Small-business owners’ roles as job creators is a topic we heard a lot during the recent presidential election. But small businesses, struggling to recover from the Great Recession, have generally exhibited dismal rates of job creation in the past few years. That might be about to change, if the news from the recently released 2011 Global Entrepreneurship Monitor (GEM) U.S. Report by Babson College and Baruch College is any indication.
After slumping dramatically in 2009 and 2010 after the recession hit, entrepreneurial activity in the U.S. is surging, with a more than 60 percent increase in total entrepreneurial activity between 2010 and 2011. This puts entrepreneurial activity in the U.S. back at pre-recession levels it enjoyed in 2005, and makes the U.S. number-one in entrepreneurial activity among developed economies.
GEM divides entrepreneurial activity into four stages: Intentions, Nascent, New and Established. The latest report shows significant growth in all four stages.
- The percentage of nascent entrepreneurs grew for the first time since 2008, almost doubling in 2011 compared to 2010 (8.4 percent, up from 4.8 percent).
- Some 12.3 percent of working age adults, or more than 29 million Americans, had new businesses in 2011.
- Startup intentions grew by more than 30 percent in 2011, after remaining stagnant from 2008 to 2010.
- Last, but not least, the number of established businesses rebounded, growing by 17 percent compared to 2010.
U.S. adults are feeling optimistic about their abilities and the future. Fewer than one-third of U.S. adults in the survey said fear of failure was hindering them from starting a business. In addition, U.S. adults had the highest confidence of all developed, innovation-driven nations in their capacity to start businesses: More than 55 percent of adults in the study believe they have the skills and ability to be entrepreneurs.
This confidence is reflected in the reasons entrepreneurs are starting businesses. “In the depths of the recession, we saw a tremendous increase in people starting businesses out of necessity,” explained Donna J. Kelley, associate professor of entrepreneurship at Babson College and lead author of the survey. “In 2011, the entrepreneurship rate was pulled up primarily by those starting businesses to pursue promising opportunities—a strong sign of entrepreneurial activity occurring as a result of optimism, not desperation.”
Rather than starting businesses as income-replacement tools because they can’t find a job or doubt their abilities to do so, more entrepreneurs are launching businesses out of a desire to innovate and because they see opportunity. For example, California, although it’s one of the states still suffering most from the recession, had one of the highest rates of adults intending to start businesses, primarily motivated by opportunity and innovation.
The good news for the U.S. economy as a whole is that nearly 40 percent of the new entrepreneurs in the study expect their businesses to create more than five new jobs in the next five years. In other words, we just might start seeing some of that job creation we’ve heard so much about.
One area where there is room for improvement—if these startups truly hope to achieve their growth dreams—is global expansion. Just 13 percent of U.S. entrepreneurs say that more than 25 percent of their revenues are from international sales. That’s the lowest percentage among all innovation-driven economies. If U.S. businesses at all stages of development hope to stay competitive, they’ll need to engage with the global economy in a more significant way.
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