Business Trends

Entrepreneurs Thrive During Recession

In Uncategorized on November 20, 2009 at 8:44 pm

In light of poor economic conditions, entrepreneurial activity is showsing some positive signs, according to the Global Entrepreneurship Monitor (GEM) and its 2008 report, the “National Entrepreneurial Assessment for the U.S.” 

The global economic crisis that started in 2007 presents a different set of economic conditions than in the prior periods of GEM examination. As such, the 2008 report reflects the entrepreneurial behavior in times of economic distress. While traditionally GEM has examined entrepreneurial behavior for those in the 18-64 age group, this year’s report examines entrepreneurial activity for those in the 18-99 age group.  Given growing evidence of entrepreneurial behavior past the age of 64, and the likelihood that all GEM countries will move to this new convention, the GEM U.S. team decided to make this change immediately in order to have a fuller picture of entrepreneurship in the United States. When appropriate, comparing the United States to other GEM countries, this report uses data from the 18-64 age group.

One of the great advantages of a research program such as GEM is that it systematically examines entrepreneurship issues through annual surveys, allowing for examination of the characteristics of entrepreneurship, actions and qualities of individual entrepreneurs and factors in the environment impacting entrepreneurship in diverse economic conditions.

Report findings

-Total entrepreneurial activity (TEA) increased to 10.8% in 2008 from 9.6% in 2007.

-Opportunity continues to be the main driver for entrepreneurs in the United States – 87% started their businesses because of a business opportunity while only 13% started their businesses out of necessity.

-The United States continues to be at or near the top of the world’s innovation-driven economies in terms of early-stage entrepreneurial activities.

-Perceived opportunity is substantial despite a greater fear of failure. This fear of failure has increased appreciably in the U.S. and in the other GEM countries. Perceived opportunity has declined in the U.S. and in the other innovation-driven countries. It is important to note, however, that the decrease in perceived opportunity is only off its high levels of 2007. Thus, perceived opportunity is still substantial despite a greater fear of failure. This contrasts with the marked decrease across the board in GEM countries for individuals who expect to start a business in the next three years.

The Changing Entrepreneur

The Aging Entrepreneur: For the total entrepreneurship and the established firms measures, the results indicate a marked reduction (around 8% to 9%) in entrepreneurial activity for individuals in the 18-44 age group and an increase of a similar amount in the 45-98 age group. While previous reports pointed toward this trend, this year’s data indicate the need to follow this trend closely because of possible implications for U.S. entrepreneurial behavior.

The Shrinking Entrepreneur: Size of the ventures entrepreneurs are thinking about is changing. From 2007 to 2008, the number of jobs entrepreneurs expected to create from their startups decreased in all categories – no jobs, 1-5 jobs, 6-19 jobs – except in the category of 20+ jobs.

* The Service Economy: GEM indicates a continuation of the trend toward a business service- and away from a manufacturing-economy. Looking at particular sectors of entrepreneurial activity, U.S. activity is more concentrated in the business services sector and less concentrated in the transforming sector than the activities of other countries in the innovation-economy group, for both early-stage and established firms.

Battle Of The Sexes

Women Rising: The TEA for women shows a marked increase (6.1% to 7.5%) while the TEA for men shows a slight decrease (10.7% to 9.8%).

Cash Crunch: Women start ventures with eight-times less funding than their male counterparts.

Different Visions: Men and women differ on the businesses they start. Men are more likely to start business-service businesses than consumer-oriented businesses (47% vs. 24%), while women are more likely to start a consumer-oriented rather than a service-oriented business (52% vs. 26%). However, for established businesses, roughly one third of businesses started by men and women are consumer-oriented and service businesses.

Opportunity Vs. Necessity: Men are substantially more motivated than women by opportunity (93% vs. 68%) as opposed to necessity (5% vs. 21%).

Failure And Status: In the realm of established business, women entrepreneurs have reported greater fear of failure and lower perceptions that business success leads to higher status than male entrepreneurs.

Ethnicity And Immigration

African Americans Are Starters: African Americans have higher levels of start-up activities than whites (13.9% vs. 8.4%) while having significantly lower rates of established ventures (8.1% vs. 1.8%)

Non-Mexican Hispanics Vs. Whites: Activities of non-Mexican Hispanics are near those of whites for start-ups (8.6% vs. 8.4%), but for established firms are lower (5.5% vs. 8.1%).

The Immigrant Experience: With few exceptions, the entrepreneurial pattern continues when breaking the data down by immigration status.

Funding

Individuals Invest, Governments Don’t: In terms of financing, the number of adults reporting that they had invested in someone else’s business increased (to 5%), as did the amount they financed ($17,500); yet those numbers are countered by the precipitous decline in SBA lending.

Geek Economy: In terms of technology, the 2008 survey data indicate that while early-stage entrepreneurs continue to be cautious when it comes to developing technology products, the number of entrepreneurs involved in the technology sector–either by starting an Internet business and/or using web marketing or being willing to spend more than $1,000 on new technology–all increased in 2008.

Where’s The Cash?: There is a decline in both the perception of good opportunities and in the availability of funding for entrepreneurs.

Shift In Social Entrepreneurship: GEM concludes that more new and established ventures are seeing the necessity and opportunity of serving a broader social mission while also managing and growing the bottom line.

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