More Than 31 Million People in the United States (15.6% of the Adult Population Ages 18-64) Are Engaged in Early Stage Entrepreneurial Activity, According to the 2018/2019 United States GEM Report Produced by Babson College

WELLESLEY, Mass., Dec. 6, 2019 /PRNewswire/ -- The United States exhibits among the highest rates of early stage entrepreneurial activity in the developed world (15.6%). In addition, a great majority of entrepreneurs in the United States were motivated by opportunity in 2018. These are among the findings of the 2018/2019 U.S. Global Entrepreneurship Monitor Report, produced by Babson College.

"Entrepreneurship can fill employment gaps in the economy and enable people to pursue the career they desire," said GEM U.S. Team Leader and Babson College Professor Julian Lange.  "It is therefore imperative to equip people with the ability to pursue entrepreneurial opportunities and start businesses when they need or choose to do so."

Additional Key Findings

• Since 2015, there has been a steady rise in the rate of both men's and women's entrepreneurship in the United States. The year 2018 marked an all-time high with early stage entrepreneurial activity rates of 17.7% for men and 13.6% for women, with the gender gap between men and women narrowing to 4.1%.
• GEM data indicated that a great majority of entrepreneurs were motivated by opportunity in 2018. In 2018, the perception of opportunities reached a new high, with 74% of men perceiving opportunities and 66% of women.
• In light of GEM's finding that 63% of Americans believe entrepreneurship is a good career choice and the low unemployment rate during this time, starting a business was viewed as a good choice rather than a necessity.
• Entrepreneurial intentions are a precursor to entrepreneurial actions, and GEM data for 2018 demonstrates that the gender gap in entrepreneurial intentions is narrowing. The difference between women's and men's intentions was only 1%, which is the smallest gap since 2002.
• Trends over the past years suggest that entrepreneurs in the United States are increasingly exploiting technological advances – away from traditional wholesale/retail toward entrepreneurial opportunities with potentially lower costs and greater upside in the knowledge and service spaces.
• Entrepreneurship can provide career options for people of all ethnicities, ages, gender, and other characteristics. The 2018/2019 U.S. GEM Report found that African/African Americans start businesses at a higher rate than the White/Caucasian and Hispanic/Latino ethnicities, and entrepreneurial activity was found to be strong across the entire age spectrum of the 18-74 adult population.

FULL SUMMARY - ACTIVITY  

Entrepreneurship as a Viable Career Option
The United States exhibits among the highest rates of early stage entrepreneurial activity in the developed world (15.6%). In addition, a great majority of entrepreneurs were motivated by opportunity in 2018. Given the low unemployment rate reported during this time, it is clear that American people have enough job options but entrepreneurship represents a viable career path for many. In fact, 63% of Americans believe entrepreneurship is a good career choice. At the same time, this report shows how necessity entrepreneurship became a more important motivation during the great recession of 2007-2009.

What this all suggests is that entrepreneurship can fill employment gaps in the economy and enable people to pursue the career they desire. It is therefore imperative to equip people with the ability to pursue entrepreneurial opportunities and start businesses when they need or choose to do so. And given that only 45.5% of Americans think it is easy to start a business, there is a need to address and ensure that conditions and stakeholders in the environment can facilitate these efforts.

Inclusive Entrepreneurship
Entrepreneurship can also provide career options for people of all ethnicities, ages, gender, and other characteristics. This report shows that African/African Americans start businesses at a higher rate than the White/Caucasian and Hispanic/Latino ethnicities. Entrepreneurial activity was found to be strong across the entire age spectrum of the 18-74 adult population. Furthermore, the year 2018 marked an all-time high for both men and women entrepreneurs, and notably the gender gap between men and women narrowed.

Entrepreneurship may present a viable alternative to employment, and the United States can benefit from the broad array of opportunities introduced by its diverse population. It is therefore critical to identify groups that may be underserved in the entrepreneurship ranks. This could extend to those who are veterans, disabled, ex-convicts, or migrants—those who may be stigmatized or otherwise limited with respect to employment options, and where entrepreneurship can enable them to be generators rather than consumers of income.

Entrepreneurial Dynamism
Total early stage entrepreneurial activity (TEA) rates are much higher than established business (EB) rates in the United States, and discontinuance levels are somewhat higher than the average for developed economies. This finding could reveal a lack of sustainability, where many people start businesses, yet few have sustained them. At the same time, it could reflect characteristics of a dynamic entrepreneurial environment, where an abundance of caution otherwise provides fewer chances for success. In addition, the discontinuance rate, while higher than the average for developed economies, shows that some people may fail, but others choose to sell, pursue another opportunity, retire or go on to something else. Entrepreneurship may therefore represent one of many careers people will pursue during their lifetimes. It is therefore important to insure these transitions can take place with relative ease.

