(KANSAS CITY, MO.), May 2, 2012 – Building on a long-term trend, the nation’s business startup rate fell below 8 percent for the first time in 2010, marking the lowest point on record for new firm births. New firms as a percentage of all firms continued a steady downward trend in 2010,  going from a high of 13 percent (as a percentage of all firms) in the 1980s to just under 11 percent in 2006 before making a steep decline to the 8 percent in 2010, the most current year of data available.

This and other findings based on newly released data on U.S. firms and establishments with paid employees is included in the Census Bureau’s Business Dynamics Statistics (BDS) briefing released today. Partially funded by the Ewing Marion Kauffman Foundation, the BDS provides annual business data from 1976 to 2010.

Reduced numbers of new firms negatively affect the U.S. economy, which relies on startups as critical contributors to job creation. From March 2009 to March 2010, U.S. private-sector firms were responsible for a net loss of 1.8 million jobs. The 394,000 companies that began operations in 2010, however, created 2.3 million jobs in spite of the anemic economy.

“Without the new jobs created by business startups, the Great Recession would have been even deeper, with many more jobs lost,” said Robert E. Litan, vice president of research and policy at the Kauffman Foundation. “Unfortunately, new firm formation has waned since the 1980s, and the recession accelerated the decline. If we are to achieve and sustain a hearty recovery, policymakers, educators and organizations that help entrepreneurs commercialize their technologies must be willing to address every obstacle that stands in the way of new business formation.”

Fewer employer firms

Young firms – those five years old or younger – now comprise fewer than 35 percent of all firms, down from nearly 50 percent in the early 1980s. This decrease is accompanied by a decline in the share of employment accounted for by entrepreneurial firms from 20 percent in the 1980s to 12 percent in 2010. The share of job creation also has fallen, from more than 40 percent in the 1980s to about 30 percent in recent years.

The national decline is seen in all states, although some states have fared better than others. While the report does not analyze causes for individual state activity, it shows that state-level drops ranged from 2 percent to 14 percent when changes from the 1987-1989 and 2004-2006 business cycle peaks were compared. Further, states that experienced the largest declines also were, for the most part, those in which young businesses had the highest initial shares of business activity in the 1980s. These states typically were in the West, Southwest and South – the regions hit hardest by the recession.

In a study released last month that measures annual employer and non-employer business creation in the United States, the Kauffman Index of Entrepreneurial Activity also showed a decline in the number of startups nationally and in all regions except the Northeast. In this study, founders were more likely to be sole proprietors than they were to create jobs.

This report is the sixth BDS Brief. The BDS includes measures of business startups, establishment openings and closings, and establishment expansions and contractions in both the number of establishments and the number of jobs. The BDS data provide these new statistics annually for 1976-2010, with classifications for the total U.S. private sector by broad industrial sector, firm size, firm age and state. The BDS is the result of a collaboration between the U.S. Census Bureau’s Center for Economic Studies and the Ewing Marion Kauffman Foundation, with additional support from the U.S. Small Business Administration. Further information about the BDS can be found at http://www.census.gov/ces/dataproducts/bds/index.html.

To read the complete Forbes article, click here.

For a list of the Top 50, click here.

For Shelly Sun’s advice on growing a business in SmallBusinessExecutive, click here.

To learn how a mentoring program helped Shelly Sun grow her business, click here.

Scott Kluth, CEO of CouponCabin, expressed relief that a Circuit Court judge struck down the Illinois use tax law.

The Illinois use tax law that spurred CouponCabin and FatWallet to leave the state last year was ruled unconstitutional Wednesday by a Cook County Circuit Court judge who said it violates the  Interstate Commerce Clause and Internet Tax Freedom Act, according to the Performance Marketing Association, which had filed a lawsuit challenging the use tax’s constitutionality.

Cook County Circuit Court Judge Robert Lopez Cepero agreed with the association’s position that receiving referral business from Illinois-based affiliate marketers does not constitute nexus — or a physical presence in the state — for online retailers. “We are thrilled with the outcome of today’s preceding and believe it paves the way for Internet marketing affiliates to get back in business in Illinois,” Rebecca Madigan, executive director of the Performance Marketing Association, said in a blogpost. “We commend Judge Cepero for his timely and thoughtful decision.”

