Dr Jeff Cornwall

A couple of interesting studies came out this week that help us better understand the direction of entrepreneurship in our economy.

A study by Microsoft suggests the most of the new entrepreneurs today are either accidental entrepreneurs or at least not folks who had aspired to become an entrepreneur before the recession.  The study found that about 70 percent of the respondents left their jobs to start their own businesses in the midst of the current recession.

The latest Global Entrepreneurship Monitor (GEM) report that looks specifically at the U.S. was just released by Babson College.  It gives a very interesting snapshot of the real face of today’s American entrepreneurs.

The GEM study found that the total entrepreneurial activity actually increased in the US to 10.8% in 2008 from 9.6% in 2007.

Even though we know many of today’s entrepreneurs came to starting their ventures due to the economy, they are still seeking ventures out of opportunities they have observed rather than just starting something to make ends meet.  The study found that 87% of US entrepreneurs started their businesses because of a business opportunity while only 13% started their businesses simply out of necessity.

However, even though these entrepreneurs see opportunity, they also see an increased risk of failure, which increased in 2008. 

A finding that caught me somewhat by surprise was that the typical entrepreneur is getting older.  The GEM study found that boomers are become more entrepreneurial, while the Millennials and the Gen X-ers are becoming less likely to start a venture. The results indicate a marked reduction (around 8% to 9%) in entrepreneurial activity for individuals in the 18-44 age group and an increase of a similar amount in the 45-98 age group.

The study did not differentiate the Millennials from the Gen X-ers.  My anecdotal observations from our program and others is that the Millennials seem to be holding their own, and show signs of increasing their entrepreneurial activities over the coming years, while the Gen X-ers seem to be hunkering down trying to make ends meet through employment.

In a finding that sent chills down my spine, the study found that the size of the ventures entrepreneurs are thinking about is changing.  From 2007 to 2008, the number of jobs entrepreneurs expected to create from their start-ups decreased among the smaller firms.  Not a good sign of long term employment growth.

The GEM results indicate a continuation of the trend toward a business service- and away from a manufacturing-economy. Looking at particular sectors of entrepreneurial activity, U.S. activity is more concentrated in the business services sector and less concentrated in the transforming sector than the activities of other countries in the innovation-economy group, for both early-stage and established firms.  Another bad sign for the long-term economic outlook in the US.

Finally, in terms of financing, the number of adults reporting that they had invested in someone else’s business increased (to 5%), as did the amount they financed ($17,500); yet those numbers are countered by the precipitous decline in SBA lending.  It is the private sector, not the government, that is keeping the entrepreneurial engine running in our economy.