Entrepreneurship of All Kinds
While much attention directed toward entrepreneurship takes a narrow view, sometimes focusing on technology or venture-capital backed businesses, it is important to understand that entrepreneurial behavior can benefit multiple contexts. This report shows that one-third of entrepreneurs started their business with family, 11% of the adult population is active in the gig/sharing economy, and 8% of Americans are starting businesses for their employer. Prior GEM reports have highlighted social entrepreneurship. It is thus important to highlight and address all forms of entrepreneurship, which may have some common requirements, but also specific needs that, when addressed, can help them thrive. 

IMPACT

While some economies and governments champion specific industries due to an ability to exploit unique natural resources or by building upon some long-serving national advantage, the United States has put greater emphasis on knowledge-intensive industries and service-based sectors since the turn of the 21^st century.  In the past two decades as the world has developed a creativity economy that combines elements of the information and knowledge economy with today's creative individuals, TEA in the United States has moved toward service-based start-up activity that relies upon technology and creativity as the drivers of their business opportunities. 

In what could be seen as a tipping point of change, for the first time within the United States TEA activities in the Finance, Real Estate, and Business Services sectors (27%) nudged above the rates in Wholesale/Retail (26%).  Trends over the past years suggest that entrepreneurs in the United States are increasingly exploiting technological advances – away from traditional wholesale/retail toward entrepreneurial opportunities with potentially lower costs and greater upside in the knowledge and service spaces.

For decades technological opportunities have driven entrepreneurship, not just as an industry of choice, but also for early stage entrepreneurs to use as a competitive tool.   Entrepreneurs leverage new technology to new offerings, to deliver their product or service, or both.  The percentage of early stage entrepreneurial firms using the latest technology in their firms dipped a couple of points this past year but has remained consistent at around 10% for close to a decade.  

GEM has identified few entrepreneurs in the technology sectors after the economic crisis beginning in 2008. In fact, in 2010 GEM data suggested that number had gone down to 0%. A decade later, however, activity levels have rebounded at 8.7% and are consistent with the rates of Information/Communication/Technology (ICT) business activity in the United States.

GEM data show rates for early stage entrepreneurs who bring a new product to market (TEANPM) varying between 34% and 37% in the years since 2011.  These entrepreneurs in the United States report that they develop and deliver an innovative product or service as their base offering.  Rates for established businesses which bring a new product to market as their base offering (EBNPM) for the same period vary from 13.1% to 18.3%.

U.S. entrepreneurs continue to be among the world's leaders in new technology and innovation offerings. The rate of EBNPM is consistently about half the rate of TEANPM, which means that early stage start-ups are engaged in developing and delivering an innovative product or service as their base offering at a rate which is at least double that of established businesses. 

Among all entrepreneurs engaged in early stage entrepreneurial activity, 87% expect to create jobs for others driving overall economic growth. Just below 13% of entrepreneurs see themselves as single person entities with no creation of jobs for others.  In 2018, 38% of all U.S. entrepreneurs expect to employ six or more people in the next five years which is consistent with a rate that has hovered around 40% for two decades.   Furthermore, 17% of entrepreneurs expect to create 20 or more jobs in their firm over this same time frame.  

The U.S. market is potentially so large that it is not surprising to find most U.S. entrepreneurs are not "born global" as they do not necessarily need to pursue sales outside of their own borders to break even.  The year 2018 was indicative of this general situation: sales by entrepreneurs outside of their borders decreased from last year's high when 17% of entrepreneurs expected to get 25% or more of their sales from outside the United States.  In 2018, fewer than 13% expect to see that same level of international sales, and a full 35% of entrepreneurs in the United States do not expect any sales to be generated from international customers.

AGE

When the statistics for Total Early Stage Entrepreneurial Activity (TEA) are combined with those of Entrepreneurial Employee Activity (EEA) and with those of Established Business Ownership (EB), the 35-44 age group remains the most active of all the studied age groups within the 18-74 age range at 39.2%.  This age group was also the most active in 2017 at 36.4%. This figure reflects a jump in TEA in this age group from 16.4% in 2017 to 19.7% in 2018; a drop in EB in this age group from 9.7% in 2017 to 7.9% in 2018; and a jump in EEA from 10.3% in 2017 to 11.6% in 2018.  Therefore, the biggest increases for this age group were in TEA and EEA, with a drop in EB.

