Category: Small Business

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Government and Policy McNair Center Small Business Startup Ecosystems

Capitalizing on Competencies: Augusta, GA’s Innovation Path

Downtown Augusta, Ga., skyline as seen from Riverwalk. 12/12/96 Steven Schretzmann photo METRO

Cities around the country constantly aim to increase their innovative competitiveness. The city of Augusta, Georgia, continues to emphasize this goal to boost the local economy. After thorough research, the McNair Center generated suggestions to help Augusta’s leaders drive this growth.

The Ideal Situation for Growth

Although there are more than 28 million firms in the U.S., economic growth comes disproportionately from only a tiny fraction. More than half of growth in the American economy comes from these “High-Growth, High-Tech” (HGHT) enterprises. HGHT firms grow from nothing to IPO in a very short period, about 5-6 years.

HGHT firms desire areas with abundant funding. This includes venture capital (VC) funding, angel investors and crowd funding, government grants and contracts, and research and development (R&D) opportunities.

To support HGHT firms, certain systems and mechanisms must also be in place. Factors like accelerators, incubators and collaboration hubs all attract firms by creating innovation communities.

Evaluation of Current Situation

Augusta does not have a strong entrepreneurship record. With only one VC deal in the last few decades, it seems clear that entrepreneurs are not flocking to Augusta. The city’s lack of resident corporations with big R&D expenditure also indicates that innovation culture isn’t strong.

In terms of mentorship and support, there are no accelerators in Augusta, and only one incubator. The lone incubator, The Clubhou.se, was founded in 2012. They have 80 members, and boast that they “have helped 60 entrepreneurs grow 32 companies that create 90 jobs and a $7,000,000 annual economic impact in our community.” The Clubhou.se is yet to have a venture-backed success.

New or higher performing accelerators and incubators are necessary to attract large amounts of innovative firms. Right now, some of Augusta’s strongest innovation advocates are spearheading another entrepreneurship resource, the Augusta Innovation Zone. The Innovation Zone hopes to act as a physical hub for Augusta’s entrepreneurs.

Government grants and contracts, however, have a relatively strong presence in Augusta. With over 1,000 contracts and 200 grants from agencies like the Department of Defense and Department of Health and Human Services in the last ten years, Augusta has a clear ability to attract government work and win government grants.

Local Competition

Atlanta, the closest large city to Augusta, is currently ranked 26th for HGHT entrepreneurship among U.S. cities. Boasting $117 million VC invested, 6 new deals and 100 active startups in 2016, Atlanta is performing well. However, this is not performance that labels it as a leader in innovation. Atlanta’s ranking for startup density has dropped nine places relative to its rank in 2015. Although Atlanta is not a top performer, Augusta can expect a difficult relationship with Atlanta. Entrepreneurs tend to prefer strong entrepreneurship ecosystems, and Atlanta will be stronger than Augusta for the foreseeable future.

The Path Forward

The upcoming relocation of U.S. Cyber Command to Augusta, and the existing partnerships with local Fort Gordon, offer strong opportunities for growth in Augusta.

Perhaps the clearest path forward will be for Augusta to build off its current competency in receiving government contracts and grants. It could put together resources to make it easier for startups to apply for grants and provide government contract work. This strategy should attract new startups.

Working with the government often requires security clearances. In Augusta, this may create issues for startups who cannot obtain clearances. But there are many established firms whose employees already have clearances – Booz Allen for example has a large presence in Augusta. If these firms had incentives to partner with startups to jointly win grants and contracts, then an accelerator or an  incubator could act as a hubs to bring everyone together. Some famous ecosystem institutions elsewhere, like 1776 in Washington, D.C., owe much of their success to their roles as middlemen, running competitions, brokering joint contracts and enabling startup research.

Cooperation is Key

For this all to work, everyone – Augusta University, US Cyber Command, local government, established firms, ecosystem organizations and the startups themselves – all need to be in close proximity. The startups will also need help to allow them to focus on exclusively on fast-paced development.

Augusta’ Broad Street is their hub of business and tourism.

McNair Center Director Ed Egan sees potential in the future developments of Augusta. A new $60 million building named the Hull McKnight Georgia Cyber Innovation and Training Center (GCITC), built in partnership with the State of Georgia, Augusta University, and others, is currently under construction. It is located on the waterfront, just blocks away from the Broad Street strip. Egan posits that this is the best location for Augusta to try to create a startup scene.

