Entrepreneurship: Alive and Well

In 2011, GEM researchers estimate that 388 million individuals worldwide were actively engaged in starting and running new businesses. That’s fantastic because previous research from Kauffman tells us that most net new jobs come from new businesses. And that is borne out by GEM’s numbers: about 36% of these new entrepreneurs expect to create at least 5 new jobs over the next five years. In fact, 16.8% of them expect to create at least 20 new jobs over the next five years.

In the United States, the 2011 GEM entrepreneurship rate is estimated at 12% — this is not much different from what it was ten years ago and it’s a little less than twice the global average. On average, about 17% were necessity driven and 57% or so were opportunity driven, while in the United States, an estimated 21% were necessity driven and 59% were opportunity driven. This is interesting, because it’s not what you’d expect to find, given the job losses over the last couple of years.

I have a feeling that, when the nonemployer numbers for 2011 come out later this year, we’re going to see them starting to recover from the two disastrous years before.

Selling? Selling Online?

A couple of studies on retailing caught my eye this month and both of them offer some interesting possibilities for small businesses engaged in retail.

For starters, the National Retail Federation proclaimed to the world sometime around mid-month that they expect overall retail sales growth to hit 3.4% in 2012. Presumably, before the world comes to an end later this year, a lot of people are going to want to buy things.

According to a survey by The NDF Group Inc., almost half of online consumers have bought books, stationery and office supplies in the last 12 months, making this the most active category for online retail. Must be all those home offices out there. Apparel and consumer electronics tie for second place, each with 46% of respondents saying they had bought in that category within the last year.

This survey also found that 25% of respondents follow a retailer or brand on a social media site and 27% say they’ve bought something because of what they’ve seen there. But another study, this one conducted by Puneet Manchanda of the University of Michigan’s Ross School of Business, found that the best social media site for your business may be your own.

Manchanda took a look at company-sponsored social networking sites, “using data from an unnamed retailer of books, CDs, and DVDs,” and found that unnamed retailer experienced a 19% increase in incremental revenue from their customers who joined their branded online community. In the community, members can recommend and review products, share favorites lists, make suggestions, and socialize with each other. The researcher also found that customers who were more active in the community, with larger numbers of friends, tended to spend more.

And this survey finds that you get a better return on the investment with your own branded community that you do by simply using Facebook. That will give you something new for you to factor into your online marketing strategy for 2012.

Ecommerce Photo via Shutterstock

From Small Business Trends

Research Roundup: New Entrepreneurs and Online Consumers

To see why requires an understanding of the difference between the stock of entrepreneurs and the flow into entrepreneurship. Think of entrepreneurship like a bathtub of water. The stock of entrepreneurs is akin to the level of water the in the tub. The flow into entrepreneurship is similar to the amount of water coming through the faucet. Unmeasured in this analogy is the flow out of entrepreneurship, which is like the amount of water going down the drain.

The GEM report indicates that America opened up the entrepreneurship valve on the faucet. Inflow increased by 60 percent from 2010 to 2011. But the Bureau of Labor Statistics (BLS) data says the amount of entrepreneurship in the tub went down. The government agency reported a 2 percent decline in the share of the labor force working for themselves from 2010 to 2011, following an 8.5 percent drop in the self-employment rate between 2006 and 2010.

There’s only one way to reconcile a big jump in the number of people going into business for themselves with a continued decline in the number of people in business for themselves. That’s an increase in the number of people who ran their own companies leaving self-employment. Like the bathtub, we can’t have more water flowing out of the faucet, but a lower water level in the tub, unless more water is going down the drain.

I don’t think we should celebrate the increase in the number of people entering entrepreneurship in 2011. This rise must have been accompanied by an even greater rise in the number of people exiting entrepreneurship.

Drain Photo via Shutterstock

From Small Business Trends

Did the Entrepreneurship Exit Rate Surge in 2011?

His answer should have been: “They own businesses.”

The chart at the bottom of the page shows the probability that a taxpayer includes a partnership or S-Corp on his or her federal income tax return. As you can see, the odds of having business income increase substantially once adjusted gross income (AGI) exceeds $100,000. More than 40 percent percent of people with an AGI of $250,000 or more have one of these two types of businesses. More than 72 percent of the really wealthy – people who earn more than $1 million per year – have a partnership or S-Corp. And nine-in-ten of the super wealthy – people with an AGI in excess of $10 million – have one of these.

