Do Whites and Wealthy Have a Start-Up Edge?

Do Whites and Wealthy Have a Start-Up Edge?


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

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

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"
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 administrator.

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

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 launched.

Reinventing rural America

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

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 technologies."

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