Canadians are expected to become their own bosses at an accelerated pace in the coming decade, with more than half a million entrepreneurs in the process of establishing their own business this year finds a new report from CIBC.
“Irreversible structural forces suggest that the next decade might see the strongest start-up activity in the Canadian economy on record,” says Benjamin Tal, deputy chief economist at CIBC. “The gradual shift to a strong culture of individualism and self-betterment; the role of technology in driving the transition from boardrooms to basements; the more global and inter-connected markets that require greater specialization, flexibility and speed; as well as small business friendly demographic trends are among those forces that are likely to support a net creation of 150,000 new businesses in Canada in the coming ten years.”
The report finds a number of interesting trends among today’s new business owners.
- Being self-employed is a choice with only 20 per cent of new owners doing so because they couldn’t find a job;
- The 50 and over age group is the fastest growing segment of new business owners accounting for nearly 30 per cent of start-ups;
- The self-employed are more educated – a third have a university degree;
- 70 per cent of new businesses are started by men but women tend to be more successful;
- Educational services (up almost 65 per cent since 2007) and health care are (up almost 20 per cent) are growing fastest:
- B.C. leads the country with start-ups representing 3.9 per cent of the employed population.
Mr. Tal notes that the recent improvement in start-up activity has occurred despite a relatively healthy labour market indicating that a significant number of new entrepreneurs chose self-employment as a career rather than being forced to open a business due to a lack of other employment opportunities. “We estimate that only 20 per cent of those who started their own business in the past two years can be considered “forced” self-employed,” says Mr. Tal. “This is notably a lower proportion than observed among those who started their business during the jobless recovery of the mid-1990s and in the early 2000s. With more business owners starting operations by choice, their likelihood of success may increase.”
By far the fastest growing segment of the start-up market is the 50 and over age group. This group now accounts for close to 30 per cent of the total start-ups, more than double the rate seen in the 1990s. “The affordability and availability of technology enables older Canadians to provide services from home. They are also able to use their well-developed skills and take advantage of their wide business networks and connections more effectively.”
He found that today’s newly self-employed tend to be more educated that the general population – and more educated that previous entrepreneurs. Almost one in three of those who opened up shop in the past two years have a university degree. That is double the rate seen in 1990 and a full five points above the rate seen for the working population as a whole.
“Start-up activity is still dominated by men, who now account for almost 70 per cent of total start-ups,” says Mr. Tal. “In fact, the share of start-ups run by women fell from 45 per cent in the 1990s and the early 2000s to nearly 40 per cent currently. However, there is more to the story. Among established businesses, the percentage of female entrepreneurs rose from 27 per cent in the early 1990s to the current 33 per cent. This suggests that when women decide to start a business, they stay in business longer.
The fastest growing segment of the newly self-employed is educational services (up by an annual average of almost 15 per cent since 2007). The recent focus on health care is generating both regular employment (total employment in the sector rose five times faster than the average of all industries since 2007) and the creation of start-ups in the industry, which are up almost 20 per cent over the same period.
Going forward Mr. Tal believes rapid change will define the future of start-ups in Canada with five major forces defining the sector over the next ten years.
- Increased export orientation – Half the revenues derived by businesses 2-5 years old are coming from outside Canada. “That is not only a record high, but also double the share seen among businesses that have been in operation for more than twenty years,” says Mr. Tal. But globalization also means more competition. “The implication is that in order to profit from globalization, these small firms will have to be able to penetrate new markets. This, in turn, is achievable only if these firms succeed in identifying niche markets.”
- Increased connectivity – Technology is increasingly leading to a higher level of cooperation between small business, self-employed and larger firms. Larger firms are calling upon the specific expertise of smaller enterprises to complete projects. This kind of cluster of competencies and strategic alliances will be temporary and at the end of a particular project they will dissolve and may not cooperate again.
- Growth in outsourcing – “Canadian small businesses are in a co-evolutionary relationship with corporate business in the economic landscape. Small businesses are needed by large corporations to create the necessary reach and depth into local markets as distributors and agents for products and services,” notes Mr. Tal.
- Increased demand for personalized products – An aging population means growing sophistication and a rapid change in consumer tastes. This is positive for self-employment as small scale operations are flexible and can support increased demand for personalized services given their ability to focus on niche markets.
- Immigration – “The pace of growth in self-employment among immigrants has risen dramatically over the past two decades,” he adds. “Currently close to 20 per cent of self-employed are immigrants, more than double the rate observed in the 1980s. Given that immigration will become an even more significant source of labour market growth, this trend is likely to support small business formation.”
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