business starts and microenterprises characteristics and trends in the u.s. midwest

Business Starts and MicroenterprisesCharacteristics and Trends in the U.S. Midwest 

Norman Walzer and Andy Blanke

Presented to

Community Development Society MeetingsCincinnati, OH

August 21‐25, 2012

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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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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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.

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Microenterprise Employment (2008)*As Percentage of Private Non‐Farm Employment

*Microenterprises have five or fewer employees .Data Source: Association for Enterprise Opportunity.

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)

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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

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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.  

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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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Summary of Variables9 Midwestern States 

Variable Mean Standard Deviation

Business Start Rate (2004‐2007) 5.86% 2.31Entrepreneurship PotentialPercent Female 25‐34, 2000 5.91% 0.87Percent Change Hispanic, 2004‐2007 27.98% 20.22Percent Change 55‐64, 2004‐2007 10.02% 4.71Percentage of Farms  < 260 Acres 75.80% 11.53Unemployment Rate 2004 5.93% 1.49

Economic ScenarioMetro Status (2=Metro; 0=Rural) 1.78 0.50Natural Amenity Scale ‐1.66 1.46Innovation Index 86.31 4.38Median Value of Owner‐Occupied Housing ($10K) $8.06 2.66Population Commuting to Work in Nearby Counties, 2003 5.74% 9.67

(N=850 Counties)

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OLS Regression Results(Dependent variable is Business Startup Rate 2004‐2007)

Independent Variables   Coefficient B t‐valueConstant ‐0.04 ‐6.58*Entrepreneurship PotentialUnemployment  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*

Economic SettingHousing 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 ‐1.65E‐4 ‐0.07 ‐2.74*Innovation Index 1.48E‐6 0.13 3.89*

R2 adj=.486  N =850SEE = .016   F = 81.4VIF = 1.97

* = significant at 5%

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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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Implications for Development

• Groups to Target  With Entrepreneurial Programs

• 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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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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For Further Information

Norman Walzer Andy  Blanke

Senior Research Scholar Research AssistantCenter for Governmental Studies Center for Governmental StudiesNorthern Illinois University Northern Illinois UniversityDeKalb, IL 60115 DeKalb, IL 60115815‐753‐0933 815‐753‐1569

Nwalzer@niu.edu Ablanke@niu.edu

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