Global Entrepreneurship Monitor New York State Report. Edward G. Rogoff Thomas S. Lyons Al Suhu Ivory Phinisee Monica Dean

Transcription

1 Global Entrepreneurship Monitor 2009 New York State Report Edward G. Rogoff Thomas S. Lyons Al Suhu Ivory Phinisee Monica Dean

2 Table of Contents I. Executive Summary...4 II. Introduction...5 III. New York State Demographics Compiled from Survey...9 IV. Entrepreneurial Activity...11 A. Regional Differences within New York State and U.S. Comparison...11 B. Regional Differences within New York State, with Caucasian/Non-Caucasian Grouping, and U.S. Comparison...13 C. Differences by Gender...15 D. Differences in Immigrant Status...17 E. Differences in Educational Attainment...20 F. Age Distribution in Early-Stage Entrepreneurship and Established Business Ownership...23 G. Non-Immigrant Early-Stage Entrepreneurship by Ethnic Group...26 V. Entrepreneurial Attitudes...27 A. Regional Differences within New York State and U.S. Comparison...27 VI. Entrepreneurial Aspirations...29 A. New York State Results and U.S. Comparison...29 VII. Use of Technology...31 A. Prevalence of Internet Usage...31 B. Types of Technology Used in Start-up Companies...33 VIII. New York State Rankings for Business Environment...34 IX. Conclusion...36 X. Glossary of Main Measures and Terminology

3 I. Executive Summary This report presents data on entrepreneurial activity in New York State and compares it to the rest of the country. The data was collected as part of the Global Entrepreneurship Monitor (GEM) study carried out by Babson College and Baruch College and supported by grants from the office of Congresswoman Carolyn Maloney and the Global Entrepreneurship Research Association (GERA). The study shows that rates of entrepreneurship throughout New York State are substantially below national averages. Further, those businesses that are established in New York State are smaller, create fewer jobs, and are launched by entrepreneurs with less ambitious plans and whose primary motivation arises from a lack of traditional employment options. The only statistic in which New York State surpasses national averages is in the business failure rate. This overall picture is consistent by region, gender, age and ethnicity. The authors make a connection between these findings and the high tax rates and generally high costs of doing business in New York State and propose a more focused approach to supporting entrepreneurial activity within the State than currently exists. 4

4 II. Introduction A century ago, business titans of the age flocked to New York State to start and grow their ventures. Thomas Edison, Alexander Graham Bell, Robert Fulton, Frank Woolworth, George Eastman, William S. Paley, Thomas Watson, and Marcus Goldman, along with his partner Samuel Sachs, are among the many entrepreneurs who believed that New York State offered the best environment for their big plans. During this same era, ships, steam powered trains, and new fangled automobiles delivered thousands of would-be entrepreneurs to New York State s borders, individuals who opened tailor shops, bakeries, restaurants, shipping companies, and hundreds of other types of businesses. For all of these entrepreneurs, both big and small, New York State offered seemingly endless resources their ventures required: skilled workers, the largest capital markets in the world, an enormous regional marketplace, and access to the rest of the country and the globe through unrivaled transportation and communications systems. The information infrastructure included the first telegraphs, telephones, and air mail postal service which connected the State to a host of places within hours. The payoff for New York State was enormous: growth and prosperity beyond anything ever seen before or since. This survey clearly indicates that the golden era has ended dramatically. New York State greatly lags behind the rest of the country in entrepreneurial activity and spirit. When it comes to entrepreneurship, the only category in which New York State surpasses nationwide rates is among people who became entrepreneurs because they felt they had no other alternative the so-called necessity entrepreneurs. The implications are, frankly, dire. It is well documented how new and high-growth entrepreneurial ventures create jobs, provide major sources of tax revenue, and help the region and the country maintain their longterm competitive advantages. As entrepreneurship wanes, these benefits will decline as well. Entrepreneurship is currently in retreat throughout New York State. GEM Background Babson College and Baruch College of the City University of New York are U.S. research partners in the Global Entrepreneurship Monitor (GEM), an annual survey, which for 2008 included over 2,000 entrepreneurs in each of 43 countries. Although it is widely acknowledged that entrepreneurship is an important force which shapes the economic landscape, our understanding of the relationship between entrepreneurship and development is still 5

5 far from complete. The quest to unravel this complex relationship has been particularly hampered by a lack of cross-national harmonized data sets on entrepreneurship. Since 1997, the GEM research program has sought to address this inadequacy by collecting relevant harmonized data on an annual basis with three main objectives: To measure differences in the level of entrepreneurial activity among and within countries To uncover factors determining national and regional levels of entrepreneurial activity To identify policies that may enhance the national and regional level of entrepreneurial activity Traditional analyses of economic growth and competitiveness have tended to neglect the significant economic role played by new and small firms. GEM takes a comprehensive approach and considers the degree of involvement in entrepreneurial activity within a country, identifying different types and phases of entrepreneurship. GEM was conceived in 1997 by Michael Hay and Bill Bygrave and was followed by a prototype study funded by the London Business School and Babson College. The first GEM Global study was conducted by a group of ten nations in 1999 with Paul Reynolds as the Principal Investigator. Since then, GEM has grown into a consortium of 64 national teams. In 2004, the London Business School and Babson College transferred GEM s intellectual capital to the Global Entrepreneurship Research Association (GERA), a not-for-profit organization governed by representatives of the national teams, the two founding schools, and the sponsoring institutions. Exhibit 1 - GEM Methodology: The Entrepreneurial Process and GEM Operational Definitions Total Early-stage Entrepreneurial Activity (TEA) Potential entrepreneur knowledge and skills Nascent entrepreneur involved in setting up a business Owner - manager of a young business (up to 3.5 years old) Owner - manager of an established business (more than 3.5 years old) Conception Firm birth Persistence 6

