More than 25 Million Americans Are Starting or Running New Businesses

Regional focus on Boston, Miami, and Detroit in the latest Global Entrepreneurship Monitor (GEM) United States Report demonstrates major differences in entrepreneurial activity 

During the past two years, more than 25 million Americans were starting or running new businesses in the United States—according to the Global Entrepreneurship Monitor (GEM) 2016 United States Report (pdf) released today by Babson College. Additionally, more than half of Americans see good opportunities around them for starting a business.

Unique to this GEM report is a city-level analysis of entrepreneurship in Boston, Miami, and Detroit. Collectively, they provide a window into how entrepreneurship occurs locally in different parts of the United States.

“While entrepreneurship is promoted and celebrated nationally, many initiatives occur at the city level, like Boston’s MassChallenge and Miami’s Venture Hive accelerators,” said Babson College Professor and report co-author Donna Kelley. “It is important to identify a city’s needs and monitor progress relative to entrepreneurship—whether that means, for example, supporting women or youth entrepreneurs, or assisting ventures that introduce innovations or create jobs.”

This latest GEM report provides a comprehensive and detailed account of entrepreneurship in the United States. A key aim is to provide a broad audience—educators, researchers, policymakers, practitioners—with information and analysis that can enhance understanding, decision making, and actions regarding entrepreneurship. In its 18th consecutive year, GEM continues to serve as the largest and most comprehensive single study of entrepreneurship in the world.GEM U.S. Report

U.S. Highlights

Fifty-seven percent of Americans see good opportunities around them for starting a business. This is what distinguishes the United States most when compared to the world’s other 26 innovation-driven economies, where, on average, 41 percent see entrepreneurial opportunities around them.

U.S. entrepreneurs also are driven most by opportunity (88 percent). Necessity motives dropped to only 11 percent—below the low level reported in 2008, before the recession depressed entrepreneurship rates in the years that followed.

Thirty-seven percent of all U.S. entrepreneurs are developing and delivering innovative products or services. This represents the highest level on this indicator in 15 years—higher than the average for all other innovation economies (31 percent).

U.S. entrepreneurs are twice as likely to compete in the finance sector compared to the average innovation-driven economy.

While the 26 other innovation-driven economies demonstrate their highest total entrepreneurial activity (TEA) among 25- to 34-year-olds, the U.S. actually peaks in the next oldest age group, among the 35- to 44-year-olds.

The slight overall rise in U.S. TEA rate is due to an increase among women entrepreneurs. More women entered entrepreneurship last year than the year before, while this level has remained the same for men.

Boston, Miami, and Detroit

Regional TEA Activity:

  • Miami—22 percent
  • Detroit—20 percent
  • National average—6 percent
  • Boston—12 percent

Close to one out of five entrepreneurs in Miami and one out of six entrepreneurs in Detroit are starting businesses out of necessity. Only 8 percent of entrepreneurs in Boston are doing the same.

Both Boston (46 percent) and Detroit (43 percent) show higher levels of innovative entrepreneurial activity compared to the national average, with Boston’s level nearly twice that of Miami (24 percent).

Detroit stands out for having the highest entrepreneurship levels among the lowest third of the income category, while the highest third of the income earners are most likely to start businesses in Boston and Miami.

Age patterns show high entrepreneurship rates among young people in Detroit, those in mid-career in Miami, and people in their late careers in Boston.

Out of the three cities, Boston demonstrates the widest entrepreneurship gender gap. Women in Boston start businesses at around half the rate that men in Boston do.

Capability perceptions are at or above the national average in Miami (60 percent) and Detroit (57 percent). Likewise, compared to the national average, a lower proportion of entrepreneurs in Miami (27 percent) and Detroit (21 percent) are afraid to fail. People in Boston, however, did not exhibit high perceptions about startup capabilities, and they reported a higher fear of failure than in the other two cities.

In Miami (24 percent) and Boston (36 percent), a larger percentage of entrepreneurs have at least some graduate education compared to the national average (19 percent).