Interestingly, the 35-44 age group, which is the most entrepreneurially active, is the same age group that in 2018 experienced one of the lowest discontinuance rates (4.3%).  In 2017, the discontinuance rate for this age group was 5.9%, so there has been a decrease in discontinuance in this age group since 2017.  Not only is this one of the lowest discontinuance rates in 2018, but also it reflects a drop in discontinuance in this age group compared with 2017.

Particularly apparent in the 2018 GEM results relating to Age is the finding that well over 50% of adults across the entire spectrum of age groups perceive opportunity.

Also apparent is the finding that the 18-24 age group perceives itself much less likely than other age groups to have the skills necessary to take advantage of opportunities.

The perception of skill level for the 65-74 age group is high at 54%.  Adults in this age group also report a very low fear of failure at 19%, demonstrating a can-do attitude among adults in this age group. The relatively low 21% rate of knowing entrepreneurs in the 65-74 age group suggests that their peers may have moved out of entrepreneurship and they have not been able to make new connections with younger entrepreneurs.  The lower TEA rate of 4.4% in this age group, as compared with TEA rates ranging from 10.4% to 19.7% in other age groups, may reflect the lack of knowing entrepreneurs and may also suggest a business environment currently less welcoming to older adults.

GENDER

In the Europe and North American Region, the United States and Canada have the highest TEA rates for women entrepreneurs at 13.6% and 17% respectively.

Since 2015, there has been a steady rise in the TEA rate of both men's and women's entrepreneurship in the United States.  In 2015, the rate of men's TEA was 14.6% while for women it was 9.2%.  The year 2018 marked an all-time high with TEA rates of 17.7% and 13.6% respectively.  Notably, the gender gap between men and women narrowed to 4.1% in 2018.  A similar pattern exists for nascent entrepreneurs where the gap narrowed from 3.4% to 2.9% and for new businesses as well, a gap of 2.1% to 1.2 %.  The only category reflecting less progress is established business where the percent of men in established businesses increased from 8.9% in 2017 to 10.4% in 2018 and declined from 6.6% to 5.4% for women.

Notable is the rise in the Entrepreneurial Employee Activity (EEA) rate for women which hit an all-time high of 6.1%, an increase of 2.4% over last year, compared to 9.9% for men, which was only a .8% increase.

New data from GEM this year analyze the share of family ownership and management within start-ups and established businesses by gender. Research shows that nearly all businesses are started with family members funding, working in the business, owning the business or just supporting the new venture. Overall, the share of female ownership for both TEA and established businesses is significantly higher for women. Specifically, women own 75.9% share of start-ups and 78.4% of established businesses compared to 45.9% and 62.1% respectively for men.  When the share that is family managed by males and females is examined, it is found that start-ups share a similar pattern, where 89.5% of females have the share that is family managed (versus 75.1% of males), but the reverse is true for established businesses, where males have 85.3% share of family managed and females have 82.9%. 

An analysis of TEA rate by gender and age shows that, among women, those in the 35-44 age group are most likely to be starting a business (18%). The start-up rate for women has consistently been at the highest rate for the past four years in this age group.  Among men, those in the 35-44 age group are among the most likely to start businesses (22%). In addition, men in the 25-34 age group are also becoming entrepreneurs at the rate of 22%, compared to only 15% of women in the 25-34 age group, which represents the biggest gap (7%).

Generally compared to 2017, the 2018 data indicate an increase in business start-up rates for women in the younger age groups, 25-34 (+3%) and 18-24 (+6%).  It is possible that the increase in educational courses, programs and training targeted to women entrepreneurs might be influencing this upward movement in start-up rates.

In 2018, the perception of opportunities reached a new high, with 74% of men perceiving opportunities and 66% of women.

The GEM data show 62% of men perceive they have the capabilities to start businesses, with 49% of women perceiving they have these capabilities.  This reflects a continuing gap between men and women entrepreneurs (13%), although there is a slight decrease of 3% in this gap since 2017.

A new addition to the GEM U.S. survey is a set of questions about confidence in four categories: (1) dealing with difficult issues, (2) selling or pitching, (3) negotiating with customers or suppliers, and (4) developing the management team.  In only one category - dealing with difficult issues - do women entrepreneurs report less confidence than their male counterparts. This category includes talking to employees who are not doing a good job, responding to customer complaints, or handling an unexpected increase or decrease in business.  For the remaining three out of the four categories, women report their confidence in their skills is comparable to that reported by men.

