Two weeks ago the Kauffman Foundation, a well-regarded non-profit group that specializes in entrepreneurism, released its annual State of Entrepreneurship report – and at least in one respect, the news is encouraging. The report found that, despite still being below the peak that preceded the Great Recession, private enterprise is rebounding and entrepreneurs are driving a resurgence of business activity in America.
However, most of those entrepreneurs are still mostly old, white men.
Even as the U.S. population is becoming more diverse, the changes in the composition of our entrepreneurs is not reflecting these changes: 80.2 percent are white and 64.5 percent are male (other reports have put the average age of a small business owner at around 50 years old). The Kauffman report found that minorities own half as many businesses as non-minorities and their businesses start smaller and stay smaller mostly due to capital challenges. Women are also half as likely as men to own employer businesses.
There are two other big trends that are affecting entrepreneurship: new businesses are gravitating towards cities and they’re just not employing as many people as before.
For example, in 1977, about 20 percent of businesses were started in rural areas. That number has dropped to about 12 percent. This migration has hurt many non-urban communities. Thanks to automation and technology, more and more companies – like Facebook – are able to achieve $1 billion in annual sales with a fraction of the number of people that similar companies – like Kodak – needed decades ago. More start-ups are needed to make up this gap.
“This needs to be a national wakeup call. The long-term decline in entrepreneurship is eating away at America’s spirit and competitiveness,” said the foundation’s Chief Executive Wendy Guillies in a press release. She’s calling for more government and community support for start-ups and entrepreneurs and is launching a new initiative to identify and help eliminate the barriers that are in the way.
The takeaways? The population is changing but the demographics of today’s small business owners aren’t, start-ups are leaving the heartland and are employing less people. Keep that in mind when you hear reports of a growing U.S. economy. “No one lives in the economy,” the report quoted economics and finance columnist Morgan Housel. “They live in their economy, and the gap between the averages and people’s personal experiences can be wide.”