In terms of industry:

  • Miami shows high startup activity in manufacturing/transportation
  • Boston has higher-than-average levels in information/communications technology and finance/real estate
  • Detroit exhibits higher wholesale/retail activity than national levels

Compared to national averages, Miami and Boston have more than twice the proportion of entrepreneurs who plan to have more than 25 percent of their total sales go to international markets.GEM U.S. Report

About the Report

This report provides a detailed assessment of entrepreneurship in the United States, based on the 18th annual survey of the Global Entrepreneurship Monitor (GEM). The GEM U.S. team, based at Babson College in Massachusetts, is one of 65 national research teams who conducted an annual adult population survey (APS) in their economy in the summer of 2016. The 2016 GEM Global Report provides national-level comparisons on key entrepreneurship statistics across these economies and groups of economies by both geographic region and development levels.

Report authors include: Babson College Professor Donna Kelley; Babson College Vice Provost of Global Entrepreneurial Leadership Candida Brush; Babson College Professor Andrew Corbett; Babson College Associate Professor Madhi Majbouri; and Babson College Associate Professor Phillip Kim.

National Key Findings

Attitudes

  • Opportunity perceptions are high and increasing in the United States.
    • Compared to 2009, twice as many Americans saw good opportunities around them for starting a business in 2016 (57 percent in 2016 versus 28 percent in 2009).
  • Americans remain confident in their entrepreneurial abilities, with 55 percent reporting they have the capability to start a business, versus 43 percent on average across the other 26 innovation-driven economies.
  • Fear of failure took an upward turn in 2016, reversing a three-year trend of gradual declines that had followed four years of post-recession increases.

Activity

  • After experiencing a drop in 2015, TEA rates moved slightly upward in 2016 to 13 percent, continuing a six-year trend of high and relatively stable levels.
  • Opportunity motives are higher in the United States than among its innovation-driven peers (88 percent versus 78 percent on average for the 26 other innovation-driven economies).
  • Necessity motives dropped to 11 percent of TEA in 2016, below the low level reported in 2008, before the recession depressed entrepreneurship rates in 2009 and 2010 and when necessity accounted for a higher proportion of business starts.
  • The majority of entrepreneurs, 64 percent, are white, reflective of the U.S. population.
    • African Americans and Hispanic ethnicities, however, also contribute substantially to entrepreneurship in the United States, accounting for 14 percent and 8 percent of entrepreneurs, respectively.
    • Results from 2014 to 2016 suggest that entrepreneurship rates are more stable among the white population and less stable among the other two ethnicities, particularly the African American group.
  • A two percentage point jump in established business ownership in 2016 reflects previous increases in startup activity, which provided a larger base of potential businesses that could be sustained into maturity.
  • Entrepreneurial intentions in the United States are lower than the average of the 26 other innovation-driven economies (12 percent versus 16 percent), but nascent activity levels are higher (9 percent versus 5 percent).
  • The United States shows an above-average level of entrepreneurial employee activity (EEA) for its development level, at 7 percent compared to an average of 5 percent for the 26 other innovation-driven economies.
    • The United States also is unique in having high rates of both EEA and TEA, demonstrating that American entrepreneurs are prolific in both independent and organizational contexts and that being entrepreneurial doesn’t necessarily mean one must give up working as an employee.

Impact

  • Thirty-seven percent of all entrepreneurs in the United States are developing and delivering innovative products or services, representing the highest level for this indicator in 15 years and higher than the average for all other innovation economies (31 percent).
  • Eight percent of American entrepreneurs are starting information and communications technology (ICT) businesses.
    • Ten percent of U.S. entrepreneurs state they are competing in medium- or high-technology sectors, and the same percentage report using new technology to produce or deliver their product or service.
  • Compared to the average for the 26 other innovation-driven economies (33 percent), the United States has fewer entrepreneurs (22 percent) competing in the wholesale/retail sector.
    • U.S. entrepreneurs are twice as likely as the average innovation-driven economy to compete in the finance sector (8 percent versus 4 percent).
    • Other service-based industries account for 40 percent of TEA in the United States.
  • Forty-two percent of U.S. entrepreneurs and 35 percent of U.S. established business owners expect to hire six or more employees in the next five years.
  • 10.4 percent of entrepreneurs expect 25 percent or more of their sales to come from customers living outside the United States, down from 11.6 percent in 2015.