The Amazon impact

Under the act that Gov. Pat Quinn signed into law in March 2011, out-of-state online merchants were required to collect and remit Illinois sales tax of 6.25 percent when they did business with Illinois affiliate marketers. The so-called Main Street Fairness Act was designed to level the playing field for brick-and-mortar retailers, but critics said it would chase business and jobs out of state. Due to the law, Amazon, Overstock and other online retailers said they would stop doing business with Illinois affiliates, spurring CouponCabin to move to Whiting, Ind., and FatWallet to relocate to Beloit, Wis.

In a statement Wednesday, Scott Kluth, founder and chief executive officer at CouponCabin, said: “CouponCabin is thrilled to hear the news about the affiliate tax being declared invalid in Illinois. We are relieved that the 9,000 affiliates that were based in Illinois may now have the opportunity to operate in Illinois without jeopardizing their business relationships with online retailers. This ruling places the responsibility for a solution back where it belongs:  in Congress. CouponCabin continues to strongly support a federal solution to the taxation of all online transactions.”

At the heart of the controversy is what constitutes having a sufficient presence in a state for online merchants to be required to collect and remit state sales tax.

Quill vs. North Dakota case

“The interstate application of sales tax has always been a  federal issue,” Brad Wilson, editor in chief of Brad’s Deals, told SmallBizChicago.com when the law passed last year. He noted the 1992 U.S. Supreme Court Case of Illinois-based office supply cataloger Quill Corp. vs. North Dakota.

In that case, the high court decided that out-of-state merchants could be required to collect and remit sales tax for other states if they had brick-and-mortar locations in the state, such as offices, warehouses or employees, but not customers alone. But the ruling said states could not supersede the Interstate Commerce Clause by requiring out-of-state marketers with no physical presence to collect and remit sales tax.

– Ann Meyer

See related articles: FatWallet’s Planned Exodus Worries Rockton Officials

Tech groups vow to push for repeal of use-tax law signed today

Affiliate marketers down, but not done yet

Jewish Business News

Rabbi Karen Kedar offers insight on the importance of ethics in business.

How America conducts business has been called into question during the current economic crisis. Greed, ambition and poor regulation frequently have been raised, while ethics – or the lack of — doesn’t always make the news. Writing for Jewish Business News, Chicago journalist Jodie Jacobs asked five Chicago experts to share their views on the role of ethics in business. 

Alan Dershowitz is a legal scholar and the Felix Frankfurter professor at Harvard University, where he teaches a course on legal ethics that covers several professions.

 “One has to make a distinction between personal morality and ethics. Ethics are determined by the rules of a profession,” said Dershowitz. “Every profession has it,” he said, pointing to journalism and business. “You come across something, but you can’t disclose your source. In business, a fiduciary obligation to stockholders may be inconsistent with personal morality.”

According to Dershowitz, choices are not easy. “I teach a class about conflict. The choices are not between good, better and best. Often, they’re between bad, worse and worst,” he said.

However, he thinks business ethics are improving. “They’re getting better because there’s more public scrutiny. Journalists are reporting more on business….. the more sunlight, the better,” he said, “Business can no longer operate in utter secrecy.”

When asked how evolving Internet technology may impact ethics, Dershowitz pointed to issues of intellectual property theft and of the public’s right to know, but said, “It’s cutting edge.” (Dershowitz is on the case of Julian Assange, founder of Wikileaks, which leaked diplomatic cables.) Referencing both issues, he added the caveats: “Old answers do not apply” and “There is no simple solution.”

Lloyd Shefsky is clinical professor of entrepreneurship at Northwestern University’s Kellogg School of Management.

Asked about  ethical issues facing small business owners today, Shefsky said, “Tight capital leads to pressures that often result in ethical problems, including attempts to reduce costs, ignoring contractual obligations, misstatements of facts, etc.”

He listed the following most frequent excuses for wrong-doing:

• What I’m doing is something the board would approve anyway.
• This is just temporary; I’ll fix it later.
• I’ve given the company so much; I deserve this.”

Shefsky tells his students that ethics is something they should have already learned from parents and clergy. Shefsky, past president and director of the America-Israel Chamber of Commerce, said Judaism provides the following lessons in business ethics: “1.The concept that one should avoid even the appearance of wrongdoing is a great warning system. 2. The concept that each individual is responsible not only for his [or] her own reputation, but also for that of the Jewish people. 3. Charitable thinking is good. However, the concept regarding charity can create conflicts with fiduciary duties to shareholders.”

