Other hybrid business forms are also proliferating, such as strategic alliances between large companies and not-so-large ones. (See chart, "Nature of Small-Firm Alliances," page 8.) Mail Boxes Etc. is 16% owned by United Parcel Service, which means that Ochi, and every other franchisee, is linked to one of the biggest transportation companies in the business. Redhook Ale Brewery, a microbrewery headquartered in Seattle, recently sold one-quarter of its equity to Anheuser-Busch. Redhook CEO Paul Shipman, a classic start-up entrepreneur whose 12-year-old company has 110 employees, has provided himself not only with capital from the giant's deep pockets but with immediate access to beer distributors in every corner of the nation.
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The future. Cast an eye on the chart on page 8 showing the growth in the number of businesses compared with the growth in U.S. population. That change in the companies-to-people ratio -- another measure of the explosion in entrepreneurship -- has at least three sources. One is the set of economic and technological factors mentioned earlier. A second is the long-term shift from a manufacturing to a service-based economy. A third is the aging of the baby boom: when you have more people in prime company-starting age, you have more companies.
That last factor won't go on forever, and as the boomer generation grows older we may see a drop-off in the rate of company formation. (A recent article in The Economist argues that it is already slowing.) Or will we? The shift to services continues unabated. "Major growth [is] expected in health services, business services, professional services, and educational and social services," notes the SBA in a study forecasting the state of small business in 2005. Neither globalization nor the technological revolution has come close to running its course. So the entrepreneurial explosion is not yet quieting.
And if the past 20 years have shown anything, it's the difficulty of predicting the shape of enterprise in a time of rapid change. Maybe, as William Bridges proposes, more and more of us will be working at home, as independent contractors, and will simply sign up for "projects" rather than full-time employment. (See "A Nation of Owners," [Article link].) Our ideas about jobs are shifting, which means that our ideas about what a "company" is must shift as well.
Which, of course, will only make it harder to take an accurate census of the landscape in which we Americans earn our living.
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Start-Ups
Nothing is as important to the state of small business -- or to the health of the U.S. economy -- as the rate at which entrepreneurs are creating new companies.
Partly this is a matter of logic. Start-ups take the place of companies that shut down. They replenish the business population and sow the seeds of growth. They provide jobs, income, and hope for the future. Often, they create new markets, just by nosing their way into niches no one knew were there.
It's also a matter of experience and evidence. When a new industry takes off, it's invariably populated by a host of start-ups. When a region booms, part of the reason is always the creation of new companies. Nationally, job growth mirrors almost perfectly the rate of new-business formation one year earlier.
So what do we know about the start-up rate and the people -- the entrepreneurs -- who are responsible for it? Inevitably, not enough.
One widely cited figure is the number of new incorporations, toted up each year by Dun & Bradstreet from state-government figures. That number has exceeded 600,000 every year since 1983 (up from only 326,000 in 1975). But some of the "new incorps" aren't new (they're reorganizations of existing businesses), and some aren't even companies (maybe they're neighborhood associations). Also, plenty of new companies get under way each year without incorporating.
That said, the new-incorp trend has been mainly upward for the past two decades, with only a slight falloff since its mid-1980s peak. It may not be a perfect measure, but there's no doubt as to its general direction.
Every year more than 700,000 new companies begin paying payroll taxes to their state governments and so show up as new businesses in Labor Department statistics. Their ranks are supplemented by another 150,000 or so "successor" companies, meaning new firms that take over existing businesses. The bottom line: between 800,000 and 900,000 new companies with employees come into being every year. (See chart, "Change in the Number of U.S. Businesses with Employees," page 9.) On average, about 75,000 more companies are created in a year than go out of business.
But what about people who are in the early stages of company creation -- people who aren't close to incorporating or hiring an employee and indeed may never do so? Thanks to Paul Reynolds and other researchers, we know at least a little about those fledgling entrepreneurs.
Reynolds, a sociologist, is Coleman Foundation chair holder of entrepreneurial studies at Marquette University, in Milwaukee. (See "Who's Who in Small-Business Research," [Article link].) For the past few years he has been surveying samples of the general population to find the entrepreneurs among them. The findings are astonishing even to Reynolds: 4% of the population -- one in every 25 adult Americans -- say that they're in the process of starting a company. As a group they have taken an average of seven steps toward realizing their goal. If the findings hold true throughout the country, they put the number of incipient entrepreneurs at more than 7 million. Since many are working together, the number of new companies in formation may be well over 3 million.