Egan explains, “The GCITC could house much more than just cyber-related innovation. It could be the home to The Clubhou.se and The Innovation Zone, host drop-in offices for incumbents like Booz Allen, and be a place for U.S. Cyber Command and government agencies like the National Security Agency to host competitions and workshops.” Augusta has its own unique challenges, but, with the right approach and leveraging the GCITC, it could build its own unique ecosystem.

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Government and Policy McNair Center Small Business

Crowdfunding

What is crowdfunding?

Crowdfunding is constantly evolving and hard to define. Elizabeth M. Gerber at Northwestern University defines crowdfunding as “an open call over the Internet for financial resources in the form of a monetary donation, sometimes in exchange for a future product, service or reward.” Due to the ease and availability of crowdfunding sites, crowdfunding has changed the way entrepreneurs source funds.

A typical modern crowdfunding campaign begins with a page on a crowdfunding website. The page describes the concept of the project, the fundraising goal and the rewards for backers. Videos, sketches and graphics demonstrate the potential of the idea. From there, backers can donate money in exchange for tiered rewards, usually depending on the amount of money contributed.

History

The first popular online crowdfunding platform, AristShare, launched in 2003 as a way for musicians to receive funds to produce new music. Artists could offer incentives to investors, like exclusive access to content or previews. This reward-based structure made the deal appealing to both artists and contributors.http://i.vimeocdn.com/video/590376642_1280x720.jpg

After the success of smaller, niche-based crowdfunding sites like AristShare, larger and broader sites took hold of the crowdfunding scene. Two of the most successful, Indiegogo and Kickstarter, were founded in 2008 and 2009, respectively. Kickstarter boasts that since their founding, more than 12 million people have contributed funds to entrepreneurs, pledging more than $2.9 billion. Indiegogo is similarly successful, raising more than $1 billion from 11 million backers.

A crowdfunding project meeting its goal does not always mean that the project will be successful in the long run. Crowdfunding campaigns can be successful if their product seems exciting to backers, but if their business plan is not sound, then it is hard to maintain success beyond the initial crowdfunding. For example, one of Indiegogo’s most popular campaigns, a high-tech smartphone concept called the Ubuntu Edge, was unable to go into production due to financial issues even though the project had raised the second highest amount of money in Indiegogo’s history.

In 2015, Crowd Expert estimated that the crowdfunding industry was worth approximately $17.25 billion. In comparison, Venture Capital in 2015 was estimated at $58.8 billion.

Successes and Failures

The most basic measure of success for crowdfunding campaigns is whether the project reaches its goal. Research from Ethan Mollick at the Wharton School of the University of Pennsylvania indicates that being successful in a crowdfunding campaign requires strategic planning. “Crowdfunding projects mostly succeed by narrow margins, or else fail by large amounts,” Mollick asserts. Kickstarter’s records back up this claim. Kickstarter’s success rate is only 35.72 percent, meaning that only about one third of projects reach their goals.

Researchers at Northwestern attempted to understand the dynamics of successful crowdfunding campaigns. Using data from previous Kickstarter projects, they used machine learning to try to predict the success of projects. Their algorithm analyzed different factors of project pages, considering aspects like number of sentences in project description, length of campaign, goal of project and number of rewards available, among others. The accuracy rate for this research was 67 percent. This research shows that although some factors can success in some cases, there is no exact recipe for a successful campaign. The researchers explained, “There is a possibility of the existence of a hidden variable that would help us classify better.”

Nonetheless, certain crowdfunding projects receive immense support and go on to experience long-term success through being acquired, undergoing an IPO or surviving as an independent business. The most successful Kickstarter campaign of all time, a smartwatch called Pebble Time, was able to raise over $20 million even though the initial goal was only $500,000. Pebble produced and shipped over 2 million watches before shutting down operations in December 2016, selling its key assets and intellectual property to Fitbit. Indiegogo has also seen projects that turned into profitable businesses, like the Flow Hive and the SONDORS Electric Bike. Both of these startups have grown since their campaigns and expanded their product lines.

Economic Implications

Crowdfunding might be an effective way to use private action to stimulate the economy and help small businesses and startups. For individuals who have difficulty initially accessing angel investment, venture capital or bank loans, crowdfunding can provide an alternative. A successful crowdfunding campaign can enable small businesses to access these more traditional types of funding later in their lifetimes.

