Kauffman Study Finds Entrepreneurs Prefer Sole Proprietorships

The U.S. economic crisis spurred more Americans to become entrepreneurs than at any point in the last 16 years, according to the 2011 edition of the Kauffman Foundation's Index of Entrepreneurial Activity. The study found that 320 out of every 100,000 (0.32 percent) adults (individuals between the ages of 20 and 64) in the U.S. started a new business each month in 2011, a 5.9 percent decline from 2010 (0.34 percent), but an increase over the pre-recession period. Many of these new entrepreneurs, however, are not creating new jobs through their startups. Instead, they tend to start sole proprietorships. The study posits that these opposing trends are due to new businesses launched by individuals who may have lost their jobs and have decided to become entrepreneurs. Lacking sufficient startup capital to take on employees, many of their businesses are sole proprietorships or other kinds of non-employing firms. High economic uncertainty also may have influenced entrepreneurs to choose the cautious approach of sole proprietorships over the more costly employer firms. Entrepreneurial activity rates varied substantially across states, but several states stand out. Arizona had had the country's highest level of entrepreneurial activity, with 520 new businesses per 100,000 individuals (0.52 percent), followed by Texas (0.44 percent), California (0.44 percent), Colorado (0.42 percent) and Alaska (0.41 percent). Nevada had the largest increase in activity over the past decade, rising 0.23 percentage points, Georgia, Massachusetts, Tennessee, California, Louisiana and Florida also experienced signifcant increases in entrepreneurial activity. Other key findings for 2011 include: Although both immigrant and native-born entrepreneurial activity declined slightly in 2011, immigrants remained more than twice as likely to start new businesses as were the native-born; Entrepreneurial activity decreased slightly for both men (0.02 percent decrease) and women (0.01 percent decrease); The largest decrease in entrepreneurial activity occurred for college graduates; Entrepreneurial activity rates reflect strong regional patterns with the highest rates coming from the West and South; and, Among the United States' 15 largest metropolitan statistical areas, Los Angeles had the highest entrepreneurial rate (580 per 100,000 adults) with Chicago and Detroit tied for last (180 per 100,000 adults) in 2011. The Kauffman Index tracks startup rates by identifying all individuals between 20 and 64 years old who do not own businesses in the first month of the survey, using Census and Bureau of Labor Statistics data. Each month, the study checks if an individual has since become the owner of a business where they work 15 hours or more a week. Kauffman also tracks historical trends in startup rates since 1996, with additional data on race, gender, age and geography. The Kauffman's Index of Entrepreneurial Activity site also provides several interactive visualizations tracking entrepreneurship rates since 1996, broken down by year and demographic group. Users also may view entrepreneurial activity by state for 2011.