New IT Businesses Keep Popping Up

The number of start-ups in the information technology (IT) sector continues to grow, indicating that the sector remains very attractive to new entrepreneurs, according to research by Dun & Bradstreet. This is despite the fact that overall business starts in 1999 declined for the third year in a row, and numbers for the first half of 2000 indicate this trend might well continue.

With the exception of 1998, the number of IT business starts has grown every year since 1995, and as a percentage of all new business starts, the IT sector has been rising steadily since 1995. The number of new business starts in the total IT sector in 1999 was 42 percent above the 1995 level, mainly driven by communications-related industries, which on their own grew 125 percent over their 1995 level. Computer hardware- and software-related industries showed 25 percent growth in 1999 compared to the 1995 numbers. On the other hand, overall business starts have fallen since 1996 and in 1999 they are down to 90 percent of their 1995 level, and at 89 percent of their peak level in 1996.

“While overall business starts are slowing, the IT sector is in a vibrant growth phase, where an increasing number of new businesses are started every year,” said Iris Geisler, and economist with Dun & Bradstreet. “The number of new starts in computer hardware- and software-related industries peaked in 1997, but the number of start-ups in the communications industry continues to grow and even appears to be gaining momentum.”

In 1995, IT business starts made up 4.5 percent of all business starts; in 1999 they accounted for 7.1 percent of all business starts. In 1995, 17 percent of IT business starts were in communications-related industries, and in 1999, 27 percent of IT business starts were in communications-related industries.

“The positive economic climate in the last few years has facilitated access to capital for all entrepreneurs, and the tech sector has especially profited from this trend, being especially attractive to younger entrepreneurs, who often have little or no capital of their own,” Geisler said. “While there is mounting evidence that dot-coms firms have a harder time raising capital, this does not apparently affect all sectors of the tech industries equally. Those ventures that support e-commerce infrastructure-related industries remain especially popular with investors.”

According to Dun & Bradstreet, in 1995, new IT business starts created just over 50,000 new jobs, and less than one out of four of those was created in the communications industry. In 1999, new IT businesses created more than 90,000 new jobs, accounted for almost one-tenth of employment in new businesses in the US.

More than one-third of IT start-up jobs is now located in communications-related firms, where employment has almost tripled in 1999 compared to 1995 levels. IT related businesses generally provide an above average percentage of jobs that require highly trained employees. As the communications industry continues to grow it success will crucially depend on whether businesses are able to draw on a labor pool with sufficient high-skilled employees to continue driving its innovations that sustain it success.

The number of business starts in the IT sector continue to show growth, even though overall business starts are down from January to June 2000 compared to the same time period in 1999. Businesses in computer hardware and software-related fields are increasing moderately from a year ago, but business starts in communications-related industries are continuing to rise sharply, indicating it is still very attractive to entrepreneurs.


Employment Created by Business Starts
Year 1999 1998 1997 1996 1995
Total Business
Starts
926,899 906,105 939,310 846,973 738,606
Total IT
Starts
92,166 75,654 73,489 62,622 50,176
Computer Hardware
& Software
60,886 55,033 53,188 49,106 37,713
Communications
Equipment & Services
31,280 20,621 20,301 13,516 12,463
Source: Dun & Bradstreet

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