Recession Hammers U.S. Entrepreneurs According to Global Entrepreneurship Monitor Research

WELLESLEY, Mass., Sept. 15 /PRNewswire-USNewswire/ -- U.S. entrepreneurial activity fell significantly from 10.6% in 2005 to 6.9% in 2009, according to the "Global Entrepreneurship Monitor (GEM) 2009 National Entrepreneurial Assessment for the United States of America," conducted by Babson College and Baruch College.

While fewer businesses are starting up, the good news is that survival rates among new ventures—more than 42 months in operation—are rising. GEM speculates that better capitalization has contributed to their sustainability.

The steep decline in U.S. entrepreneurial activity translated also to established businesses, as those declined by 26% (7.7% to 5.7%). The rate of entrepreneurs closing shop was unchanged in 2009.

All over the U.S. necessity-driven entrepreneurship increased while rates of high-growth potential ventures weakened.

All four types of entrepreneurs suffered during the deepest phase of the crisis in 2008-9: 

• Early-stage fell from 8.7% to 6.9%;
• Established declined from 7.7% to 5.7%;
• Opportunity-driven declined from 7.2% to 4.8%. 
• Only necessity-driven entrepreneurs increased. (As the economy sheds jobs, more individuals start businesses to sustain themselves.)

GEM found glimmers of hope, however, in the slow-down of business closings among non-Caucasian entrepreneurs.

Key U.S. Findings:

• Midwest bears greatest hardship—Its early-stage entrepreneurship dropped from 7.4% to 4.8%, and owner-managed businesses—less than 42 months old—fell from 3.2% to 1.4%.  Non-Caucasian entrepreneurs suffered disproportionately. Their early-stage activity fell considerably from 17.9% in 2008 to 5.3% in 2009.
• Fewer closing—Nationwide in 2008, 2.9% of non-Caucasian entrepreneurs shuttered their businesses compared to 1.4% in 2009.
• Pessimism is heightened—In 2009, U.S. early-stage and established entrepreneurs uniformly rated the entrepreneurial climate negative with few business opportunities, even as GEM's 'national experts' perceived the existence of 'good opportunities to create new firms' markedly on the rise.
• Some industries fare better—Entrepreneurship activity among extractive and transforming industries changed little between 2008 and 2009, while business services experienced the greatest declines. Activity in the consumer sector actually increased in both early-stage (from 35.9% to 41.1%) and established businesses (32.8% to 34.3%), perhaps because of  low capital and technical training requirements needed for these businesses.
• Drop in innovation—2009 saw declines in new products and services, and declines in innovation were deeper for established businesses (25.7% of entrepreneurs reported developing innovative products in 2009, the corresponding number for established businesses is 9.9%).  Early-stagers are more innovative and GEM speculates they will be better positioned coming out of the crisis.
• U.S. still innovation leader—Of innovation-driven economies, the U.S. is among the countries with the highest rates for emerging (nascent) entrepreneurial activity and holds a higher average rate among nascent and new firm (3-43 months in business) economies. 
• Hard to startup, easy to establish—GEM found that starting a business in the U.S. was more difficult in general than growing an existing business.  The U.S. discontinuation rate is slightly higher than the average for innovation-driven countries in 2009—probably due to fewer opportunities in finding alternative sources of income during the recession.
• Internet entrepreneurs—Early-stage entrepreneurs reported starting out as an Internet business 18% of the time in 2009 compared to 2.3% a year earlier.
• Rising interest in social entrepreneurship—GEM found an increasing interest in social entrepreneurship as an approach to business start-up and growth, and in 2009, social entrepreneurship continues to capture the imagination of the world.
• Funding falls—Informal investment in entrepreneurs from the so-called 3Fs—Family, Friends, and Foolhardy strangers—continued to fall in 2009.  The U.S. prevalence rate was the third lowest since 1999 when GEM began its annual surveys. 2008 and 2009 were also the weakest market years for Initial Public Offerings (IPOs) since 1980 almost 30 years ago.
• Clean Technology attracts Venture Capital—With the amount invested increasing ten-fold from $0.4 billion in 2004 to $4.1 billion in 2008.  Investment fell though in 2009 along with VC investment in general.
• Gender gap narrows—In 2008, the gender gap decreased between male and female prevalence rates among entrepreneurs. In 2009, both male and female prevalence rates declined with the gap remaining essentially unchanged.
• Up-Tick in dynamism—In 2009, the U.S. dynamism rate (ratio of early-stage entrepreneurs to established businesses) experienced a slight up-tick from 2008.

View the press release at: http://www3.babson.edu/Newsroom/Releases/US-GEM-report-with-Julio.cfm.

For full report visit:  http://www3.babson.edu/ESHIP/research-publications/gem.cfm

About GEM U.S. Team

In January 2008, Babson College invited Baruch College to join the GEM United States Team.  The partnership brings together the expertise from the Arthur M. Blank Center for Entrepreneurship at Babson with that from the Lawrence N. Field Center for Entrepreneurship at Baruch College, specifically around minority and immigrant entrepreneurship.

SOURCE Babson College