Age

  • Compared to the 26 other innovation-driven economies assessed by GEM in 2016, where the 25- to 34-year-olds had the highest average TEA rate, the TEA rate in the United States peaks in the next oldest age group, among the 35- to 44-year-olds (17 percent).
  • While the United States generally has a low percentage of entrepreneurs who state they started their businesses out of necessity, a higher proportion of necessity motives drive entrepreneurs older than 45 compared to younger age groups.
  • Compared to the older population in the United States, those in the younger age groups are more likely to see opportunities, but they are less likely to believe they have the needed capabilities for entrepreneurship, and their fear of failure is higher.
  • The gender gap in TEA rates is widest at mid-career (21 percent for men; 13 percent for women) with smaller but still substantial gaps in the age groups before and after mid-career.

Gender

  • The slight overall rise reported in the U.S. TEA rate is due to an increase among women entrepreneurs.
    • In 2016, entrepreneurship rates rose for women by one percentage point to 10 percent while staying relatively steady for men at 15 percent.
  • Women’s perceptions of opportunities and entrepreneurial intentions rose in 2016 (to 54 percent and 11 percent respectively), and the gender gap in these indicators narrowed.
    • The gap between women and men in perceived capabilities increased slightly, however, with women exhibiting less confidence than men in their ability to start a business (48 percent versus 62 percent).
    • Fear of failure has inched upward for both women (from 33 percent to 36 percent), and men (from 27 percent to 31 percent).
  • Only 3 percent of women entrepreneurs start information and communications technology businesses, compared to 11 percent for men.
    • Similarly, only 3 percent of women entrepreneurs consider their businesses to be in medium or high technology sectors compared to 8 percent of men, but women entrepreneurs are almost as likely to use new technology in their businesses: 9 percent compared to 10 percent for men.
    • Compared to men, women start a much higher percentage of businesses in wholesale/retail (26 percent for women, 17 percent for men) and health/education/government/social services (21 percent versus 12 percent).
  • Among entrepreneurs, women are more likely than men to introduce products and services that are new to customers and not generally offered by competitors (40 percent compared to 35 percent). They are less likely than men to report that more than 25 percent of their sales are international (8 percent versus 14 percent).

About the Global Entrepreneurship Monitor

The Global Entrepreneurship Monitor (GEM) was initiated in 1999 as a joint venture of Babson College and the London Business School. It has gained widespread recognition as the most authoritative longitudinal study of entrepreneurship in the world and accomplishes this effort through the collaborative work of a consortium of national teams consisting of academic researchers from around the world. Each national team oversees an annual survey of at least 2,000 working-age adults (ages 18 to 64). Starting with just 10 developed economies in 1999, the project has grown to involve more than 100 economies during 18 annual cycles. GEM is unique because, unlike most entrepreneurship data sets that measure newer and smaller firms, GEM studies the behavior of individuals with respect to starting and managing businesses. At a time in history when individual entrepreneurial activity may hold the key to transforming the global economy and discouraging ingrained economic disparity in countries with minimal economic opportunity, GEM data has influenced national economic policies and continues to expand its collaborative role. For more information, follow GEM on Twitter.

About Babson College

Babson College is the educator, convener, and thought leader for Entrepreneurship of All Kinds®. The top-ranked college for entrepreneurship education, Babson is a dynamic living and learning laboratory where students, faculty, and staff work together to address the real-world problems of business and society. We prepare the entrepreneurial leaders our world needs most: those with strong functional knowledge and the skills and vision to navigate change, accommodate ambiguity, surmount complexity, and motivate teams in a common purpose to make a difference in the world, and have an impact on organizations of all sizes and types. As we have for nearly a half-century, Babson continues to advance Entrepreneurial Thought & Action® as the most positive force on the planet for generating sustainable economic and social value.  

By Brianna Radicioni, bradicioni@babson.edu, (781) 239-4548 | 11/13/2017 12:05 AM