Business Starts and Microenterprises Characteristics and Trends in the U.S. Midwest
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A presentation made by Dr. Norman Walzer and Andy Blanke to the Community Development Society meeting in Cincinnati, Ohio on August 21, 2012.
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Business Starts and Microenterprises Characteristics and Trends in the U.S. Midwest
- 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 2
- 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 3
- 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* • • • • 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. 4
- 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. 5
- 6. Types of Entrepreneurs • Necessity • Survival ‐ Supplement Incomes or Have Few Other Alternatives • Opportunistic • • • • 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 • • • • Motivation—Dissatisfaction with Job or Boss Basic Resources Flexible Schedule Willingness to Take Risks 6
- 7. Entrepreneurial Populations • Unemployed • • Necessity Fairlie, 2010; Ramirez, 1991; Walzer et al., 2007. • Pre‐Retirees • • Necessity Goetz & Rupashinga, 2009; Walzer et al., 2007. • Farmers with Small Acreages • • Lifestyle or Opportunistic Walzer et al., 2007; Deller, 2011. • Hispanics • • Necessity or opportunity Lofstrom & Wang, 2006; Lofstrom, 2011; Sanders & Nee, 1996 • Females 25‐34 Years of Age • • Lifestyle or Necessity Mayer, 2008; Walzer et al, 2007; Reynolds et al, 2003. 7
- 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 8
- 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) 9
- 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 11
- 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 13