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Leadership

Startups Are Surviving Longer Than Ever

The latest Kauffman report finds that entrepreneurship is becoming more diverse, and small business owners are seeing more successes.

Startups Are Surviving Longer Than Ever

[Photo: Flickr user Christina Welsh]

U.S. small businesses are stronger today than they were before the recession, and entrepreneurs are now more likely to reach their fifth year of operation than businesses established any time in the previous three decades.

The Kauffman Main Street Entrepreneurship report, which tracks overall small-business strength on an annual basis, showed many positive signs for entrepreneurs in 2016. (They define a small business as any firm with less than 50 employees.)

The rate of small business owners remained relatively unchanged since last year's report, at about 60 for every 1,000 American adults. The density of small businesses compared to medium and large businesses remained almost the same, at approximately 676 per 1,000 American businesses. That said, the report also concluded that Main Street entrepreneurs are experiencing more success than at any point since the recession.

Small Businesses Are Living Longer

That is because the survival rate of U.S. small businesses that reached their fifth year in operation increased from 45.9% to 48.7% this year. That's the highest point in the three-decade long index, boosting the overall index score past pre-recession levels. The small business survival rate took a sharp dip following the recession, and continued to decline until reaching a low in 2011. That year, only 42.9% of small businesses could expect to reach their fifth year. Survival rates began increasing in 2012, surpassing pre-recession levels in 2014 and reaching a three-decade high in this year’s report.

As a result the annual index—which is based on the business activity of 900,000 respondents each year as well as datasets that cover approximately five million businesses—is at its strongest point since the Great Recession of 2008.

Minority And Immigrant Entrepreneurship Is Growing Faster Than Ever

Much of the small business growth in the United States has come from foreign-born and minority communities. The study found that immigrants are 22.5% more likely to own businesses in 2015, and now comprise 20.6% of American small business owners in the United States, up from 10.9% in 1996.

Small business ownership is also becoming more diverse. Today, 28.3% of American small businesses owners are non-white. The study notes that much of the increase has occurred in the Asian community, which grew from 3.8% to 6.2% of all American small businesses owners since 1996, while the share of Latino business owners grew from 5.6% to 14% of all small businesses owners in the past two decades. This squares with the most recent government data. In the wake of the recession, 2.2 million non-white Americans started their own businesses, growing 38% between 2007 and 2012. That’s more than triple the population growth of minorities, according to analysis of Census and Bureau of Labor Statistics data.

Gender Parity Isn't There Yet

The overall rate of small business ownership, however, has declined for both men and women over the past two decades, and while the recession hit men much harder, they are still more than twice as likely to own a small business. Today, approximately 8.2% of male adults and 3.8% of female adults own small businesses. Overall, approximately 67% of small business owners are male, down slightly from 1996, when men comprised approximately 68.5% of all American small business owners.

Small businesses, however, are getting smaller. Companies with fewer than four employees make up 53.1% of all established small businesses in the United States, compared with only 49.5% of small businesses in 1996. The share of the population that owns a small business has also remained consistent since 2010, sitting at about 6% of American adults, since reaching a high of 7.3% in 2007.

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