African Americans starting and running new businesses at a rate of 20%

  Minority entrepreneurs run one-third of startups and profitability rate for women entrepreneurs increases dramatically since 2015 according to a new study released today by Babson College.

PRNewswire | Twenty-seven million Americans are starting or running new businesses, based on data reported in the 2017 Global Entrepreneurship Monitor United States Report: National Entrepreneurial Assessment for the United States of America released today by Babson College.

Other findings include:

  – Nearly 14 percent of the U.S. adult population is pursuing early stage entrepreneurial activity (TEA).
  – Eighty-six percent of U.S. entrepreneurial activity is motivated by opportunity.
  – Approximately one-third of U.S. startup entrepreneurs are non-White-Caucasian ethnicities.
  – Technology drives entrepreneurship. The rate of total entrepreneurial activity firms that compete within the technology sector with technology as a primary driver of business has grown from 0 percent in 2010 to 10 percent in 2017.
  – Information Technology and Finance make up over 18 percent of opportunities pursued by U.S. entrepreneurs.
  – For both men and women entrepreneurs in the United States, the rate of profitability increased dramatically between 2015 and 2016 by more than 25 percent. However, in 2017 the rate of profitability declined for both men and women although the decline for men was greater, 21 percent for men vs. 9 percent for women. This represents a narrowing of the gender gap to less than 5 percent, suggesting women are performing almost as well as their male counterparts.
  – Thirty-six percent of U.S. entrepreneurs are developing and delivering an innovative product or service as their base offering.
  – U.S. entrepreneurs aged 35-44 are the most entrepreneurially active.
  – Twenty percent of U.S. entrepreneurs expected to employ 20 or more people in their new ventures.
  – Over 50 percent of adults across the entire spectrum of age groups in the United States perceive opportunity.
  – 7.6 percent of working-age adults in the United States start a new business for their employers.
  – Thirty percent of U.S. entrepreneurs exit a business to pursue another opportunity.
  – One-third of Americans state they personally know an entrepreneur.
  – Eighty-five percent of established business owners in the United States expected to be profitable in the current year and 76 percent were employers.
  – Established business ownership activity levels are highest among those 55-64 in the United States, with substantial activity continuing among those 65-74.
  – African/African Americans are starting and running new businesses at the rate of 20 percent.

“Entrepreneurial activity has thrived,” said Babson Entrepreneurship Professor Julian Lange. “As opposed to the years immediately following 2007 when the economic crisis began, almost all U.S. economic indices performed well throughout 2017. The markets responded with excitement and continuously closed at record highs. In addition, 2017 was a year of global growth that benefited the U.S. economy in return.”

In 1999, Babson College and the London Business School launched the Global Entrepreneurship Monitor (GEM). GEM was the first and remains the only organization to measure annually the entrepreneurial ecosystem worldwide. The latest GEM report is authored by Babson faculty Julian E. Lange, Abdul Ali, Candida G. Brush, Andrew C. Corbett, Donna J. Kelley, Phillip H. Kim, and Mahdi Majbouri.

Activity: U.S. entrepreneurship rates in 2017 continued the relatively high and stable rates reported over the past seven years. At nearly 14 percent, early stage entrepreneurial activity (TEA) in the United States is 50 percent higher than the average of the 23 innovation-driven economies.

While most entrepreneurs globally cite opportunity rather than necessity as their main motivator even in less-developed economies, opportunity-driven entrepreneurship is more prevalent in the developed world. Across the 23 innovation-driven economies, 78 percent of entrepreneurs start businesses to pursue an opportunity. The United States tops this figure with 86 percent of entrepreneurial activity motivated by opportunity.

The TEA rate of all non-White-Caucasian ethnicities together adds up to approximately one-third of entrepreneurs in the United States. From 2016 to 2017, the TEA rate of each of these groups – African/African American, Hispanic American, Asian American, and Others – increased by 1 percent or 2 percent. Although the majority ethnicity involved in TEA in the United States remains the White Caucasian population, there was a decrease in the TEA rate from 2016 to 2017 for this ethnicity from 69 percent to 64 percent.

In the United States, 7.6 percent of working-age adults start a new business for their employers, demonstrating that entrepreneurs can have a broad impact in the United States operating across many domains.

The most common reason why U.S. entrepreneurs exit a business is to pursue another opportunity (30 percent for the United States vs. 12 percent for the average of the 23 innovation-driven economies). This circumstance could reflect the high level of opportunities perceived in U.S. society, and a willingness of entrepreneurs to leave any one venture to pursue something that may represent a more promising opportunity.

Impact

Entrepreneurs in all innovation and service-based countries are moving toward knowledge and technology opportunities, and U.S. entrepreneurs exhibit this trend. Personal/Consumer, Professional and Administrative Services combined with Health, Education, and Government opportunities together account for 40 percent of all opportunities in the United States and 39 percent in the peer group of similar economies.