A study in 2015 in the Thunderbird International Business Review qualified crowdfunding as a Fast-Expanding Market. FEMs are characterized by youth, rapid growth and highly lucrative results. Crowdfunding encourages virtual “formation of clusters of expertise and capability,” encouraging collaboration across the world. Adding to the “efficiency and productivity in the community value chain,” researchers also speculate that crowdfunding has the potential to bring Small and Medium-sized Enterprises (SMEs) out of sluggish growth rates.

Crowdfunding Policy

Equity crowdfunding allows investors to purchase a small equity or bond-like share in a business.

In 2011 and 2012, mainstream media brought attention to the Facebook Problem. Facebook filed complaints regarding the threshold on private investors that a company could have without registering with the Securities and Exchange Commission. Facebook considered the threshold, 500, far too low. In response, the SEC’s JOBS act in 2012 raised this threshold to 2000. Although this policy change initially intended mainly to help companies like Facebook, it inadvertently affected equity crowdfunding positively. The regulations allowed more investors per equity crowdfunding campaign.

In May 2016, another SEC regulation update gave equity crowdfunding sellers and investors even more leniency. The new policy exempted small crowdfunding operations from certain SEC regulations on investing. To qualify for exemption, issuers may only raise up to $1 million in crowdfunding per year; investors can only contribute a certain percentage of their income per year. The SEC also regulates the extent to which crowdfunding portals can involve themselves in users’ crowdfunding transactions. Although equity crowdfunding may help small businesses get initial capital, it may affect the firm’s ability to raise follow-on funds later in the process.

Nonetheless, there are still other crowdfunding policy issues that the SEC may need to address. The updated regulations place a financial burden on portals, holding them liable in certain cases of issuers not keeping promises. They may also pay too little attention to the size of businesses/individuals that use crowdfunding to raise funds.

Conclusion

Crowdfunding has potential to shake the dynamics of investment in the coming decades. We need to ensure that the regulations surrounding this market are desirable for investors, issuers and crowdfunding portals.

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McNair Center Small Business Women

Startups of the Season

While the holiday season approaches, educational toys are in high demand. Some of the most innovative new toys are produced by startups. For many of these toys, they began with an entrepreneur who saw a need to integrate play and learning.

According to the most recent statistics, the United States toy market is worth $21.18 billion. In 2015, the industry surpassed growth expectations, which is especially impressive when compared to the overall retail industry, which grew 0.7 percent less than expected. The toy industry’s prosperity is drawing in entrepreneurs who are enticed by potential for high earnings. Although there are many start-up-developed toys on the market, here are some that have received waves of public support.

Robot Turtles

In 2013, father Dan Shapiro decided to teach his four-year-old twins how to program. Improvising, he created a game using printed pictures from his computer, which led to the creation of Robot Turtles, a board game designed to teach preschoolers how to program. After noticing how much his children enjoyed the game, Shapiro took time away from his job at Google to develop the game full-time.

Robot Turtles utilizes kid-friendly challenges and elements that teach the fundamentals of computer programming while kids play. Children do not even need to be able to read.

After the idea was ready, Shapiro took the idea to Kickstarter, an online community that funds creative ideas. The site connects creators to backers who can provide funds to get a project off the ground. With Robot Turtles, Shapiro set a funding goal of $25,000 so that he could produce his first set of games. Support was incredibly strong, meeting this goal 5 hours after being released. In the funding period of 24 days in September 2013, Robot Turtles managed to draw in 13,765 backers. The most-backed board game in Kickstarter history, Robot Turtles raised a whopping $631,260 in that short period.

By August 2014, Robot Turtles was in every Target store in America. Now, Robot Turtles continues to thrive. An interactive eBook, coloring sheets, and other add-ons were developed to supplement the game.

Roominate

When Alice Brooks and Bettina Chen began their master’s program in engineering at Stanford University, they were two of the few women within their program.

In response to this gender gap, Chen and Brooks partnered up to create Roominate, a building toy designed for girls. Roominate sets include many modular and mechanical pieces that allow girls to explore their interests in design and engineering through play.

Roominate began on Kickstarter in 2012, raising $85,964. The project page highlighted their goal with bold lettering, “We believe that early exposure to STEM through toys will inspire change.”

