Apologies to my readers as I’ve been an absent blogger for the last couple of weeks with other work priorities.  But it’s exciting that I’ve only been absent a couple of weeks and there is so much to update on regarding entrepreneurship and innovation data!  So, I hope to catch up on postings in the coming week.

One of the biggest data releases of the year is a new series from the Bureau of Labor Statistics.  This is an extension of their population Business Employment Dynamics but one that adds more detail on two important measures – business age and survival – into their publically available series.  Dive into the data or read their overview of the release.

I plan to spend more time with this data in the next few weeks as it fits nicely into a paper I am writing.  For the time being, I looked at the data mostly to see if there was anything that looked really off or significantly different from a similar data release from the Census Bureau and I am pleased to not have many problems to report.  Perhaps the table that I found of most interest employment in surviving establishments.  BLS has done an outstanding job of presenting the data in a logical manner so that each cohort of establishments can be followed over time without difficulty.  So with this perspective, it becomes easy to see that on average after more than 15 years, only about a quarter of establishments are surviving but that these establishments have grown in employment over time from an average of 7 to about 17 employees.

The BLS release of this data continues a trend at U.S. statistical agencies to add age as a component of ongoing business measurement and public release.  It's a very exciting trend to see continuing and should bring more research in this area.  Also of note in the last few weeks on this topic is the publication of a "Who Creates Jobs? Small v.s Large vs. Young" by Haltiwanger, Jarmin, and Miranda.  This is a good overview of why looking at business age as a component of analysis in government data is an important issue when studying job creation. 

I should note that this is establishment data – not firm level data – so it doesn’t match perfectly with Census in that regard and will include both new companies and new locations of existing companies.   

Where do you place your confidence?  Government, private business, newspapers?  Gallup has an annual Confidence in Institutions Index which has been tracking a very similar question back to the 1970s.  Today they released an update for July 2010.  While the headline numbers are mostly about confidence in Congress (ouch - 11 percent) and the Presidency (down 15 percent in a year), what always strikes me in this research is how difference small business and big business are rated.  In 2010, when asked "Now I am going to read you a list of institutions in American society.  Please tell me how much confience you, yourself, have in each one -- a great deal, quite a lot, some, or very little?," the second highest response in terms of confidence was small business with 66 percent while big business was scraping near the bottom with 19 percent confidence.

In a survey of youth in 2007 (and actually in earlier iterations), we ask a somewhat similar question, "How much do the following help make your community a better place?"  More details on the survey available online but I don't think we published these tables broadly.

	A lot	A little	Not at all
Small Business	32%	59%	9%
Big Business	22%	57%	22%
Government	19%	57%	24%
Individual People	55%	40%	5%

We are in the field with an update to this youth survey so we'll see how some of these things have changed among America's youth in the last three years.  In comparing the two questions and populations, it's interesting to see the only group the youth tended to have different views of in comparison to ther others is the role that individual people play in making their community a better place.  While I realize the phrasing of the two questions is different - confidence vs. making community a better place - I would argue that the two questions really are trying to get at similar things.  While Gallup doesn't include individuals in their categories (as they really aren't institutions), it looks to me on reading that some of the confidence that adults might have in small business is really a confidence in the power of individuals.  Additionally, it looks like the conception of small business being different from big business is something which must emerge after youth.  

I had a great conversation with Carol Corrado at the Conference Board last week in the neighborhood of this topic that was sparked by a Business Week article and some responses from colleagues/grantees at Kauffman.  I'm not going to jump into that full discussion but the thing I did want to raise with my post here is that there is no doubt that both small and big business play important roles in the U.S. economy, indeed wealth creation can only come through private businesses.  Carol's point, I think, was that we really don't have a fully-conceptualized picture of the roles, particular how big business is often supportive of small business.  I won't dispute that (and I hope our data infrastructures and conceptualizations can continue to advance so that these questions can be quantified).  But the polling continues to show the picture people get when thinking about the little guy is very different than when thinking about big business. 