Wholesale/Retail still accounts for the highest proportion of TEA in the United States (21 percent), which is dramatically lower than the average of the 23 innovation-driven economies (31 percent).

As the developed world shifts toward a creativity economy that combines elements of the information and knowledge economy with today’s creative class, the United States continues to shift toward start-ups that rely on technology and creativity for competitive advantage. Information Technology and Finance make up over 18 percent of opportunities pursued by entrepreneurs in the United States, more than 7 percent higher than the 10.6 percent average of the 23 innovation-driven economies.

Technology drives entrepreneurship. The percent of nascent firms leveraging technology to produce an offering and/or to deliver a product or service has remained constant for several years at about 10 percent. The rate of TEA firms that compete within the technology sector with technology as a primary driver of business has grown from 0 percent in 2010 to 10 percent in 2017.

U. S. entrepreneurs are among the world’s leaders in offerings of new technology and innovation with 36 percent of entrepreneurs developing and delivering an innovative product or service as their base offering, compared with 31 percent on average for the 23 innovation-driven economies.

In 2017, almost 44 percent of U.S. entrepreneurs expected to employ 6 or more people in the next 5 years, the 2nd highest rate in nearly 2 decades, and 85 percent of nascent entrepreneurs expected to create jobs for others. Additionally, 20 percent of entrepreneurs expected to employ 20 or more people in their new ventures.

With a large and willing national market, U.S. entrepreneurs are not “born global” as they do not necessarily need to pursue sales outside their own borders to break even. However, exports from U.S. entrepreneurs are rising. In 2016, only 10.4 percent of entrepreneurs expected 25 percent or more of their sales to come from customers living outside the United States. In 2017, this number increased to 17 percent.

Age

While intentions rates and TEA rates are strong overall by age group, one outlier is the 65-74 age group. For this age group, the intentions rate increased from 2016 to 2017 from 5.0 percent to 6.6 percent, but the TEA rate decreased from 4.0 percent to 2.1 percent. While the decrease in TEA rate may reflect a voluntary shift in this age group, it is possible that gains from the booming economy were not experienced equally by the oldest entrepreneurs.

The younger and older segments of the U.S. population display higher TEA rates relative to the average of the 23 innovation-driven economies.

When all forms and stages of entrepreneurship are taken into account (TEA, EEA, and Established Business Ownership), U.S. entrepreneurs aged 35-44 turn out to be the most entrepreneurially active. This age group also experiences the highest level of business discontinuation, with the primary reasons being pursuit of other opportunities (30.2 percent), personal reasons (21.1 percent), or bureaucracy (20.0 percent). In other countries, the biggest reason for discontinuation is unprofitability. In contrast, unprofitability and lack of finance together account for only 13 percent of U.S. exits compared to 38% on average for peer economies.

In 2017, necessity-driven entrepreneurship in the United States is highest among the 18-24 age group at 15 percent, perhaps because of fewer opportunities in the job market due to lack of credentials or experience. The next highest level of necessity-driven entrepreneurship is age 55-64 at 13 percent, followed by age 45-54 at 12 percent. Necessity-driven entrepreneurship in the 45-64 age group may indicate that age bias in the job market and/or lack of up-to-date technology skills have narrowed the options.

Over 50 percent of adults across the entire spectrum of age groups perceive opportunity. The 18-24 age group perceives itself less likely to have the skills necessary to take advantage of opportunities than other age groups. Among the 65-74 age group, skills confidence is lower than among some other age groups, but is still high at 49 percent. Adults age 25-44 who perceive opportunity are most likely to know an entrepreneur (39%). For those perceiving opportunity, the fear of failure rate vacillates in the relatively high range of 32 percent to 37 percent among those 18-54, and the oldest group 65-74 has the lowest fear of failure rate at 18 percent.

In every age category, the TEA rate for men is higher than the TEA rate for women, except for the 65-74 age group, where the TEA rate for men is 1% and the TEA rate for women is higher at 3 percent. Among those age 35-44, TEA rates are almost equal, 17 percent for men and 16 percent for women. The youngest group age 18-24 maintains a substantial gender gap, with fewer women at younger ages (7 percent) engaging in early stage entrepreneurial activity than men (15 percent). The biggest gender gap in early stage entrepreneurial activity is among those age 25-34 with women at 12 percent and men at 23 percent, resulting in an 11% gender gap.

Gender

TEA rates have risen for men and women entrepreneurs with a slight widening of the gender gap. For early stage entrepreneurship, which combines nascent and new entrepreneurial activity, the rate for men is 16.7 percent in 2017. The rate for women is 10.7 percent, resulting in a gap of 6 percent between men and women.

The rate of perception of opportunity for women is 59 percent in 2017. This is the highest rate ever reflected in the U.S. GEM study and a 15 percent increase for women since 2015. Although the number of women perceiving opportunity has increased, the rate of perception of opportunity among men is rising even faster, with a current gender gap of 10 percent. This raises a question about the types of opportunities available. The top opportunities may be in areas less associated with female businesses.