 Hedy Ratner is co-founder and co-president of the Chicago-based Women’s Business Development Center.

“There are no ethics rules for small businesses, but there are moral principles of life you must consider as a business owner,” said Ratner. She emphasized building trust between the business and customers and between owner and employees, whether business is good or bad.

Ratner warned there are many ways to betray one’s principles by exploiting customers or employees. She urged small business owners to set an example of ethical behavior for employees. “You don’t want an employee saying, ‘This isn’t the company I thought it was.’”

Having an ethics policy is good business, according to Ratner. “Let employees know you have it and that you’re living it,” she said. “Build trust with customers so they know they can trust you to give the best price and best service.”

She also emphasized the ethics of meeting obligations even during economic downturns. “Instead of arbitrarily cutting salaries, talk to your employees. Explain business is not good, so let’s work together for a solution. When you negotiate, you get more concessions. When you impose, you lose,” she said. “Being respectful and treating others with respect is part of behaving ethically.”

 David Jacobson is founder of Chicago Jewish Funerals and a board member of several Jewish organizations.

For some people, a funeral home sends up red flags, Jacobson said. But he believes any business whose owner is ethical will have a good reputation. “Ethics are pretty cut and dried. The Torah says you must behave in the right way. You must do the right thing all the time,” said Jacobson.

“I make sure my employees are taken care of. They’re the face of my business. If you devote your life to a company, you have to take care of your employees,” he said. He also felt strongly about obligations, trust and respect. “If you promise something, you better deliver what you promise and even more. We never take a short cut.”

As a guide, he suggested: Treat a client like you would your family. “People pay a fair price expecting that everything is right,” said Jacobson. “There are cheaper ways of doing things. That’s not our way. It’s not good business.”

As an example, Jacobson said he parted ways with a huge insurance company because it cut staff he thought was necessary for personal contact and service. “They fired their ground people, so I fired them. They offered incentives to stay with them. I didn’t accept because I didn’t want to work with the corporate office. You have to do the right thing,” he said.

Rabbi Karen Kedar is senior rabbi of B’nai Jehoshua Beth Elohim in Deerfield.

Kedar edited the finance and ethics issue of the spring 2010 CCAR Journal (The Reform Jewish Quarterly of the Central Conference of Reform Rabbis). In an introduction to the journal, Kedar referred to the impact the economic crisis has on families and business. “It seems that the rules have changed. Banks aren’t behaving like banks. Performance, ambition, and intelligence are irrelevant to job security. What was affordable in previous years is now out of sight,” she said.

She encouraged a review of attitudes toward wealth. “Nobody stands at your grave and reads the details of your portfolio. Life is judged by giving, loving, faith and the ability to rebalance when we’ve lost our focus.”

Kedar explained the impetus for the journal’s ethics issue as “back to basics during a historic moment when ethical issues regarding money, finances and business dealings are in question in our country, and indeed in the global marketplace.”

However, she cited an important reference from Shabbat 31a. “May you live 120 years, but when you die, G-d asks you six questions. The first is, were you honest in business?”

Kedar explained why honesty in business was first. “The ethical order of money is the basis for everything,” she said. “According to the Talmud, if you don’t have a society based on ethical behavior, then you have no foundation for any relationship.”

Jodie Jacobs is a Chicago journalist who has contributed to the Chicago Tribune for more than 20 years. Her articles have also appeared in Crain’s Chicago Business, Lake County Business Journal and What’s Happening. Email her at Jodie_jacobs@sbcglobal.net

Andy Sernovitz, author of "Word of Mouth Marketing: How Smart Companies Get People Talking," tells how to turn negative reviews into positive customer service moments. Photo courtesy of Andy Sernovitz.

By Andy Sernovitz

Yelp and Angie’s List are great resources of  word-of-mouth marketing ­­– when the reviews are positive. But how do you combat that one negative review?

1) Respond to the negative review or complaint quickly.

2) Respond like a person, not a company, by introducing yourself: “My name is Jenny…” This will immediately defuse some of the anger.

3) Engage with the customer to try to fix the problem.

4) Once the problem is resolved, the satisfied customer might be your best word of mouth. They’ll tell their friends, networks and followers how pleasant you were and how you made things right.

