Are Nonemployer Businesses Really Entrepreneurial?

Few entrepreneurs have employees.

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Scott Shane
Scott Shane

One of the difficult statistics for entrepreneurship researchers to understand is the vast majority of people who run their own businesses but have no employees. According to the U.S. Census Bureau, in 2002 (the latest year for which data are available publicly), there were 23.3 million firms in operation in the United States. However, only 5.7 million of them (24.4 percent) were employer firms. That is, three quarters of U.S. entrepreneurs had no employees.

Moreover, most of these nonemployer businesses are truly tiny. According to the Census Department data, U.S. firms generated $22.8 trillion in revenue in 2002. But less than 3.4 percent of this revenue came from nonemployer firms. The average revenue of a nonemployer firm in 2002 was only $45,000.

Some observers ask if the owners of these nonemployer businesses are really entrepreneurs. For instance, the Census Bureau argues that most of these nonemployer businesses are sideline efforts among people whose primary job involves working for someone else.

If the owners of nonemployer businesses aren't entrepreneurs, that raises an interesting dilemma. Because nonemployer businesses account for a large share of the businesses in this country, if you don't count the owners of nonemployer businesses, then there are far fewer entrepreneurs in this country than we currently estimate. With 5.7 million employer businesses in a country of close to 288 million people (in 2002), we have just shy of 2 employer businesses per 100 people, as opposed to 8 businesses per 100 people, overall.

Scott Shane is A. Malachi Mixon III professor of entrepreneurial studies at Case Western Reserve University. He is the author of Illusions of Entrepreneurship: The Costly Myths That Entrepreneurs, Investors, and Policy Makers Live By, among other books.

TAGS:
small business
entrepreneurship

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