Many of the factors that have affected startup growth since the Great Recession are resulting in an older and more diverse demographic among business owners than in previous decades.
Every year, the Kauffman Foundation publishes a series of reports detailing startup activity around the country. One of this year’s reports compares today’s entrepreneurs with those in 1996, when startups were typically owned by young, white individuals.
Today, the average entrepreneur is around the age of 50 and is much less likely to be white than 20 years ago, according to the report.
“For groups who have historically been at an economic disadvantage, they had to see some success stories come around in order to show them it was possible to start their own business and be successful,” said Karen
Appelgren, director of the Zions Bank Business Resource Center. “I think we are starting to see more individuals realize it is worth taking the risk.”
Startup activity in the United States changed dramatically when the country fell into a recession around 2008. The rate of new business formation hasn’t return to prerecession levels in the years since the downturn.
New business formation slowed during the recession because investors and banks raised their loan requirements, even as people laid off from work sought to open businesses.
Those loan requirements haven’t changed back yet, said Rick Ritter, director of the New Ventures Lab. In 2006 and 2007, he said, seed money went to people “for simply having an idea,” he said.
“Now the seed money is going to companies who have more traction.”
Meanwhile, younger people have yielded to intense pressure to go to college, and have incurred debt, requiring them to work in a job instead of starting a business, he said.
In 1996, people between the ages of 20 and 34 made up 35 percent of all new business owners, the largest age group. Today, they make up 24 percent of all new business owners. A plurality, 26 percent, are between the ages of 45 and 54, and the proportion of people between the ages of 55 and 64 has grown from about 15 percent of new business owners to 25 percent, according to the Kauffman Foundation.
One reason business owners are older now is that many older, more expensive employees were laid off in the recession. Many of the newly unemployed had no option but to use their savings to build a business and become self-employed, Ritter said.
Also, that age group is growing as a proportion of the population. Before the turn of the millennium, about 280 out of 100,000 people between the ages of 55 and 64 were entrepreneurs. Today, that rate has increased to 350 people per 100,000.
“People that are even 45 and older are having a tough time finding a job so they are taking their financial resources and moving into something they can do themselves and grow into a business,” Ritter said. “I’ve had so many conversations with people who thought they were being discriminated against because of their age and not being a part of the millennial culture.”
The Hispanic demographic
The recession and the industries it hurt disproportionately affected Hispanic workers, and many were forced to open their own businesses in search of income, according to the University of Idaho’s McClure Center.
In Idaho, the number of Hispanic-owned businesses increased by 62 percent between 2007 and 2012 while all non-Hispanic-owned businesses decreased by 3 percent during that same period, according to the university.
At the national level, the proportion of Latinos who are entrepreneurs increased from 320 per 100,000 in 1996 to 480 per 100,000 in 2016. Latino business owners comprised 10 percent of all new business owners in 1996 and 24 percent in 2016, according to the Kauffman Foundation.
“When you’re laid off, suddenly you realize W-2 employment isn’t necessarily 100 percent secure either,” Appelgren said. “I have a lot of clients who decided after that it was time to take the on risk of entrepreneurship.”
Other demographic statistics
According to the Kauffman Foundation, new business owners in 1996 were:
New business owners in 2016 were: