Start-Ups in California Rise : Figures Indicate Reversal of 5-Year Decline in New Businesses

Start-ups of new businesses in California have begun to rise for the first time in five years, perhaps foreshadowing a more robust economic future and growing high-tech entrepreneurial activity in the state.

Statewide, 19,839 companies were created in the first six months of 1992, 2.3% more than the first half of last year, according to data released Friday by Dun & Bradstreet Corp., a New York-based business research firm. If that pace continues, it will reverse a steady drop in annual business incorporations in California since 1987, when 59,697 new firms were created. By 1991, start-ups had fallen to only 36,561.

The California secretary of state’s office said its unofficial figures show that the trend continued through July, August and September, as new business filings increased slightly.

The trend also held nationwide, as total filings for the first six months of 1992 gained 6.9% versus the year-ago period, reversing a five-year slide.

The new-business resurgence is largely the result of unemployed white-collar workers--especially those from California’s aerospace and defense-related industries--starting their own companies rather than looking for jobs at already established firms, economists said.

“It suggests that you have a lot of aggressive people in California that are willing to try it on their own,” said Joseph W. Duncan, corporate economist for Dun & Bradstreet.

The state’s growth rate in start-ups wasn’t as high as rates in other parts of the country, he said. But considering the depressed condition of California’s overall economy, the state’s rate of start-up activity is remarkable, he said.

“I was surprised that the figures for California were this strong given the fact that its economic environment is so weak,” Duncan said.

Duncan said people don’t risk starting new businesses in a recession unless they have to. “In this economy, people who have jobs with companies are more likely to stay there rather than go out and start companies,” Duncan said.

White-collar workers who get laid off may have some advantages over other workers in starting businesses. “A lot of white-collar workers are given severance packages that help them get started in new businesses, especially engineers who start high-technology firms or other white-collar workers who buy franchise businesses. You can get a franchise for as little as $3,000,” said John Hekman, senior economist at the Economic Analysis Corp., based in Los Angeles.

Hekman compared the latest defense cutbacks to those made after the Vietnam War, when engineers and others laid off from defense-related firms started high-tech firms. Although it’s too early to be sure, the latest figures could also reflect a spawning of many small high-tech and franchise businesses that could become very profitable in 10 years, he said.

“I think that because there has been so much structural change in California, we will see more businesses incorporated,” Hekman said. “That’s a very good thing in the long run.”