As a follow-up to my post yesterday on current trends in entrepreneurship in the U.S., I wanted to highlight another new report available - the Survey of Business Owners (SBO) 2007.  While this is not a particularly timely report, it is a deep report, bringing us our best snapshot of U.S. businesses by demographic once every five years.  While the SBO has a varied release schedule for reports with many more forthcoming, what came out recently was new data on ownership by gender and race.  My reaction to the report would fall very close to my colleague Alicia Robb's, which was summarized in a recent Business Week article - it's great to see some growth in the numbers of businesses but extremely troubling to see where the growth is occurring and the many areas of continued lag.


Source: http://www.businessweek.com/smallbiz/content/jul2010/sb20100716_503885.htm

This graphic from Bloomberg captures two things in particular 1) we are seeing growth in numbers of minority businesses, almost all in non-employer businesses and 2) the growth in minority-business ownership is dwarfing growth in non-minority firms.  BUT staggering levels of discrepancy in terms of lacking larger minority-owned businesses remains mostly intact.  In other work from the Kauffman Index, we have shown that the nature of those entering entrepreneurship has changed greatly in the last decade, partly by propensity and partly by changing population demographics.  The SBO report doesn't get into the changing population demographic, which I suspect is driving the change in the Hispanic numbers in the report but can't be seen as a driver of the large increase in Black-owned businesses.

As for trends with women-owned businesses, in 2007, there were 911,285 women-owned employer firms with 7.6 million persons employed and total payroll of $218.1 billion.  This is an increase of 6.2 percent and 25.7 percent respectively from 2002. This compares to 3.2 million men-owned employer firms that employed 41.6 million persons with a total payroll of $1.5 trillion.  I hate to be a pessimist but given how integrated, educated, and a part of all economic life that women are today, these are numbers that have to change faster.  There is no reason we should still be seeing women's employer businesses averaging 8 employees while male-owned firms are averaging 13 employees.

The Census Bureau now has within its grasp the data infrastructure to produce annual data updates on these statistics of business owners by demographic.  It absolutely should do so.  Without more frequent updates on these trends I fear efforts to create more minority and women's employer businesses will never gain traction.  There remains a great deal of untapped economic potential in the disparate levels of minority and women's businesses. 

The Challenger Job Market Index, a quarterly survey of approximately 3,000 job seekers, was out today with some new info on 2010 transitions into entrepreneurship.  It is surprising in that it reports a sizable decline in entry into business ownership in the first half of 2010, with only 3.7 percent of their sample opting to start their own business (down from 7.6 percent in the first half of 2009 and 9.6 over the last two quarters of 2009).

The natural question here is what does this all mean when put up to other statistics currently available?  Certainly a decline like this is not a positive development since it shows about the lowest rate of start-up activity in this survey since Challenger began collecting it (see related post by a colleague showing historic trends).  But at a time when job seekers are seeing record lengths of long-term unemployment and are likely very financially constrained, I can’t say that I am entirely surprised to see a decline in the percentage of the unemployed who are seeking other forms of employment besides starting their own business.  I think the press release from Challenger rightly identifies some of the opportunities this group might be facing as hiring has eased with existing employers and things like the credit crunch in lending. 

But do we expect to see a drop of half in the rate of new business formations in 2010?  No.  The latest data we have from the Kauffman Index which goes through December 2009 shows increasing rates of households reporting entry into entrepreneurship and as we’ve been documenting in other recent reports, many rates of entrepreneurship seem to be extremely steady.  What I wouldn’t be surprised to see in new data coming out on 2009 and 2010 is a moderate decline in employer business formations.  I expect these declines looking at trends from the Bureau of Labor Statistics or other not yet published leading indicators collected by the World Bank.  But a 50 percent decline has never been seen in government data collected on this topic in the United States. 

There is little doubt that when taken on the whole that there is an increase in necessity entrepreneurship and a possible decline in opportunity-driven entrepreneurship in the U.S. currently.  We’ll continue to look into these things more in the coming months in new papers in our Kauffman series on this topic, but the real question which we can’t answer currently is if there are new transformational companies being born today, as my colleague Dane Stangler has shown has occurred in past downturns. 