Of course, ideally we would all love to avoid negative reviews in the first place. To defray them, be sure to post positive reviews. Ask the happy customers to write a review, but never pay for it.

Andy Sernovitz teaches word of mouth marketing and social media and is the author of “Word of Mouth Marketing: How Smart Companies Get People Talking.” He leads SocialMedia.org and WordofMouth.org and also writes the “Damn, I wish I’d Thought of That!” blog (http://damniwish.com).

WASHINGTON – The U.S. Commerce Department today released a comprehensive report entitled “Intellectual Property and the U.S. Economy: Industries in Focus,” which finds that intellectual property-intensive industries support at least 40 million jobs and contribute more than $5 trillion dollars – or 34.8 percent of – U.S. gross domestic product (GDP).

“This first of its kind report shows that IP- intensive industries have a direct and significant impact on our nation’s economy and the creation of American jobs,” said Commerce Secretary John Bryson. “When Americans know that their ideas will be protected, they have greater incentive to pursue advances and technologies that help keep us competitive, and our businesses have the confidence they need to hire more workers. That is why this administration’s efforts to protect intellectual property, and modernize the patent and trademark system are so crucial to a 21^st century economy that is built to last.”

While IP is used in virtually every segment of the U.S. economy, the report identifies the 75 industries that use patent, copyright or trademark protections most extensively. These “IP-intensive industries” are the source – directly or indirectly – of 40 million jobs. That’s more than a quarter of all the jobs in this country. Some of the most IP-intensive industries include: computer and peripheral equipment, audio and video equipment manufacturing, newspaper and book publishers, pharmaceutical and medicines, semiconductor and other electronic components, and the medical equipment space.

“Strong intellectual property protections encourage our businesses to pursue the next great idea, which is vital to maintaining America’s competitive edge and driving our overall prosperity,” said Deputy Commerce Secretary Rebecca Blank. “The report released today shows that wages for jobs in IP-intensive industries are higher than average and continue to increase, meaning that these jobs aren’t just important for businesses and entrepreneurs; they are important for working families. The IP protections we put in place today are helping support economic security for America’s middle class now and in the years to come.”

The report has several important findings, including:

• IP-intensive industries contributed $5.06 trillion to the U.S. economy or 34.8 percent of GDP in 2010.
• 40 million jobs, or 27.7 percent of all jobs, were directly or indirectly attributable to the most IP-intensive industries in 2010.
• Between 2010 and 2011, the economic recovery led to a 1.6 percent increase in direct employment in IP-intensive industries, faster than the 1.0 percent growth in non-IP-intensive industries.
• Merchandise exports of IP-intensive industries totaled $775 billion in 2010, accounting for 60.7 percent of total U.S. merchandise exports.

“Every job in some way produces, supplies, consumes or relies on innovation, creativity and commercial distinctiveness,” said David Kappos, undersecretary of commerce for intellectual property and director of the U.S. Patent and Trade Office. “America needs to continue investing in a high quality and appropriately balanced intellectual property system that will promote innovative, open and competitive markets while helping to ensure that the U.S. private sector remains America’s innovation engine.”

The report is a joint product of the U.S. Commerce Department’s Economics and Statistics Administration (ESA) and the U.S. Patent and Trademark Office (USPTO).

Citing the success of American inventors and entrepreneurs such as Graham Bell and Henry Ford, Obama predicted the act will be a “game changer” for the nation’s entrepreneurs. “And we believe that anyone with a solid plan and a willingness to work hard can turn even the most improbable idea into a successful business,” Obama said. “This is a country that’s always been on the cutting edge.  And the reason is that America has always had the most daring entrepreneurs in the world.”

Missing during the economic downturn was the capital small business owners needed to grow their companies and create jobs, he acknowledged. Obama said the law will make it easier for established companies to go public, while allowing startups to raise up to $1 million from individuals online through crowdfunding.

The act provides the Securities and Exchange Commission with a 270-day grace period to devise specific regulations for crowdfunding,  but small businesses can prepare for the new opportunity by getting their business plans and pitches ready, a Forbes story said.

DURHAM, N.H. – Following a considerable contraction in investment dollars in 2008 and 2009, the angel investor market continued to recover in 2011, a trend that began in 2010 in investment dollars and in the number of investments, according to the 2011 Angel Market Analysis released by the Center for Venture Research at the University of New Hampshire.

