Hot Industry for Start-Ups: Construction?

by Sarah Needlemam

One usually thinks of start-ups as cutting-edge. But it turns out the hottest growth area for new businesses isn't so sexy: It's construction.

More entrepreneurs are setting up construction companies, according to a report released earlier this week. The increase comes as construction workers who lost their jobs during the slump in the housing market start their own businesses, taking advantage of a recent uptick in home remodeling and a modest boost in new home construction.

"Improvements in home building last year meant that new construction firms were not swimming against as strong a current as in the previous four years," says Stuart G. Hoffman, chief economist for the PNC Financial Services Group in Pittsburgh.

New entrepreneurs entering construction accounted for 24% of all U.S. entrepreneurial activity in 2011, a year when overall business creation dropped by about 6%, according to recent estimates by the Ewing Marion Kauffman Foundation, a nonprofit organization that studies entrepreneurship.

The rate of entrepreneurial activity in construction was 1.7% in 2011, up from 1.6% in 2010 and 1.2% in 2007, the Kauffman report says. The activity rate is a measure of the percentage of the adult, non-business-owner population that starts a business each month, using data from the U.S. Census Bureau and the Bureau of Labor Statistics, Kauffman says. The construction category includes restoration, remodeling and painting firms, in both commercial and residential markets.

Billy Kern of Raleigh, N.C., says he struck out on his own as a general contractor after he was laid off from a small construction company in 2009. Last year, he bought a Mr. Handyman franchise. "I figured I'd stay with my strengths," says the 49-year-old, rather than try a career in a new field.

Employment in construction increased on a seasonally adjusted basis to 5.5 million in December 2011 from 5.4 million a year earlier, according to data from the Bureau of Labor Statistics. But the industry still has a far way to go to reach prerecession levels: In 2006, monthly measurements of construction employment surpassed seven million.

Overall, services businesses represent the biggest slice of the U.S. economy, as they have for more than a decade. The services sector accounted for 54% of all start-ups last year, Kauffman says. But the rate of entrepreneurial activity in services?which ranges from accounting and consulting businesses to beauty salons and graphic-design shops?held steady in 2011 at just 0.4%, about the same as in 2010 as well as in 2007, according to Kauffman.

The 2011 rate of entrepreneurial activity in all industries was 5% higher than the rate before the recession started, the Kansas City, Mo., research group says.

Of course, measuring entrepreneurship is somewhat tricky. A study released in January from the Global Entrepreneurship Monitor found that the number of Americans actively engaged in starting or running a new business increased 60% last year from 2010. But that study measured a wider pool of new business owners, including entrepreneurs with businesses up to three-and-a-half years old, as well as those just starting out.

"We're looking at the people that are in the process of starting a business and haven't yet paid salaries to themselves or employees, so they may not identify themselves yet as self employed," says Donna Kelley, lead author of the GEM report and an associate professor of entrepreneurship at Babson College in Wellesley, Mass.

Meanwhile, data from the Bureau of Labor Statistics says self-employed Americans with incorporated and non-incorporated businesses declined 2% last year.

"Any new business is always swimming against the tide in terms of survival," PNC Financial Services' Mr. Hoffman says.

There have been some positive signs for construction start-ups. Spending on additions and alterations to single-family homes rose to $116 billion in 2011 from $112 billion in 2009, according to the National Association of Home Builders.

Remodeling work, which in past years typically represented just one quarter of spending on new construction, now has surpassed overall spending on new construction, the trade group says.

Multiunit housing construction also picked up in 2011, and single-unit housing construction is expected to improve, as well, with new permits for the latter category rising to 472,000 in February from 382,000 a year earlier, according to data from the Census Bureau and the Department of Housing and Urban Development.

Matthew Hopkins of Thomaston, Conn., says he launched a home and business remodeling company last year after he was laid off from a large highway-construction company in 2010.

"It's something I know well. It's what I'm trained to do," says the 25-year-old.

Mr. Hopkins says "things are looking up," even though he isn't earning as much with his own business as he did as an employee.

"My niche is to do a lot of small jobs. There's a lot of work to be done if you're willing to do the little odds and ends," he says.

Fred Yancy, Broker
Crye-Leike Realtors
(678) 799-4663

Source: http://www.trulia.com/blog/fredyancy/2012/03/hot_industry_for_start-ups_construction

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