Changing structure of business in 2022
2022 is winding down, summer is around the corner, and the weirdness of 2020 and 2021 is slowly being remedied. For a lot of people, this will be a good time to start thinking about new ventures.
Where are the new business opportunities, and is it difficult to enter these industries? Publicly available data can be useful as a first step in finding a niche. One question might be which industries have the lowest barriers to entry? To help answer this question we look at business births and turnover for the year March 2021 to February 2022.
We measure the rate at which new businesses are created by looking at the number of “new” businesses as a proportion of total businesses each year. This is the “birth rate” of businesses. This data includes only those businesses with greater than $30,000 in revenue for a given year. This filter helps alleviate some issues with the nuances of what “starting a business” means.
For 2022, the overall birth rate was 13 percent as at February 2022. This means that 13 percent more businesses were “born” between March 2021 and February 2022.
This measure is useful as a starting indicator to understand which industries attract the most new businesses. In general, these will be the industries which have lower barriers to entry.
The data does reflect this, with construction, information services, professional services, and administration services being over-represented in the births. Businesses in these industries are generally producing “knowledge work” which has a low capital requirement but requires significant expertise by the worker. The low capital requirement indicates a relatively lower barrier to entry.
A related measure is the “turnover rate”, which is the “birth rate” added to the “death rate”. It measures the total change in businesses in each industry for each year. Generally it is preferable that industries do have some turnover (to limit zombie companies), but too great a rate of turnover might indicate a mismatch between new entrants and market reality.
The industry with the greatest turnover in 2022 was administrative services, with a turnover rate of 30 percent. The average for all industries is 22 percent.
I have just touched the surface in this article as there are many ways to slice and dice the information to develop deeper research and knowledge from this data.