6 GEM takes a broad view of entrepreneurship and focuses on the role played by individuals in the entrepreneurial process. Unlike most entrepreneurship data sets that measure newer and smaller firms, GEM studies the behavior of individuals as they start and manage a business. Furthermore, GEM views entrepreneurship as a process and considers people in different phases of entrepreneurial activity: from the earliest point when the business is in gestation, to the established phase, and, finally, to the possible discontinuation of the venture. A key GEM indicator is the prevalence rate of early-stage entrepreneurial activity (also known as the TEA index), represented by the shaded box in Exhibit 1. Within this context, GEM provides an umbrella under which a wide variety of entrepreneurial characteristics, such as motivations, innovativeness, competitiveness, and high-growth aspirations, can be systematically and rigorously studied. The GEM data collection covers the entire life-cycle of the entrepreneurial process and studies individuals at the point when they commit resources to start a business they expect to own themselves (nascent entrepreneurs); when they currently own and manage a new business that has paid salaries for more than three months, but not more than 42 months (new business owners); and when they own and manage an established business that has been in operation for more than 42 months (established business owners). Exhibit 1 presents the entrepreneurial process and GEM s operational definitions. The GEM methodology frames entrepreneurship as a process and investigates entrepreneurial activity in the various phases of business development, including the differences between both individuals and businesses based on their stage of entrepreneurial activity. The New York State data was gathered in March 2009 using a random digit dial telephone survey of New York State residents. Respondents were asked questions relating to planned business start-ups in the next three months, existing business startups (businesses less than 42 months old), and established businesses (businesses more than 42 months old). They were also asked about demographic information, motivations, innovation, technology usage, entrepreneurial attitudes and perceptions, aspirations, and business financing. The GEM 2008 United States Adult Population Survey results were conducted 7

7 in June of that year and were used in this report for comparison purposes. Although we think the timing difference (between 2008 and 2009) is not significant for purposes of this comparison, it is possible that the national data shows a greater impact of the current recession. A sample of nearly 1,000 participants was collected from around New York State with the sponsorship of the Office of Congresswoman Carolyn Maloney and the Global Entrepreneurship Research Association. This large, representative sample provides clear and detailed conclusions about the prevalence and characteristics of entrepreneurial activity throughout the State, as well as helpful information about the attitudes and plans of resident entrepreneurs. 8

8 III. new York State Demographics Compiled from Survey Table 1 - New York State Survey Demographics Description Statistic Mean Age 46 % Male 47.6 % Female 52.4 % Within the Following Ethnic Groups White/Caucasian American 70.4 Black/African American 10.9 Korean/Korean American 0.3 Mexican/Mexican American 0.2 Hispanic/Latino American (non-mexican) 6.6 Chinese/Chinese American 1.6 Japanese/Japanese American 0.3 East Indian/East Indian American 1.1 South East Asian/South East Asian American 1.5 American Indian 1.0 Other 6.1 % Immigrants 17.2 % Educational attainment None 1.6 Some secondary 10.1 Secondary degree 21.8 Post-secondary 26.0 University Bachelor s degree or higher 40.4 % Geography NYC 42.1 Suburban NYC (LI, Westchester, etc.) 21.4 Upstate 36.5 % Early-Stage Entrepreneurs 6.7 % Established Entrepreneurs 5.6 % Opportunity Entrepreneurs 3.8 % Necessity Entrepreneurs 2.6 9

9 The overview of the sample of the 967 participants surveyed for this study is presented in Table 1. The average age of the sample is 46. The sample has slightly more women, 52.4%, than men. By ethnicity, 70.4% of the sample is Caucasian, 10.9% African American, and 6.6% non-mexican Hispanic such as Puerto Rican and Dominican. 1.6% is Chinese, and 1.5% is South East Asian including Indian, Pakistani, and Bangladeshi. Approximately one in six of the sample, or 17.2%, is an immigrant. The educational attainment level of the sample is also shown in Table 1, with 40.4% having a degree from a four-year college or from a graduate program. An additional 26.0% attended college. The sample matches the population dispersion of the State with 42.1% in New York City, 21.4% from the suburban counties of Nassau, Suffolk, Westchester, Rockland, and Orange. Approximately one third, or 36.5%, live in upstate areas. The early-stage rate of entrepreneurship is 6.7%, the percentage of the population in Table 1. Of those, around 40% or 2.6% of the entire New York State sample are necessity entrepreneurs. The balance, approximately 60% of the early-stage entrepreneurs in the New York State sample, or 3.8%, is made up of opportunity entrepreneurs, those individuals who are involved in early-stage entrepreneurial activity and are motivated by the favorable circumstance they see. They are choosing this path over traditional employment as a way to earn income and create personal wealth or, in some cases, they are simply galvanized by the excitement and satisfaction of starting their own ventures. Photo by Daniel Schwen 10

10 IV. Entrepreneurial Activity A. Regional Differences within New York State and U.S. Comparison Table 2 - Measures of Entrepreneurial Activity Region NYS NYC Suburbs Upstate US Involved in any kind of entrepreneurial activity Involved in Total Early-stage Entrepreneurial Activity Involved in Opportunity Early-stage Entrepreneurial Activity Involved in Necessity Early-stage Entrepreneurial Activity Actively involved in start-up effort; owner, no wages yet Manages and owns a business that is up to 42 months old Manages and owns a business that is older than 42 months Shut down a business in the past 12 months 15.3% 12.8% 18.4% 16.4% 18.8% 6.7% 5.7% 7.7% 7.4% 8.7% 3.8% 4.4% 4.8% 2.5% 7.2% 2.6% 0.7% 2.9% 4.5% 1.0% 5.6% 5.4% 3.9% 6.8% 4.8% 1.1% 0.2% 3.9% 0.6% 4.0% 5.7% 4.9% 5.8% 6.5% 7.7% 2.9% 2.2% 4.9% 2.5% 2.4% Note: Suburbs include Nassau, Suffolk, Westchester, Rockland, and Orange counties Table 2 breaks out the rates and characteristics of entrepreneurial activity and compares sub-state regions to each other, to the rest of the State and to the United States as a whole. This chart shows that while the rate of total entrepreneurial activity in New York State is roughly comparable to the country, a breakdown of the specific types of entrepreneurial activity paints a less favorable picture. In the U.S., 18.8% of the population engages in some type of entrepreneurial activity. New York State as a whole is slightly lower with 15.3%. The suburbs around New York City are about the same as the national average, while the rest of the State is somewhat lower. The details on the types of entrepreneurial activity are more revealing and show that the State exceeds national rates significantly in early stage, necessity-motivated entrepreneurial activity. While 1.0% of people in the country are engaged in early stage, necessity-motivated entrepreneurial activity, New York State nearly triples this rate with 2.6%. On the other 11

