Raising Capital

A New Index Shows Main Street Entrepreneurship on the Rise

Locavesting Staff | December 11, 2015

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It was a good year for Main Street entrepreneurs. A new Kauffman Foundation index of small business entrepreneurial activity showed a large increase in 2015, marking the first big gains since the onset of the financial crisis six years ago.

The Ewing Marion Kauffman Foundation has long been a champion of entrepreneurship, especially the kind of high growth startups create gazelles, unicorns and other celebrated beasts that populate the nation’s tech centers. But the Kansas City-based foundation has recently turned it attention to a more prosaic group of entrepreneurs: those that create and run Main Street-type businesses in towns and communities across the U.S.

While these firms may never have the impact of, say, a Google or an Uber, they’re an important force, accounting for two-thirds of all U.S. firms and employing some 24 million workers.

The Kauffman Index: Main Street Entrepreneurship attempts to understand prevalence of local small businesses— defined as a business with fewer than fifty employees and in existence for longer than five years.

“We’re very glad that the Kauffman Foundation is looking at the whole small business economy,” said John Arensmeyer, founder & CEO of The Small Business Majority. “This report is a valuable tool for understanding the nature of America’s 28 million small businesses, the anchors of job creation and the fabric of our communities.”

Business-OwnersThe index seeks to paint a broad-brush picture of Main Street business through two metrics: the rate of business ownership in the economy (the annual percentage of adults owning businesses), and established small business density (the ratio of established small employer businesses to the person population in the economy).  The foundation then breaks those numbers down into national, state and city-level views.

The growth of Main Street entrepreneurial activity was driven by established micro-enterprises, that is, employer businesses operating for more than five years with fewer than ten employees. These firms grew by 3.6% over the past year, compared 1.2% growth for all other established businesses.

The study also revealed interesting if not altogether surprising data about small business ownership. For example, men are more than twice as likely as women to own a small business, and many small business owners have college degrees. They are also becoming increasingly ethnically diverse, with 28 percent of business owners being African American, Latino or Asian and other non-white business owners (although African Americans still generally trail other groups).

Related: Closing the Racial Wealth Gap Through Business Ownership

In addition, immigrants now comprise more than 20 percent of all small business owners, the highest rate yet.

Kaufman small business stats

Main Street entrepreneurship activity was higher in 49 of the 50 states in the 2015 index when compared to the 2014 index—Tennessee was the only state that did not see gains.

Among large population states, which tend to be more urban, Minnesota, Colorado, Massachusetts, New York and New Jersey had the most Main Street entrepreneurial activity. Among less populous states, Vermont, Montana, North Dakota, South Dakota and Wyoming topped the list.

How did your state do? Read the full report here (pdf).

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