U.S. Entrepreneurship Rates Reach Highest Level In More Than A Decade

Staff Report

Thursday, May 23rd, 2013

U.S. entrepreneurship rates climbed to the highest level in more than a decade according to the 2012 Global Entrepreneurship Monitor (GEM) U.S. Report issued today by Babson College and Baruch College. In 2012, the average Total Early-Stage Entrepreneurial Activity rate (TEA) increased to nearly 13 percent, an all-time high since GEM first began tracking entrepreneurship rates in 1999.

“Despite a sluggish economy, 2012 was marked by U.S. entrepreneurs reporting greater optimism and confidence in their abilities to start new businesses,” commented the GEM Report’s lead author, Donna J. Kelley, Associate Professor of Entrepreneurship at Babson College. “In fact, nearly 13 percent of the U.S. adult population was engaged in entrepreneurship with the vast majority starting businesses to pursue an opportunity rather than out of necessity. On the downside, Americans closing businesses were twice as likely as those in other innovation-driven economies to cite difficulties financing their ventures.”

“We found that entrepreneurs in the U.S. exhibited a type of closeness,” commented Abdul Ali, Associate Professor of Entrepreneurship at Babson and one of the Report authors. “More than two-thirds start at home, over 80 percent fund their efforts from personal, family, and friend sources and many employ family, nonpaid workers, and part-timers. Further, little more than one-tenth make a significant portion of their sales from foreign customers. While this may demonstrate an ease of getting started in the United States, entrepreneurs with expansive ambitions are required in order to make a contribution to job growth and global competitiveness.”

This unique entrepreneurship research, conducted in 69 economies worldwide, surveys individuals rather than firm registrations, analyzing how many individuals are participating in entrepreneurship, the types of businesses they are starting or operating, their attitudes about entrepreneurship and the challenges they face in starting and growing their businesses. The GEM U.S. Report is authored by Babson professors Donna J. Kelley, PH.D, Abdul Ali, PH.D., Candida Brush, PH.D., and Andrew C. Corbett, PH.D with Mahdi Majbouri, PH.D and Edward G. Rogoff, PH.D contributing from Baruch College. To access the full 2012 Global Entrepreneurship Monitor U.S. Report, visit the Babson Global Entrepreneurship Monitor Web page.  

Among the Report’s key findings:

A diverse population - With 13 percent of the U.S. adult population engaged in entrepreneurship, GEM found remarkable diversity in age, gender and immigrant status among U.S. entrepreneurs.

  • There are seven women for every 10 men engaged in entrepreneurship in the U.S.
  • Entrepreneurship is not age specific; it attracts everyone from youth to seniors. Regardless of the age group, when workforce participation rates are taken into account, approximately 15-20 percent of adults in the workforce in each age group are engaged in entrepreneurship.
  • First-generation immigrants are highly entrepreneurial: more than 16 percent of first-generation immigrants were starting and running new businesses in 2012, compared to 13 percent of nonimmigrants.

A ‘close’ environment - Many entrepreneurs are operating at home, tapping personal networks for capital, employing relatives and rarely selling beyond U.S. borders.

  • Majority of entrepreneurs (41 percent) are operating in the consumer sector, however, U.S. entrepreneurs participate in the business services sector to a higher degree than those in other economies globally.
  • More than two-thirds of U.S. entrepreneurs start at home. 69 percent of nascent entrepreneurship is conducted at home and 59 percent of established business owners also are home-based.
  • U.S. entrepreneurs are rarely selling outside U.S. borders. Only 12 percent of entrepreneurs have more than 25 percent international customers.
  • With only 16 percent of funding stemming from banks, 82 percent of all funding received is drawn from personal savings, family and friends.
  • Nearly a quarter (23 percent) relies on at least one unpaid family member. 21 percent count one or more paid relatives among their workers.

Highly optimistic - Americans believe there are good opportunities for starting businesses and that they have the capabilities to start a business.

  • More than 43 percent of Americans believe there are good opportunities for entrepreneurship, a more than 20 percent jump from 2011 and the highest level recorded since GEM launched in 1999.
  • 56 percent of Americans believe they have the capabilities to start a business – a figure that has remained remarkably stable over the past five years despite severe economic volatility.
  • While opportunity perceptions are relatively uniform across the age spectrum, youth and seniors are starting businesses despite lower beliefs in their capabilities in these age groups compared to middle age groups. Additionally, youth start with very little funding.
  • Approximately three-quarters of entrepreneurs start businesses to pursue an opportunity rather than out of necessity.

Impactful - U.S. Entrepreneurs are planning to create jobs and are introducing innovative products and services.

  • 37 percent of entrepreneurs project they would have more than five employees in the next five years. The U.S. exhibits above-average growth expectations when compared to its peers in innovation-driven economies.
  • 34 percent say they have introduced innovative products or services.
  • 30 percent outsource business activities, which speaks to the positive impact entrepreneurship can have on job creation outside of their companies.

Obstacles - Financing challenges, a domestic sales focus and fear of failure continue to constrain entrepreneurs.

  • Entrepreneurs in the U.S. needed a median level of $15,000 to start their businesses. Further, entrepreneurial finance still depends primarily on bootstrapping and close circles.
  • Compared to other innovation-driven economies, U.S. entrepreneurs face two-thirds the proportion of “stops” stemming from difficulties obtaining financing.
  • Continuing to inch up year-over-year is fear of failure. One-third of those who saw opportunities felt constrained by fear of failure in 2012 compared to one-quarter in 2008.
  • Difficulties selling in unfamiliar regions outside of the U.S., where language, customs and less favorable environments are faced, mean U.S. entrepreneurs are missing opportunities for growth and globalization.

2012 GEM U.S. Report Infographic