Encouraging Entrepreneurship in a Down Economy

The continuing layoffs of thousands of workers, particularly in the information and communication tech sectors, creates significant hardships for the affected local and regional economies. For instance, a recent Federal Reserve Bank report noted office vacancy rates in Silicon Valley hovering around 40 percent.

Fortunately, highly skilled labor does not tend to stay unemployed too long. If these people cannot find work, they make it by launching their own innovative businesses.

The tech-based economic development community can do a lot to encourage tech firm start-ups in a down economy.  Understanding the entrepreneurial mindset, explored from two different perspectives in the following papers, is critical for ensuring support programs address the entrepreneurs' needs.

Survey Finds Entrepreneurial Energy Among Minnesota’s Dislocated Workers

An intriguing potential source of new entrepreneurial energy seems to exist among recently laid off workers, according to a recent report by the Minnesota Department of Trade and Economic Development (DTED). The report, Dark Cloud, Silver Lining: Survey Finds Entrepreneurial Energy Among Minnesota's Dislocated Workers, details a 2002 survey of dislocated Minnesota workers who said they were interested in starting their own businesses.

“We were, frankly, a little surprised to find such a strong entrepreneurial spirit among Minnesotans who might be expected to get discouraged after losing their jobs,” DTED Commissioner Rebecca Yanisch said in a press statement. “But it turns out that laid-off workers represent a potent source of new entrepreneurial energy that we can and should tap to help the state get on track to economic recovery.”

The analysis examined data from 5,420 workers who participated in the state’s Dislocated Worker Program in 2001. Of that total, 631 (11.6 percent) indicated their interest in starting businesses, and a follow-up survey of these entrepreneurs, which drew 158 responses, showed that 11 percent have begun running their own businesses. Almost 18 percent said they are in the process of starting a business, and nearly 40 percent are still thinking about starting their own companies.

The report suggests that policymakers can encourage entrepreneurship by recognizing it as a realistic option for dislocated workers, providing reliable information and resources to support entrepreneurs, offering training in processes and skills for developing a successful business, and providing financial and technical assistance to small businesses.

Dark Cloud, Silver Lining was prepared by DTED’s Analysis and Evaluation Office. The report is available at http://www.dted.state.mn.us/PDFs/disloc-wkr-rpt.pdf.

Study: Minorities More Likely to Attempt to Start a Business than Whites

Ten million American adults are involved in the process of starting nearly six million potential new businesses at any one time, with African-Americans 50 percent more likely to start a business than whites, according to a new report released by the Ewing Marion Kauffman Foundation (EMKF).

Funded with grants from EMKF, the National Science Foundation and 33 member institutions, The Entrepreneur Next Door aims to answer who is involved in start-up ventures in the U.S. The Panel Study of Entrepreneurial Dynamics (PSED) finds that African-American men with graduate experience ages 25-35 are the most actively engaged population starting new businesses in the U.S. today. Hispanic men are 20 percent more likely than white men to be involved with start-up ventures.

PSED — a national sample of 64,622 U.S. households — identified a panel of 830 nascent entrepreneurs and followed their efforts to pursue business start-ups over a two-year period. The ongoing study tracks emerging entrepreneurs as they progress through the entrepreneurial process and reveals that attempts at new business formation, which are more widespread than previously disclosed, involve all racial and ethnic groups.

Four questions are addressed in the study: 1.) Who is involved in starting businesses in the U. S.? 2.) How do they go about the process of starting companies? 3.) Which of these business start-up efforts are likely to result in new firms? And 4.) Why are some of these business start-up efforts successful in creating high-growth firms?

Among the key findings:

• Approximately 10.1 million adults in the U.S. are attempting to create a new business at any given time. With nearly one-half of all new ventures started by teams of people, this represents about 5.6 million potential new businesses.
• Men are twice as likely to be in the process of starting new businesses as women; young men ages 25-34 are the most active.
• African-American women have a higher propensity for entrepreneurship than white or Hispanic women, who are nearly equally as likely to attempt to start a business.
• Education significantly predicts nascent entrepreneurship, particularly for African-Americans and Hispanics. Approximately 26 of every 100 African-American men and 20 of every 100 Hispanic men with graduate education experience report efforts to start a new business. This compares to 10 of every 100 white men with graduate education experience.
• The impact of urban context varies for whites, African-Americans and Hispanics. For white and African-American men and women, the tendency to initiate start-up efforts is greatest among those living in more urban contexts. But for Hispanic men and women, the highest levels of activity are among those in the least urban contexts.

Serving as principal researchers on the undertaking are: Nancy M. Carter, Graduate School of Business, University of St. Thomas; William B. Gartner, Marshall School of Business, University of Southern California; Patricia G. Greene, Henry W. Bloch School of Business and Public Administration, University of Missouri - Kansas City; and Paul D. Reynolds, Blank Center for Entrepreneurial Studies, Babson College.

The researchers led over 120 scholars in the development of the study.

Carter, Gartner, Greene and Reynolds conclude no one group or type of individual is not engaged in new business formation. The results show education, income and location significantly predicts nascent entrepreneurship, and ethnicity, age and gender impact who are actively engaged in starting new ventures in the U.S. The PSED offers widespread implications for public policy, education and economic development, as well as individual wealth creation, they say.

The Entrepreneur Next Door is available at http://www.emkf.org/pdf/psed_brochure.pdf.