Headwinds for small business owners
Welcome to Incubateme’s newsletter, curated by Alice Zhang.
Dear all,
Last time we talked about financial planning and analysis (FP&A) for small businesses, and the new product we are building to help entrepreneurs aggregate data, view real-time performance, and optimize cash flow.
Let’s be honest that small businesses are facing structural issues and headwinds. Even a venture capital firm like Bessemer Venture Partners admits that:
Contrary to popular belief, starting a business has never been harder. Although startup culture sometimes feels more like pop culture in mainstream media, the number of new businesses formed each year is decreasing. Over the past 30 years, new business creation has declined almost 50%. As small businesses dwindle, large enterprises capture market share. This trend has only become more severe in the wake of the pandemic as the data reveals a disproportionate decline in survival rates and job opportunities at small businesses.
and in terms of capital access?
despite explosive growth in early stage venture funding, many SMBs and solopreneurs are unable to secure the funding they need to operate. “Friends and family” rounds instead materialize as scarce small business loans. The Federal Reserve Bank’s Small Business Survey indicates that less than half of small businesses have their financing needs met. For “solopreneurs,” the financing options are even more scarce and often nonexistent.
While entrepreneurship is endangered, Bessemer believes that
… we are at the onset of a new wave of entrepreneurship—a rebirth of the American Dream. Amidst a social, economic, and health crisis, Q3 2020 to May 2021 saw a sudden spike in new business applications, the biggest in more than a decade as many use this period of uncertainty to take a shot at entrepreneurship.
and…
There are also promising cultural and macro shifts supporting a resurgence of entrepreneurs, solopreneurs, and small businesses. A younger generation of builders has more entrepreneurial ambitions than their predecessors, with 63% wanting to be their own boss and start side hustles that will, we believe, prove to be sustainable income sources in the future.
Given people’s desire and shifting trends, we are glad to see some of the most prestigious venture capital firms are turning their attention to the “economy of small businesses”!
Read on the full excerpt from Bessemer’s article to understand the three drivers of the headwinds for starting a business and some of the emerging tools & platforms being funded by venture monety that aim to help small businesses and counter the challenges.
Meanwhile, don’t forget to check out our featured business below, and if you would like to invest in founders from our community, especially any of our featured businesses, whether through money, time, or expertise, please CLICK BELOW TO LET US KNOW!
Entrepreneurship is endangered
Contrary to popular belief, starting a business has never been harder. Although startup culture sometimes feels more like pop culture in mainstream media, the number of new businesses formed each year is decreasing. Over the past 30 years, new business creation has declined almost 50%. As small businesses dwindle, large enterprises capture market share. This trend has only become more severe in the wake of the pandemic as the data reveals a disproportionate decline in survival rates and job opportunities at small businesses.
Ironically, today’s entrepreneurial drought persists despite—or perhaps because of—advancements in Internet and cloud technology that promise to democratize access and lower upfront startup costs.
So what are the underlying trends contributing to this decline in entrepreneurship? As it turns out, the barriers to starting a business are high and the barriers to survival are often higher.
Three major forces creating headwinds for aspiring small business owners
1. Regulation - Navigating local and federal regulations can be incredibly complex, requiring trips to city hall and reams of paperwork. There is also often substantial effort required to procure necessary licenses, insurance, and approvals. This is all, of course, before a business even gets up and running!
2. The big get bigger - The antithesis of greenfield, today’s big box retailers and large tech incumbents often suck the air out of the room and capture disproportionate share of consumer spend. The pandemic exacerbated this as many small businesses struggled to survive social distancing mandates and decreased consumption, leaving the giants with more market share and an increasingly consolidated landscape. In 2019, Amazon became the world’s largest retailer, controlling 45% of the e-commerce market, up from 34% in 2016. Their market share is expected to grow past 50% by 2021. This illustrates a larger trend that continues to persist. One example of this is the S&P 500 to GDP ratio, which stands at .17 today. This is the highest it has been in over 50 years and nearly double what it was just ten years ago. Since 2010, the growth of the S&P 500 has meaningfully eclipsed overall GDP growth in the US.
3. Access to capital - Despite explosive growth in early stage venture funding, many SMBs and solopreneurs are unable to secure the funding they need to operate. “Friends and family” rounds instead materialize as scarce small business loans. The Federal Reserve Bank’s Small Business Survey indicates that less than half of small businesses have their financing needs met. For “solopreneurs,” the financing options are even more scarce and often nonexistent.