The correlation between AGI and the odds of having a partnership or S Corp isn’t just a curiosity. It also tells us something about who experiences collateral damage from recent criticism of the wealthy. Whether directed at business owners or not, any disparaging remarks made about the “top one percent” – people who earned more than $344,000 in 2009 – are negative statements about them. IRS data reveal that the majority of the “top one percent” has a partnership or S-Corp.

Source: Created from data from the IRS Statistics of Income

From Small Business Trends

The “Top One Percent” Own Businesses

Overall, business owners are feeling good. One in five (22.9 percent) say their businesses are very or extremely successful. Nearly half (46.8 percent) say their businesses are moderately successful. Just 30.3 percent say their businesses were “slightly” or “not at all” successful. Asked to project forward for the next two years, only 6 percent feel they won’t achieve success in that time frame.

The survey also asked small business owners to choose their top answer from among various definitions of success. The top three responses were:

• Make enough money to have a comfortable lifestyle: 24 percent
• Do something I enjoy or feel passionate about: 23 percent
• Increase the profitability of the business year to year: 18 percent

Other possible answers, including “have the free time to do whatever I wish,” “expand to new markets,” and “sell the business for a substantial profit,” were far below the top three, only garnering single-digit responses.

Based on how small business owners themselves define success, what type of small business owner is the most successful? The Hartford found that the entrepreneurs who feel most successful are those who have 10 to 20 employees and have been in business for more than 20 years.

This group was more likely than average to say their businesses are currently successful. They were also more confident about the future. And they were significantly more likely to admit they’re closer to “complete” success.

What’s enabled them to succeed? The study found two key steps these businesses took: they used professional advisers to prepare for future growth, and they realized that paying employees well attracts better workers and leads to greater success.

Of course, simply having stayed in business for 20-plus years was surely a contributing factor to feeling successful. But it seems to me that entrepreneurs who enjoy the greatest success have a realistic attitude toward their business. They don’t expect miracles, but they do have goals and plans. They’re optimistic and they enjoy what they’re doing. Sounds like most of the small business owners I know!

How do you define success?

Success Photo via Shutterstock

From Small Business Trends

How Do You Define Success?

While the the unpredictability of business income is something that makes people everywhere apprehensive about business ownership, how big this fear is varies a great deal across countries. A random survey of the population of 36 countries undertaken in 2009 indicated that only 19 percent of the population in South Korea but 59 percent in Lithuania saw an uncertain income as one of the two scariest aspects of starting a company (see below).

That’s nearly three times as many Lithuanians as Koreans consider the unpredictability of business earnings to be one of their greatest fears about entrepreneurship indicates that people from some countries are better able to deal with this fundamental difference between working for oneself and working for someone else.

As you might expect, Americans were not as likely to be apprehensive about the uncertainty of business income as people from other nations. The U.S. was tied with the Netherlands and Iceland for the seventh lowest percentage of the population identifying uncertain income as one of their two greatest fears about business formation across the 36 nations where the survey took place.

Share of the population reporting that fear of an uncertain income is a top apprehension about going into business for oneself:

From Small Business Trends

Where Entrepreneurs Fear an Uncertain Income

Everybody loves lists — or at least, everybody who reads blogs, so we are told. I don’t do lists very often because it never seems that the information I write about fits well into the format.  This month’s Research Roundup post breaks the mold.

Lists take up a lot of space, though, so I’m only going to give you two of them. On the other hand, they’re two good ones. Besides, it’s pleasant to offer you some research that is not all about how badly we small business owners are doing.

The Rise of the Independents

Ego fodder is always a good thing and a recently released study by MBO Partners documents and quantifies a whole slew of things I first wrote back in 2004 in my white paper The Entrepreneurial Economy.

The MBO study is all about independent contractors, and my only beef with this study at the moment is the way MBO seems to underestimate their numbers. MBO says there are 16 million independent contractors; the Census says there are more than 21 million nonemployer businesses.

Can anybody tell me what the difference is between a nonemployer business and an independent contractor?  I didn’t think so.

In any event, here are MBO’s key findings:

• 75 percentof independent contractors say that doing something they love is more important than making a bucket of money;
• 74 percent of independent contractors say that making a difference in people’s lives through their work is more important than making a bucket of money;
• 79 percent of independent contractors say they are satisfied or highly satisfied with their work situation;
• 55 percent of independent contractors say it was a proactive choice rather than a case of not being able to find a traditional job that made them become indies;
• 63 percent say they will continue to work as independent contractors, while only 12 percent plan to grow into employer firms;
• Indies are spread across generations: Seniors (over 65) make up 10 percent of independent contractors, Baby Boomers (50-64) account for 30 percent of them, GenX (30-49) are the largest group, making up 48 percent of them; and Millennials are 12 percent of independent contractors;
• Independent contractors are most seriously challenged by uncertain income streams (56 percent), concerns about retirement (46 percent) and concerns about lack of job security (41 percent); and
• MBO predicts that the number of independent contractors will increase by 25 percent  within the next two years.

