A presentation made by Dr. Norman Walzer and Andy Blanke to the Community Development Society meeting in Cincinnati, Ohio on August 21, 2012.

1. Business Starts and Microenterprises
Characteristics and Trends in the U.S. Midwest
Norman Walzer and Andy Blanke
Presented to
Community Development Society Meetings
Cincinnati, OH
August 21‐25, 2012

2. Presentation Overview
• Entrepreneurship as a Development Strategy
• Types of Entrepreneurs
• Identifying and Supporting Them
• Business Starts in the Midwest
• Importance of Small Businesses in Local Economies
• Who is Involved and Why
• Hypotheses
• Empirical Results
• Implications for Development Strategies
• Who to Target for Services?
• Promising Practices
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3. Why Entrepreneurship Matters
• Microenterprises Major Employment in Rural Counties
• Employment Growth
• Armington & Acs, 2004
• Henderson & Weiler, 2010
• Neumark, Wall & Zhang, 2008
• US Department of Labor, 2012
• Economic Diversification (Woods & Muske, 2007)
• Development Strategy for Rural Areas
• Difficulty Competing with Financial Incentives
• Limited Number of 2nd Stage Companies to Expand
• Need to Retain Population and Youth
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4. Microenterprises in the Midwest
• Microenterprises (AEO)
• 5 or Fewer Employees, Including Owner
• Started with $35,000 or Less in Capital
• Not Access to Traditional Capital Markets
• Nine Midwestern States*
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Average 25.1% of Total County Employment
Range of 10.1% to 69.4%
Effect of Proximity to Metro Areas
Tourism and Recreational Areas
*Illinois, Indiana, Iowa, Kentucky, Michigan, Minnesota, Missouri, Ohio, and Wisconsin.
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5. Microenterprise Employment (2008)*
As Percentage of Private Non‐Farm Employment
Legend
10.12% - 18.73% (193)
18.74 – 23.83 (250)
23.84 – 29.51 (191)
29.52 – 38.21 (160)
38.22 – 69.38 (64)
*Microenterprises have five or fewer employees .
Data Source: Association for Enterprise Opportunity.
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6. Types of Entrepreneurs
• Necessity
• Survival ‐ Supplement Incomes or Have Few Other Alternatives
• Opportunistic
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Aspiring ‐Interested But Have Not Tried Yet
Lifestyle ‐ Pursue Lifestyle or Stay in Community
Growth ‐Grasp Opportunities to Build Wealth
Serial ‐ Create Wealth from Starting‐Selling Businesses
• Common Elements
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Motivation—Dissatisfaction with Job or Boss
Basic Resources
Flexible Schedule
Willingness to Take Risks
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7. Entrepreneurial Populations
• Unemployed
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Necessity
Fairlie, 2010; Ramirez, 1991; Walzer et al., 2007.
• Pre‐Retirees
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Necessity
Goetz & Rupashinga, 2009; Walzer et al., 2007.
• Farmers with Small Acreages
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Lifestyle or Opportunistic
Walzer et al., 2007; Deller, 2011.
• Hispanics
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Necessity or opportunity
Lofstrom & Wang, 2006; Lofstrom, 2011; Sanders & Nee, 1996
• Females 25‐34 Years of Age
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Lifestyle or Necessity
Mayer, 2008; Walzer et al, 2007; Reynolds et al, 2003.
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8. Economic Environment
(Control Factors)
• Housing‐ proxy for wealth (Goetz & Rupashinga, 2009)
• Metro Status (2=Metro; 0=Remote)
• Market for Retail and Services (Armijos et al, 2012; Henderson et al, 2007).
• Spread Technology, Opportunities (Audretsch, 1998; Feldman, 2000).
• Natural Amenities Scale (USDA)
• Attract Creative Class (Johnson & Beale, 2002; Florida, 2002; IIC, inc., 2006;
Reese and Ye, 2011).
• Innovation (Hendersion et al, 2007; Henderson & Weiler, 2010).
