Dr Jeff Cornwall

Here is my column from the weekend as it ran in the Tennessean:

A couple of recent studies shed some light on the direction of entrepreneurship in our economy for the upcoming year and beyond.

The latest study issued by the Global Entrepreneurship Monitor, recently released by Babson College, gives a very interesting snapshot of the face of today’s American entrepreneurs.

The GEM study found that total entrepreneurial activity actually increased in the U.S. in 2008 from the year before.

In a different study funded by Microsoft, the findings were that most of these new entrepreneurs are either accidental ones or at least folks who had never aspired to become entrepreneurs before the current recession. The study found that about 70 percent of the respondents who are first-time entrepreneurs left their jobs to start businesses in the midst of the current recession.

Even though we know many of today’s entrepreneurs came to start their ventures because of the economy, they are still seeking to make something out of opportunities they have observed rather than just starting a business to make ends meet.

The GEM study found that 87 percent of U.S. entrepreneurs started their business because of a business opportunity while only 13 percent started their business simply out of necessity or desperation. However, even though these entrepreneurs say they see opportunity, they also see an increased risk of failure.

One finding that caught me somewhat by surprise was that the typical entrepreneur is getting older. The GEM study found that baby boomers are becoming more entrepreneurial, while the millennial generation and those in Generation X are becoming less likely to start a venture.

The results indicate a marked reduction of around 9 percent in entrepreneurial activity for individuals 18 to 44, while those 45 and up had an increase in entrepreneurial activity of almost 10 percent this past year.

The study did not differentiate those of the millennial generation from those of Generation X.

My anecdotal observation from the business program at Belmont University and from other similar programs is that the millennials seem to be fairly steady in their rate of business startups. We see signs of increased entrepreneurial activities from them in the coming years. But Generation Xers seem to be hunkering down, trying to make ends meet through traditional 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 startups decreased among the smaller firms.

That’s not a good sign of long-term employment growth in our ailing economy.

Manufacturing is down

The GEM results indicate a continuation of the trend away from a manufacturing economy in the U.S. There are fewer new businesses in innovative, transformational industries that could create renewed long-term growth in our economy compared with other countries around the globe. This is another bad sign for the long-term economic outlook in the U.S.

Finally, in terms of financing, people are looking more and more to friends, family and other private funding to fund their new ventures. The number of people investing in someone else’s business increased, as did the amount they financed. However, those numbers are countered by a precipitous decline in Small Business Administration lending.

It is the private sector — not the government — that is keeping the entrepreneurial engine running in our economy.