Start-ups are enjoying newfound importance with policymakers and here's how they're being tracked.
Collectively, start-ups have been enjoying a newfound visibility of late. Policymakers hail them as an economic dynamo; marketers eyeball them as a juicy growth market.
Too bad we don't know jack about them. "It's one of the least understood and potentially most important segments out there now," says Cliff Holtz, vice-president of small-business marketing at AT&T. Often grown out of someone's basement or garage, start-ups don't blip onto the economic radar screen until they've become substantial concerns--and by then, of course, they're not start-ups anymore. Because they're so hard to detect, they've remained one of the most woefully under-researched areas of the economy.
Until now. The Entrepreneurial Research Consortium--a collaborative of nearly 100 small-business researchers from 29 institutions--is mounting a massive effort to identify and track 1,500 nascent entrepreneurs. Beginning this summer, telephone interviewers at the University of Wisconsin will call roughly 20,000 U.S. households to ask if any member of the family is currently trying to start a business. Those who are will be interviewed at six-month intervals, allowing the researchers to build the first longitudinal database of its kind.
If it lives up to its ambitions, the project should yield a veritable treasure trove of data. "The first big question is, Who tries to start a business and how do they go about it?" says Babson College professor Paul Reynolds, the consortium's coordinator. "The second is, Who actually gets them off the ground?"
Marketers like Sylvia Fath, director of market management at Southwestern Bell, are fairly frantic for such information. To fill the informational void, her company had to commission its own study on home-based business.
Pilot studies have already yielded some preliminary answers. The consortium found, for instance, that some 6.8 million U.S. households, or 7.2% of the country's total, have someone who is currently trying to start a business. And 2.8% have a business angel in the household. "It clearly demonstrates that new and small businesses are a far more integral part of American life than anyone anticipated," says Reynolds.
All of this is music to the ears of those who have been marketing in the dark. "Start-ups are so hard to find," complains Holtz of AT&T. "New-business owners feel that their needs are so poorly served that we can't be doing a good job of selling to them."
Snapshot: Start Me Up
Who you are says a lot about how likely you are to start a business. That's one of the early findings of the Entrepreneurial Research Consortium.
Take education level. One in 10 people calling themselves students is starting a company. That figure jumps to one in 8 for employed high school graduates aged 25 to 34. The more education, the more likely a person is to attempt a start-up--up to the point of having some college experience, after which it becomes decreasingly likely.
Other discoveries: Nascent entrepreneurs who prepare business plans are no more likely to get a business going than those who don't. Men are more likely to finish the task of creating a company than women are. And aspiring entrepreneurs are either optimistic about the economy or markedly pessimistic. That polarized result, explains consortium coordinator Paul Reynolds, suggests that most people start businesses because they're either sanguine about new opportunities or insecure about job prospects. "It's the push versus the pull hypothesis," he says.
"Fundamentally, there's nothing more central to market economies than the creation of new businesses," declares Paul Reynolds. "And right now we know almost nothing about the start-up process."
Reynolds's Entrepreneurial Research Consortium is scrutinizing that crucial gestation period in which some would-be entrepreneurs succeed in establishing companies while others throw in the towel. The unusual collaborative effort aspires to be to entrepreneurship research what the Hubble Space Telescope is to astronomy: not an isolated inquiry but a gold mine of data to be dissected by a bevy of researchers, each exploring a different question.
Among those burning questions: How many start-up efforts does it take to create one viable business? How do fledgling entrepreneurs use social networks for support? How do successful ones differ from failed ones in terms of personality, income, and demographic profile? How many entrepreneurs devote themselves full-time to the effort? How much time elapses before nascent businesses record their first dollar of revenue or hire their first employee?
"We'll be able to understand this process for the first time," says Bill Gartner of the University of Southern California, one of the researchers who anted up $20,000 to participate in the study. "We don't now, frankly."