Makes me eager to see what the nonemployer numbers do over the next couple of years.

‘Tis the Season for Ca-Ching

One of the nice things about research, data and numbers is that sometimes, in addition to telling you things about yourself and your peers, research tells you useful things about your customers.

If, for example, you are a retailer, then you don’t need me to tell you how critical this time of year is for your bottom line. And, as usual, there are all sorts of predictive numbers out there that you might find useful from our friends over at the National Retail Federation.

1. The average shopper is expected to spend $704 this holiday season on gifts and related stuff;
2. In November and December, retail sales are expected to post a reasonably healthy $465 billion;
3. Overall, holiday retail sales are expected to increase this year by 2.8 percent over 2010 numbers;
4. Half of all gift receivers say they would prefer to receive a gift card rather than a gift (so you might be helping yourself quite a bit by figuring out a way to approximate the handy-dandy gift card for your retail outfit);
5. 152 million holiday shoppers are expected to visit stores and websites on Black Friday weekend;
6. Expect more spending in so-called “discretionary” categories this holiday season, including home furnishings and decor, sporting goods and leisure items, personal care and beauty products, electronics and computer accessories, apparel, toys and food. (What’s left?)
7. Americans plan to spend money this holiday season, but they don’t seem to want to go into hock to do it. Forty-four percent say they will use debit cards, 24 percent will use cash and 3 percent will use checks. Everybody else (29 percent) will use credit cards;
8. Online holidays sales are expected to grow by around 15 percent this holiday season;
9. In addition to all those gifts, the average holiday shopper is expected to spend $130 or so taking advantage of seasonal sales and promotions to buy things for themselves; and
10. Retailers beware: The retail industry is expected to lose approximately $3.48 billion to return fraud.

Image from Dmitriy Shironosov/Shutterstock

From Small Business Trends

Research Roundup: Independent Contractors and Consumer Retail Spending

Recently released Census Bureau data shows that start-ups account for a shrinking share of U.S. job creation. A report analyzing the Census Bureau’s business dynamics data shows that the start-up job creation rate declined precipitously during the Great Recession, making the 2009 level the lowest since 1980. That decline comes on top of a downward trend in the number of jobs created by new businesses over the past three decades. These two factors have combined to reduce new company job creation to about two percent of U.S. employment.

Percentage of U.S. Jobs That Come from Job Creation by Startups by Decade, 1980 to 2009:

Source: Haltiwanger, J., Jarmin, R., and Miranda, J. 2011. Business Dynamics Statistics Briefing: Historically Large Decline in Job Creation from Startup and Existing Firms in the 2008-2009 Recession, March

From Small Business Trends

Start-Ups are Weakening as Job Creators

While it’s hard to argue with “improving education” for anything, this recommendation appears misplaced. More representative surveys show that Americans believe their schools are doing a good job of preparing kids to be entrepreneurs, at least in comparison to what people from many other industrialized countries think.

According to a 2009 Gallup Organization survey of 26,000 people in 36 nations, two thirds of Americans believe that their elementary and secondary schools are providing the requisite skill and knowledge to run a business. These numbers compare favorably to the responses of Europeans, only 39 percent of whom agree.

What are American schools doing right when it comes to entrepreneurship education? The data point to three things:

• First, American schools are doing a good job of teaching kids what entrepreneurs do. Seventy-one percent of the Americans surveyed said that elementary and secondary schools helped them to learn how entrepreneurs contribute to our economy and society. By contrast, only 44 percent of Europeans held this view.
• Second, American schools are helping to develop an entrepreneurial attitude, or “sense of initiative.” Seventy-three percent of Americans said that their primary and secondary school education taught them a sense of initiative. But only 49 percent of Europeans agreed.
• Third, American schools are peaking students’ interest in business ownership. Americans were twice as likely as Europeans to tell the surveyors that their K-12 education stimulated their interest in being in business for themselves (50 versus 25 percent).