I’ll just end with a call for all my federal statistical agency colleagues to redouble the effort to get some more timely indicators on new business formation.  BLS currently leads the way with their BED and CPS-based statistics but I know Census is considering some new monthly measures and I suspect something similar might be possible at BLS. 

Let me preface this post by saying I am not a macro guy.  I get the national accounts, but only so far.  But I understand the concept that we are misconceptualizing our national output by not recognizing that R&D investments are longer-term investments and should be capitalized. 

The Bureau of Economic Analysis has a new data release looking at revised GDP estimates through 2007 if R&D investments were capitalized (which it has not been in the past).  The biggest thing that stood out to me in their analysis was this: "Biotechnology and information, communication, and technology (ICT) industries accounted for four-fifths of the business sector’s R&D contribution to GDP growth between 1998 and 2007."  While ICT is a usual suspect in driving growth during this period, I hadn't expected to see the significant growth in biotechnology.  This makes me think back to some recent testimony from a colleague, Lesa Mitchell, which included a section on the seemingly sad returns to recent investments in life sciences research. 

More detailed information about the 2010 R&D Satellite Account will be available in an article in the Survey of Current Business later this year.  The article will describe the satellite account in more detail and will include statistics for R&D-intensive industries for 1987-2007, as well as statistics for the regional and international accounts.

This month, Kauffman's Ideas at Work features an article by me highlighting some of the key successes and learnings from our work to improve data over the last decade.  Take a look. 

Still lots of interest in small business financing information but to date no U.S. statistical agencies are stepping up to the plate to replace the Federal Reserve's cancellation of the Survey of Small Business Finance (Rebel Cole has an interesting piece out today using this data for the SBA).  John Tozzi has an article reviewing small business lending data in the U.S. for Bloomberg Businessweek.  And, lastly, the G-20 SME Finance Working Group on Data has preliminary outcome steps from a recent meeting of experts. 

The National Science Foundation (NSF) has an exciting new survey in the works on microbusiness innovation (which was featured at our recent Kauffman Interagency Forum on Entrepreneurship and Innovation Data).  They are seeking interested contributors to the development of this work. 

Tuesday I will be a discussant at the National Academies’ Committee on National Statistics workshop in Washington, DC, looking at how to facilitate innovation in federal statistics.  It’s a topic I am passionate about and unfortunately it’s an area of interest where we often feel like soloists rather than members of a choir.  As we raise our calls for improvement and the need to better measure business activity we need more charitable foundations, academics, businesses, and local economic development officials at the table.  If it weren’t for the tireless work of groups like the Association for Public Data Users (APDU), I fear that the meager levels of innovation which currently exist in the system would be next to nonexistent. 

Desire for Internal Innovation.  In our experience dealing with entrepreneurship and innovation measurement, I’ve seen a lot of personnel within specific agencies that want to see more innovation in their products.  Sadly, too often these personnel have no forums or opportunities to explore possible improvements and few incentives that would encourage innovation.  More than any funds we’ve spent, our efforts to spur improvements in federal data on entrepreneurship and innovation have come mostly through convening of symposiums and workshops that allow agencies to present their plans for improvement, debate with academic and agency experts, and see what other exciting developments are occurring in academic and agency environments.  The returns to this dialogue seem only to increase over time and seem well-placed for topics-based statistical discussions.    
   

Users Can Drive Innovation.  When you provide basic information, like the statistical agencies often do, one of the saddest parts of the process is that much of the information goes on to uses which you never become aware.  As a major producer of data, at Kauffman, I know how excited I get to see some of our data used in an analysis or something new but too often the public doesn’t circle back with this material.  We’ve seen in our own experience that if you create events, online platforms, and other vehicles to show your support of users that it can result in a positive feedback loop and improved data quality.  Through the Kauffman Firm Survey, we’ve undertaken an annual open call for suggested improvements in the data we collect which has over the years led to major improvements in the usability of the data for research and analysis.  Had we not undertaken this process of trying to interact with the users of our data we would have missed significant improvements in data collected on the finances of new firms which are going to greatly improve our analysis of the current recession. 