11 hand, opportunity-motivated entrepreneurship, which is 7.2% nationwide, is approximately half this level in New York State at 3.8%. The upstate region lags behind the most with a rate of 2.5%. New York State entrepreneurs are, in general, more of have-to-be, or necessity-driven entrepreneurs, and not want-to-be, or opportunity-driven entrepreneurs as compared to the rest of the US. This picture of smaller, early-stage entrepreneurship is reinforced by the data in Table 2. For example, New York State slightly exceeds the national average of early-stage ventures that are paying no wages to the owner, at 5.6% to 4.8%. New York State severely lags behind the country in more established businesses that pay wages to their owners. Specifically, businesses less than 42 months old that pay wages are owned by 1.1% of the New York State population this group is 0.2% in New York City and 0.6% upstate compared to 4.0% nationwide. The most established group of businesses, those over 42 months old, are owned by 7.7% of the U.S. population but only by 5.7% of the New York State population and 4.9% of the New York City population. 12

12 B. Regional Differences within New York State, with Caucasian/Non-Caucasian Grouping, and U.S. Comparison Table 3 - Measures of Entrepreneurial Activity by Caucasian/Non-Caucasian Grouping NYS NYC Suburbs Outside NYC Upstate NY US Caucasian Non-Caucasian Caucasian Non-Caucasian Caucasian Non-Caucasian Caucasian Non-Caucasian Caucasian Non-Caucasian Involved in any kind of entrepreneurial activity 14.2% 18.7% 12.9% 12.7% 15.9% 33.9% 14.4% 38.0% 18.9% 20.7% Involved in Total Early-stage Entrepreneurial Activity 5.8% 9.0% 4.5% 6.6% 7.0% 13.9% 6.0% 17.6% 8.4% 11.0% Involved in Opportunity Early-stage Entrepreneurial Activity 3.0% 6.0% 2.2% 6.1% 5.7% 2.7% 2.0% 8.8% 7.0% 8.5% Involved in Necessity Early-stage Entrepreneurial Activity 2.5% 3.0% 1.7% 0.5% 1.3% 11.4% 3.7% 8.8% 1.0% 1.1% Actively involved in start-up effort; owner, no wages yet 4.7% 7.5% 3.9% 6.6% 4.4% 2.7% 5.4% 17.6% 4.3% 7.8% Manages and owns a business that is up to 42 months old 1.1% 1.5% 0.6% 0.0% 2.5% 11.4% 0.7% 0.0% 4.2% 3.3% Manages and owns a business that is older than 42 months 6.8% 3.7% 7.8% 2.5% 7.0% 2.9% 6.4% 8.6% 8.1% 6.8% Shut down a business in the past 12 months 1.6% 6.0% 0.6% 3.6% 1.9% 17.1% 2.0% 11.8% 2.4% 2.9% 13

13 This pattern continues when we break out the Caucasians from non- Caucasians in the sample illustrated in Table 3. Overall, the rates of entrepreneurial activity of any kind among non-caucasians in the U.S. are 20.7% compared to 18.7% in New York State. This activity is more concentrated in early stage necessity-motivated ventures that are not paying wages to their owners, as compared to the rest of the U.S. For example, while 7.5% of the non-caucasian sample is actively involved in start-ups that are paying them no wages, compared to 7.8% for the nationwide sample, only 1.5% own wage-paying businesses less than 42 months old. Table 3 indicates that 3.7% are in businesses older than 42 months, compared to 6.8%, for the nationwide sample. Similar patterns are seen in the Caucasian samples. Unfortunately, one metric on which the New York State non-caucasian sample exceeds that of the U.S., describes those entrepreneurs who have shut down a business within the last 12 months. On this variable, with a rate of 6.0%, the New York State non-caucasian population more than doubles the nationwide rate of 2.9%. As we discuss later in this report, this statistic reflects a process of initiating small, poorly-financed ventures that quickly fail. 14

14 C. Differences by Gender Table 4 - Entrepreneurial Activity by Gender NYS US Male Female Male Female Involved in any kind of entrepreneurial activity 22.4% 9.1% 21.9% 15.5% Involved in Total Early-stage Entrepreneurial Activity Involved in Opportunity Early-stage Entrepreneurial Activity Involved in Necessity Early-stage Entrepreneurial Activity Actively involved in start-up effort; owner, no wages yet Manages and owns a business that is up to 42 months old Manages and owns a business that is older than 42 months 9.8% 3.9% 9.8% 7.5% 4.6% 3.2% 9.1% 5.1% 5.0% 0.6% 0.5% 1.6% 8.3% 3.2% 5.4% 4.2% 1.7% 0.8% 4.4% 3.4% 8.3% 3.4% 9.3% 5.9% Shut down a business in the past 12 months 4.3% 1.8% 2.8% 2.1% Figure 1 - TEA Rates by Gender NYS US 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Male Female 15

15 Figure 2 - TEA Opportunity Rates by Gender NYS US 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Male Female Figure 3 - TEA Necessity Rates by Gender NYS US 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Male Female 16

16 D. Differences in Immigrant Status Table 5 - Entrepreneurial Activity by Immigrant Status NYS US Non- Non- Immigrant immigrant Immigrant immigrant Involved in any kind of entrepreneurial activity 13.1% 16.2% 19.1% 19.1% Involved in Total Early-stage Entrepreneurial Activity Involved in Opportunity Early-stage Entrepreneurial Activity Involved in Necessity Early-stage Entrepreneurial Activity Actively involved in start-up effort; owner, no wages yet Manages and owns a business that is up to 42 months old Manages and owns a business that is older than 42 months 3.7% 7.5% 9.4% 8.8% 2.5% 4.3% 7.0% 7.4% 1.2% 2.8% 2.4% 0.9% 3.7% 6.0% 5.4% 4.9% 0.0% 1.6% 4.0% 4.1% 4.4% 6.0% 6.7% 7.9% Shut down a business in the past 12 months 5.0% 2.7% 3.0% 2.4% 17