Later, the product was also featured on Shark Tank, an ABC show where inventors pitch their ideas to successful investors in order to get funding, in September 2014. In the episode, investors Mark Cuban and Lori Greiner decided to partner with the organization.

After a few years with successful growth, Chen and Brooks took back to KickStarter in 2015 to fund development of a new product line for Roominate, “rPower,” featuring new modular wire pieces. This addition makes building and using the circuits easier for children. The Kickstarter campaign was extremely successful, raising over $50,000.

Roominate has grown quickly and is now found in over 5,000 retail locations around the world.

PopUp Play

Argash, https://commons.wikimedia.org/wiki/File:Austin_Evening.jpg
Home to PopUp Play, Austin is growing as a startup hub in the United States.

Home to PopUp Play, Austin is growing as a start-up hub in the United States.Not surprisingly, innovative Educational Toy start-ups can also be found in Texas. In Austin, married couple Bryan Thomas and Amelia Cosgrove have found a niche in harnessing children’s creativity.

PopUp play utilizes an iPad app to let children design the play fort of their dreams. The company then produces an assemblable fort out of corrugated fiberboard and delivers it in as little as a week. There are also plans to expand the iPad app so it can be used to supplement the play experience once the fort has been assembled. For example, the company is looking to develop a Submarine fort template along with a virtual periscope on the app to search the imaginary seas.

Like Robot Turtles and Roominate, PopUp Play found its start on Kickstarter. During a 32-day period beginning in May 2015, 135 backers provided $25,676 to help make PopUp Play a reality.

But that was just getting started. The team then began working with Capital Factory, a collaborative workspace and Accelerator Austin, Texas. They later also found allies in Techstars, an Austin Accelerator where they participated in a three-month mentorship program.

Since then, they have received waves of recognition, including being named one of the top 50 Best New Apps for Kids by Apple in 2015 and an American Airlines Innovator in June 2016. The company also won the top prize in its category in the South by Southwest Accelerator Competition in March 2016. This demonstrates that there is large potential for success. PopUp Play is also supported by high-profile investors, including Capital Factory, Silverton Partners, Floodgate, and Techstars.

Supporting Startups for the Holidays

Entrepreneurs tend to be passionate about their products and creative in how they make them a reality. Parents who are hoping to find fun, educational toys for their children can look to startups to find some of the most creative, innovative products on the market.

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McNair Center Small Business

Small Business and Overtime Regulation

Clocking in: Small Business and Overtime Regulation

What is the New Overtime Regulation?

frustrated workerOn December 1, 2016, the Labor Department will officially institute new regulations on overtime eligibility for workers. Announced on May 17, the new rules require business owners to pay salary workers earning up to $47,476 a year time-and-a-half overtime pay when they work more than 40 hours during the week. This new regulation will be updated every three years to adjust for average pay in the United States.

Federal employment law stipulates two different ways for employees to receive overtime pay. First, if the employee is not an executive or a professional with decision-making authority they are eligible. Second, if the salary of an employee is below a certain amount, that employee can receive overtime pay.

Who is Affected?

While the Labor Department calculated that the new law will affect 4.2 million workers, the Economic Policy Institute estimates that this new regulation will affect 12.5 million employees. That is 23% of salaried workers. The institute expects these new rules to affect over one million Texans.

The new overtime rule will apply to any business that is subject to the Fair Labor Standards Act. This includes any business with sales of at least $500,000, or employers involved in interstate commerce. The National Federation of Independent Businesses says that the requirements will affect around 44% of US business with fewer than 500 employees.

History of Overtime Pay Regulations

The 1938 law that began federal minimum wage also started the overtime rule. While the government has raised the overtime pay salary cut-off several times over the years, the current cut-off is at $23,660. Vice President Biden noted that that more than 60 percent of salaried workers qualified for overtime in 1975 based on their salaries, but only 7 percent do today.

Complying with Regulations

To comply with these new regulations, employers will have to track employees work hours, even those of salaried employees. This change can involve costly adjustments as employers may have to buy new systems and spend time on regulatory compliance. Additionally, employers may have to change the way they manage their labor budget. Failure to comply can result in lawsuits or penalties.

Employers will most likely respond in a couple of ways. Some employers will choose to limit their employees’ work hours to avoid paying overtime. Others may hire additional workers and divide up existing jobs. Additionally, employers could raise the pay of employees whose salaries are close to the cutoff to avoid paying overtime work. Or employers could cut salaries of workers with the hope that overtime will make up the difference in income.