While Americans are much more likely than Europeans to believe that primary and secondary schools are effective at training people to become entrepreneurs, there are two negatives in the data:

• First, a report by the Global Entrepreneurship Monitor (GEM) revealed a significant drop in experts’ opinions of the state of U.S. K-12 entrepreneurship education between 2005 and 2008. If this trend continues, we will see a declining share of Americans reporting that their school education helped them to develop the necessary skills and attitudes to be business founders.
• Second, while we perceive our schools to be much better at preparing kids for entrepreneurship than do the Europeans, they might not be who we should compare ourselves to.

China is becoming the world leader in entrepreneurship and the Gallup survey showed that Americans were no more likely than the Chinese to think that their schools are doing a good job training people to become entrepreneurs. Twenty-five years ago that would not have been the case.

From Small Business Trends

Preparing Children to Be Entrepreneurs

Recently released data from the National Institute of Standards and Technology (NIST) and the Association of University Technology Managers (AUTM) indicates that the average university invention brought in significantly more in licensing income than the average invention from a federal laboratory in 2009, the latest year for which data are available.

The chart below indicates that the average license made by an academic institution earned nearly three times the income of the average license made by a federal government laboratory, $99,385 versus $36,512.

Of course a simple comparison like this doesn’t tell us why university inventions generate more royalties. Perhaps the average university invention has been licensed for longer, allowing it to generate more income. Maybe universities license more of their inventions to companies in industries that pay higher royalties. Perhaps university technology licensing officers drive better bargains than their counterparts in federal labs. Maybe the terms of university technology licensing agreements are different from those of federal labs.

I would not be surprised if all of these factors account for some of the difference in royalties earned by university and federal laboratory inventions. But I’m curious if readers know of others.

From Small Business Trends

Academic Inventions Generate More Income than Government Ones

Between 1997 and 2007, the report found, women’s share of total U.S. firms increased from 26 percent to almost 29 percent; during the same time frame, men’s share dropped from 55 percent to 51 percent. As of 2007, the top four revenue-generating industries were identical for businesses owned by women, men, and by women and men together; they were construction, manufacturing, wholesale trade, and retail trade.

But there is still one area in which women-owned businesses differ from those owned by men: Women-owned firms were less likely to have employees. In 2007, more than 88 percent were non-employer firms.

Employment is on everyone’s minds right now, and a separate report from the Ewing Marion Kauffman Foundation, “Overcoming the Gender Gap: Women Entrepreneurs as Economic Drivers,” suggests that with the right kind of help, women-owned businesses could become drivers of employment and stimulate the economy.

The Kauffman report found some similar gaps between men- and women-owed companies. For starters, while startup companies, especially high-growth startups, are the biggest source of new U.S. jobs, only about 35 percent of startup business owners are women. In addition, their startups are less likely to grow than those owned by men: Just 36 percent of women-owned startups in the report had employees, compared to 44 percent of those owned by men.

Lesa Mitchell, Kauffman Foundation vice president and author of the report, says that while women are breaking through the glass ceiling, they seem to be encountering “glass walls” that keep their businesses from expanding. As a result, three years after startup, just 19.8 percent of women-owned businesses in the Kauffman report make over $100K annually, while 32.8 percent of men-owned companies do.

Of course, some women (and men) may prefer to keep their companies small. But for those who want to grow, what steps would help them? Mitchell says:

1.) Establishing support networks early in the startup process is one way to position your business for growth. Joining the board of a company in your industry is one way to do this.

2.) She also urges successful women entrepreneurs to become role models and mentors for younger ones.

3.) And she urges more networking and collaboration between startups and bigger, more successful firms.

Networking seems to be a common thread when it comes to helping women-owned businesses thrive. In Forbes’ latest list of the best cities for women in business, the cities that topped the list had several things in common: a supportive legal environment, government procurement goals for women- or minority-owned firms, resources like the SBA’s Women’s Business Centers, and the presence of women’s business organizations to provide networking and support.

Women are often called “naturals” at networking, and most women business owners I know are pretty good at it. But to power your business to the next phase, you need to take networking to the next level. Don’t just network within your comfort zone: Get out of it.

Depending on your business’s needs, that might mean hobnobbing with angel investors or even venture capitalists. It might mean getting comfortable at male-dominated industry events or conferences, or meeting key people at companies that are much bigger than yours. Whatever you’re hoping to achieve with your business, there is someone out there who can help you do it—but not if you don’t get out there and meet them.

Image from Christian Kieffer/Shutterstock

From Small Business Trends

Women Owned Businesses Have Come a Long Way But It’s Not Far Enough