4.10: Trends in Entrepreneurship and Small-Business Ownership
- What trends are shaping entrepreneurship and small-business ownership?
Entrepreneurship has changed since the heady days of the late 1990s, when starting a dotcom while still in college seemed a quick route to riches and stock options. Much entrepreneurial opportunity comes from major changes in demographics, society, and technology, and there is currently a confluence of all three. A major demographic group is moving into a significantly different stage in life, and minorities are increasing their business ownership in remarkable numbers. We have created a society where we expect to have our problems taken care of, and the technological revolution stands ready with already-developed solutions. Evolving social and demographic trends, combined with the challenge of operating in a fast-paced technology-dominated business climate, are changing the face of entrepreneurship and small-business ownership.
Into the Future: Start-ups Drive the Economy
Did new business ventures drive the economic recovery from the 2001–2002 and 2007–2009 to recessions, and are they continuing to make significant contributions to the U.S. economy? The economists who review Department of Labor employment surveys and SBA statistics think so. “Small business drives the American economy,” says Dr. Chad Moutray, former chief economist for the SBA’s Office of Advocacy . “Main Street provides the jobs and spurs our economic growth. American entrepreneurs are creative and productive.” Numbers alone do not tell the whole story, however. Are these newly self-employed workers profiting from their ventures, or are they just biding their time during a period of unemployment?
U.S. small businesses employed 57.9 million people in 2016, representing nearly 48% of the workforce. The number of net new jobs added to the economy was 1.4 million (Small Business Administration, 2016).
The highest growth rate comes from women-owned firms and continues to rise at rates higher than the national average—and with even stronger growth rates since the recession. In 2016, an estimated 11.6 million women-owned businesses employed nearly 9 million people, generating more than $1.7 trillion in revenue (American Express, 2020).
Between 2007 and 2017, women-owned firms increased by 114 percent, compared with a 44% increase among all businesses. This means that growth rates for women-owned businesses are 2.5 times faster than the national average. Employment growth was also stronger than national rates. Women-owned businesses increased 27% over the past 20 years, while overall business employment has increased by 13% since 2007 (American Express, 2020).
These trends show that more workers are striking out on their own and earning money doing it. It has become very clear that encouraging small-business activity leads to continued strong overall economic growth. Please visit the Kauffman Foundation website and the SBA FAQ website for recent statistics.
Changing Demographics Create Entrepreneurial Diversity
The mantra, “60 is the new 40,” describes today’s Baby Boomers who indulge in much less knitting and golf in their retirement years. The AARP predicts that silver-haired entrepreneurs will continue to rise in the coming years. According to a recent study by the Kauffman Foundation, Baby Boomers are twice as likely as Millennials to start a new business. In fact, close to 25% of all new entrepreneurs fall between the ages of 55 and 64 (Strauss, 2017). This has created a ripple effect in the way we work. Boomers have accelerated the growing acceptance of working from home, adding to the millions of U.S. workers already showing up to work in their slippers. In addition, the ongoing corporate brain drain could mean that small businesses can tap into the expertise of seasoned free agents at less-than-corporate prices—and that seniors themselves will become independent consultants to businesses of all sizes (Hanson, 2018).
The growing number of Baby Boomer entrepreneurs has prompted some forward-thinking companies to recognize business opportunities in technology. At one time there was a concern that the aging of the population would create a drag on the economy. Conventional wisdom says that the early parenthood years are the big spending years. As we age, we spend less and, because Boomers are such a big demographic group, this would create a long-term economic decline. Not true, it now appears. The Boomer generation has built sizable wealth and is not afraid to spend it to make their lives more comfortable.
Minorities are also adding to the entrepreneurial mix. As we saw in Exhibit 4.4, minority groups and women are increasing business ownership much faster than the national average, reflecting their confidence in the U.S. economy. These overwhelming increases in minority business ownership paralleled the demand for U.S. Small Business Administration loan products. Loans to minority business owners in fiscal year 2017 set a record—more than $9.5 billion, or 31 percent, of SBA’s total loan portfolio (U.S. Small Business Administration, 2017).
The Kauffman Foundation Indicators of Entrepreneurship found that immigrants and Latinos have swelled the growing numbers of self-employed Americans, increasing the diversity of the country’s entrepreneurial class. Please visit the Kauffman Foundation website and the SBA FAQ website for recent statistics.
How Far Will You Go to Get Rich?
With enough intelligence and determination, people can get rich almost anywhere in the United States. Whether you own chains of dry cleaners in Queens, car dealerships in Chicago, or oil wells in West Texas, fortunes have been made in every state in the Union. There are some places, however, where the chances of creating wealth are much greater than others. That is why people who hope to strike it rich move to places such as Manhattan or Palo Alto. It’s not because the cost of living is low or the quality of life as a struggling entrepreneur is fun. Whether starting a software or soft-drink company, entrepreneurs tend to follow the money.
But not all companies follow the herd. Guild Education, founded in 2015 by Rachel Carlson and Brittany Stich at Stanford University, left San Francisco due to the high cost of living that could slow down the company’s growth. “We have a lot of women who are executives and department heads here, starting with myself and my co-founder,” CEO Rachel Carlson said. “So when we left, we deliberately chose a place where you can have a family" (Kolodny, 2017). Guild Education’s mission is to help large employers offer college education and tuition reimbursement as a benefit to the 64 million working-age adults who lack a college degree.
Since moving to Denver, Guild Education has raised another $21 million in venture capital, bringing the total funding to $31.5 million with a company valuation of $125 million (Chuang, 2017). The company headquarters in Denver is next door to a Montessori school and employs 58 employees. “We were joking that we’re the polar opposite of Apple,” said Carlson. “Remember when the new ‘mothership’ came out? Every single parent noticed that it had a huge gym but not a day care.”
According to PwC’s quarterly venture capital study, “MoneyTree Report,” the top regions in the United States for venture-backed deals in the third quarter of 2017 were San Francisco ($4.1 billion), New York Metro ($4.2 billion), Silicon Valley (Bay Area $2.2 billion), and New England ($1.8 billion) (PwC/CB Insights, 2018).
In 2017, equity financing in U.S. start-ups rose for the third straight quarter, reaching $19 billion, according to the PwC/CB Insights “MoneyTree Report Q3 2017.” “Financing was boosted by a large number of mega rounds,” says Tom Ciccolella, Partner, U.S. Ventures Leader at PwC (PwC/CB Insights, 2018). Twenty-six mega-rounds of $100 million in companies such as WeWork, 23andMe, Fanatics, and NAUTO contributed to the strong activity levels in the first three quarters of 2017. The top five U.S. industry sectors with the most deals and funding were Internet, Healthcare, Mobile and Telecommunications, Software (Non-Internet/Mobile), and Consumer Products.
- What significant trends are occurring in the small-business arena?
- How is entrepreneurial diversity impacting small businesses and the economy?
- How do ethics impact decision-making with small-business owners?