Oxford Economics predicted that a “disproportionate number[s] of workers” [that] became eligible for overtime and worked more than 40 hours would see their hourly rates decreased by an equal amount, leaving their total annual earnings unchanged.” On the other hand, the Institute for the Study of Labor, said that base wages would fall somewhat over time, but that the higher overtime payments would more than offset any loss in regular salary levels.

Positive Aspects of the New Regulations

The new regulations could potentially have positive effects on the labor force. Goldman Sachs and the Economic Policy Institute estimate that the new regulations will create about 120,000 jobs.

The main argument, however, it is only right for employees to earn overtime for working over 40 hours. Vice President Biden and other supporters of the change present the idea of fairness as the main positive aspect of the new regulation. The Obama Administration hopes that the rule change will give middle-class families additional income.

Negative Aspects of the New Regulations

Despite the potential for positive effects, the new regulations could bring numerous negative consequences for employers.

The new regulations will immediately require employers to keep track of employee attendance and hours. This tracking will impose implementation and operation expenses, which may be prohibitively high for smaller and less profitable firms. Payroll reclassification for small businesses can also be time consuming and expensive. Business owners must also figure out whether their workers are exempt from the new requirements. Misclassification can result in lawsuits and penalties. And, of course, small businesses may face increased payroll expense.

All of these changes can be costly for small businesses to implement. A study by the National Retail Federation estimated employers could end up having to pay as much as $874 million to update payroll systems, convert salaried employees to hourly wages and track their hours. The potential costs have not gone unnoticed; the National Federation of Independent Businesses filed a petition to delay the implementation of these new rules. Otherwise, the new regulation may drive some small firms out of business.

Hurting Workers

This new measure could even hurt employees by giving workers less flexibility, hour cuts and decreased morale. Salaried employees often enjoy flexibility in working hours that can allow them a certain amount of freedom. This flexibility is about to become more expensive as employees are required to record every hour of their work. Being a salaried employee, rather than per-hour labor, also has positive psychological benefits. Employee morale may therefore drop. Finally, employees will soon run the risk that their employers will cut their hours to avoid paying overtime.

Jobs may be created by this regulation. However, most of those new jobs could come from cutting a full-time job in half to avoid paying overtime. Coordinating two people to do one person’s job will make America’s workforce less productive.

Room for Improvement

These new regulations disproportionately hurt small businesses. It may be important to respect the rights of workers to earn more money for overtime. However, the government must find a solution to help low-income workers without imposing a burden on small business owners.

A step in the right direction would be to institute this new regulation in phases. The overtime income cutoff change from $23,660 to $47,476 is a huge difference. But unless government offsets these costs, perhaps by lowering taxes on small businesses, this new policy will discriminate against the 28 million small businesses that provide more than 8 million American jobs.

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McNair Center Small Business

Big Problems for Small Practices

Big Problems for Small Practices: Examining the Effect of the Affordable Care Act on Entrepreneurship in the Healthcare Field

doctor-1461911946b29The doctor-patient relationship is an important aspect of healthcare. Small physician practices, offices with no more than a couple doctors, have been the long-standing foundation of this relationship. Unfortunately, legislative changes disincentivize doctors from being small business owners.

The Health Information Technology for Economic and Clinical Health Act (HITECH) and the Affordable Care Act (ACA) have discouraged physicians from starting their own businesses. They have done so by differing reimbursement rates and requiring unreasonable electronic medical record requirements. These conditions have decreased entrepreneurship in the healthcare field. A 2014 Physicians Foundation study found that among 20,000 U.S. doctors, only 35% described themselves as independent, not employed by a hospital or large group. This is a change from the 49% in 2012 and the 62% in 2008. Doctors now overwhelmingly choose employment at hospitals where they have less overhead, less administrative responsibilities, and better pay.

Reimbursement Rates

Reimbursement rates for Medicare actively discourage private practices. The government pays hospitals at a higher rate than independent offices for the same services. For example, the government reimburses hospitals $749 for heart scans but only gives small practices $503. Additionally, hospitals receive $876 but independent practices only get $402 for colonoscopies.

Electronic Medical Records

The required use of electronic medical records (EMR) increases administrative burdens and may decrease the quality of patient care.

