Free Enterprise Staff  | June 6, 2016

Small business activity is up in 2015. Here’s why

Editor’s Note: The U.S. Chamber of Commerce’s annual America’s Small Business Summit starts next week in Washington. Check back each day this week for summit previews and speaker interviews, and follow along next week via the ASBS homepage and the Twitter hashtag #IAmSmallBiz for updates and live-stream events.

The American economy is still on the fritz. Unusually low oil prices, lagging new business formation rates, a flood of new regulations, and uncertainty about what lies ahead have all put a damper on overall job creation and business growth.

Perhaps counter intuitively, these worrisome trends may actually have contributed to last year’s rise in entrepreneurship, says Jack Mozloom, National Director of Media and Communications at the National Federation of Independent Business.

Small business activity in the U.S.—which is calculated based on the number of business owners and number of small businesses in the U.S. compared to population—rose for the first time in six years last year, according to a 2015 report from the Kauffman Foundation, a private foundation focused on education and entrepreneurship.

“It’s good news and things are getting better, although we’re still below recession levels,” says Arnobio Morelix, a senior research analyst at Kauffman, about the number of small business in the United States. Noting that the country’s level of entrepreneurship activity has yet to bounce back since it started dropping in 2009, Morelix says he’s optimistic the uptick is “the beginning of a rebound.”

Better access to technology may also be behind the increase in entrepreneurship. Tools that were once expensive – word processing software, website hosting, and so on – have become affordable even for the smallest mom and pops, and many business tools are even available for free. A new focus on entrepreneurship in pop culture may also help, at least a bit. “You definitely see an increased focus on entrepreneurship in the popular culture: Shows like ‘Shark Tank,’ more entrepreneurial classes in colleges and even entrepreneurial Barbie are influencing it,” says Morelix.

Despite the never-ending headlines about young, newly minted Silicon Valley billionaires, on Main Street, young people aren’t starting businesses as often as other age groups, likely because they’re saddled with high student debt. According to the study, just 2.8 percent of young people between the ages of 20 to 35 own businesses. That’s in contrast to a steep jump for people between the ages of 55 and 65, whose business ownership rates have jumped from 15.6 percent in 1996 to 28 percent last year.

Mozloom believes a challenging economy in 2016 could push more Americans to launch their own small business this year. “Their frustration with their employment circumstances may finally motivate them to do what they’ve been thinking about, but didn’t take a shot at until now,” he says.

For entrepreneurs who are considering launching their own business, the Kauffman report includes useful information about which cities across the country are the best place to do so¬ and why. Morelix and his team found New York, Boston, Providence, San Francisco, and Portland had the highest small business activity rates, which could provide other cities (and future business owners) with hints for how to foster business growth in their own neighborhoods.

For instance, says Morelix, one of the forces that contributed to high rates of entrepreneurship in San Francisco and Portland was the areas’ unusually high number of female business owners. Meanwhile, Portland also saw high rates of older adults (mostly boomers between the ages of 50 and 65) and young adult owners (between the ages of 20 and 35) driving entrepreneurship rates higher, while New York had lots of small businesses owned by immigrants, as well as established enterprises.

The takeaway? Encouraging individuals who are underrepresented among business owners – older people, young adults, and women, for example – can make a city a much more dynamic and exciting place to do business. Immigrants, who are famous for starting businesses that cater to their communities, are also a good place to look for cities that want to foster entrepreneurship.

For more details about the current state of small businesses in America and how community leaders can encourage entrepreneurship make sure to follow our coverage of America’s Small Business Summit next week.