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Week of June 5 - 11, 2006

Welcome to the National Dialogue on Entrepreneurship, an initiative of the Public Forum Institute made possible by a grant from the Kauffman Foundation of Kansas City. Through NDE-news, we bring you short summaries and analyses of various trends driving the innovation economy. Subscribe now to receive your weekly copy. Archived issues are available online. Links to the day's entrepreneurship stories from across the nation and around the world are posted each weekday on the NDE main page - bookmark it and stay informed about the latest entrepreneurship news.

Home-Based Business Booms

The Small Business Administration’s (SBA) Office of Advocacy has released a new report that puts some hard numbers behind the recent boom in home-based businesses. The Impact of Location on Net Income: A Comparison of Homebased and Non-Homebased Sole Proprietors finds that, not surprisingly, homebased businesses do not make as much money as their counterparts who rent office space. The differences are quite large. Homebased sole proprietors earn 35% of the receipts earned by non-homebased businesses, and have a net income equal to 59% of the net income earned by non-homebased sole proprietors. However, homebased firms do have a higher return on gross revenues (36% vs. 21%), thanks in part to lower operating costs. And while most homebased businesses are quite small in terms of revenue, their overall impact is not at all insignificant. Homebased sole proprietors who take the federal home office tax deduction contribute $102 billion to the US economy. An additional ten million firms (mainly homebased sole proprietors categorized as “all other” for tax purposes) contribute an additional $431 billion.

The May 2006 Small Business Administration Office of Advocacy-sponsored report (No. 275), The Impact of Location on Net Income: A Comparison of Homebased and Non-Homebased Sole Proprietors, by Joanne H. Pratt, can be accessed at: http://www.sba.gov/advo/research/rs275tot.pdf.

Federal Spending in Information Technology Start-Ups Rising

Federal government agencies seem to be doing a better job of spending their information technology (IT) budgets at new start-up companies. This finding comes from new figures recently released by INPUT, a Reston, Virginia-based consultancy. INPUT regularly tracks government IT spending, and its report for the 2nd quarter of 2006 finds that government IT spending with small business grew by 17% when compared to the second quarter of 2005. While the government’s overall IT quarterly spending has remained fairly steady at $11 billion, the amount spent via small-business set-asides is growing. In 2Q 2006, small business IT set-asides reached nearly $1 billion. Several big Air Force and Department of Energy contracts helped drive this increase, but other agencies, especially NASA, are also getting more aggressive about doing business with smaller firms.

To view a summary of INPUT’s 2Q FY06 Federal IT Contract Awards Report, visit http://www.input.com/corp/press/detail.cfm?news=1205. 

Networking Latino Style

Latino business owners are embracing networking in a big way. As with all entrepreneurs, Latino entrepreneurs are tapping their networks to access new customers, partners, and service providers. An article in the May 30, 2006, Washington Post profiles emerging Latino business networks in the Washington DC metro area. Washington is home to 32,000 Hispanic-owned businesses, and these entrepreneurs hail from dozens of countries. They share a common language, cultural connections, and most importantly, a commitment to building exciting businesses. The article profiles several local entrepreneurs, including Jeanette Dove and Marcelo Rocabando, co-founders of Two Mundos magazine (www.twomundos.com).

Access the May 30, 2006 Washington Post article, “Together in Bicultural Business,” by Krissah Williams. Registration is required.

Tax Policy and Self-Employment: Evidence from Germany

Does tax policy affect someone’s decision to become an entrepreneur? While there are lots of opinions on this issue, there is a dearth of solid economic evidence for either side of this debate. New research from Germany may offer some useful insights. In recent years, the German government has introduced several tax reforms designed to spur start-ups. Specifically, the top marginal tax rate was reduced for the self-employed, but this benefit was only extended to “tradesmen” and did not include “free lance professionals” such as doctors, lawyers, or writers. (Note: “Tradesmen” and “Free Lancer” refer to German employment classifications). This distinction creates something of a controlled experiment where researchers could then compare start-up rates between “tradesmen” and “free lancers.” If tax policy does have an effect, one would expect to see a jump in “tradesmen” start-ups. This jump did not occur, as the researchers found few differences in start-up rates between different employment classifications. Instead, demographic characteristics (such as age, gender or education) played a more important role in influencing start-up activity. While the researchers avoid sweeping conclusions, they do note that policymakers seeking to stimulate entrepreneurial activity cannot rely on tax policy alone.

To view the May 2006 Discussion Paper (No. 582) from German Institute for Economic Research, “Income Taxes and Entrepreneurial Choice: Empirical Evidence from Germany,” by Frank M. Fossen and Viktor Steiner, visit http://www.diw.de/deutsch/produkte/publikationen/diskussionspapiere/docs/papers/dp582.pdf.

National Supporter of Entrepreneurship Award

The Ewing Marion Kauffman Foundation is accepting nominations for the Supporter of Entrepreneurship Award, presented each year during the national Ernst & Young Entrepreneur of the Year awards ceremony. Past winners are individuals who have made outstanding contributions to America's entrepreneurial spirit or helped entrepreneurs become more successful. Eligible nominees are individuals who have consistently contributed time, money, encouragement, and/or skill development to further the cause of entrepreneurship. Nominees need not have founded a company (or organization) and may come from the corporate world, non-profit organizations, or any level of academia.

Nominations for 2006 are due on or before June 30, 2006. For additional information, download a copy of the nomination form for the Supporter of Entrepreneurship Award at
http://www.kauffman.org/item.cfm?item=676. 

Note: the form linked directly in last week’s NDE-news has been replaced with an updated form.

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All stories © 2006 The Public Forum Institute
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