Recent Research: Women and Minority Entrepreneurs Face Lower Survival Rates

Minority and women entrepreneurs continue to experience lower survival rates than their white (and Asian), male counterparts, according to a recent U.S. Census Bureau report by Ron Jarmin and C.J. Krizan of the Bureau's Center for Economic Studies. Jarmin and Krizan link several databases on business activity in 2005 in order to track how race, gender, education and experience of the entrepreneur relate to survival rates, profits, size, employment growth and exports. The results indicate that firms owned by African-American, female and other minority entrepreneurs are more likely to fail, but also suggest that minority-owners use business failures to gain experience for future endeavors.

Minority- and women-owned firms typically face higher business death rates than white- or male-owned businesses. The notable exception is firms owned by entrepreneurs of Asian decent, which have similar survival rates to white-owned businesses. The same pattern holds true for growth rates across race and sex demographics.

Higher educational attainment improves the survival prospects for an owner's firm. Businesses owned by people under 25 years old or over 55 years old are more likely to fail and have lower growth rates. Urban firms have lower death rates, and both urban and rural firms have higher growth rates than suburban firms overall. Franchise businesses have a higher likelihood of death, but, if they survive, tend to grow faster than other businesses.

A few patterns emerge after conditioning the data on firm survival that tweak the conventional knowledge on female and minority entrepreneurship. Among surviving firms, there appears to be no difference in the growth rates of white- and male-owned firms and other businesses. The higher death rate of women- and minority-owned firms are attributed to differences in prior work experience, family business backgrounds and the availability of capital. The firms that survive, however, grow at a relatively healthy rate.

Female and minority businesses are more likely to have started out without any employees except for the entrepreneur, according to the study. Like female and minority businesses, firms with "non-employer" backgrounds have lower survival rates, but have typical growth rates after conditioning on survival. The authors cite studies that have found that female and minority entrepreneurs are more likely to start non-employer businesses in order to start small. Since female and minority entrepreneurs often lack access to the sources of capital and connections that are available to white, male entrepreneurs, they tend to launch smaller firms in order to gain experience and work within the resources available to them. While these businesses are more likely to fail, entrepreneurs can gain experience from that failure that would have been otherwise unavailable.

Read "Past Experience and Future Success: New Evidence on Owner Characteristics and Firm Performance" at: http://ideas.repec.org/p/cen/wpaper/10-24.html..