What’s Going On With MWBE Ownership Trends?

Just as we learn that job creation is at a 29 year low, the Kauffman Foundation’s 2010 report on new US business startups shows a 12% increase since 2007 when about 495,000 new businesses were established each month.  The latest report is 565,000 new businesses each month or about 6,780,000 in 2010. I’ve been following the Kauffman Foundation for a number of years.  I learned about this marvelous organization while serving on an entrepreneurial committee at Chatham University, when we began hosting interns.    

During 2007 I worked on a business plan that quoted from their 2007 report:

• In 2007, an average of 0.30 percent of the adult population (or three hundred out of one hundred thousand adults) created a new business each month, representing approximately four hundred ninety-five thousand new businesses per month.  This entrepreneurial activity rate is a slight increase over the 2006 rate of 0.29 percent.  
• The entrepreneurial activity rate for men increased from 0.35 percent in 2006 to 0.41 percent in 2007. In contrast, the Kauffman Index for women declined from 0.23 percent to 0.20 percent.  
• The entrepreneurial activity rate among Latinos increased from 0.33 percent in 2006 to 0.40 percent in 2007, the largest increase for any major ethnic or racial group.  
• Non-Latino white and African-American business creation rates increased slightly from 2006 to 2007 (0.29 percent to 0.30 percent and 0.22 percent to 0.23 percent, respectively), and Asian entrepreneurship rates declined (0.32 percent to 0.29 percent).  
• The immigrant entrepreneurial activity rate increased sharply from 0.37 percent in 2006 to 0.46 percent in 2007. In previous years, immigrants were more likely to start businesses than were the native-born; they are now substantially more likely to start businesses.

Here’s what the current research shows:

• Entrepreneurship rates by race show that Latinos experienced the largest entrepreneurial activity increase between 2009 and 2010. The Latino business-creation rate rose from 0.46 percent in 2009 to 0.56 percent in 2010, the highest rate over the 15 years of Index data. The Asian entrepreneurial activity rate increased from 0.31 percent in 2009 to 0.37 percent in 2010, also the highest rate in the past decade and a half. Both African-Americans and non-Latino whites, on the other hand, experienced declines in entrepreneurial activity rates.
• Entrepreneurship growth was highest among 35- to 44-year-olds, rising from 0.35 in 2008 to 0.40 in 2009. The oldest age group in the study (55-64 years) also experienced a large increase in business-creation rates from 2008 to 2009, contributing to a two-year upward trend to 0.40.
• The immigrant rate of entrepreneurial activity increased substantially – from 0.51 percent in 2009 to 0.62 percent in 2010 – and declined slightly for the native-born. This increase expanded the large positive gap that already existed between immigrant and native-born entrepreneurial activity rates. 
• A growing immigrant population and rising entrepreneurship rate contributed to a rise in the share of new entrepreneurs that are immigrant, from 13.4 percent in 1996 to 29.5 percent in 2010.
• Entrepreneurial activity increased slightly for men and decreased slightly for women. For men, the entrepreneurial activity rate increased from 0.43 percent in 2009 to 0.44 percent in 2010. The female entrepreneurship rate decreased from 0.25 percent to 0.24 percent.
• The African-American entrepreneurial activity rate decreased from 0.27 percent in 2009 to 0.24 percent in 2010. The white entrepreneurial activity rate decreased from 0.33 percent to 0.31 percent.
• The entrepreneurship index was highest among the least-educated group, moving from 0.49 percent in 2009 to 0.59 percent in 2010, suggesting an increased number of people entering entrepreneurship out of necessity. The largest decrease in entrepreneurial activity occurred for high school graduates.

Though counterintuitive, the growth of entrepreneurship is not surprising because there is a history of creativity in the midst of recession. There have been over 30 recessions in the United States since the early 1800s. An entire Wikipedia page lists them all. At INSIDECRM, Sarah Caron’s article 14 Big Businesses That Started in a Recession includes names like Microsoft, FedEx and Burger King. In 2009, Small Business Labs posted three articles about the current recession driving new business. While at Small Business Trends, Scott Shane explains how to interpret data about recession startups.

Recessions are a natural part of the business cycle. As the proverb says, what goes up must come down. Conversely, opportunities occur during recovery and the eventual upswing of this cycle. Ideally you can position your MWBE business to survive the recession and take advantage of the next recovery.