The local media is touting the fact that New Orleans is a hotbed of activity for startup businesses. Entities like the Idea Village really kicked this movement into high gear, and various and sundry angel investor groups are now looking into investing in startup companies. For example, the New Orleans Startup Fund’s website asserts that New Orleans is far exceeded the US average on business startups per 100,000 adult population.

It’s true. There are so many new businesses that have recently started here, and no wonder: the city is recovering economically; there’s a new huge teaching hospital that’s getting ready to go into operation; there are multitudes of young people moving to New Orleans from all over the country who are bringing brains and enthusiasm into a city that—let’s face it—has been in the economic doldrums from any other industries than hospitality for decades. And Katrina didn’t help.

I have a question, though: how many of these startup businesses fail? How many of them survive long enough to actually have a long-lasting impact on the local economy?

The New Orleans Startup Fund has strict guidelines for anyone who applies to their fund. So does another investment group, the South Coast Angel Fund. These investors are looking for businesses—that in the case of South Coast Angel Fund—have a clear path to achieving $25 million+ in sales in 3-5 years.”

How many startups have that kind of potential?

It’s wonderful that we now have angel investment groups that will help a small, high-potential business.

But what about all the small businesses that do not have that kind of high-money potential?

According to Babson College, most entrepreneurs are small businesses, which means that they are a company with under 500 employees. An astounding 91 percent of small businesses have under four employees; 78 percent have no employees.

The Small Business Administration estimates that of new businesses, 70 percent will survive two years; 50 percent will survive five years; 33 percent will survive 10 years and only 25 percent will survive 15 years.

So here’s a question: how many of the startups in New Orleans will have the staying power and longevity to make it into a long-term viable business?

Note that the angel firms are only looking to invest in projects that can yield huge amounts of money within a five-year period. How many of the young people who are moving to New Orleans and starting a business will be able to make it?

The Loyola College of Music has a degree in Music Business Studies. While I hae been a proponent of music business in the city for over 30 years, it’s sort of difficult to start a music business that’s going to yield $25-mill in five years—especially given the state of the music biz these days. Music businesses, for the most part, are those micro businesses who have four employees or under—or who may not have any employees at all.

I was reminded of the difference in the startup mentality and the viability of a business that manages to stay open for 10 years are more today when I had a visit from Lauren Thom, the “Fleurty Girl.”

Lauren is what you’d call a “serial entrepreneur.” Her latest venture, Fleurty Girl, has blossomed into a retail five-store business with 40 emloyees. Lauren started her business with her low four-figure savings account, but her hard work and determination—and knack for promoting her business—has created a successful business model that’s continuing to expand.

How many businesses that are the backbone of the New Orleans economy—and make no mistake, most are small micro-businesses—were started with someone’s savings account?

Somewhere, instead of hearing about the big angel investors who are bringing so much attention to New Orleans’ entrepreneurs, I’d like to see how we are encouraging and supporting small businesses. What is being done to sustain their viability?

It’s all fine and good to “start up” a business. Maybe I’m wrong, but somehow I get the feeling that those big-ticket businesses are more in it for the “flip” and not for the long-haul. Time will tell whether or not the entrepreneurial mentality in New Orleans will actually create enough capital—monetary and human—to sustain the city over the next few decades.

 

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