When a Startup Decides to Make its First Hire

A recent article from businessweek.com has dived deeper into the backbone of America: small businesses.  It is obvious that existing businesses can create jobs, but they can also fire people (not to mention go out of business themselves).  Startups, however, can only create jobs.  So statistically, when do they hire their own employees to boost the job market?

The Small Business Administration released data from their Office of Advocacy that highlighted almost 5,000 startups founded in 2004 and documented how they hired their first employees and when they did so.

A staggering 28 percent of these startups had gone out of business before they hired a single person and another 13 percent of businesses still operating hadn’t hired one employee  by 2011.

The Kauffman Foundation, who worked closely with the Office of Advocacy, showed compelling data that 36 percent of individuals who started their own business in 2004 without college degrees hired an employee within their first year.  Of those individuals with college degrees, 40 percent hired employees within their first year, making education a virtual non-factor when it comes to startups and their hiring criteria.

With education being a non-factor, it appears that a startup’s revenue had little influence on the hiring process either.  27 percent of startups had zero profit when bringing their first employee on board  and 38 percent had less than $25,000 when hiring their first worker.

There were some other influences for first-time employers as well.  Male-run startups typically hired in their first year more often than female run startups.  Immigrant-run businesses also hired more often in their first year at 45 percent.  More often, white and black entrepreneurs hired less in their first year than Hispanic and Asian American startups did.

The Kauffman study did show one clear likelihood through their analysis.  Startups with patents that hired in their first year were at 32 percent, while only 23 percent of first-time employers without patents did so.