
Now, the KfW’s recently published Startup Monitor shows that the number of new business start-ups in Germany continued to decline in 2017—meaning there are fewer potential successors for companies on the market. As the development bank announced, only 557,000 people started their own businesses last year, which is 17 percent fewer than in 2016. Among new entrepreneurs, the group of first-time founders is by far the largest, at 77 percent. Significantly smaller are the groups of business acquirers, at around 10 percent, and those starting businesses with equity investment, at 12 percent.
In terms of gross domestic product, the foundation for startup growth was actually laid last year. Calendar-adjusted real GDP growth stood at 2.5 percent—up from 1.9 percent the previous year. This was the strongest growth surge since 2011. The unemployment rate, on the other hand, fell only slightly, to 3.7 percent—down from 3.9 percent in 2016. Consequently, an increase in the number of new businesses would have been expected last year. This would have been particularly true for part-time startups, as this group generally reacts more strongly to economic conditions than full-time startups.
In fact, the significant decline mentioned above occurred. Economists at KfW suspect that the drained labor market is apparently disrupting the usual long-term correlation between unemployment, growth, and startup activity. Finally, as the experts point out in this context, finding salaried employment—even just to supplement one’s income—is currently easier than ever. The record numbers of job openings and the time it takes to fill them show just how tight staffing levels are at many companies.
As KfW further reported, the share of women in startup activity fell again in 2017 by 3 percentage points to a total of 37 percent. The decline was limited to full-time employment and is the result of higher startup activity among men in full-time employment.
In addition, the study examined the extent to which founders rely on financial support when starting their own businesses. The study found that this applied to 60 percent of founders. Thirty-nine percent of founders rely exclusively on their own funds, while eight percent required sums exceeding 25,000 euros, which they raised from external investors. As KfW also found, around 14 percent of entrepreneurs faced financing problems in 2017. The main reason for this was that the entrepreneurs had, in most cases, committed more of their own funds than they had available.
Last but not least: As with startup activity in general, the decline was more pronounced among part-time entrepreneurs than among full-time entrepreneurs. The share of new entrepreneurs with employees fell to 30 percent among full-time entrepreneurs and to 8 percent among part-time entrepreneurs.
