Small businesses starting out of necessity are on the rise in recent years compared to those that are launched based on deliberate, strategic planning and a new idea, a new survey suggests.
A survey from the Global Entrepreneurship Monitor (GEM), a not-for-profit academic research consortium that focuses on entrepreneurial activity around the world, shows that necessity entrepreneurship—businesses started by people who have lost their jobs and are unable to find employment—increased from 2005 to 2009, while the rate of nascent entrepreneurship—individuals deliberately planning to launch a business—has been declining.
The number of fledgling entrepreneurs reporting that their product is new on the market, has few competitors, has an international orientation or will create jobs in the future has also been on the decline, according to the U.S. Small Business Administration's Small Business Advocate.
The uncertain economy will lead the "best and brightest" to continue opening new firms but they will be practicing unproductive entrepreneurship, which will not help spur the economy, wrote Zoltan Acs in the Small Business Advocate.
"Unless Americans are willing and able to become high-impact entrepreneurs, we cannot compete in the global economy, innovate to create growth, or reduce unemployment," according to Acs.
The Kauffman Index of Entrepreneurial Activity, a leading index of new business creation in the United States produced by the Ewing Marion Kaufman Foundation and based on federal data, indicates that the number of startups launched in 2009 reached record highs, even exceeding the number of businesses started during the peak technology boom in 1999 and 2000. But the Index also indicates that most of these startups have been by necessity entrepreneurs—most of which are self-employed and do not hire workers.
Acs, editor and co-founder of Small Business Economics and chief economist for the Office of Advocacy, explained that many of these solo entrepreneurs are not experiencing entrepreneurial aspiration, or becoming inspired to produce the "next new big idea" for high-impact entrepreneurial ventures.
"While a million new self-employed are helping lower unemployment and keep their own heads above water, it will also take a few hundred thousand high-impact firms to renew our economy's momentum," Acs added.
To view the full article from the Small Business Advocate, download the July 2010 edition here.
