Who are the new entrepreneurs? Insights on education levels

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Source: http://www.kauffman.org/microsites/kauffman-index/profiles/entrepreneurial-demographics/national?Demographic=Education&Report=StartupActivity

The Kauffman foundation, established in 1966 by the late entrepreneur and philanthropist Ewing Marion Kauffman, focuses on studying entrepreneurship in the USA. Over the past two decades it has been gathering more than 650,000 surveys per year aimed at tracking entrepreneurial activity and the profile of those that engage in it across the nation.

As shown in Figure 1 above, recent estimates indicate increasingly more new entrepreneurs are college graduates – a meaningful change relatively to 1996, a time when most new entrepreneurs were high school graduates.  From 1996 to 2014, the share of new entrepreneurs holding a college degree increased from 23.7 to 33.0 percent while for high school graduates it decreased from 32.3 to 29.5 percent.  Notwithstanding, we still observe today that the vast majority of new entrepreneurs, namely 67 percent, do not have a college degree.

Figure 2. Source: https://en.wikipedia.org/wiki/Educational_attainment_in_the_United_States#/media/File:Educational_Attainment_in_the_United_States_2009.png
Figure 2. Source: https://en.wikipedia.org/wiki/Educational_attainment_in_the_United_States#/media/File:Educational_Attainment_in_the_United_States_2009.png

On one hand, such change could be attributed to the growing supply of college graduates (Figure 2).  On the other hand, new market opportunities require more skills and abilities than ever before thus is not surprising that new entries into entrepreneurship driven by identifying new business opportunities are mostly done by college graduates (Figure 3).

Figure 3. Source: http://www.kauffman.org/microsites/kauffman-index/profiles/entrepreneurial-demographics/national?Demographic=Education&Report=StartupActivity
Figure 3. Source: http://www.kauffman.org/microsites/kauffman-index/profiles/entrepreneurial-demographics/national?Demographic=Education&Report=StartupActivity

An individual’s education level (often loosely referred to as human capital) has long been associated with one’s ability to successfully identify business opportunities (Schultz, 1959), as it comprises accumulated know-how, but especially explicit knowledge. Higher levels of human capital empower individuals to better comprehend reality, minimize uncertainty and maximize the profits of their activities. Consequently, the more human capital an individual has, the greater the ability to spot new business opportunities and act upon it (Davidsson and Honig, 2003).

At the other extreme, the literature as shown that individuals with lower human capital tend to search for business opportunities driven by the lack of employment alternatives (Block and Wagner, 2010). Many end up mistakenly entering into saturated markets (Shane, 2009), thus performing poorly financially, to the extent of not making even as much as the average salaried worker (Tamvada, 2010).

This is where LaunchScore fills the knowledge gap and can be a valuable tool for those looking for business opportunities or the best locations to fulfill their entrepreneurial ambitions. Our machine learning algorithms result from the statistical analysis of more than 600,000 observations on more than 800 business types across 750 cities and are consolidated with socioeconomic theories and facts to produce an educated estimate of the potential yearly earnings (PYE) of your specific choice. Apart from the shameless self-promotion, we are proud to position ourselves as a free interface between the academia and entrepreneurs.