Start-up Nation

Over the past few years the National Panel Study of U.S. Business Start-ups, a large-scale study of nascent entrepreneurs, has identified a sizable sample of people who are in the process of starting their own companies and compared it with a control group of Americans who aren't starting businesses. So what's different about the entrepreneurs? Not as much as you might think. The education levels of the two groups are similar. So are their household incomes and net worth. The age breakdown is about what you'd expect -- in the 25-to-34 age range there is a somewhat greater number of entrepreneurs than control-group members, and in the 55-and-up range, somewhat fewer entrepreneurs.

A key difference between entrepreneurs and nonentrepreneurs isn't personality traits; it's that entrepreneurs somehow have learned to take the steps required to set up a business. In fact, as a group, entrepreneurs are likely to already be self-employed or running another business of their own when they start a new company. That bears out the "behavioral" theory of entrepreneurship. (See " Natural Born Entrepreneurs.")

The nascent-entrepreneur group demonstrates some surprising differences among ethnic and gender segments. A relatively large number of African Americans are engaged in start-up activity. Despite the historically low rate of business ownership among that group, the panel study found that a whopping 9.5% of blacks are nascent entrepreneurs, as compared with only 5.7% of whites. The other surprising finding: despite the many changes in the role of women in recent years -- for example, women now constitute the majority of college students -- men are still roughly twice as likely to be engaged in starting a business as women are.

What are we to make of these findings? Experts such as Patricia Greene, a professor at the University of Missouri-Kansas City who is leading the panel study's research on entrepreneurship among minorities, are leery of saying too much until they analyze the data. Still, Greene draws some preliminary conclusions:

The high rate of nascent entrepreneurship among African Americans compared with their historically low rate of business ownership may mean that many drop out along the way, discouraged by a lack of resources or by other obstacles. "We want to be able to look at it and say where they fall out of the process," says Greene. "Later on we may be able to say, 'They couldn't get the money,' or 'They needed more management guidance.' We can't say that yet."

The highest rates of minority-group entrepreneurship are among well-educated, relatively affluent African American and Hispanic men. Among those with graduate degrees, 26.6% of blacks and 20.5% of Hispanics are involved in starting a company. Factors such as high household income and home ownership are much more strongly correlated with entrepreneurship among minority groups than they are among whites.

Is Financing the Issue?

A recent study by the National Foundation for Women Business Owners found that women who are entrepreneurs were much more likely than their male counterparts to rely on credit cards and company earnings as a prime source of business financing. (See " Tomorrow's Self-Employed American.") Men were much more likely to sell equity or to borrow money from commercial banks. Meanwhile, a report for the Milken Institute and the Minority Business Development Agency charges that minority-owned companies suffer from lack of access to capital: "Minority firms receive just 2% of all private-equity investments and 3% of Small Business Investment Company (SBIC) investment dollars." By comparison, African Americans, Hispanics, and Asians, who together account for approximately 25% of the U.S. population, own about 12% of U.S. companies.

The 2001 State of Small Business issue

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