Sadly, most agencies know few of the users of their data, and even where they know them they are often hesitant to interact and hear their needs, feedback, etc.


Interaction, Interaction, Interaction.  I am not sure how many ways I can say it but I’ll say it one more – interaction.  The thing which I find most disappointing with the current statistical system is that individuals within agencies often want more interaction with each other and other experts on their topical collections but for the large part this does not happen.  Money to travel to conferences is very limited and the interagency groups and agencies overseeing some of this process only have opportunities for interaction at very high levels, not on more granular areas of interest and need.  At Kauffman we try to bring academics into the conversation but know that from trying to do this that it’s very tough.  Key constituencies like state representatives and sub-state representatives don’t have formal bodies where the agencies can receive feedback on possible data publications and so they don’t hear what these groups actually want.


Push Ourselves First.  As someone who takes time to read most notices about data collection on the Federal Register, I applaud the few efforts that actually submit meaningful requests for feedback and are open to feedback submitted.  In reality these processes are largely a formality that is hidden away so that as few people as possible find them.  Even submitted comments following outlined procedures can be dismissed as “it’s too late in the process.”  Let’s stop this self-perpetuating process of mediocrity.  If we are going to seek comment, seek comment. 


I’ve offered a lot of criticism here but I recognize that we at Kauffman still have a lot to learn in this regard.  One of the things are beta testing is this concept of a Data Wiki for the Kauffman Firm Survey.  It’s not something which was easy for us to do and opens us up to user feedback, positive and negative, in a much greater way that we’ve done before.  But this is also an area where we believe what we learn can help to inform the statistical agencies. 

In my opinion, until OMB and the agencies become more genuine in their efforts to draw data users into the conversation we have little room to complain about lack of funding.  These are things within their power to change.  We cannot afford to idly hope for improvements in national statistics.  I hope others out there agree with me and will add your voice to the discussion. 

One of my favorite surveys done on entrepreneurship is the Eurobarometer out of the European Union (EU) through Gallup.  It is the result of the European Union’s increased focus on entrepreneurship development following their 2000 meeting in Lisbon.  The EU Commission is kind enough to include several non-European Union countries in the survey (this year had the U.S. and China, in particular).  So, their roughly triennial survey brings important cross-country comparisons.  The 2009 version of this survey was recently published. 

The current year survey instrument (which is at the back of the report) is a big improvement over past instruments and tries to get into topics like how entrepreneurs are viewed in society, the experience of the population with entrepreneurial endeavors, and perceptions of risks, barriers, and opportunities. 

The overview report is about 200 pages so there is too much to cover here but a couple of things that stood out to me in my first pass of the report:

• “Looking at those who were not self-employed, in most countries, the proportion of respondents who considered it feasible to become self-employed in the next five years was lower than the proportion of those who would like to be self-employed. In the Nordic countries, however, an opposite trend was seen – i.e. the preference to be self-employed was lower than the perceived feasibility of gaining such a status; for example, 49% of non-self-employed Swedish respondents said it would be feasible to become self-employed in the next five years, whereas just 28% had an actual preference for changing their status.” This is an interesting measure – plans vs. perceptions – and I’d imagine our colleagues in the Nordic countries in charge of entrepreneurship should be very pleased with this result.
• The rate of entrepreneurial activity for the U.S. that they measure has gone up from 15 percent in 2004 to 18 percent in 2007 and 21 percent in 2009.  My colleague Mike Horrell pulled together some of the historical data from their reports to show that this change is driven by an increase in reported embryonic activity as well as those reporting work in established businesses (see table of all countries measured in Eurobarometer).
• This is one of the few surveys that can tell us anything about how efforts to promote entrepreneurship through education are going.  What they find is “a comparison, between 2007 and 2009 results, concerning the extent to which respondents agreed that their school education prepared them to become entrepreneurs showed that, in 2007, a number of European countries scored better than the US in stimulating entrepreneurship (e.g. Norway 74%, Portugal 71% vs. US 63%); in 2009, however, the US outscored all European countries (US 73%, Cyprus 64%, Portugal 63%).”