Total investments in 2011 were $22.5 billion, an increase of 12.1 percent over 2010 when investments totaled $20.1 billion. A total of 66,230 entrepreneurial ventures received angel funding in 2011, an increase of 7.3 percent over 2010 investments, and the number of active investors in 2011 reached 318,480 individuals, a substantial growth of 20 percent from 2010.

“The significant increase in total dollars, coupled with the rise in the number of investments resulted in a larger deal size for 2011 — an increase in deal size of 4.7 percent from 2010. These data indicate that angels have significantly increased their investment activity, and are committing more dollars resulting from higher valuations. It appears that an optimism in angel investing is taking hold,” according to Jeffrey Sohl, director of the UNH Center for Venture Research at the Whittemore School of Business and Economics.

Software regained the top sector position with 23 percent of total angel investments in 2011, followed by healthcare services/medical devices and equipment (19 percent), industrial/energy (13 percent), biotech (13 percent), IT services (7 percent), and media (5 percent). Industrial/energy investing has remained a significant sector for angels for the last few years, reflecting a continued appetite for clean tech.

Mergers and acquisitions represented 54 percent of the angel exits, and bankruptcies accounted for 24 percent of the exits in 2011. Slightly more than half of the angel exits were at a profit and annual returns for angel’s exits (mergers and acquisitions, notes, and IPOs) were between 18 percent and 28 percent; however, these returns were quite variable.

Angels increased their investments of seed and start-up capital, with 42 percent of 2011 angel investments in the seed and start-up stage, reversing a two year decline in seed and start-up investing and a significant increase from 2010 (31 percent in seed/start-up). Angels also exhibited a decreased interest in post-seed/start-up investing with 55 percent of investments in the early and expansion stage, down from 67 percent in 2010. New, first sequence, investments represented 52 percent of 2011 angel activity, also an increase of 11 percent from last year.

“This increase in seed/start-up stage and first sequence investing is promising and this renewed interest in seed and start-up financing is an encouraging development for our nation’s entrepreneurs,” Sohl said.

Angel investments continue to be a significant contributor to job growth with the creation of 165,600 new jobs in the United States in 2011, or 2.5 jobs per angel investment.

The Center for Venture Research has been conducting research on the angel market since 1980. The center’s mission is to provide an understanding of the angel market and the critical role of angels in the early stage equity financing of high growth entrepreneurial ventures. Through the tenet of academic research in an applied area of study, the center is dedicated to providing reliable and timely information on the angel market to entrepreneurs, private investors and public policymakers. For more information visit http://wsbe.unh.edu/cvr or contact the center at 603-862-3341. To view an archive of all of the center’s angel research, visit http://wsbe.unh.edu/cvranalysis-reports.

 About the University of New Hampshire

The University of New Hampshire, founded in 1866, is a world-class public research university with the feel of a New England liberal arts college. A land, sea and space-grant university, UNH is the state’s flagship public institution, enrolling 12,200 undergraduate and 2,300 graduate students.

Nationwide, SurePayroll Scorecard data shows hiring in March was down  0.2 percent from the prior month, but paycheck size remained flat. Despite this, optimism among small business owners was 70 percent, the first time optimism has reached 70 percent since May 2011.

When small business owners were asked about their hiring plans moving forward in 2012, the SurePayroll’s Optimism Survey found that 31 percent plan to hire during the remainder of the year; 67 percent plan to maintain their current employment level; and 2 percent plan to reduce hiring.

In addition, almost 80 percent reported that their first quarter of business met or exceeded their expectations, due in large part to an increase in demand for their services and some cost cutting. To continue this momentum, small businesses owners reported that a reduction in the cost of doing business, such as taxes, insurance costs and gas prices, would be most helpful.

“Small businesses are seeing some demand rebounding in their businesses and very few are talking about a pullback in hiring. These are good signs for the future,” said SurePayroll CEO and president Michael Alter. “Despite the lack of hiring, we want small businesses to continue the momentum they do have into the next quarter and beyond. Giving them every opportunity to grow by reducing the cost of doing business should open the door to increased hiring.”

To view the full Scorecard including YTD and historical data, please visit http://www.surepayroll.com/scorecard/. For an explanation of what the various monthly economic reports released mean, read Michael’s blog post “The Skinny on Monthly Economic Reports” at http://www.inc.com/michael-alter/the-skinny-on-monthly-economic-reports-.html.