Analysis

Why this is a great time to launch a start-up

America's start-up culture is ascendant once again

America's start-up culture is waking up from its post-recession slumber.

New business creation has long been sluggish compared with previous decades. In 2013, it hit a 20-year low. But since then, the pace of start-up creation has climbed for two years running, according to a study by the Ewing Marion Kauffman Foundation, and is approaching levels not seen since before the recession, in 2008 and 2009. Significantly, new entrepreneurs are opening up shop not because of necessity — in other words, not because they were previously unemployed and needed income — but because they see an opportunity that previously didn't exist.

"They're pursuing an opportunity that's better than staying at their organization and at salaried jobs," Dane Stangler, vice president of research and policy for the Kauffman Foundation, told USA Today. Stangler also noted that the current crop of entrepreneurs is more likely to form a business based on a viable idea and not an indulgent whim, increasing the chances that the businesses will succeed and last longer.

The Kauffman Foundation analyzes startup activity in the U.S. on an annual basis, looking at data nationally, by state, and for the 40 largest metropolitan areas. The latest series of in-depth reports paints a cautiously optimistic picture of a new business culture on the rebound. About 330 out of every 100,000 adults in the U.S. became new entrepreneurs in 2015, as compared with 310 in 2014 and 280 in 2013. Approximately 550,000 new businesses were launched each month last year, on average, up from 466,000 in 2013.

The key measure identifying so-called opportunity entrepreneurs found that 84 percent of new entrepreneurs were not unemployed or looking for a job prior to launching their business.

Demographically, this cohort of new business owners is heavily minority driven, with African Americans, Latinos, Asians, and other minorities accounting for 40 percent of new entrepreneurs in 2015. Taking the longer view, Latinos in particular have become a force; in 2015 they accounted for almost 21 percent of new business owners, as compared with 10 percent in 1996 (this reflects not only rising rates of entrepreneurship but a growing share of the overall U.S. population). In that same time frame, entrepreneurship among whites dropped from approximately 77 percent to 61 percent.

The group also tips toward men, who accounted for about 59 percent of new business owners in 2015. However, the rate of female entrepreneurs did see its biggest year-over-year increase in almost two decades; in a given month, 260 out of 100,000 women became new entrepreneurs in 2015, up from 220 out of 100,000 women the year before. (For comparison, 420 out of every 100,000 men became new entrepreneurs in 2015, up from 410 out of 100,000.)

The new entrepreneurs are also fairly evenly spread among age groups — around 25 percent are in the 20-to-34 age group, with another quarter 35 to 44, another quarter 45 to 54, and the final fourth 55 to 64. That's a big change from about a decade ago, when the largest segment of new entrepreneurs was in the 20-to-34 range (roughly 34 percent) and the 55-to-64 group accounted for only about 15 percent of activity.

Among the biggest 25 states, Texas, Florida, California, New York, and Colorado had the most start-up activity. Montana, Nevada, Wyoming, Oklahoma, and Alaska topped the rankings among the smaller 25 states. All told, 30 states saw increases in new business activity in 2015 as compared with 2014.

Looking at cities specifically, Austin headlined the list, followed by Miami, Los Angeles, San Francisco, and Las Vegas. Twenty-three of the 40 metropolitan areas studied saw an increase in the number of new companies.

The reasons behind the rebound in start-up activity are varied, said Gene Marks in The Washington Post: "The economy continues to slowly grow. Plenty of capital is available. Technology is inexpensive and powerful. And many states and cities are reaching out with incentives to attract younger companies." Many of those factors translate to lower start-up costs.

Then there's the entrepreneurs themselves, who are generating and pursuing ideas across an increasingly diverse spectrum. "Three years ago everyone wanted to make an app," Nathaniel Kelner, assistant director of Columbia University's entrepreneurship office, told The Week. "Today those same people are pitching ideas that are direct-to-consumer, like clothing or cold brew coffee or handcrafted boots. Maybe the businesses are tech-enabled or have a Warby Parker-like model. But people are seeing entrepreneurship more as a path where you can do everything; it doesn't have to be just technology."

The changing entrepreneurial culture also plays a role. The advent of accelerator programs and incubators allow for shared workspaces where people can receive mentoring, network, learn from one another, and generally feel part of a community. Kelner pointed to the Columbia Startup Lab, in New York City, as a prime example. It houses 71 entrepreneurs and is open to alumni from five of the university's schools. "If you go to it, you'll just see," he said. "It's buzzing. Entrepreneurship is the cultural zeitgeist."

Take note, all you back-of-the-napkin scribblers and a-ha idea generators. It's time to stop dreaming and start doing.

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