The New Face of Entrepreneurship

A new report (pdf) out this morning from Babson and Baruch colleges finds that the face of the nation's new entrepreneurs is changing dramatically. The report also finds that the performance of the nation's innovators is a good barometer of the state of the nation's economy.

Traditionally in the United States, most of the owners of start-ups and small businesses have been men ages 18 to 34. But new data compiled in 2006 and 2007 show that today's entrepreneur is an urban, middle-income, middle-aged immigrant.

"It's an interesting finding because entrepreneurship is often only discussed as either an opportunity or a necessity, but this data shows it may lie somewhere in between for this group," said Elaine Allen, the principle researcher for the Global Monitor Entrepreneurship study (pdf) and a research director at Babson in Wellesley, Mass. "We see that they have learned about business from working, so they have experience and an understanding of how to get information to start a business, but they might not be getting the level of job they want."

The 50-page GEM report looked for the first time at minority U.S. business owners and their families. The study looked at four groups: Korean Americans, Mexican Americans, African Americans, and a White American control group. Its findings show that entrepreneurship offers immigrants and minorities a valid means to success in the United States.

Among several issues affecting minority entrepreneurs, the study looked at motivation for starting a business -- finding that 70.4 percent of African Americans, 57.1 percent of Korean Americans, and 72.6 percent of Mexican Americans started their businesses after perceiving that they were rejected for a job because of their ethnicity.

U.S. entrepreneurs -- with the exception of Korean Americans -- expressed high satisfaction with access to public institutions such as the Small Business Administration, Small Business Development Centers, economic development groups and chambers of commerce for advice on starting a small business. Allen said Korean Americans may not have enough translated materials and the Small Business Administration, cities and universities may not be offering enough resources to help them.

Additionally, the research showed that 80 percent of all U.S. entrepreneurs get their funding from friends and family rather than banks and other lending institutions.

The study also found that the nation has seen a decline in entrepreneurship since 2005, but Allen said her newest research to be released later will show a rise in 2009.

"We tend to say entrepreneurs and small business people lead us out of a recession and since small business makes up 75 percent of our GDP, it's no surprise we can learn from their performance," said Allen.

While U.S. entrepreneurship was 50 percent higher than the average of all other high-income, GEM-participant countries and equals the rate in low-and middle-income countries, there was a large decline in entrepreneurial activity from 12.4 percent in 2005 to just 9.6 percent in 2007. The United States is included in a group of 23 high-income countries such as Austria, Israel, Portugal, Sweden and the United Arab Emirates.

"As we enter a recession, it's hard for all businesses and particularly difficult for new businesses to raise funds, but remember that small business is the lifeblood of our economy. It's how our country was built, and we have to see that happen again," Allen said.

The United States also showed a greater decline in growth among seven key industries in 2007 than in the recession of 2001, suggesting a precursor to a deeper recession in 2008 and possibly 2009.

In fact, 40 percent of start-ups indicate they expect no job growth in the next five years. Consumer-focused start-ups continue to be the most popular, but they declined to 42.1 percent in 2007 from 44.7 percent in 2006.

Start-ups in the business sector increased from 22.5 percent in 2006 to 34.8 percent in 2007. Declines prevailed in the manufacturing and construction industries because of a downturn in the housing industry. A large decrease was seen in the extraction industries like agriculture, forestry, fishing and mining. Allen's latest data focused on 2008 will show a downturn in business sector services and a continued upturn in consumer start-ups.

By Sharon McLoone |  November 18, 2008; 8:39 AM ET Data Points
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No surprise that a rise in entrepreneurship is expected next year after a five-year decline. There are many former executives ready to go into business for themselves and others who will start up a new venture, maybe out of desire or perhaps out of desperation, to counter a decline in income (or fear of it) due to the recession. I strongly suggest small business owners bone up on strategies during economic downturns. There are many resources available and venerable CEO organizations with regional and local memberships that cater specifically to small business leaders to help them achieve better results during tough times. Optimism and opportunities abound, even when the rest of the world seems down.

Tony Vignieri
Vistage International
twitter: tonyatvistage

Posted by: tonyvignieri | November 18, 2008 7:49 PM

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