National Dialogue on
Entrepreneurship

Monday, September 22, 2003

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Global Entrepreneurship Monitor (GEM) Edition

The latest edition of the annual Global Entrepreneurship Monitor (GEM)—National Assessment, United States is out and we’re devoting this issue to some of the implications of the 2002 GEM Report. To access the report, Global Entrepreneurship Monitor:  US National Assessment, 2002, by Heidi Neck, Andrew L. Zacharakis, William D. Bygrave, and Paul D. Reynolds.

The report is jointly sponsored by the Ewing Marion Kauffman Foundation and Babson College.

The Big Picture

Some of the recent data on the entrepreneurial economy have been somewhat positive. The decline in venture capital (VC) investment appears to be slowed, and anecdotal reports indicate lots of interesting start-up activity in a host of sectors. The GEM 2002 Report also includes some cause for optimism.  Thirty- seven percent of surveyed Americans were optimistic about the climate for starting a business.  That figure remains largely unchanged from 2001.  A more important figure concerns the number of Americans currently engaged in creating or growing a business - 10.5 percent.  This is a decline from 2000 levels, but it still ranks the US at the top when compared to other G7 nations.

Canada ranks 2^nd with 8.8 percent of Canadians involved in entrepreneurial activity. Meanwhile, Japan ranks at the bottom of the G7 group with only 1.8 percent of Japanese involved in such activities.   This strong interest in entrepreneurship may be one of the American economy’s “secret weapons.”  While many sectors stagnate, future innovations and great companies are being built in America’s labs, boardrooms, dorm rooms and bedrooms.

Demographic Trends

While overall measures of entrepreneurial activity remain fairly robust, some major demographic differences still persist.  Men still show much higher entrepreneurship rates than women; 1.6 men are involved in entrepreneurial activities for every one woman.  This level has held steady for years, and remains quite close to global averages.  

Education levels continue to be a powerful predictor of interest in high-growth entrepreneurship. Entrepreneurs with less than a high school education expect to remain self-employed while those with graduate degrees expect to grow fast and employ at least 20 people within five years.  These US results differ with the global results where those with lower education levels are more likely to be engaged in entrepreneurial activity.

Regional differences in entrepreneurial activity are quite small.  Entrepreneurship levels in the Southeast (from Delaware down to Florida) are slightly higher than in the Midwest (Illinois, Indiana, Michigan, Ohio, and Wisconsin), but great regional differences do not seem to exist.  However, population density does seem to play an important role. Not surprisingly, urban counties show significantly higher relative levels of entrepreneurial activity when compared to rural counties. The study’s authors speculate that urban residents perceive more business opportunities (and act upon them) than do their rural counterparts. 

Even with these declines in overall funding levels, American entrepreneurs enjoy a huge comparative financing advantage in relation to non-US firms. VC-backed firms in the US receive an average investment of $10.7 million.  The average for firms outside the US is $1.2 million.

The GEM Study concludes by highlight some issues of concern. Two areas deserve special mention. First, the authors call for expanded entrepreneurial training opportunities at colleges and universities. Such training is widely available in business schools, but should also be made available to non-business majors.  Community colleges, historically black colleges and universities, and technical schools should also expand such training offerings.

Policy makers should also consider ways to further informal investing.  As overall VC investment levels drop, informal investors can fill the gap. These investments are especially important for new, less-established businesses, and for women and minority entrepreneurs.

One of the major challenges facing new micro-enterprises is taking the “micro” out of their enterprise.  The founders of potential high-growth companies often have a host of opportunities to interact with peers and develop effective mentoring relationships. This sort of tacit insider knowledge is critical to building a successful business. But, where do microentrepreneurs turn? They traditionally lack extensive business expertise and, thus, their networks don’t include a lot of experienced and successful entrepreneurs. A new San Francisco-based project from the Aspen Institute, MicroMentor, is trying to help. 

MicroMentor is using the Internet to link micro-entrepreneurs with mentors who have succeeded in building successful businesses in the same sector.  For example, a food vendor can get business advice from a successful restaurateur or an experienced IT executive can advise a web designer.  The program started as a pilot with 35 California-based mentors, but demand is skyrocketing.  As a result, MicroMentor is now making a big national push to recruit more mentors. Mentor candidates must have at least five years experience running a successful business, and be willing to commit one hour per week for six months to on-line mentoring.  To volunteer as a mentor or to learn more about the project, visit www.micromentor.org.

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