These States are Supporting New Entrepreneurs – American Legislative Exchange Council

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In his State of the Union address, President Biden said that in the past two years, a record 10 million Americans have applied to start a new small business. While the number is accurate, it’s not the 17 million new businesses predicted by Intuit for 2022 alone. However, the data is still promising. After a lost decade of American entrepreneurship, it seems startups are on the rise again in America.

The challenges facing these new businesses can be daunting: data from the US Bureau of Labor Statistics repeatedly shows that one in five new businesses close within the first five years, and only 25 percent of new businesses make it to 15 years or so. more. The closure is often attributed to a failure to raise capital. Other reasons include a lack of market need and/or the wrong product.

Perhaps more difficult for business owners to readily quantify is the cost of time and effort required to understand and comply with state and federal regulations. Some calculations put regulatory compliance as high as $12,000 a year for small businesses. For firms with fewer than 50 employees, these costs are almost 20% higher than the average for all firms. In states like New York that have high regulatory burdens, compliance costs are arguably even higher.

It says something about the American spirit that despite these disheartening statistics, so many Americans still pursue entrepreneurship. And it’s vital to state and national economic growth that these Americans continue to do so. New businesses generate nearly all of America’s net job creation, and 44 percent of America’s economic activity is generated by small businesses each year.

Given this tension between the vulnerability of startups and the growth of jobs, states that want to strengthen their economies should take some measures to encourage and foster the growth of new companies. Reforms that reduce unnecessary regulation or create regulatory sandboxes to allow companies to temporarily bypass specific regulations are policy solutions worth considering.

ALECs Right to Start Act is one of our essential policy solutions for 2023 and aims to provide new businesses with additional help during their first five years of operation. Establish an Entrepreneurship Office to provide resources and support (including technical support) to entrepreneurs. The model contains further reforms that can be used singly or in tandem to accelerate entrepreneurship. For example, Section B requires the state to track information such as the number and total dollar amount of state contracts awarded [new] businesses. Section C therefore encourages the state to award 5% of state contracts to new businesses.

As indicated in the map below, states across America are considering legislation that would implement reforms such as the Right to Start Act. Maryland is also considering a similar bill, and just last week I testified at the Maryland Ways and Means Committee on the Importance of Entrepreneurial Policies found in HB 1152, the Entrepreneurial Equity Act.

America needs Americans to keep opening new businesses, but doing so is a risk-filled venture. As job creators continue to demonstrate their grit and determination, states can support these efforts by passing reforms like the Right to Start Act to help them succeed.

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