With a first-time report on minority entrepreneurs, an influential research project on U.S. entrepreneurship detected declining activity among American entrepreneurs from 2005 to 2007, reflecting a likely sign of the U.S. economy’s broader decline in 2008.
Babson College and Baruch College just released the Global Entrepreneurship Monitor (GEM) 2006-2007 National Entrepreneurial Assessment for the United States of America, and it reports that new entrepreneurs declined from 12.4 percent in 2005 to 9.6 percent in 2007 in the 18- to 64-year old U.S. age cohort.
From 2005 to 2006, new or early-stage entrepreneurs declined from 12.4 percent to 10 percent of 18- to 64-year olds in the U.S. “This means that an estimated 2.4 percent less of the U.S. population for that age group pursued entrepreneurial careers,” the report states.
It also means the economy had 550,000 fewer new business owners in 2006 than in 2005, the study shows.
One of the study’s co-authors says that despite weakening conditions in the economy, it’s very possible that Americans may see increases in entrepreneurial activity in the U.S. “There are two kinds of entrepreneurs: there are the people ‘who want to’ and there are the people ‘who have to’. We call those ‘opportunity’ entrepreneurs and ‘necessity’ entrepreneurs. And I think this significant downturn in the economy is going to create a lot of ‘have to’ or ‘necessity’ entrepreneurs,” says Dr. Ed Rogoff, the chair of the management department in the Zicklin School of Business at Baruch College in New York City.
In addition to reporting on general entrepreneurship trends, the assessment reveals that minorities demonstrated higher rates of entrepreneurship than did Whites, and they showed the same demographic and motivation as White entrepreneurs in terms of business types, growth expectation and education. In reporting on U.S. minority business owners, the GEM surveyed entrepreneurs from four groups: Korean-Americans, Mexican-Americans, African-Americans and a White control group.
Another important finding for minority entrepreneurs reports their motivation for turning to entrepreneurship. Seventy percent of African-Americans, 57.1 percent of Korean-Americans, and 72.6 percent of Mexican-Americans say they launched their businesses after believing they were denied a job because of their race and ethnicity.
“Where we’re seeing continued (entrepreneurship) growth is in the minority communities, especially among minority immigrants,” says Dr. I. Elaine Allen, one of the assessment’s co-authors and the research director at the Arthur M. Blank Center for Entrepreneurship at Babson College in Massachusetts.
Launched in 1999 by Babson College and the London Business School, the project studies entrepreneurship in 42 countries. Earlier this year, Baruch College’s Lawrence N. Field Center for Entrepreneurship joined up with Babson College to develop a minority entrepreneurship component to the annual GEM study. The Field Center has developed significant expertise around minority and immigrant entrepreneurship, according to Rogoff.
“We thought it would be a good match and we basically decided to merge our research programs,” Rogoff says.
Rogoff adds that the Field Center, where he previously served as academic research director, has seen increasing numbers of New Yorkers taking the center’s entrepreneurship courses and seeking advice from the center’s business mentors.
Nationally the souring economy may produce more business startups in 2008 and 2009 than in 2007, Allen says.
“I will say that what we expect to happen because of data we brought in at the end of the summer that there will be an uptick in entrepreneurship because people have lost their jobs and have started very small businesses, or proprietorships,” Allen adds. “We should see the increase largely from entrepreneurs driven by necessity to start businesses.”
Editor’s Note: This is the first of a two-part series. The next installment will focus on businesses started by women of color, the fastest growing sector of entrepreneurs.
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