What We Don't Know May Hurt Us
Myths about entrepreneurship abound. Think you know who's trying to start companies these days? Think you know how and why? Read on
We know very little about the entrepreneurial process in this or any other country. Are company founders different from the rest of us, for example? How long does it take to get businesses off the ground? How many budding entrepreneurs give up before they've even had their business cards printed? Those are not idle questions. Millions of people in this country are spending a lot of time and money in start-up attempts but have little understanding of what's involved. Just as unfortunately, policymakers are as much in the dark as the rest of us. Entrepreneurial myths are the foundation of much of our thinking about new businesses.
There is no dark conspiracy behind that lack of information. People trying to start businesses are in such an early stage of company building that they aren't picked up by the usual data sources -- Dun & Bradstreet, the IRS, the Census Bureau, state unemployment-insurance offices, and so on. Some of us trying to sort out fact from fiction have begun to study the start-up process by doing phone surveys with random samples of the adult population. Those who say they are trying to start a business are asked a series of questions about what they've done so far -- sought funds, looked for equipment, assembled a start-up team, and the like. Our confidence in the new information is high because we've found the same patterns in the initial studies with Wisconsin and national U.S. samples. The results have been dramatic.
Myth: Not that many people participate in the entrepreneurial process.
Each year, more U.S. adults are trying to start new businesses than are having children or getting married. About 4% of the adult population -- one person in 25 -- is actively involved in trying to start a new business.
Myth: Most entrepreneurs are rugged individualists.
Of the nascent entrepreneurs -- those actively trying to start a business -- about two-thirds do not go it alone. Better than half of the start-up teams have more than two members. (The average size is 2.2 people.) During each year, then, more than 7 million people are trying to start more than 3 million new businesses.
Myth: Company founders are risk takers. They lunge for the brass ring.
More than two-thirds of those trying to get a business started have a major work role at the same time. They have full-time or part-time jobs or are running another business. Fewer than 10% of those starting a new business are unemployed at the time. Most do not devote full-time efforts to the new venture until it is a going concern.
Myth: Recent immigrants are a major force in new ventures.
Most nascent entrepreneurs have lived in their community for a substantial period of time. About half of those trying to start companies have lived in their county for more than 15 years, four-fifths for more than 5 years.
Myth: Most entrepreneurs have rejected traditional society.
Almost all those trying to start businesses have finished high school (although college or graduate work does not increase participation). Most have household incomes above the poverty level. Finally, most are in their middle years -- between 30 and 50 years old -- with substantial work experience.
Myth: Women dominate the entrepreneurial process today.
Women are a substantial minority -- about one-third -- of those starting new businesses. Men are about twice as likely as women to be involved in new business start-ups. Clearly, women are an important source of new entrepreneurs, and their role may have increased in the past few decades, but they are still a minority.
Myth: A good business climate is required for entrepreneurial activity.
In the Wisconsin sample, those least involved in the world of business were most positive about the state's entrepreneurial climate. Those that had successfully started a new business were the most negative. Those trying to start a venture were neutral. The decision to start a new business seems to reflect personal judgments about a specific business opportunity in a specific location, not a general opinion about the state's entrepreneurial climate.
Myth: Entrepreneurship is a cultural trait.
The major factors leading to business start-ups are educational attainment, length of residence, age, and household income. Once those factors are considered, there is little difference among ethnic groups (Native Americans, Asian Americans, African Americans, and Hispanics). It is hard, with our small samples at least, to find evidence of an ethnic bias for or against entrepreneurship.
If our estimates about the numbers of people trying to start businesses are even close, it seems redundant for policymakers to encourage even more people to do so. Still, if federal, state, and local governments want the benefits of more companies -- jobs, exports, the development of new industries -- what should they do?
One thing is clear: small-scale government programs with limited resources have little chance of affecting the entrepreneurial process. Given the enormous amount of personal resources devoted to trying to start new businesses -- tens of billions of dollars each year -- it seems unlikely that token support from the government would have much effect. (Would more people get married if the government gave away engagement rings?) Programs that reduce the regulatory complexity for all businesses could well be an effective strategy. Most people trying to start new companies -- and they're from all educational backgrounds -- have almost no formal training in or education about the start-up process. Perhaps entrepreneurship courses should be available in all school settings from high school on.
Other important questions -- with significant policy implications -- about the process remain to be answered. There are not, as yet, solid data on the time required for nascent entrepreneurs and their companies-in-gestation to become fledgling new businesses -- or to give up. We also do not know how local economic conditions affect the emergence of new entrepreneurs and, in turn, their success. Until we can continue our research -- which awaits funding -- it will not be possible to know how long it takes to complete the start-up process and how that process affects new-company growth, survival, and contributions to the economy.* * *
Paul Reynolds is the Coleman chairholder in entrepreneurial studies at Marquette University, in Wisconsin. His initial study was completed with Professor Sammis White of the University of Wisconsin and others, with support from the Wisconsin Housing and Economic Development Authority. He is now developing a national research program with Richard Curtin and James Morgan at the University of Michigan Institute for Social Research.