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Understanding Business Dynamics: An Integrated Data System for America’s Future
implementation of a going business (Fairlie, 2006). It may be that modest adjustments to the Current Population Survey or other ongoing household-based surveys, such as the American Community Survey program, would provide a basis for estimating the participation of U.S. adults in activities associated with the creation of new businesses.7
An ongoing research program—the Global Entrepreneurship Monitor (detailed in Appendix A), which collects data on various aspects of entrepreneurship through a series of coordinated household surveys in a number of countries—has produced operational definitions of start-up transitions. Representative samples of adults have been used to locate individuals that appear to have initiated the creation of a new firm, either on their own or for their employer. Three criteria are used to identify nascent entrepreneurs: (1) they consider themselves involved in new firm creation, (2) they report being actively engaged in behavior to create a new firm, and (3) they expect to own part of the new firm.8 To separate those in the start-up process from those owning and managing new firms, two criteria have been developed to represent the “firm birth” transition. The operationally more complex one is to identify those that report positive monthly cash flow covering all expenses and salaries for more than three months; a slightly simpler version identifies those reporting salaries and wages paid to the owners for more than three months. There is some correspondence between these criteria and those commonly used to identify new entrants in business registers maintained by the IRS, BLS, Census Bureau, and Dun & Bradstreet. However, inclusion in these registers takes place at different stages of the firm creation process, reflecting considerable variation in the sequence of major start-up events—for example, significant financial investments, hiring the first employees, expenditure on capital and operations, initial sales, and initial profits (Reynolds, 2007).
It has been suggested that, for venture capital-sponsored firms, revenue generation happens, on average, later in a firm’s start-up phase than employment creation (Kaplan, Sensoy, and Strömborg, 2005). In such cases,
Substantial work on effective, cost-efficient procedures for identifying nascent entrepreneurs in household surveys has been completed as part of the University of Michigan administered the Panel Study of Entrepreneurial Dynamics (PSED) research program (http://www.psed.isr.umich.edu). Screening completed to identify the PSED II cohort in the fall of 2005 involved adding a 2-minute module to 34,000 household interviews to locate 1,200 active nascent entrepreneurs (a yield of about 35 nascent entrepreneurs per 1,000 households, and about 2,000 minutes of interview time).
These criteria have been employed in dozens of samples in the United States and in over 40 different countries in all stages of development. For U.S. applications, see the appendices in Gartner, Carter, and Reynolds (2004); for cross-national procedures, refer to Reynolds et al. (2005).