Contributors to one of the world’s most sweeping studies of entrepreneurship have put a stake in the ground by incorporating solo businesses into their research on entrepreneurial ecosystems.
The Global Entrepreneurship Monitor (GEM) 2018/2019 Women’s Entrepreneurship Report, released earlier this month, includes a robust section on solo businesses run by both women and men. It analyzes data from 59 economies, where there are 231 million women starting or running new businesses.
The decision to include solopreneurs in the report is very significant, because both academic research and policymaking on entrepreneurship and entrepreneurial ecosystems have historically focused on job creating firms and scalable startups. (This column is about one-person businesses, so I am focusing exclusively on that subject here, but there are many other interesting findings on women-owned businesses in the report).
Academics and economic development leaders have, for the most part, ignored nonemployer firms as contributors to national economies, even though, in the U.S., for instance, they make up 81% of all small businesses and they employ 17% of all working Americans, according to research by the Fed. When academic study is done on solo entrepreneurs, it tends to focus on the problems of the “gig economy,” which makes up a small percentage of the universe of one-person businesses.
This report may cause some researchers to rethink their approach.
One key recommendation of the report is to “address stereotypes of who and what is entrepreneurship.”
“From an economic development perspective, expanding societal views to a more inclusive vision of entrepreneurship is a critical action that can be supported by all ecosystem participants,” the report says.
The women’s entrepreneurship report is a collaboration between Babson College, Smith College and the Korea Entrepreneurship Foundation. It is part of the prestigious GEM series, where academic researchers at leading institutions around the world analyze data from more than 100 economies.
The authors were: Benjamin S. Baumer, an assistant professor in the Statistical & Data Sciences program at Smith College; Candida Brush, the Franklin W. Olin Distinguished Chair in Entrepreneurship at Babson College and vice provost of Global Entrepreneurial Leadership; Monica Dean, director of the Jill Ker Conway Innovation and Entrepreneurship Center at Smith College; Amanda B. Elam, Diana Institute Research Fellow at Babson College and President/CEO of Galaxy Diagnostics, Inc., a medical diagnostics company in North Carolina; Patricia Green, PhD, who most recently served as the 18th director of the Women’s Bureau of the U.S. Department of Labor and René Heavlow, director of operations and special programs for the Jill Ker Conway Innovation and Entrepreneurship Center and formerly the director of the Center for Women and Financial Independence.
The report’s extensive study of nonemployer firms—those where the owners are the only employees—is likely to bring more attention, by extension, to firms owned by women by policymakers. (Nonemployer firms, as the government calls them, are mostly solo businesses, but some are partnerships or family businesses.)
Women are more heavily represented among owners of nonemployer firms than among employer firms in the U.S., according to the U.S. Small Business Administration. There are a number of reasons. For instance, women have, historically, had less access to types of financing such as venture capital, that is often used to fund hiring in startups. In many cases, they opt to keep their businesses small to balance other, unpaid responsibilities, like caregiving.
Globally, GEM’s Women’s Entrepreneurship Report found, women are more likely to own sole proprietorships than men, with 37.6% of women around the world owning sole proprietorships, compared to 27.8% of men.
But representation by gender varies by country, opening interesting areas for further study.
North America is the only region where male solopreneurs account for more total entrepreneurial activity (TEA) than women. Male solopreneurs are responsible for 32% of total entrepreneurial activity (TEA), compared to women, who account for nearly 29%. (TEA is the percentage of the adult working-age population [18–64] who are either “nascent” – meaning they’re in the first three months of paying someone from the business — or running new businesses past that stage.)
In contrast, male solopreneurs in the Middle East and North Africa—the region where male solopreneurs have the lowest impact on TEA—account for just 12.4% of total entrepreneurial activity, while women solopreneurs in this region account for 20.8% of TEA.
Only five countries are considered to have gender parity in solo entrepreneurship. They are Brazil, Estonia, Latvia, the Republic of Korea and Slavonia.
Generally speaking, the richer the country, the more male solopreneurs influence total entrepreneurial activity—another potentially interesting area for further study. Among high-income countries, male solopreneurs account for 29.8% of all entrepreneurial activity and women account for 38%. In upper-middle-income countries, male solopreneurs account for 28.7% of total entrepreneurial activity and women solopreneurs are responsible for 38.7%. In low and middle-income countries, male solopreneurs drive 13.8% of all entrepreneurial activity while women solopreneurs steer 29.3%.
Policies and access to capital in individual countries play a role in who becomes a solopreneur, the researchers noted. In Brazil, which leads the world in self-employment, solopreneurs account for 81% of total entrepreneurial activity by men and 83% of total entrepreneurial activity for women. Brazil is followed by Ecuador, where solopreneurs account for nearly 52% of total entrepreneurial activity by men and 62.4% of total entrepreneurial activity by women.
The report’s focus on solo firms will likely bring more attention to minority-owned firms in some parts of the world. Within the U.S., for instance, the SBA finds that one-third of nonemployer firms are owned by minorities.
Redefining the role of the solo business
This report is one of the first major ones to thoroughly explore the economic impact of solo businesses. The authors’ summary has the potential to reshape the global conversation on small business and economic development in significant ways. Here is their summary:
“A major tenet of economic development is for entrepreneurs to create jobs when they launch a business,” the report notes. “When entrepreneurs declare no intentions to grow, their businesses may be viewed less favorably because they are not contributing to employment of others. However, there may be good reasons why a business does not grow, including a lack of education and the capabilities needed to expand on the part of the owner. An owner may be using family members to perform work in unsalaried roles, contracting temporary workers for various tasks, or intentionally creating a job for themselves doing something they enjoy. In such situations, their societies may be losing opportunities to create workforce employment or missing out on other benefits from the pursuit of larger, high-growth ventures.
“However, there is more to consider in terms of the impact on society from self-employed entrepreneurs. Self-employed entrepreneurs are, de facto, creating jobs, even if only for themselves, jobs that will often support families. To the extent this form of entrepreneurship reflects work preferences and perhaps work–life balance, a contribution to societal well-being is implied. At the same time, self-employment may be a side business or part-time endeavor that supports an individual who is working elsewhere. Self-employment has the benefit of providing flexibility in allowing one to work when and where it is most convenient, engage in part-time work, and perhaps pursue shorter-term opportunities such as working on specific projects or filling in temporary employment gaps.”
Whether other researchers and policymakers will start devoting serious attention to solopreneurs and their economic impact remains to be seen. But now that this body of data from so many leading researchers exists, it will be hard to justify excluding one-person businesses from any serious study of the entrepreneurial ecosystem in the future without it looking like a glaring oversight.