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Minnesota Economic Trends. Entrepreneurship and Economic Growth

The impact of entrepreneurship on economic growth is far more pervasive than is generally acknowledged. Although only one in 20 entrepreneurial firms are high growth in terms of adding jobs (National Commission on Entrepreneurship, 2001), the firms that survive the first couple of years contribute not only jobs to the economy but also innovative goods, services and processes. Therefore, it is beneficial for communities to identify these firms and target them in economic development strategies. A business retention and expansion project aimed at entrepreneurial businesses, for example, could prove very fruitful. But how does one go about identifying them when they’re found across the economy in all industries? While the data to identify entrepreneurial industries and characteristics are limited at present, we know a lot about entrepreneurship, and our information is rapidly improving. This article will summarize what we know about the characteristics of entrepreneurial firms.

Entrepreneurs perceive and pursue new opportunities What distinguishes entrepreneurial ventures is that they are based on a perceived new opportunity—a new product or service, a different management of operations, or a new market. Entrepreneurial opportunities could arise anywhere in the value chain, from suppliers to service-after-the-sale, and in any industry (Shane and Eckhardt, 2003).

For the purpose of studying entrepreneurial firms, entrepreneurship is defined as the creation, or birth, of a new business or enterprise. By this definition, entrepreneurship does not include changes in business ownership, relocations, or secondary locations, such as chain establishments or branch plants which are not motivated by the pursuit of newly discovered market opportunities. Also excluded are entrepreneurial activities where existing businesses are used to pursue new opportunities identified by employees, so-called “intrapreneurs.” Moreover, small firms—firms with fewer than 20 employees—are the stock vehicles for entrepreneurship because the entrepreneur has the controlling stake. Large firms often mimic small ones with operating units, subsidiaries, and joint ventures to promote corporate entrepreneurship, even though they have the resources to go big, but for the purpose of this article they do not meet the definition of an entrepreneurial firm. Entrepreneurial firms are often associated with high tech or information technology industries, however, they are, in fact, located throughout the economy.

By Anthony Schaffhauser

Full Story: http://www.deed.state.mn.us/lmi/publications/trends/1105/growth.htm

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