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Study: Start-up Rate at 15-Year High

But the high cost of employees may explain why more entrepreneurs are choosing to go at it alone, says a new Kauffman Foundation study.

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In 2010, Americans started their own businesses at the highest rate in 15 years—but they were more apt to go at it alone, says a new study.
 
According to a study done by the Ewing Marion Kauffman Foundation, there were 565,000 new businesses created per month in 2010 (.34 percent of American adults created them). That's the same as the 2009 rate, but an uptick from 2007, and "represents the highest level over the past decade and a half," says the study. But the rate at which these businesses employ others dropped from .13 percent in 2007 to just .10 percent in 2010.

"Since it began, the recession has triggered annual declines in the rate of employer enterprise births," Carl Schramm, president and CEO of the Kauffman Foundation, said in a statement. "Far too many founders are choosing jobless entrepreneurship, preferring to remain self-employed or to avoid assuming the economic responsibility of hiring employees. This trend, if it continues, could have both short- and long-term impacts on economic growth and job creation.
 
The Kauffman Index of Entrepreneurial Activity, as it's called, tracks businesses from their first month of significant activity. (The owner must spend at least 15 hours per week on the business for two months consecutively, to rule out part-time business owners and very small business activities.)

Other study findings:
 
By race, Latinos' entrepreneurial activity increased the most. Latino business-creation rate rose from .46 percent in 2009 to .56 percent in 2010, the highest rate in 15 years. Entrepreneurial activity by Asians also rose, from .31 percent in 2009 to .37 percent in 2010. Business creation by African-Americans and non-Latino whites declined.
 
Immigrants were more than twice as likely to start businesses each month than were native born. The immigrant start-up business rate jumped from .51 percent in 2009 to .62 percent in 2010. The native-born rate is .28 percent.
 
By age, the 35- to 44-year-old demographic added the most new entrepreneurs. The oldest age group in the study (55- to 64-years-old) grew for the second year in a row, to .40 percent.
 
High school dropouts had the biggest increase in rate of business creation: .49 percent in 2009 to .59 percent in 2010. High school graduates had the biggest decrease (.38 percent to .34 percent)—"signaling that opposing trends may be due to the Great Recession pushing many individuals into business ownership because of high employment rates," observes the study.
 
The industry with the highest rate of entrepreneurial activity? Construction, by far. The second highest: the services industry. (To see more data, click here.)

Last updated: Mar 7, 2011

COURTNEY RUBIN

Inc. contributing editor Courtney Rubin was for five years a London-based staff writer for People magazine. Rubin, a former senior writer for Washingtonian magazine, has written for the New York Times magazine, Time, Marie Claire, and other publications. She is the author of The Weight-Loss Diaries.




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