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Updated 11:00 AM January 23, 2006
 

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  Research
Number of U.S. entrepreneurs reaches 8-year high

After a 20 percent dip in 2004 the number of U.S. entrepreneurs increased by 30 percent in 2005, with more than 23 million people starting new businesses or managing firms less than four years old.

That is the latest finding from an ongoing study by U-M and Florida International University (FIU) that tracks entrepreneurial activity over time.

"This level of entrepreneurial activity reflects an increase of nine million people from the late 1990s," says Paul Reynolds of FIU, the principal investigator of the study. "Despite the passing of the dot-com boom, entrepreneurship is an increasingly popular career option."

Reynolds and co-principal investigator Richard Curtin, an economist at the Institute for Social Research, have been assessing long-term trends in business startups through the Panel Studies of Entrepreneurial Dynamics, funded primarily by the Ewing Marion Kauffman Foundation.

As part of the studies, the researchers surveyed a nationally representative sample of 26,000 U.S. adults ages 18-74 in fall 2005. The survey, conducted by Opinion Research Corp. of Princeton, N.J., identified about 2,000 active nascent entrepreneurs.

They found the highest level of entrepreneurial activity since the study began in 1998. Then, 7.6 percent of Americans had started new businesses or were managing young firms. By 2005, the proportion had reached 11.5 percent.

Nearly two-thirds (63 percent) are men, with 18-34 year olds accounting for about 44 percent of new firm creations, compared to 47 percent for those ages 35-54 and 9 percent for those 55 and older.

"Very young adults have neither the resources nor the experience to get involved, while early career adults tend to have both, along with the optimism and drive needed to start a new business," Reynolds says.

Among the other findings from the 2005 survey:

• More than 80 percent of entrepreneurs have full- or part-time jobs, or are managing an existing business;

• Blacks and Hispanics are twice as likely to be engaged in business creation as are whites;

• About two-thirds are in the startup phase and one-third are managing a new business less than four years old;

• More than half (57 percent) of those starting a new business have completed high school, about 23 percent have finished college and 12 percent have graduate training.

The project will follow people in the process of starting a new business, interviewing them in each of the next three years.

"The goal is to understand what facilitates the business startup process and what are the barriers to their eventual success," Curtin said.

The interviewers will gather data on a broad range of factors, including the characteristics and motivations of the entrepreneur, the help and assistance from other members of the startup team, details about the new business and its market potential, and the available financial and technical resources.

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