17 Figure 4 - TEA Rates by Immigrant Status NYS US 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Immigrant Non-immigrant Figure 5 - TEA Opportunity Rates by Immigrant Status NYS US 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Immigrant Non-immigrant Figure 6 - TEA Necessity Rates by Immigrant Status NYS US 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Immigrant Non-immigrant 18

18 As Table 4 and Figure 1 show, the weaknesses noted above are generally more pronounced among the women in the samples. Within the State, rates of entrepreneurial activity are about half among women compared to the male population. As the U.S. data in Table 4 shows, while men have generally higher rates of entrepreneurial activity than women, the disparity is not nearly as great as in New York State. Table 4 also shows that New York State men greatly exceed national rates for early-stage necessity-based entrepreneurial activity by ten times 5.0% to 0.5%. In keeping with the emerging picture of this type of venture, men in New York State have a 4.3% rate of having shut down a business in the last year, compared to 2.8% nationwide. Figures 2 and 3 present these facts graphically by showing how much New York State lags behind in early-stage opportunity-motivated entrepreneurship for both genders and how much of male entrepreneurship is necessitydriven. Breaking out the samples by immigration status shows similarly lower rates of entrepreneurial activity in New York State compared to the country. However, two findings stand out. First, the rate by which immigrants report being involved in any kind of entrepreneurial activity in New York State is, at 13.1%, approaching the national rate of 19.1%. This is likely due to high rates of family member involvement in immigrant-owned businesses. The study may also be identifying people who work full or part-time in family owned businesses. Second, the rate of necessity-motivated entrepreneurial activity by immigrants, as shown in Figure 6, is much less in New York State than for the rest of the country. This may be due to higher levels of family support and larger ethnic enclaves, which provide family and human resources that assist New York State immigrant entrepreneurs in pursuing opportunities. 19

19 E. Differences in Educational Attainment Table 6 Entrepreneurial Activity by Educational Attainment NYS US University University Bachelor s Bachelor s Some Secondary Post- degree or Some Secondary Post- degree or None secondary degree secondary higher none secondary degree secondary higher Involved in any kind of entrepreneurial activity 6.7% 5.3% 5.9% 22.0% 19.1% 13.2% 21.7% 13.0% 20.9% 21.0% Involved in Total Early-stage Entrepreneurial Activity 0.0% 1.1% 3.9% 10.2% 7.1% 6.6% 11.3% 6.4% 9.1% 9.4% Involved in Opportunity Early-stage Entrepreneurial Activity 0.0% 0.0% 1.9% 5.3% 5.0% 6.6% 6.4% 5.1% 7.1% 8.7% Involved in Necessity Early-stage Entrepreneurial Activity 0.0% 1.1% 1.9% 4.9% 1.6% 0.0% 4.7% 0.8% 0.7% 0.5% Actively involved in start-up effort; owner, no wages yet 0.0% 1.1% 3.9% 7.7% 5.8% 3.7% 6.8% 3.3% 5.5% 5.1% Manages and owns a business that is up to 42 months old 0.0% 0.0% 0.0% 2.4% 1.3% 2.9% 4.7% 3.2% 3.7% 4.4% Manages and owns a business that is older than 42 months 6.7% 3.2% 1.5% 8.1% 7.3% 4.4% 6.6% 4.9% 8.4% 9.5% Shut down a business in the past 12 months 0.0% 1.0% 0.5% 3.7% 4.7% 2.2% 3.8% 1.7% 3.4% 2.1% 20

20 Figure 7 - TEA Rates by Educational Attainment NYS US 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% None Some secondary Secondary degree Post-secondary University Bachelor's degree or higher Figure 8 - TEA Opportunity Rates by Educational Attainment NYS US 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% None Some secondary Secondary degree Post-secondary University Bachelor's degree or higher Figure 9 - TEA Necessity Rates by Educational Attainment NYS US 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% None Some secondary Secondary degree Post-secondary University Bachelor's degree or higher 21

21 Table 6 and Figures 7, 8, and 9 indicate how entrepreneurial activity is affected by the educational level of New York State residents. The more highly educated groups in New York State generally do better at closing the gap that exists between entrepreneurial activity in the State and the nation. People who completed college and beyond, and who owned and managed businesses that have existed for 42 months or more, had an entrepreneurial activity rate of 7.3% compared to 9.5% nationwide. Additionally, by a margin of.7%, 5.1% to 5.8%, New York State was close to the U.S. rate for respondents being involved in a start-up that is not yet paying them wages. This becomes clear in Figure 7 which reveals that early-stage entrepreneurial activity among people in the two highest educated subgroups is approximately equal to the U.S. rate. This positive effect of education on rates of entrepreneurial activity in New York State is less true for opportunity-motivated business owners, as Figure 8 demonstrates. However, it is rather distressing to see in Figure 9 how much necessity-motivated entrepreneurial activity there is among the most highly educated groups in New York State as compared to the rest of the U.S. Among people with some post-secondary education, the rate of necessity-driven entrepreneurship is nearly five times, at 4.9%, in New York State than the nationwide rate of 0.7%. For people with bachelor s or post graduate degrees, the pattern is similar, with three times the rate in New York State, 1.6%, compared to the U.S. rate of 0.5%. Photo by David Shankbone 22

22 F. age Distribution in Early-Stage Entrepreneurship and Established Business Ownership Table 7 - Total Early-Stage Entrepreneurial Activity by Age Groups Region NYS US Ethnicity Caucasian Non-Caucasian Caucasian Non-Caucasian Age range % 13.5% 10.6% 11.0% % 15.0% 12.3% 10.4% % 7.4% 12.4% 14.4% % 6.3% 10.4% 8.8% % 7.4% 6.8% 15.3% % 0.0% 2.0% 6.5% Table 8 - Established Business Rates by Age Groups Region NYS US Ethnicity Caucasian Non-Caucasian Caucasian Non-Caucasian N range % 0.0% 1.6% 3.5% % 3.3% 5.2% 7.7% % 9.1% 7.7% 9.4% % 4.3% 12.4% 9.9% % 0.0% 13.4% 6.9% % 7.4% 6.3% 4.1% 23

