A new Kauffman Foundation study shows that while Cleveland's startup activity for micro-businesses is up, the rate at which businesses are started in relation to the population lags the national trend.
CLEVELAND, Ohio - Small-business activity is on the rise in 49 of the 50 U.S. states, and in the top 40 largest metropolitan areas this year -- including Cleveland-- according to two new reports from the Kauffman Foundation.
"This obviously is good news given that these small businesses make up 63 percent of all employer firms nationally," said E.J. Reedy, director in Research and Policy at the Kauffman Foundation.
The new Main Street Entrepreneurship Index released Thursday, is an indicator of small-business activity that includes trends over the past two decades. The report for Cleveland, however, shows mixed results in two categories:
- The index measures both the rate of business owners in the economy - the percentage of adults owning a business in a given month, and established small business density.
- It also tracks the ratio of established small businesses at least five years old with up to 50 employees, compared to the population.
The top five metropolitan areas for small-business activity, as measured by the index, were New York; Boston and Providence, Rhode Island tied for second place; San Francisco; and Portland, Oregon.
Of the top 40 metro areas, Nashville, and Charlotte, North Carolina, were the only two to see a decline in small-business activity. Cleveland ranked No. 12 on that list of 40 metro areas.
The number of business owners varied widely across metropolitan areas, ranging from approximately 3,810 business owners for every 100,000 adults in the Cincinnati metropolitan area to nearly 8,690 business owners for every 100,000 adults in Miami.
Reedy said what really stands out for Cleveland is that while startup activity for micro-businesses - with one to four employees - is up, the rate at which businesses are started in relation to the population lags the national trend.
"Nationally, the rate of business ownership is about 6 percent and what you see in Cleveland is quite a bit less. For 2015, it was 4.66 percent for every 100 residents in Cleveland," he said. "That means a little less than five people are business owners for every 100 residents in the area. That's fairly similar to other Midwest states.
"How I would read this measure is that there are a lot of established family businesses in Cleveland," he said.
The Kauffman Index of Entrepreneurship is the first and largest index tracking entrepreneurship across city, state and national levels for the United States, according to Kauffman. They use data from the Census Bureau and the Bureau of Labor Statistics.
Reedy said a lot of the growth in this market is coming from smaller businesses since the most recent recession - even micro-businesses. In 1996, smaller businesses represented 45.4 percent of the business owners in this region. But in 2012 it went up to 50 percent.
"It's really an indicator that as the economy bounces back, it's more with the smaller businesses," he said.
The index also presents demographic characteristics of the business owners.
"It's not entirely unique, but you see over time that in the Cleveland market a huge portion of business owners are Baby Boomers ages 55 to 64 years old. The second largest group are ages 45 to 54," Reedy said.
That's common nationally. Fewer young adults are starting their own businesses than they have in 24 years, according to a report in the Wall Street Journal this year. Only about 3.6 percent of adults under 30 who head their households own a stake in a private company, down 7 percent from 1989 and about 6 percent from 2010. The data in that report underscores financial challenges and a low tolerance for risk among people under age 30.
"As you look at Cleveland and looking forward, with having so many business owners trending older, I think you're gong to have local concerns with business transitions like selling a business or passing them on to another family member," Reedy said. "But that's something that can change."
Bonnie Troyer, 49, launched HR Strategies & Solutions last year, her "second act" after working in HR for a global company for 18 years Bonnie Troyer, principal and human resource consultant, started her own HR business in 2014 after 18 years of working as an HR manager for Swagelok, a global manufacturer.
She says she's always known she wanted her second act to be working for herself as an entrepreneur. But there's no way she would be in a position to help small and mid-size businesses without experiences she gained from working on so many diverse projects for a major corporation.
"I've had an outline of a business plan years before I left the company," said Troyer, 49, owner of HR Strategies & Solutions. "I worked with a lot of projects at Swagelok that allowed me to have experiences I needed to be successful in this business."
"The key was getting myself out of my comfort zone and building relationships. I love what I'm doing. Small and midsize companies are what makes the economy tick," she said.