The Entrepreneurial Mind

The self-employed entrepreneurs have gotten a lot of attention since a recent Census Bureau study shows their numbers at about 19.5 million in the US.

A new study just released today by Babson and their GEM reports, gives us a comprehensive picture of the other end of the spectrum: the high-potential entrepreneurs.

Some highlights:

- Nine out of ten U.S. entrepreneurs are "opportunity entrepreneurs"; only one in ten U.S. entrepreneurs start a new business out of necessity, where there are no better choices for work. This is an interesting finding in that it applies to all entrepreneurs. The myth is that most of the self-employed are that way because of circumstance. This study seems to indicate that most entrepreneurs are actively seeking opportunity rather than doing something to pass the time between jobs.

- U.S. entrepreneurs are very good at building high levels of 'dynamism' -- the ratio of early-stage entrepreneurship to established business ownership. Thus, the U.S. has more early-stage and high-expectation entrepreneurship, greater investment rates, and an overall healthier economy than other countries.

- Expectations of new job creation from start-ups and established businesses hit record levels in 2005. There are significantly higher numbers of start-ups and new business owners providing jobs compared to 2003 and 2004. This positive trend indicates a favorable change in the U.S. business environment towards more and larger, new businesses. This differs a little with the most recent NFIB survey, which shows a softening of employment in entrepreneurial ventures. But, the NFIB surveys mostly smaller firms and is done monthly, so it can be more variable.

- Internet-related companies are the current investment darlings of VC firms. No new industry has attracted more attention from entrepreneurs, VCs, and public investors. In 2004, U.S. VC firms invested $21 billion -- up from $4.2 billion in 1994, and the number of companies increased from 961 to 2,399. Yet despite these figures, it is informal investing that fuels the start-up and early-stage companies in this country.

- U.S. high-potential entrepreneurs need $70,200 to start a business. This is higher than the overall start-up funding amount of $6,800 from previous studies of all entrepreneurs. Entrepreneurs contribute 67.9% of that amount to their ventures. Informal capital -- $92.7 billion in about 3.3 million companies at $27,100 per company -- is sufficient to meet the demand of investors in the US.

So who are these high-potential entrepreneurs? The study seems to find a rather swaggering young bunch. They are mostly young males who grew up in upper income groups, think they are different than other people, with almost no fear of failure, and who are good at creating needed social networks including angel investors. An interesting finding is that most believe they have no competitors -- a dangerous way to think for any entrepreneur.

The report's recommendations are similar to those that you read here on a regular basis:

A vibrant entrepreneurial economy will keep the country competitive with new global challengers like China and India. Entrepreneurship also offers immigrants a valid means to thrive in the U.S....U.S. policymakers are strong supporters of entrepreneurship and must continue to remove legal barriers, work on tax reforms, and deliver financial innovations and university research incentives.