23 Figure 10 - TEA Rates by Age Groups NYS US TEA Rates for Caucasians 14% 12% 10% 8% 6% 4% 2% 0% Age Range NYS US TEA Rates for Non-Caucasians 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Age Range 24

24 Figure 11 - Established Business Rates by Age Groups Established Business Rates for Caucasians NYS US 16% 14% 12% 10% 8% 6% 4% 2% 0% Age Range Established Business Rates for Non-Caucasians NYS US 12% 10% 8% 6% 4% 2% 0% Age Range Tables 7 and 8, and Figures 10 and 11, reveal the patterns in New York State based on age. Rates of business ownership generally increase among older populations, which is confirmed in Table 8 and Figure 11. The patterns of Non-Caucasians having very low rates of entrepreneurship in the State are also reinforced by these charts. The rates of early-stage entrepreneurial activity in Table 7 and Figure 10 indicate the one notable anomaly in New York: among Non-Caucasians under the age of 34, rates of early-stage entrepreneurial activity are higher than the national average. Specifically within the age group, Non-Caucasians in New York State have a rate of 13.5% compared to a national rate of 11.0%. Among year olds, New York State s rate is 15.0%, while the national rate is 10.4%. As pointed out previously, early-stage entrepreneurial activity among Non- Caucasians in New York State as compared to the U.S. is more necessitydriven, and is concentrated within younger demographic groups. 25

25 G. Non-Immigrant Early-Stage Entrepreneurship by Ethnic Group Figure 12 - Non-Immigrant TEA Necessity Rates TEA Necessity Rates in New York State 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% White/Caucasian American Black/African American Hispanic/Latino American (non-mexican) Asian Other Exhibit 2 - Data for Figure 12: Rate of Early-Stage Necessity Entrepreneurship among Non-Immigrants in New York State Ethnicity Rate Caucasian 2.6% African American 4.3% Hispanic/Latino American (non-mexican) 9.5% Asian 0.0% Other 0.0% Figure 12 and its accompanying exhibit reveal the early-stage necessity entrepreneurship rates for non-immigrant ethnic groups. The highest rate by far is among Hispanics, at 9.5%, with African Americans at 4.3%, and Caucasians at 2.6%. Because, as the name implies, necessity entrepreneurship arises largely out of the lack of viable economic alternatives, a major factor leading to these high rates among Hispanics and African Americans is fewer attractive employment opportunities. 26

26 V. Entrepreneurship Attitudes A. Regional Differences within New York State and U.S. Comparison Table 9 - Measures of Entrepreneurship Attitudes NYS NYC Suburbs Outside NYC Upstate NY US Caucasian Non-Caucasian Caucasian Non-Caucasian Caucasian Non-Caucasian Caucasian Non-Caucasian Caucasian Non-Caucasian Expects to start-up in the next 3 years 6.2% 21.5% 3.4% 19.2% 9.6% 17.6% 6.1% 35.3% 8.7% 16.6% Knows a person who started a business in the past 2 years 23.2% 36.4% 26.6% 32.2% 16.3% 60.0% 24.7% 33.3% 32.9% 33.3% Sees good opportunities for starting a business in the next 6 months 17.3% 30.3% 22.9% 26.9% 14.9% 35.7% 15.7% 43.8% 36.5% 33.8% Has the required knowledge/skills to start a business 52.7% 58.1% 46.9% 52.2% 61.3% 85.7% 52.2% 75.0% 52.9% 58.2% Fear of failure would prevent respondent from starting a business 29.2% 32.8% 31.8% 35.2% 29.5% 28.6% 27.8% 28.6% 26.4% 25.2% Believes starting a business is considered a good career choice 59.8% 68.5% 66.7% 76.0% 56.6% 58.3% 57.5% 37.5% 61.7% 68.8% Believes growing a successful new business achieves high status 70.3% 63.4% 76.9% 66.7% 71.4% 50.0% 65.6% 50.0% 75.9% 71.7% Believes there is much media coverage for new businesses 65.8% 66.1% 67.1% 65.3% 70.6% 64.3% 62.1% 70.6% 74.6% 72.1% 27

27 Table 9 indicates that Caucasians in New York State lag well behind Caucasians in the U.S. in their expectations for starting a new business within the next three years. This same group is less likely to know someone who has started a business in the past two years and is less likely to see good opportunities for starting a business in the next six months than their national counterparts. New York State entrepreneurs, regardless of ethnicity, are more likely to allow the fear of failure to prevent them from starting a business than those individuals who were surveyed nationally. Furthermore, New Yorkers are less likely to believe that successful entrepreneurs achieve high status or are able to generate substantial media coverage of their ventures. This reflects a much gloomier attitude toward entrepreneurship in New York State than in the nation as a whole. The one bright spot among those surveyed on entrepreneurial attitudes is that Non-Caucasian New York State respondents are more likely than their national counterparts to have positive expectations for business start-ups and are somewhat more likely to know someone who has recently launched a business. 28

28 VI. Entrepreneurial Aspirations A. New York State Results and U.S. Comparison Table 10 - Measures of Innovation NYS US Caucasian Non-Caucasian Caucasian Non-Caucasian Percentage of all TEA business entities reporting that they use the VERY LATEST technology, not available one year ago Percentage of all TEA business entities reporting some new product/market combination. 13.2% 16.7% 5.7% 8.0% 17.9% 25.0% 22.7% 15.1% Table 10 suggests that New York State businesses are at least twice as likely to use new technology as their national counterparts. However, this reflects the use of computers, computer software, and the Internet in business activities and does not necessarily mean that New York state entrepreneurs employ higher forms of technology, such as biotechnology and bioengineering (see Table 13, below). Nevertheless, New York State stands out on this variable. The table also indicates that New York State s Non-Caucasians are substantially more innovative than nation-wide Non-Caucasians (25.0% to 15.1%), especially since they indicate that they are more likely to create new products and open new markets. New York State Caucasians, however, lag well behind their national counterparts in this regard (17.9% to 22.7%). Table 11 - Expectations of Growth and Job Creation NYS US Caucasian Non-Caucasian Caucasian Non-Caucasian Involved in TEA, any jobs now or in 5 years Involved in TEA, expects 20 or more jobs in 5 years 3.6% 5.6% 6.2% 7.8% 1.1% 1.5% 1.5% 4.0% 29