Introduced as part of HITECH in 2009, EMRs were intended to increase efficiency, care coordination, and quality of patient care. Despite the apparent positive effects of EMRs, installation, maintenance, and training costs all serve as barriers to use.

The National Ambulatory Medical Care Survey found that quality of care was no different with the use of an EMR. The required system comes with an average cost of $163,765 for a single practice. For small practices this cost may be prohibitively expensive. As this is a fixed cost, it is cheaper to share the costs across multiple physicians, which incentivizes doctors to work at hospitals or large practices.

Meaningful Use and Quality of Care

Also introduced in HITECH, and further encouraged in the Affordable Care Act are “meaningful use” and “quality of care” measures. Meaningful use involves inputting specific codes that correspond with patient diagnosis into the EMR system. Many doctors find this a tedious process. However, they often have to spend a lot of time on it or risk losing a percentage of their reimbursements.

Quality of care involves the EMR system picking out documented points that are entered in a patient’s exam. It then calculates an improvement percentage that it requires doctors to meet. This is measured through filtering for certain code words or confirming that patient results are as good as the quality measure requires. For example, a month after cataract surgery, unless the patient has a previous condition, the patient should have achieved 20/40 vision.

The government instituted quality of care measures to help standardize patient care. However, this comes at the loss of human interaction between doctor and patient. Furthermore, all patients and their cases are different. Requiring certain points of improvement can be an impractical or impossible for doctors to meet. Quality of care should involve talking to patients and tailoring treatments to their needs, not a pre-defined set of instructions.

Penalties

Filing patient bills and participating in meaningful use or quality of care measures improperly can result in penalties. If a doctor cannot prove “meaningful use” of their EMR, they will receive a 2% deduction in medicare reimbursement. In 2017 the 2% will become a 3% deduction. If a physician even forgets to note that they sent a letter to the patient’s primary care doctor about a diagnosis of diabetes, the doctor can be penalized.

The quality of care requirement may seem beneficial. However, it is difficult for small practices to ensure that they meet the “meaningful use” and “quality of care” requirements. Reductions in reimbursement rates for hard to meet requirements further disincentivize doctors from owning their own offices. Independent doctors do not make as much money by seeing patients but still have to shoulder costs of running a business that hospital workers do not need to pay.

Time Wasted

Due to these new measures, physicians spend just 27% of their time in their offices seeing patients and 49.2% of time completing EMR paperwork. Even in the exam room, doctors spend 52.9% talking or examining patient and 37% of their time doing paperwork. A JAMA Internal Medicine survey stated that family practice physicians reported an EMR-associated loss of 48 minutes of free time per clinic day.

Some doctors who want to meet the regulatory burden while maintaining patient interaction choose to spend money to hire scribes or other technicians. However, this may pose too high of a cost for some small practices.

Benefits of Independent Practices

The close relationship that small practices can build between doctors and patients has shown to be helpful. The CommonWealth Fund found that small primary care practices have a lower rates of preventable hospital admissions. Hospitals or bigger practices may seem better or more efficient. However, the decrease in private practice can lower quality of patient care, increase the cost of health care, and harm the doctor-patient relationship.

Patients do want personal care. In fact, using a concierge health care service, is becoming more popular for those who can afford it. According to the American Academy of Private Physicians, in 2012, there were around 4,400 private doctors. This was a 25% increase from the previous year. This quality time, both in private practices and in concierge services, translates to being able to tailor treatments to patients needs individually.

Hospital Monopolies

The government must remedy the lack of incentive to operate a private practice. When hospitals get together, they can charge higher costs to patients for treatment. This raises the cost to the government for reimbursement rates. Reduced competition and the monopoly power of hospitals is bad for both patients and the government. The Journal of the American Medical Association found that patient costs are 19.8% higher for physician groups in multi-hospital systems compared with physician-owned organizations.

Policy Changes

The U.S. government should find a way to preserve the entrepreneurial spirit of the health profession. Without changes, doctors will lose the ability to start their own businesses as the system is rigged against them. Changing the reimbursement rates to be equal between hospitals and private practices would an important first step. Additionally, improving the requirements of meaningful use and quality of care measures so that they are less difficult to complete would alleviate the burden on private practices.

Overall, the requirements of the Affordable Care Act and other recent health laws should be changed to foster entrepreneurship in the healthcare community, not destroy it.

