Start-up Nation

Forget about studying companies and think about studying entrepreneurs.

It was roughly a decade ago when Paul D. Reynolds, then a professor at Marquette University, in Milwaukee, came up with that fundamental idea. If you want to know something about the process of company creation, he suggested, track down the people who are in the process of starting businesses. Then you can find out who they are and what they're doing.

A sociologist, Reynolds knew how to use the tools of large-scale survey research. Survey researchers call randomly selected groups of people and ask them questions; the questions identify subgroups that the researchers can then study. Reynolds had his surveyors ask respondents if they were in the process of starting a business. The surveyors screened and sifted the group that responded positively to separate the realists -- the people who had actually taken some steps toward their goal -- from the mere dreamers, and to separate the people who had already launched their companies from those who were still in the process of doing so.

Presto -- a group of business builders caught in the act of entrepreneurship.

By 1995, Reynolds had conducted a couple of small-scale studies along those lines and had moved from Marquette to Babson College, near Boston, an institution that was rapidly becoming a hotbed of research about company building. In that same year Reynolds and others designed a collaborative survey and research project that would involve scholars from all over the country and would sift out a large panel of what they were beginning to call "nascent entrepreneurs." In due course the money for the project was raised, and the Entrepreneurial Research Consortium's National Panel Study of Business Start-ups was born. Initial calls -- made between July 1998 and May 1999 -- screened more than 31,000 individuals.

And what do you find when you ask more than 31,000 people whether they are in the process of starting a business?

  • Amazingly, 6.1%, or about 1,900 people, said yes, they were starting a business.
  • Another 2.8% -- not quite 900 people -- said yes, they were starting a business, but they were acting on behalf of their employer, as part of their job.
  • And another 1.2% -- or about 375 people -- said they were both starting a company for their employer and starting their own business as well.

The researchers then did their screening and sifting. They found some dreamers. They also found that more than one-quarter of all the "yes" respondents were already operating their businesses, to the tune of bringing in enough cash to cover expenses and the owner's salary for more than three months. The researchers put those people into their own separate category.

When the rock-bottom number fell out, it was this:

  • 3.8% of the respondents -- almost 1,200 individuals out of the 31,000 surveyed -- were indeed nascent entrepreneurs, actually engaged in the process of building a business.

Based on that 1998-1999 sample, how many nascent entrepreneurs would there have been nationally during the same time period? Here's how Reynolds explains it.

  • At the time there were approximately 202 million people 18 years of age or older in the United States.
  • If 3.8% of them were in the process of starting a business, that would mean that about 7.7 million individuals nationally were engaged in launching a company -- substantially more than the number of people who get married every year.

An incredible finding? Not really. The national panel is large enough and systematic enough to give the researchers a good deal of confidence in their results, and Reynolds had found comparable numbers in his earlier, smaller studies. What's more, the estimates from an international study by the Global Entrepreneurship Monitor are even higher -- nearly 10% for Americans ages 18 to 64. The figures do tell us that many more people think about starting a company than actually start one. Then again, a lot more people think about going on a diet or learning the piano than actually do it, too.

The 2001 State of Small Business issue


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