29 Figure 13 Early-stage Job Creation Early-stage Businesses with Existing Jobs or 20 Jobs Expected within 5 Years NYS US 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Caucasian Non-Caucasian Figure 14 - Expectations of High Growth and Job Creation Expectation of High Growth NYS US 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Caucasian Non-Caucasian Table 11 and Figures reveal that New York State entrepreneurs generally consider their ventures to have lower growth potential than their national counterparts. This is especially true for non-caucasians in New York State, only 1.5% of whom expect their businesses to produce 20 or more jobs within the next five years, compared to the nationwide statistic of 4.0%. A similar, but much smaller difference is indicated when we compare Caucasian entrepreneurs in New York State to those throughout the country. Among New York State Caucasian early-stage entrepreneurs, 1.1% expects this rate of job creation for their businesses, while the nationwide comparable statistic is 1.5%. Table 11 and Figure 13 show substantially fewer early-stage entrepreneurs who have businesses with existing employment, or who expect to create significant employment in the next five years, as compared to their national counterparts. 30

30 VII. Use of Technology A. Prevalence of Internet Usage Table 12 - Internet Usage in NYS and the US NYS US % reporting that they use an Internet connection in their ventures 82.8% 91.3% % of ventures started as Internet businesses 17.2% 11.8% Figure 15 - Internet Usage in NYS and the US Internet Usage in Start-up Companies NYS US 100.0% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% % using Internet connection in their ventures % of ventures started as Internet business Table 12 and Figure 15 indicate that although New York State businesses are less likely to use an Internet connection in their operations than their national counterparts, more of the New York State owned ventures, at 17.2 %, are actual Internet businesses than the 11.8% reported nationally. Because Internet businesses represent a vast array of enterprises, more research is warranted on the specific types of Internet businesses that are launched in New York State. The State may exceed national averages because of many small, home-based Internet ventures and the fact that the media business is prevalent throughout in the State. The statistics may also be a result of the lack of certain types of businesses, such as manufacturing in the downstate area, that are clearly not Internet ventures, but whose absence skews the comparisons to the rest of the nation. The type of technology used is presented below in Table

31 According to the National Telecommunications and Information Administration, New York State s position relative to the United States regarding Internet connection is heavily influenced by the fact that urban areas in the State rank 31st among metropolitan areas in the nation in broadband coverage, and rank 37th in core cities within those same metropolitan areas. Rural areas without cable television service are much less likely to have broadband access and may be forced to rely on satellite Internet services, although specific data on Internet availability is generally poor. Photo by Daniel Schwen 32

32 B. Types of Technology Used in Start-up Companies Table 13 - Survey Results: Types of Technology Survey Question Percentage of NYS Respondents What type of technology is used to operate your business: Internet connection What type of technology is used to operate your business: Personal computer What type of technology is used to operate your business: Accounting software What type of technology is used to operate your business: CRM software What type of technology is used to operate your business: Web advertising What type of technology is used to operate your business: Direct marketing What type of technology is used to operate your business: Company website What type of technology is used to operate your business: Voice over IP (VOIP) What type of technology is used to operate your business: PDA such as Blackberry or iphone What type of technology is used to operate your business: Other specialized software or hardware 82.8% 84.7% 59.5% 38.0% 55.9% 55.5% 47.8% 16.9% 47.5% 36.6% Table 13 clearly indicates that the great majority of New York State businesses use personal computers (84.7%) and the Internet (82.8%) in their operations. Substantially fewer businesses use accounting software (59.5%), Web advertising (55.9%), and Direct marketing (55.5%). The least used type of technology is VOIP (16.9%). 33

33 VIII. new York State Rankings for Business Environment Table 14 - Business Environment Rankings Description NYS Ranking Comments Business Tax Index: State Rankings 46 Personal Income Tax Rates 47 Tied with NJ Capital Gains Tax Rates 48 Tied with NJ Corporate Income Tax Rankings 36 Corporate Capital Gains Tax Rankings 37 State and Local Property Taxes 45 State and Local Sales, Gross Receipts, and Excise Taxes 33 Tied with KY Adjusted Unemployment Taxes 5 State Gasoline Taxes 51 State Diesel Fuel Taxes 49 Tied with CT Kauffman Entrepreneurial Activity Index 40 Percent Change in Number of Businesses ( ) 19 Social Security Wage Cap Raise Index 51 Workers Compensation Premium Rates 18 Percent Change in Number of Corporate Headquarters Percent Households with Broadband Internet Access Scale: 1 = most favorable ranking Note: Percent Change in Number of Corporate Headquarters for Consolidated Metropolitan Statistical Area (CMSA) of NY-Northern NJ-LI, NY-NJ-CT-PA Sources: Heritage Foundation, Kauffman Foundation, Small Business and Entrepreneurship Council, the National Telecommunications and Information Administration, Economic Perspectives, 2Q/2002 Table 14 provides data from other sources that both explain and corroborate the findings presented in this report. The Kauffman Index of Entrepreneurial Activity, a nationwide survey of firm creation, ranks New York State 40th in the nation, while, similarly, the data ranking changes in the number of corporate headquarters places New York State 37th. New York State is severely lagging behind the rest of country in business formation, and it is very far from its once lofty perch as the leader in attracting and encouraging new business, especially entrepreneurship. 34

34 Some of the likely reasons for this situation are made clear by the other items in Table 14, which show that New York State has the highest or nearly highest tax rates on a host of business and personal items. The downstate region in particular has among the highest real estate costs, wage rates, and commuting times in the nation, allowing New York State to create an environment that is actually hostile to entrepreneurial activity. New York State has a greater focus on Internet businesses than the rest of country, but only in the middle of the pack, at a rank of 16, in providing broadband Internet access, a veritable requirement for most businesses, and certainly an absolute requirement for Internet businesses. Part of the reason for this ranking is the great disparity between broadband coverage in urban and rural areas see (Table 15). Table 15 - Lack of Internet Penetration in New York State Percentage Regions in New York Total Households without Internet Central Cities % Rural % Urban % Overall New York State % Source: National Telecommunications and Information Administration See Glossary for definition of terms in this table under US Census Bureau Geographic Definitions 35