Entrepreneurial intentions are a precursor to entrepreneurial actions.  Women's intentions rose in 2018 while men's fell.  GEM data for 2018 demonstrates that the gender gap in entrepreneurial intentions is narrowing as the difference between men's and women's intentions is only 1%, which is the smallest gap since 2002.

Knowing an entrepreneur can provide role models and inspire one to consider entrepreneurship.  Historically, men have known more entrepreneurs, the average being 32%-36% for 2014-2017, but in 2018 the number rose to 43%.  Women were less likely to know an entrepreneur, with the percentages being 27%-30% for the same period, but in 2018 the percentage rose to 34%.

Nearly 30% of businesses started by women are in wholesale and retail, with another nearly 20% in health, education, government and social services.  The industries in which women are starting businesses are similar to past years with the highest percentage in wholesale and retail (28.4%), and all but 1% of women's businesses in this category are in fact retail businesses.  This high participation in retail does mark an increase from last year by 7%, indicating that women are continuing to start businesses in the sectors which are already highly populated with women and tend to be most competitive with the lowest entry barriers.

A special topic in the 2018 GEM survey explored participation and activities in the "gig" economy by means of a series of questions regarding business activities using a digital platform (e.g., Task Rabbit, Airbnb, Uber).  Generally, a small percentage of entrepreneurs are receiving income from paid work on a digital platform (8.4% for men and 7.4% for women). Women are more likely to use the digital platform as a source of supplementary income (65.6% for women versus 56.3% for men).

ENTREPRENEURIAL POTENTIAL AND SUPPORT

Entrepreneurial Perceptions
The United States stands out among the high-income economies in having people who both see entrepreneurial opportunities (70%) and perceive that they have the capabilities to pursue them (56%). The former has increased substantially since 2001, with more than twice as many people perceiving good business opportunities around them in 2018, compared to 2001. Capability perceptions, on the other hand, remained stable over this long time period. This suggests that there are people with the skills and confidence for starting business, but there may be conditions that lead to differing perceptions over time about the presence of viable opportunities. Further research could identify the factors that lead to shifts in these beliefs.

Entrepreneurial Affiliations
For all the attention entrepreneurs receive in the United States, with 74% believing entrepreneurs receive frequent media attention, only 39% of working-age adults know an entrepreneur personally, slightly higher than the average for the 30 other high-income economies (37%). This is important because knowing entrepreneurs can provide role models, advisors, co-founders, investors and other means of motivating and supporting this activity. This may indicate the value of mentoring and other programs and events that can provide connections to entrepreneurs.

The Entrepreneurship Ecosystem
The GEM National Expert Survey indicates that conditions for entrepreneurship in the United States are generally positive, especially with respect to access to finance and with respect to cultural and social norms. Low ratings on government policy and programs may indicate the less direct role played by the government in fostering entrepreneurship. Room for improvement can be seen in the low rating for R&D transfer for entrepreneurship.

About Babson College

Babson College is the educator, convener, and thought leader of Entrepreneurship of All Kinds^®. The top-ranked college for entrepreneurship education, Babson is a dynamic living and learning laboratory where students, faculty, and staff work together to address the real-world problems of business and society. We prepare the entrepreneurial leaders our world needs most: those with strong functional knowledge and the skills and vision to navigate change, accommodate ambiguity, surmount complexity, and motivate teams in a common purpose to make a difference in the world, and have an impact on organizations of all sizes and types. As we have for nearly a half-century, Babson continues to advance Entrepreneurial Thought & Action^® as the most positive force on the planet for generating sustainable economic and social value.

About GEM

The Global Entrepreneurship Monitor (GEM) was initiated in 1999 as a joint venture of Babson College and the London Business School.  GEM, now a global consortium of over 500 researchers in its 20^th year of operation, is the largest and most developed research program on entrepreneurship in the world, including data from 100+ economies. GEM is unique because, unlike most entrepreneurship data sets that measure newer and smaller firms, GEM studies the behavior of individuals with respect to starting and managing a business. GEM consortium teams are members of an exclusive research project which provides access to the collective knowledge of some of the world's most renowned researchers and institutions involved in entrepreneurship research. At a time in history when individual entrepreneurial activity may hold the key to transforming the global economy and discouraging ingrained economic disparity in countries with minimal economic opportunity, GEM data has influenced national economic policies and continues to expand its collaborative role.

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