Start-up Nation

Business researchers seem to study almost everything, including topics that laypeople might not pencil in at the top of their priority lists. (A sample from a recent management journal: "Socialization and Organizational Outcomes in Large Public Accounting Firms.") But one subject has largely escaped researchers' notice until relatively recently: entrepreneurship -- the tough, creative, anxiety-provoking, experimental process of starting a company.

What a topic to miss! Every year hundreds of thousands of companies in the United States close their doors. Why isn't that a bone-chilling economic disaster? Because hundreds of thousands of brand-new companies -- many more than the door closers, usually -- get a storefront or a telephone line, hang out their shingle, and declare themselves open for business. The birthing of companies is the process by which an economy reinvents and re-creates itself. It drives innovation and the creation of new markets. Without new businesses, the marketplace -- along with human opportunity -- stagnates.

Any topic this big provokes a host of questions. Who starts new companies, and why? Which industries and regions spawn the most new businesses? Where does the money come from? For most of the modern era, only a handful of scholars investigated those issues. But they lacked data. No government agency was gathering statistics about new businesses, so researchers found it difficult to identify new enterprises for study. A few brave professors actually had their graduate students combing through phone books -- even walking the streets of commercial districts -- in search of recently created companies that they could survey.

Today the research picture is brighter. The new Census Bureau database, known as the Statistics of U.S. Businesses, allows researchers to isolate and study the newest companies in its listings. Research methods pioneered by sociologists like Paul Reynolds enable scholars to identify and study would-be entrepreneurs before they even launch a company. As more business schools offer courses in entrepreneurship, more professors study the phenomenon. The result: a proliferation of scholarly papers, books, and well-attended talkfests, such as the annual Babson College- Kauffman Foundation Entrepreneurship Research Conference.

If there is one key figure behind the new momentum, it's probably Reynolds, who today presides over a bustling beehive of entrepreneurship research. The Entrepreneurial Research Consortium, or ERC, launched by Reynolds and headquartered at Babson, involves some 33 universities and more than 120 scholars and researchers. With financial support from the Kansas City-based Kauffman Center for Entrepreneurial Leadership, the National Science Foundation, and others, the ERC has initiated a large-scale project to identify sizable samples of so-called nascent entrepreneurs -- people who say that, yes, indeed, they are in the process of actually starting a business -- and to follow them over time to see how things work out. Another big Kauffman-sponsored, Reynolds-directed consortium, called the Global Entrepreneurship Monitor, or GEM, has begun conducting annual surveys on entrepreneurship and the entrepreneurial climate in more than 20 nations and recently released its findings for 2000.

To be sure, this is not yet a field in which everyone agrees on definitions and research methodologies. That's why no one really knows how many new businesses started up in, say, 2000. Worse, both academia and the government work on what must be the exact opposite of Internet time. Census statistics and other governmental databases are far from up-to-date. The ERC's findings are only beginning to trickle out; much of the information won't be published until next year or thereafter. "Our best work is still in process," says Reynolds.

Oh, well. We've already waited a long time for some solid insights about entrepreneurship; we can probably hang on a little longer. Meanwhile, we do know more than we used to about the murky but critical process of starting a company. And that information should prove useful -- maybe even comforting -- to anyone who has been thinking about taking the big step.

The 2001 State of Small Business issue

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