35 IX. Conclusion If, as we and others believe, entrepreneurship represents the future of the economy, then New York State s future is bleak. The rates of entrepreneurship are below national averages and those businesses that are established in New York State are smaller, create fewer jobs, and are launched by entrepreneurs with less ambitious plans, whose motivation to a large degree arises from a lack of traditional employment options. The only statistic in which New York State surpasses national averages is in the business failure rate. By region, gender, age and ethnicity, the picture is bleak compared to the rest of the US. It seems as if the policies of high taxes and complex regulation, combined with the realities of a high-priced workforce and expensive real estate have greatly reduced the ranks of the most attractive entrepreneurs those who see great opportunities and pursue them with passion. Weak employment opportunities have added to the ranks of those who feel they have no choice but to become entrepreneurs. Their businesses are smaller, grow more slowly, and fail quicker. This is not a problem that can be fixed immediately. The tax profile of New York State and the high cost of doing business cannot be changed in the short run. Over the last decades, New York State s economic development strategies have included giving tax breaks to slow-growing large companies, offering one-size-fits-all technical and financial advice to small and new companies, and promoting industries such as tourism and retail, which produce few high-paying jobs. There is, however, no shortage of service organizations that provide technical and financial assistance to entrepreneurs. There is a state-wide network of 75 Small Business Development Centers (SBDCs). The Business Incubator Association of New York State, Inc. lists 42 member programs. In the New York City region, alone, there are 11 Entrepreneurial Assistance Program Centers. The privately-owned New York Business Development Corporation pools funds from many financial institutions to make capital available to the State s small businesses. There are 17 microenterprise development programs in New York State that are on the membership roster of the Association for Enterprise Opportunity, the national microenterprise industry s trade association. However, this latter figure is small when considering that, according to the Center for MicroEnterprise Development in Albany, 89.2% of all businesses in the State can be classified as microenterprises. Photo by David Shankbone 36

36 Despite this level of activity, relatively little entrepreneurship is taking place. Part of the problem lies in the fact that the efforts to support entrepreneurship through technical and financial assistance are fragmented and categorical. There is little or no coordination among the programs. Each one (e.g., business incubation, microenterprise development, SBDCs, etc.) has its own governance, operating protocol, language, lobbying efforts, and performance measurement apparatus. In short, there is no clear and clearly helpful entrepreneurship assistance system in New York State. This lack of a holistic approach precludes each of these programs from taking its place within a larger system, thereby freeing each to do what it does best, rather than trying to be everything to every entrepreneur. As a result, New York State entrepreneurs are not receiving the right kind of assistance at the appropriate time in each business s development, nor is this aid commensurate with each entrepreneur s ability to pay. For example, the large, predominantly university-based networks of Small Business Development Centers could provide a framework on which to integrate other resources and to expand services targeted to specific high-growth potential industries. The SBDCs could also create meaningful networking and mentoring programs. New York State must develop a targeted strategy to support entrepreneurship, especially in key economic sectors. The strategy should encompass ventures which need access to the industries that are already located in the State, such as financial companies, health care institutions, and media outlets. Those companies that need New York State s highly trained, diverse, international, and well-educated workforce should be more willing to absorb the high cost of doing business in the State if it develops a support system that encourages those individuals who, because of their backgrounds, resources, and plans, are high-potential, opportunity-driven entrepreneurs. This means building a state-wide system focused on these entrepreneurs needs, their skill sets, and the business stages they occupy. In order to succeed, even opportunity-driven entrepreneurs must obtain large amounts of capital, have access to important business networks, and receive relevant technical support. 37

37 In light of these conclusions, we offer the following recommendations toward reversing the dire situation portrayed in our survey results: 1. Map the current industry and business assets in New York State (i.e., what industries are currently represented, by what businesses, and where), making these benefits more transparent to entrepreneurs who are looking for opportunities in the State. 2. Conduct a needs assessment of entrepreneurs and prospective entrepreneurs in the State. 3. Create a state-wide technical and financial service providers network that permits these various organizations to work together to assist entrepreneurs in a more ordered and strategic way, providing the right assistance, at the right time, and at the right price. 4. Support the creation of networks to facilitate interaction among entrepreneurs, provide them with opportunities for developing peer-to-peer support, role-modeling, mentoring, and strategic partnerships. These networks should also help entrepreneurs to pool resources throughout the State. New York State should publicize existing networks so more entrepreneurs are involved in creating new connections. 5. Study the reasons behind poor broadband coverage in some areas of the State and develop a plan to remedy this situation. 6. Reduce the tax and regulatory burden for entrepreneurs. The State s financial situation does not allow for broad tax reductions; however, targeted reductions aimed at entrepreneurs would immediately improve the entrepreneurial environment. 7. Nurture New York State s substantial populations of minority and immigrant entrepreneurs who, as our survey indicates, have a greater propensity to engage in necessity-driven entrepreneurship than any other groups. Minority and immigrant entrepreneurs should be supported within their communities through local and state-wide training programs and networking, as well as through mentoring and financial assistance that are proven to foster business growth. 8. Target high-growth industries that already exist in the State such as ceramics, semi-conductor production, and fashion design for effective training, networking, mentoring and financing programs. 38

38 X. Glossary of Main Measures and Terminology Measure Description Entrepreneurial Activity Nascent entrepreneurship rate New business ownership rate Early-stage entrepreneurial activity (TEA) Established business ownership rate Any kind of overall entrepreneurial activity rate Business discontinuation rate Necessity Entrepreneurs Opportunity Entrepreneurs Percentage of population who are currently nascent entrepreneurs, i.e., actively involved in setting up a business they will own or co-own; this business has not paid salaries, wages, or any other payments to the owners for more than three months. Percentage of population who are currently owner-managers of a new business, i.e., owning and managing a running business that has paid salaries, wages, or any other payments to the owners for more than three months, but not more than 42 months. Percentage of population who are nascent entrepreneurs and/or owner-managers of a new business (as defined above). Percentage of population who are currently owner-managers of an established business, i.e., owning and managing a running business that has paid salaries, wages, or any other payments to the owners for more than 42 months. Percentage of population who are currently involved in any kind of entrepreneurial activity: Total early-stage, established business or business discontinuation entrepreneurial activity. Percentage of population who have, in the past 12 months, discontinued a business, either by selling, shutting down, or otherwise discontinuing an owner/management relationship with the business. Note: This is NOT a measure of business failure rates. Percentage of population who are involved in early-stage entrepreneurial activity (as defined above) and who claim to be driven because they have no other option for work. Percentage of population who are involved in early-stage entrepreneurial activity (as defined above) and who (i) claim to be driven by opportunity as opposed to finding no other option for work; and (ii) who indicate the main driver for being involved in this opportunity is being independent or increasing their income, rather than just maintaining their income. 39