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McNair Center Small Business

Immigrants and Entrepreneurship

Embracing Immigrant Entrepreneurs

Every day Sharan Gahunia, owner of Raja Sweets in the Hillcroft area of Houston, Texas, sells mithai and other Indian pastries in the shop her father founded over 30 years ago. When Raja Sweets first opened up, there was little South Asian cuisine and culture within Houston, but through hard work and entrepreneurship, South Asian immigrants like Gahunia have helped turn the Hillcroft area into a booming cultural center officially recognized as the Mahatma Gandhi district.

Immigrant entrepreneurs like the Gahunia family are a key factor in American small business and entrepreneurship. 

Where are Immigrant Entrepreneurs from?

Immigrant entrepreneurs are a diverse and growing group. According to statistics from the 2013 American Community Survey, the vast majority of immigrant business owners, 23.4%, originate from Mexico, reflecting the large and long-standing Mexican immigrant population in the United States. The next three countries of origin in terms of raw number of business owners are Korea with 5.1% and India and Vietnam with Houston's Chinatown is home to many immigrant-run small businesses. https://commons.wikimedia.org/wiki/File:MetropoleCenterHoustonTX.jpg4.1% each.

Examining the percentage of business owners by country of origin provides further insight. Iran appears to be the largest exporter of entrepreneurs, with nearly 1/4, or 24.4%, of Iranian immigrants in the U.S. owning a business. The next three countries of origin with the highest rates of business ownership are South Korea with 23.1%, Brazil with 21.0% and Italy with 20.1%.

Educational Extremes and Type of Work

The survey also shows that the distribution of educational degrees among immigrant entrepreneurs is statistically bimodal. 29.8% of immigrant business owners possess a college degree, yet 25.7% of them, the second largest portion, do not have a high school degree. This wide range of educational backgrounds may reflect differences in the immigrant entrepreneur’s countries of origin.

Immigrant entrepreneurs tend to live in the larger states, with 27.8% in California, 11.8% in Florida, 10.7% in New York and 10.5% in Texas. Most immigrant entrepreneurs own either construction or professional service firms, representing 17.2% and 16.7% of all immigrant owned small businesses, respectively. However, the type of work immigrant entrepreneurs engage in is diverse, ranging from agriculture to wind-power generation. A surprising 16.2% of all immigrant owned business fall into the impossible to categorize category “other.”

Small Business Entrepreneurs

In 2012 the Small Business Administration reported higher rates in business ownership and business formation among the U.S. immigrant population as compared to the non-immigrant population. The SBA further found that immigrant-owned businesses tend to export to the global market at a disproportionately higher rate as well.

In 2014, the Kauffman Foundation found that the percentage of small businesses owned by immigrants more than doubled from 13.3 % in 1996 to 28.5% in 2014. The foundation also showed that immigrants did as well or better than native-born entrepreneurs with “opportunity entrepreneurship.” Immigrants are skilled at finding and filling market gaps — such as the unmet demand for Indian pastries the Gahunia family exploited.

Research even suggests that immigrant entrepreneurs perform better as compared to non-immigrant entrepreneurs. In a 2015 study, economists Robert Fairlie and Magnus Lofstrom found that immigrants were well suited to entrepreneurship. They listed ties with already existing immigrant populations, high amounts of family savings, and a lack of pre-existing career, as factors the may make immigrant entrepreneurs particularly successful.

High-technology Entrepreneurship

In the world of high-technology, high growth entrepreneurship, the National Venture Capital Association (NVCA) reported that, “If immigrant-founded venture-backed public companies were a country, then the value of its stock exchange would rank 16th in the world, higher than the exchanges of Russia, South Africa and Taiwan.”  These trends hold for privately held venture-backed companies as well. The study found that immigrant entrepreneurs started 30% of these businesses.

Even outside of high-growth start-up firms, immigrants have a strong positive impact in high-technology. For example, the University of Michigan showed that total computer science employment would have been 3.8% between 9.0% lower if immigration were held at 1994 levels.

 

Looking toward the Future

The NVCA study reported that 78% of immigrant entrepreneurs started their business while either on an H1B employer-sponsored or a F-1 international student visa. Overall, there is strong evidence that immigrants perform better as entrepreneurs than native-born individuals and that they are a boon to the U.S. economy. Reforming immigration policy to encourage yet more immigrant entrepreneurs would therefore contribute to America’s prosperity in the 21st century.