27 Million Americans Are Starting or Running New Businesses [REPORT]

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 by Babson College.   

Other findings include:

•     Nearly 14% of the U.S. adult population is pursuing early stage entrepreneurial activity (TEA).
•     86% 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% in 2010 to 10% in 2017.
•     Information Technology and Finance make up over 18% 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%. However, in 2017 the rate of profitability declined for both men and women although the decline for men was greater, 21% for men vs. 9% for women. This represents a narrowing of the gender gap to less than 5%, suggesting women are performing almost as well as their male counterparts.
•     36% 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.
•     20% of U.S. entrepreneurs expected to employ 20 or more people in their new ventures.
•     Over 50% of adults across the entire spectrum of age groups in the United States perceive opportunity.
•     7.6% of working-age adults in the United States start a new business for their employers.
•     30% of U.S. entrepreneurs exit a business to pursue another opportunity.
•     One-third of Americans state they personally know an entrepreneur.
•     85% of established business owners in the United States expected to be profitable in the current year and 76% 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%.

“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.

Key Findings

Activity

U.S. entrepreneurship rates in 2017 continued the relatively high and stable rates reported over the past seven years. At nearly 14%, early stage entrepreneurial activity (TEA) in the United States is 50% 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% of entrepreneurs start businesses to pursue an opportunity. The United States tops this figure with 86% 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% or 2%. 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% to 64%.

In the United States, 7.6% 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% for the United States vs. 12% 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% of all opportunities in the United States and 39% in the peer group of similar economies.

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

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% of opportunities pursued by entrepreneurs in the United States, more than 7% higher than the 10.6% 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%. The rate of TEA firms that compete within the technology sector with technology as a primary driver of business has grown from 0% in 2010 to 10% in 2017.

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

In 2017, almost 44% of U.S. entrepreneurs expected to employ six or more people in the next five years, the second highest rate in nearly two decades, and 85% of nascent entrepreneurs expected to create jobs for others. Additionally, 20% 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% of entrepreneurs expected 25% or more of their sales to come from customers living outside the United States. In 2017, this number increased to 17%.

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% to 6.6%, but the TEA rate decreased from 4.0% to 2.1%. 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%), personal reasons (21.1%), or bureaucracy (20.0%). In other countries, the biggest reason for discontinuation is unprofitability. In contrast, unprofitability and lack of finance together account for only 13% 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%, 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%, followed by age 45-54 at 12%. 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% 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%. 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% to 37% among those 18-54, and the oldest group 65-74 has the lowest fear of failure rate at 18%.

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%. Among those age 35-44, TEA rates are almost equal, 17% for men and 16% for women. The youngest group age 18-24 maintains a substantial gender gap, with fewer women at younger ages (7%) engaging in early stage entrepreneurial activity than men (15%). The biggest gender gap in early stage entrepreneurial activity is among those age 25-34 with women at 12% and men at 23%, 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% in 2017. The rate for women is 10.7%, resulting in a gap of 6% between men and women.

The rate of perception of opportunity for women is 59% in 2017. This is the highest rate ever reflected in the U.S. GEM study and a 15% 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%. 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% to 65% for men and from 46% to 50% 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% 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% to 19% with women’s entrepreneurial intentions remaining constant at 11% over the past two years, resulting in a gender gap of 8%, which is the highest in the history of the GEM study.

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

In 2015, 8.3% of women reported more than 25% of their sales from customers living outside the United States. In 2016, the percentage rose slightly to 8.6%. In 2017, it nearly doubled to 14.1%. For men, the figure was 14% in 2015, 11.3% in 2016, and 18.5% 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% for men and 3.3% for women. This represents about a 0.6% 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%. However, in 2017 the rate of profitability declined for both men and women although the decline for men was greater, 21% for men vs. 9% for women. This represents a narrowing of the gender gap to less than 5%, suggesting women are performing almost as well as their male counterparts.

Established Business Ownership

The GEM 2017 survey shows that 85% of established business owners in the United States expected to be profitable in the current year and that 76% 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% and running established businesses at the rate of 9%. African/African Americans are starting and running new businesses at the rate of 20% and running established businesses at the rate of 4%. Hispanic Americans are starting and running new businesses at the rate of 12% and running established businesses at the rate of 5%. Asian Americans are starting and running new businesses at the rate of 17% and running established businesses at the rate of 7%. 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% of established business but only 6% of total early stage entrepreneurial activity.

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

Attitudes

Among the U.S. adult population, 75% believe that entrepreneurs receive high status in society, a higher figure than the average of the 23 innovation-driven economies; and almost 75% 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% 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% believe that entrepreneurship is a good career choice. While this is greater than the average of the innovation-driven economies, nine 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%) have high capability perceptions, and only one-third (33%) of those perceiving opportunities cite fear of failure as a limiting factor in pursuing opportunities.