39 Measure Description Entrepreneurial Attitudes and Perceptions Perceived opportunities Perceived knowledge and skills Entrepreneurial intentions Fear of failure rate Entrepreneurship as a desirable career choice Media attention for entrepreneurship Percentage of population who see good opportunities to start a firm in the area where they live. Percentage of population who believe they have the required skills and knowledge to start a business. Percentage of population who intend to start a business within three years. Percentage of population who indicate that fear of failure would prevent them from setting up a business. Percentage of population who agree with the statement that most people consider starting a business as a desirable career choice. Percentage of population who agree with the statement that they will often see stories in the public media about successful new businesses. Entrepreneurial Aspirations High-growth expectation earlystage entrepreneurial activity: relative prevalence Percentage of early-stage entrepreneurs (as defined above) who expect to employ at least 20 employees five years from now. Entrepreneurial Technology & New Products New product-market oriented early-stage entrepreneurial activity: relative prevalence Percentage of early-stage entrepreneurs (as defined above) who indicate that their product or service is new to at least some customers and indicate that not many businesses offer the same product or service. Early-stage entrepreneurial activity in technology sectors Percentage of early-stage entrepreneurs (as defined above) who are active in the high high technology or medium high technology sector, as classified by OECD (2003). 40

40 US Census Bureau Geographic Definitions Central City Metropolitan Area (MA) Metropolitan Statistical Area (MSA) Rural Urban Urban Area Urban Cluster (UC) Urbanized Area (UA) The largest city of a Metropolitan Area (MA). Central Cities are a basis for the establishment of an MA. Additional cities that meet specific criteria are also identified as Central Cities. In a number of instances, only part of a city qualifies as central, because another part of the city extends beyond the MA boundary. A collective term, established by the federal Office of Management and Budget, to refer to metropolitan statistical areas, consolidated metropolitan statistical areas and primary metropolitan statistical areas. A geographic entity for use by federal statistical agencies, based on the concept of a core area with a large population nucleus, plus adjacent communities having a high degree of economic and social integration with that core. Qualification of an MSA requires the presence of a city with 50,000 or more inhabitants, or the presence of an Urbanized Area (UA) and a total population of at least 100,000. The county or counties containing the largest city and surrounding densely settled territory are central counties of the MSA. Additional out-lying counties qualify to be included in the MSA by meeting certain other criteria of metropolitan character, such as a specified minimum population density or percentage of the population that is urban. Territory, population and housing units not classified as urban. Rural classification cuts across other hierarchies and can be in metropolitan or non-metropolitan areas. All territory, population and housing units in urbanized areas and in places of more than 2,500 persons outside of urbanized areas. Urban classification cuts across other hierarchies and can be in metropolitan or non-metropolitan areas. Collective term referring to all areas that are urban. For Census 2000, there are two types of urban areas: urban clusters and urbanized areas. A densely settled territory that has at least 2,500 people but fewer than 50,000. New for Census An area consisting of a central place(s) and adjacent territory with a general population density of at least 1,000 people per square mile of land that together has a minimum residential population of at least 50,000 people. Authors Note: The authors would like to thank Senem Acet Coskun for her able assistance in gathering background information for this report. 41

41 GEM Sponsors GERA and Gem The Global Entrepreneurship Research Association (GERA) is, for formal constitutional and regulatory purposes, the umbrella organization that hosts the GEM project. GERA is an association formed of Babson College, London Business School and representatives of the Association of GEM national teams. The GEM program is a major initiative aimed at describing and analyzing entrepreneurial processes within a wide range of countries. The program has three main objectives: To measure differences in the level of entrepreneurial activity between countries To uncover factors leading to appropriate levels of entrepreneurship To suggest policies that may enhance the national level of entrepreneurial activity New developments and all global, national and special topic reports can be found at The program is sponsored by Babson College and London Business School. Baruch College Baruch College has a 160-year history of excellence in public higher education with an emphasis on business. A senior college in the City University of New York system, Baruch College offers undergraduate and graduate programs of study through its three schools: the Zicklin School of Business, the Weissman School of Arts and Sciences and the School of Public Affairs. Housed at the Zicklin School is the Lawrence N. Field Center for Entrepreneurship, a model of entrepreneurship education built around the collaboration of an institution of higher education, government and the private sector. For information, visit 42

42 Contacts For more information on the Global Entrepreneurship Monitor 2009 New York State Report, contact: Ivory Phinisee About the Authors Edward Rogoff Edward Rogoff is professor of management and chair of the management department at Baruch College, CUNY. He is the author of Bankable Business Plans and The Entrepreneurial Conversation along with many articles related to entrepreneurship. Thomas S. Lyons Thomas S. Lyons is the Lawrence N. Field Family Chair in Entrepreneurship and a professor of management in the Zicklin School of Business of Baruch College, City University of New York. His areas of expertise are entrepreneurship and community economic development, and social entrepreneurship, about which he has written seven books, with an eighth in press, several book chapters, and numerous academic and professional articles. Albert Suhu Albert Suhu is a graduate research assistant completing a degree in statistics at Baruch College, where he also received a Full-Time Honors MBA in finance and marketing. Ivory Phinisee Ivory Phinisee was previously a manager of international demand analy - sis & forecasting at AT&T. Currently he is a research associate at the Lawrence N. Field Center for Entrepreneurship at Baruch College, CUNY. Monica Dean Monica Dean was previously a senior manager at Booz, Allen & Hamilton and the Initiative for a Competitive Inner City. Currently she is the administrative director of the Lawrence N. Field Center for Entrepreneurship at Baruch College, CUNY. 43