There has been a distinct, persistent gap between men and women relative to their perceived capabilities to start a business. The rate of capability perception has fluctuated since 2011 from 61 percent to 65 percent for men and from 46 percent to 50 percent for women. This rate of capability perception is consistent with data from other innovation-driven economies.

Women have a greater fear of failure than men, following a trend consistent over the past several years. From 2016 to 2017, women’s perceived fear of failure rose but men’s declined, resulting in a 7 percent gender gap. This trend is consistent with greater perceived fear of failure for women in other innovation-driven economies.

The data for 2017 show a surprising increase in men’s entrepreneurial intentions from 13 percent to 19 percent with women’s entrepreneurial intentions remaining constant at 11 percent over the past 2 years, resulting in a gender gap of 8 percent, which is the highest in the history of the GEM study.

In 2017, only 3.9 percent of women started information and communications technology businesses, compared to 11.5 percent for men. Only 3.2 percent of women considered their businesses to be in medium or high technology sectors compared to 8.2 percent of men. However, women were almost as likely to use new technology in their businesses: 8.9 percent compared to 10.3 percent for men.

In 2015, 8.3 percent of women reported more than 25 percent of their sales from customers living outside the United States. In 2016, the percentage rose slightly to 8.6 percent. In 2017, it nearly doubled to 14.1 percent. For men, the figure was 14 percent in 2015, 11.3 percent in 2016, and 18.5 percent in 2017. While growth has not been steady in one direction, the overall trend shows more internationalization for start-up businesses.

In 2017, a slightly higher percentage of both men and women discontinued businesses in the past year: 4.7 percent for men and 3.3 percent for women. This represents about a 0.6 percent increase over the previous year for both men and women. The trend was consistently low for both men and women, but women showed an overall lower rate of discontinuance than men.

For both men and women entrepreneurs, the rate of profitability increased dramatically between 2015 and 2016 by more than 25 percent. However, in 2017 the rate of profitability declined for both men and women although the decline for men was greater, 21 percent for men vs. 9 percent for women. This represents a narrowing of the gender gap to less than 5 percent, suggesting women are performing almost as well as their male counterparts.

Established Business Ownership

The GEM 2017 survey shows that 85 percent of established business owners in the United States expected to be profitable in the current year and that 76 percent were employers, suggesting the value of start-ups that become ongoing businesses.

Established business ownership activity levels are highest among those 55-64 in the United States, with substantial activity continuing among those 65-74. This finding highlights the role of older Americans in established business ownership.

GEM reports that White Caucasian Americans are starting and running new businesses at the rate of 12 percent and running established businesses at the rate of 9 percent. African/African Americans are starting and running new businesses at the rate of 20 percent and running established businesses at the rate of 4 percent. Hispanic Americans are starting and running new businesses at the rate of 12 percent and running established businesses at the rate of 5 percent. Asian Americans are starting and running new businesses at the rate of 17 percent and running established businesses at the rate of 7 percent. Further study may be warranted to determine what factors influence patterns of each ethnic group in the United States.

The most popular industry sector for mature business owners is construction and mining. Construction and mining as a single sector accounts for 22 percent of established business but only 6 percent of total early stage entrepreneurial activity.

Established business owners have impact beyond their own businesses. A full 10 percent of established business owners report starting or running a new business, and 12 percent report that in the past 3 years they have invested in other entrepreneurs. Established business owners provided a median amount of US$10,000 in their last investment, lower than that of early stage entrepreneur investors who provided a median amount of US$23,653 but higher than non-entrepreneurs/non-business owners who invested a median amount of US$3,000.

Attitudes

Among the U.S. adult population, 75 percent believe that entrepreneurs receive high status in society, a higher figure than the average of the 23 innovation-driven economies; and almost 75 percent think media attention for entrepreneurs is positive, a figure also higher than the average of the 23 innovation-driven economies. Positive societal attitudes such as these contribute to a culture that celebrates and supports entrepreneurs.

Among Americans, 64 percent believe there are good opportunities for starting a business near where they live, the highest level reported since GEM’s first survey in 1999. Adults age 18-64 in the United States are more likely to perceive opportunities than their peers across societies at a similar development level.

Among Americans, 63 percent believe that entrepreneurship is a good career choice. While this is greater than the average of the innovation-driven economies, 9 economies show higher levels than the United States on this indicator. Still it is especially significant that the majority of Americans consider entrepreneurship a viable or attractive career since the 2017 economy was prosperous, and Americans had a variety of alternative job choices.

Perceived capability among the adult population age 18-64 in the United States is higher than the average of the 23 innovation-driven economies. More than half (54 percent) have high capability perceptions, and only one-third (33 percent) of those perceiving opportunities cite fear of failure as a limiting factor in pursuing opportunities.

One-third of Americans state they personally know an entrepreneur. The abundance of entrepreneurs provides visibility and also inspiration in terms of serving as role models.

About Babson College: Babson College is the educator, convener, and thought leader of 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.

Source: Babson College