Do Whites and Wealthy Have a Start-Up Edge?

Do Whites and Wealthy Have a Start-Up Edge?

By KELLY K. SPORS / WSJ’s Small Business

Editor’s note: Memos is a weekly roundup of news
and tidbits about small business and entrepreneurs by columnist Kelly
Spors. Ms. Spors also answers reader questions in Small Talk Q&A.

Wealth and race affect start-up rates

Being white and wealthy means you’re more likely to
get your business off the ground, according to a new study released by
the Small Business Administration’s Office of Advocacy.

The study
found that wealthy nascent entrepreneurs — those in the top 25% of
U.S. income distribution — were four times more likely to open a
business than nonwealthy nascent entrepreneurs. It also compared the
start-up rates of nonwhites with whites, concluding that minorities
were 55% less likely to start a business than whites.

Researchers hoped to better grasp the role wealth and
race play in predicting the likelihood of someone becoming
self-employed. They also reviewed other factors, such as whether the
entrepreneurs had a business plan, their educational attainment and
whether they lived in a "high-technology state." But they found little
correlation with those issues and business formation. Having an
entrepreneur as a parent played no role.

The study was conducted by Newark, N.J.-based BCT
Partners and relied on interviews with entrepreneurs between 1998 and
2001 from the Panel Study of Entrepreneurial Dynamics, intended to
better understand U.S. business creation.

Patent reform gets new wind

The Judiciary Committees of both the House and Senate
last week passed two similar bills to reform the U.S. patent system for
the first time in decades. If the legislation gets past the full
Congress and signed into law, there would be sweeping changes to the way patents are granted and protected.

The legislation would make it harder to secure a
patent but easier to challenge one that’s already granted. Reforms have
been pushed by large technology companies like Microsoft, hoping to
stem the number of costly patent litigation suits.

Among the measures: The U.S. patent system would
become a first-to-file rule, like most other countries have, from the
current first-to-invent rule. It would also include a longer period in
which the U.S. Patent and Trademark Office must wait before granting a
patent, to allow for more challengers and provide a opportunity to
challenge a patent through a special board set up at the Patent Office
to handle patent disputes without resorting to court litigation. The
legislation also limits the damages that can be sought in
patent-infringement suits.

Supporters of the patent-reform legislation say they
will cut down on the number of frivolous patent lawsuits and reduce the
time and money companies face fighting patent-infringement cases in
court. Critics — which include many small companies and universities
— counter that the legislation will primarily benefit big companies
and make it easier for them to steal patented ideas.

Firms on a tear

What are some of America’s fastest-growing small businesses?

The latest issue of Entrepreneur magazine lists 500 "fastest growing" businesses based on data from the Corporate Research Board, a Washington, D.C., firm that compiles economic and business data.

Topping the list are DivX, a San Diego digital-media
firm; Laurand Associates, a Great Neck, N.Y., aluminum-products
importer; and SUNRx, a Cherry Hill, N.J., prescription-benefits

To qualify, the businesses must have been founded
between 1998 and 2002, have 2002 sales between $100,000 and $1 billion,
and have positive job growth between 2002 and 2006. The founder must
also be active in the business. About 95,000 businesses met the
criteria and then were ranked by their growth, the magazine says.

If you wonder whether recognizing high-growth firms is
worth the exercise, take a look at the numbers: These firms are big
drivers of the U.S. economy. Entrepreneur says this year’s companies
generated $12.6 billion in 2006 revenues and are expected to employ
58,776 people by 2008 — compared with the 2,807 on staff when they

Reinventing rural America

When people think innovation, they tend to think of
Silicon Valley. But perhaps they should be thinking more about Hidden

A recent paper
by the Federal Reserve Bank of Kansas City explores how rural America
could better use technological innovation to revitalize its
communities. "In the 21st Century, new technologies are emerging in
biological and life sciences," writes Jason Henderson, Federal Reserve
assistant vice president of the Federal Reserve’s Omaha Branch.
"R&D in this new field promises yet another wave of technological
innovations to boost agricultural production."

The Internet, he says, is one way rural economies
could better level the playing field with urban areas, as high-speed
Internet access has proliferated even some of the most sparsely
populated ZIP codes. Internet and email are also making it easier for
business-services firms to operate far from their customer base. (And
there are advantages: Software developers may earn $35 to $40 an hour
in rural areas, compared with $75 to $100 in major cities.)

There are natural barriers to innovation in rural
areas, Mr. Henderson points out. Knowledge sharing and interaction are
less common, because people live far apart, and interaction has
traditionally been a prime driver of innovation. But technology is
making that interaction in rural areas more possible, he says. He says
that the path to boosting economic prosperity in rural America is
"creating networks that support the transfer and adoption of new


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