Opportunity, Not Necessity, Drives More U.S. Startups

Apr 13 2014, 6:53pm CDT | by

Recessions tend to drive people to entrepreneurship. Those who might never consider starting a business will do so if they can’t get a job.

As our economy gets stronger, a smaller percentage of the population is starting businesses, according to the Kauffman Foundation’s Index of Entrepreneurial Activity, released a few days ago. Last year, .28 percent of American adults started their own businesses each month, compared to .30 percent in 2012.

That means the percentage of startup founders among us declined from 300 out of 100,000 adults to 280 out of 100,000. Healthier labor market conditions mean fewer people are starting businesses out of necessity, according to the findings. A dip in new business creation by men, who start more businesses in general, was responsible for much of the decline.

What’s significant, according to the researchers, is that the numbers have returned to pre-recession levels. The last time Kauffman found that the overall rate of entrepreneurial activity dipped below .30 was in 2006, when the percentage was .29. Rates have ticked downward across all racial and ethnic groups since last year.

Also interesting is the fact that people who did start businesses in 2013 were more driven by opportunity–rather than necessity–than in recent years. The percentage of those who were previously unemployed declined. In 2013, 78.2% were not starting a business immediately following unemployment, vs. 73.8% in 2009.

So who are the people creating businesses right now?

* Many are seasoned pros. Kauffman found that the number of people ages 55 to 64 who are starting businesses is on the upswing. In 2003, 18.7 percent of all entrepreneurs fell into this age group. By 2013, the percentage hit 23.4 percent. People ages 45 to 54 also represent a rising share of entrepreneurs. In 2003, 25.2% of entrepreneurs were in this age range. By last year, 30 percent of entrepreneurs were 45 to 54. The researchers attribute this growth to the aging of the population.

* Immigrants are almost twice as likely to launch a new business than people born in the U.S., with the entrepreneurship rate among immigrants now at .43 percent.

* People with lower levels of education have higher entrepreneurship rates, perhaps because they have fewer opportunities to get a traditional job, according to the research. People who did not complete high school had an entrepreneurship rate of .48 percent in 2013. In contrast, the rate of entrepreneurial activity was .28 percent among high school graduates and .30 percent among college graduates.

* The construction industry, which took a massive hit during the recession, has made a comeback. This industry had the highest rate of entrepreneurial activity.

* The West has the highest entrepreneurship rates. Montana has the highest rate of startup activity among all states, with 610 out of every 100,000 adults starting a new business each month.

* San Francisco is the most entrepreneurial major metropolitan area, with .57 percent of the adult population involved in startup activity in 2013.

Most of us want to have a choice as to the type of work we do and to determine if it is best for us to work for someone else or for ourselves. Based on Kaufman’s data, it looks like more people have the freedom to decide. That bodes well for the future. It is a lot easier to succeed in a new business if you want to be running it in the first place–and aren’t forced into it because it is the only way to pay the bills.


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