• Commuters‐ Have Alternatives to Starting a Business
• Innovation Index (Purdue Center for Regional Development)‐
Proxy for Entrepreneurial Environment
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9. Summary of Variables
9 Midwestern States
Variable
Business Start Rate (2004‐2007)
Entrepreneurship Potential
Percent Female 25‐34, 2000
Percent Change Hispanic, 2004‐2007
Percent Change 55‐64, 2004‐2007
Percentage of Farms < 260 Acres
Unemployment Rate 2004
Economic Scenario
Metro Status (2=Metro; 0=Rural)
Natural Amenity Scale
Innovation Index
Median Value of Owner‐Occupied Housing ($10K)
Population Commuting to Work in Nearby Counties, 2003
Mean
Standard
Deviation
5.86%
2.31
5.91%
27.98%
10.02%
75.80%
5.93%
0.87
20.22
4.71
11.53
1.49
1.78
‐1.66
86.31
$8.06
5.74%
0.50
1.46
4.38
2.66
9.67
(N=850 Counties)
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10. OLS Regression Results
(Dependent variable is Business Startup Rate 2004‐2007)
Independent Variables
Constant
Coefficient
B
‐0.04
t‐value
‐6.58*
Entrepreneurship Potential
Unemployment
2.48E‐5
0.16
5.37*
Pre‐retirees
0.04
0.09
2.59*
Farmers with small acreages
0.03
0.14
3.95*
Growth in Hispanic population
0.01
0.06
2.21*
Females Age 25‐34
0.40
0.15
4.62*
Housing
2.89E‐5
0.33
8.11*
Metro Status (2=Metro; 0=Rural)
2,12E‐5
0.13
4.65*
Natural Amenity Scale
1.94E‐5
0.07
2.15*
Commuters
Innovation Index
‐1.65E‐4
1.48E‐6
‐0.07
0.13
‐2.74*
3.89*
Economic Setting
* = significant at 5%
R2 adj=.486 N =850
SEE = .016 F = 81.4
VIF = 1.97
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11. Examples of Targeted Programs
• Entrepreneurial Training for the Unemployed‐ New Jersey
• http://lwd.dol.state.nj.us/labor/wnjpin/findjob/onestop/ETPU.html
• Boomer Entrepreneur Initiative‐ Broward County, FL
• http://www.flwbc.org/content/view/140/141/
• Rural Enterprise Center‐ Northfield, MN
• http://www.ruralec.com/agripreneur‐training‐approach
http://www.energizingentrepreneurs.org/site/images/research/cp/cs/cs10.pdf
• Latino Economic Development Center‐ Minnesota
• http://ledc‐mn.org/services‐projects.php
• Activate‐ Baltimore County, MD
• http://www.umbc.edu/activate/SageACTiVATE_UMBCImpactStudy2010.pdf
http://www.pathforwardcenter.org/ht/d/sp/i/3374/pid/3374/cat_id/4197
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12. Implications for Development
• Groups to Target With Entrepreneurial Programs
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Females 25‐34 years
Small Farm Groups and Families
Hispanic Populations
Pre‐Retirees
Currently Unemployed
Market Amenities in a Region
Promote Entrepreneurship Regionally
Wealth of Area Matters
Foster Creative Environment
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13. Future Research
• Use More Sophisticated Technique
• Refine the Business Start Model
• More on Entrepreneurship Development Characteristics
• Examine Starts by Business Sector
• Introduce Incentives
• Estimate Variables Associated with Closures
• Explore Determinants of Survival Rates
• Local Economic Conditions
• Socioeconomic and Business Factors
• Examine Successful Outreach Programs
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14. For Further Information
Norman Walzer
Andy Blanke
Senior Research Scholar
Research Assistant
Center for Governmental Studies
Northern Illinois University
DeKalb, IL 60115
815‐753‐0933
Center for Governmental Studies
Northern Illinois University
DeKalb, IL 60115
815‐753‐1569
Nwalzer@niu.edu
Ablanke@niu.edu
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