Democratizing the CEO and reinventing the American Dream
While these obstacles are real, they are not insurmountable. In fact, we believe we are at the onset of a new wave of entrepreneurship—a rebirth of the American Dream. Amidst a social, economic, and health crisis, Q3 2020 to May 2021 saw a sudden spike in new business applications, the biggest in more than a decade as many use this period of uncertainty to take a shot at entrepreneurship.
For many, this year in particular has been one of survival, especially with record unemployment rates. And yet, the resilience of the entrepreneurial spirit persists as individuals rethink their skills and either start new ventures or reimagine their businesses to thrive in a digital-first world.
There are also promising cultural and macro shifts supporting a resurgence of entrepreneurs, solopreneurs, and small businesses. A younger generation of builders has more entrepreneurial ambitions than their predecessors, with 63% wanting to be their own boss and start side hustles that will, we believe, prove to be sustainable income sources in the future. For example, as marketing shifts to online channels and individual influencers can build and grow their own audiences, traditional retailers are seeing a decline in the value of foot traffic.
One salient example is GlossGenius, a startup that empowers individual beauty professionals and salon booth renters to grow and manage their own businesses, enabling them to build brands that thrive independent of physical salons.
Technology has also unlocked new entrepreneurship categories. From digital content to cloud kitchens to online storefronts, there are many emerging areas ripe with opportunity.
https://www.bvp.com/atlas/roadmap-enabling-entrepreneurship/
Featured business: Flywallet
Company URL: flywallet.io/
Location: Based in Paris - Global user base
Founder(s): Alejandra Fernandez and Thomas Negrit
Founded year: 2019
A blurb about the company/brand: Flywallet is a financial platform designed to make booking travel affordable and secure.
✈️ Tell us about yourself, your company, and how you got started.
My name is Alejandra Fernandez, and I founded Flywallet with my husband in 2019. Having traveled to over 50 countries, the unfamiliar surroundings and exposure to new cultures broadened our consciousness and changed our lives. Grateful to be part of the first generation able to travel to other continents with such ease, we realized empowering people to travel was a great way to impact their lives for the better. So, we created Flywallet to allow anyone who dreams of leaving their hometown and discovering the world. Our platform is designed to make traveling to any destination a specific and attainable financial goal.
✈️ How did you acquire your first batch of customers?
Our first batch of customers were family and friends who knew that we were well-traveled and trusted what we had to offer. With them, we tested our set and forgot auto-saving features and flexible payment solutions. Many traveled for the very first time because flywallet was the first step they needed. Organic referrals from our early adopters are how we continue to grow our community. They have sold the product better than we ever could and are saving with flywallet as we speak.
✈️ Did your business pivot in the pandemic? Or, how did your business start during this time?
We planned to launch Flywallet right before the summer of 2020. Although our # of bookings was far lower than anticipated due to the pandemic, people continued to sign up and save funds every month to make next year better. Meanwhile, we focus on partnerships that will save our users money and protect their trips from COVID-19 delays/cancellations. flywallet was created to shift people to spend less on material possessions and invest more in experiences instead. 2020 has been an awakening for many and definitely a step in the right direction in this regard.
✈️ What is your plan for the future? What trends do you foresee for your industry?
Good behavior should be rewarded. We plan to partner with a financial institution that will allow each flywallet user to earn interest on their savings. Also, partnerships with airlines and fellow travel companies will allow us to offer our users perks. The travel industry needs to redefine its relationship with customers now more than ever. After putting their bottom line first for so long, we hope flywallet can create a space for travelers to feel secure and in control.
✈️ Any other lessons/advice you’d like to share with other fellow entrepreneurs?
For entrepreneurs who have B2C companies, my advice is always to put the customer first. This means finding that one person (other than yourself) who thinks your product is amazing no matter what. With the feedback of that one person, you can (1) find more like them and (2) have a north star to follow. When a crisis hits, only fundamentals thrive.
✈️ Any requests for help from our community?
With a product merging the travel industry with fintech, we are interested in meeting new people in these spaces. We love to hear feedback, so please feel free to reach out (alejandra@flywallet.io), follow us on LinkedIn, and create your flywallet today.
You made it to the end!
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