The Facts on the State of Entrepreneurship in America
What‘s the state of entrepreneurship in America? Yes, that’s a big question. Is it booming? Declining? It can be hard to tell. And there is certainly no shortage of conflicting opinions and publications out there. So, we read all the most respected publications on the subject for you and broke down what we learned in this fact-filled article.
The Big Picture
On an international scale, the U.S. is ahead of the rest of the world. In comparison to other developed countries, it consistently scores a few points higher. According to the Global Entrepreneurship Index (GEI), the U.S. is the best country for entrepreneurs with an index of 83.6. Switzerland ranked 2nd at 80.4 and Canada ranked 3rd at 79.2.
To get the broadest view of what’s happening with early-stage entrepreneurs, we looked at the following key indicators:
- Rate of new entrepreneurs: What percentage of the population are recent entrepreneurs and how has this changed over the last 20 years?
- Impact on job creation: What is their impact on job creation?
- Survival rate: How many actually make it past 1 year?
The Kauffman Foundation is one of the leading organizations that researches, publishes and supports entrepreneurship in the United States. Below are some key findings from their reports:
- 320 out of every 100,000 people become new entrepreneurs in a one month period. The rate over time is relatively stable.
- The average number of jobs created by start-ups in the 1st year is 5.20. This increased by 4.47 since 2010.
- The percentage of startups that are still active after one year is 79.43%. This rate is at a historical record high.
Most media outlets online are quick to make extreme assumptions and predictions as to the health of entrepreneurship. A quick spin online will reveal it is either rapidly declining or booming. Who is right? Neither. Neither extreme is true and it’s always more complicated than it appears. However, most data points show relative stability and even optimism in some cases. With stable quantities of new entrepreneurs, survival rates at a record high, and decent numbers for job creation, it’s no surprise that the Small Business Optimism Index (NFIB) has spiked this year. NFIB published the largest gain since May 2018, rising 2.3 points to 104.7 in November 2019.
The GEM also shows an increase in the total number of early-stage entrepreneurial activity. This increase could potentially be linked to the rise of the gig and shared economy, along with a record-high unemployment rate of 4.0 in January 2019. It’s been two decades since the U.S. experienced such low-level of unemployment rates.
The Changing Face of Entrepreneurship
Let’s take a closer look at the 3 factors that are changing the face of entrepreneurship: immigrants, women and baby boomers.
- Immigrants form 25% of new businesses and can reach over 40% in some states
- 4 out of every 10 businesses are owned by women. Women-owned businesses grew 58% from 2007 to 2018
- Baby boomers are the largest and fastest-growing group of entrepreneurs and account for 51%, while millennial entrepreneurs are declining. The average age of entrepreneurs is 42 according to the National Bureau of Economic Research.
No matter who you are, how to finance your business is the biggest challenge for any entrepreneur. How are people getting financing?
- 83% of entrepreneurs do not access bank loans or venture capital
- 65% rely on personal family savings for startup capital
- 0.05% of entrepreneurs use venture capital
Factors such as community banks disappearing and stricter policies have made it harder for more people to get loans. Financing consistently ranks as the top concern for entrepreneurs. However, as much as it is a significant barrier to entry, the rate of new entrepreneurs has still remained stable over time.
What’s the verdict?
The future state of entrepreneurship is at risk with millennials playing a smaller role in entrepreneurship than previous generations. The decline is linked to the rising cost of education and debt. Debt relief policies and lowering the burden of student loans is one of the ways youth participation in the entrepreneurial economy can be stimulated. Fewer younger people joining and the current ones getting older is a reasonable long-term concern. Creative innovations such as crowdfunding have helped address financing issues by easing barriers to entry for early-stage entrepreneurs. Loosening regulations on the JOBS Acts has been a hot topic, with progressive steps already in place to support entrepreneurship. The verdict, the U.S. is in a relatively good place. Overall, the recent state of entrepreneurship in the U.S. is healthy and stable.
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