U.S. Entrepreneurship Rates Reverse Trend, Reach New Heights

Entrepreneurial activity in the U.S. is up 60+ percent and at highest level since 2005, according to the newest Global Entrepreneurship Monitor (GEM) U.S. Report. The study also finds that education plays a key role in the formation of entrepreneurs. 
entrepreneurship-trends-img-1.jpgEntrepreneurship in the United States is soaring to new heights, according to the 2011 Global Entrepreneurship Monitor (GEM) U.S. Report issued this fall by Babson College and Baruch College.  With 12.3 percent of the U.S. adult population engaged in entrepreneurial activity, the U.S. experienced a 60+ percent increase in total entrepreneurial activity (TEA) from 2010 to 2011, matching the TEA level recorded in 2005.  The dramatic increase follows significant drops reported in both 2009 and 2010.   Further, the U.S. reported the highest TEA level among developed economies globally. 
According to the Report, more than 29 million U.S. adults (18-64 years old) were starting or running new businesses in 2011.  Moreover, nearly 40% of these entrepreneurs expected to create more than five new jobs in the next five years. 
“We saw an unprecedented jump in entrepreneurial activity in 2011,” commented the GEM Report’s lead author, Donna J. Kelley, Associate Professor of Entrepreneurship at Babson College.  “Most of these entrepreneurs were in the process of just getting started, which means a lot of people took the leap into entrepreneurship during 2011. In addition, compared with 2010, more people reported that they were intending to start businesses in the next three years, showing a more positive future outlook for entrepreneurship in the United States after two years of declining indicators.” 
“Importantly, necessity-based entrepreneurship accounted for a lower proportion of entrepreneurial activity in 2011,” continued Kelley. “In the depths of the recession, we saw a tremendous increase in people starting businesses out of necessity. In 2011, the entrepreneurship rate was pulled up primarily by those starting businesses to pursue promising opportunities--a strong sign of entrepreneurial activity occurring as a result of optimism, not desperation.”
Among the Report’s other key findings:

Job creation expected

  • An encouraging 39 percent of entrepreneurial ventures are expecting to add more than five employees over five years, indicating the potential for significant job creation and restored confidence in the United States’ economic recovery.

Nascent entrepreneurship on the rise

  • For the first time since the crash in 2008, nascent entrepreneurship is on the rise.  In fact, the percentage of nascent entrepreneurship nearly doubled from 2010 to 2011 (8.4 percent in 2011 up from 4.8 percent in 2010).  Entrepreneurial intentions also increased by over 30 percent in 2011 after holding steady from 2008 to 2010 (10.9 percent in 2011 compared to 8.3 percent in 2010.)

entrepreneurship-trends-img-2.jpgIncrease in established business owners

  • 2011 saw a rebounding in the number of established business owners with a 17 percent increase over 2010.  The U.S. rate of established business owners (9 percent) was above-average compared to other developed economies studied by GEM.

Gender gap is closing

  • There continue to be fewer women than men entrepreneurs, though the U.S. female/male ratio among entrepreneurs is higher than the global average.  In 2011, there were approximately eight women to every 10 men entrepreneurs.  

Race Implications

  • Blacks are twice as likely as whites to become entrepreneurs (19.3 percent to 9.7 percent, respectively.)

entrepreneurship-trends-img-3.jpgAge factors

  • Younger adults (18-24 years old) are more likely to start a business, but 10 percent of adults 55-64 years of age, and 4.5 percent over the age of 65, also intend to start businesses. Male youth have a higher perception about opportunities, while female youth are more discouraged by fear of failure.

Education shapes entrepreneurs

  • There is a strong relationship between entrepreneurship activity and levels of education. College graduates were over twice as likely to choose entrepreneurship (15 percent) than those with no high school education (7 percent), and almost 50 percent more likely than high school graduates.

Low fear factor

  • Among developed economies, U.S. entrepreneurs exhibited the lowest rates of fear of failure in the developed world, along with Switzerland and Slovenia. Less than one-third of U.S. adults (18-64) were dissuaded by fear of failure.  At the same time, perceived capabilities in the U.S. were among the highest within innovation-driven economies.  Over 55 percent of adults believed they had the skills and ability to start a business.

entrepreneurship-trends-img-4.jpgWealth and the impact of financial means

  • Entrepreneurs have wealthier households than non-entrepreneurs. GEM data indicates that more affluent households more often lead to entrepreneurship.

Majority of U.S. entrepreneurs’ revenues are based on domestic sales

  • Only 13 percent of U.S. entrepreneurs report more than 25 percent of their revenues coming from international sales; the lowest level among innovation-driven economies.  
“The United States, for all its image as a global economy, has only an average level of internationally-oriented entrepreneurs for its development level,” comments Abdul Ali, Associate Professor of Entrepreneurship at Babson, and a coauthor on the Report. “As many developing regions of the world are quickly becoming innovators, these entrepreneurs will need to maintain their global competitiveness and they are most likely to do so by engaging with international markets.”
To access the full 2011 Global Entrepreneurship Monitor U.S. Report, please visit: http://www.babson.edu/Academics/centers/blank-center/global-research/gem/Pages/reports.aspx
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