Snapshot: Who Are America’s Small Business Entrepreneurs?

February 28, 2013

About one third of America’s entrepreneurs are women, many are between the ages of 30 and 49, and 60 percent spent more than six months working on their business idea before forming their entity.

More than four out of 10 of today’s start-ups were begun by someone who previously launched one.

That’s part of the picture that emerges from a survey of start-ups by LegalZoom and the Ewing Marion Kauffman Foundation. They surveyed 1,431 business owners who formed their companies through LegalZoom in 2012.

The fact that 60 percent took more than six months of study before launching highlights the blurry boundaries between paid employment and self-employment, demonstrating a need for flexibility in public policy in relation to this stage of business creation, according to the researchers.

There are additional lessons for policymakers, according to Dane Stangler, director of research and policy at the Kauffman Foundation.

Forty percent of the respondents reported facing no regulatory or policy barriers at all. “[W]hile this is encouraging, policy issues remain,” said Stangler. “Tax complexity and licensing regulations, as well as continued economic uncertainty, impede many of the entrepreneurs in the survey.”

An analysis of early-stage start-up creation by age group shows that entrepreneurs 30 to 39 and 40 to 49 started businesses at a higher rate than other age groups did; they are responsible for about one quarter of all start-ups. Those ages 50 to 59 founded slightly more than one-fifth while those ages 18 to 29 launched just under one-fifth. The rest were started by people age 60 or more.

Of the entire sample, 57 percent had six or more years of prior industry or work experience before starting their companies and 44 percent had started companies in the past. Of those who had founded companies, 52 percent had started more than one.

Of the 60 percent of respondents who said they faced business difficulties, 45 percent cite lack of access to credit.

Personal funds were by far the most common source of business financing for entrepreneurs, with only 20 percent receiving loans from family members, bank or home equity loans or funds from outside investors.

“With 80 percent of early-stage business owners using personal funds to finance their companies, founders are decidedly willing to take on risk,” said John Suh, CEO of LegalZoom. “However, these business owners need additional financing if they are to succeed in helping drive our economy forward.”

About a third of start-up owners in the survey were women. Although companies that reported higher revenues were far more likely to be owned by men, those run by individuals with higher education levels tended to be woman-owned. Consulting and other service-based businesses dominated the represented industries.

As would be expected of businesses that had operated for a year or less, the companies were small in terms of revenue and employees. Only 10.5 percent had revenues above $100,000, including 18 businesses with revenues greater than $1 million. For 70 percent of the companies, the owner was the only employee. Another 26 percent of the companies had between one and four employees.

“While the survey cannot be considered an entrepreneurship barometer,” Stangler said, “it does provide insights into the makeup and thought processes of startup business owners.”

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