A shifting entrepreneurial landscape in North Carolina

A snapshot of small-business activity in North Carolina during and in the immediate aftermath of the Great Recession can be created using preliminary results from the U.S. Census Bureau’s 2012 Survey of Business Owners. This is possible because the previous survey was conducted five years earlier – prior to the onset of the worst economic downturn since the Great Depression – in 2007.

In 2012, there were 805,985 small businesses in North Carolina – 7,194 or 1 percent more than existed in 2007. Sales and receipts totaled $847 billion in 2012 – 3.6 percent or $29 billion higher than the $818 billion small businesses generated in 2007.

These aggregate statistics mask some fairly significant shifts in small-business activity in North Carolina between 2007 and 2012:

▪ First, firms with paid employees declined by 11,788 or 7 percent, and their share of all firms dropped from 21 percent to 19 percent between 2007 and 2012. Overall firm growth, therefore, was driven by firms without paid employees, which increased by 18,982 or 3 percent. This individual/sole proprietor firm growth was, in all likelihood, part of the so-called freelance or “gig” economy that expanded during and following the Great Recession. Aspiring entrepreneurs hung out their shingles – some out of necessity, others for a variety of non-economic reasons – to take advantage of contractual or on-demand business opportunities as larger firms increasingly outsourced noncore functions to remain viable, profitable and competitive during the economic downturn.

▪ Second, nonminority, mainly white-owned firms declined by 25,396 or 4 percent between 2007 and 2012. But this loss was offset by a 40 percent increase in minority-owned firms – an absolute increase of 52,531 enterprises – during this period.

Sharp absolute increases in black- and Hispanic-owned firms (28,314 and 13,749, respectively), combined with modest absolute increases in Asian- and some other race-owned firms (7,464 and 4,124, respectively) were responsible for this minority enterprise growth. Among Asians, firm growth was notably concentrated among Vietnamese (2,729), Chinese (1,697), Koreans (1,056) and Asian-Indians (904). Among Hispanics, it was concentrated mainly among Mexicans (4,657) and Puerto Ricans (2,610).

Sales and receipts also grew more rapidly for minority-owned (46 percent) than nonminority owned (25 percent) firms between 2007 and 2012. Most notable was the increase in sales and receipts for Asian-owned enterprises – 71 percent for all firms, 75 percent for firms with paid employees and 42 percent for firms without paid employees. Corresponding statistics for white-owned firms were 25 percent, 28 percent and -2 percent, respectively, during this period.

▪ Third, female-owned firms grew much faster, in both absolute and relative terms, than male-owned enterprises (63,000 or 28 percent versus 19,000 or 4 percent). In part, as a function of this rapid firm growth – which was driven principally by white and black women – sales and receipts of female-owned firms increased by 27 percent – just slightly lower than the rate of increase for male-owned firms (32 percent).

▪ Fourth, in contrast to minority- and female-owned firms, enterprises that were “equally owned” did not fare well during the Great Recession. In absolute numbers, all types declined: equally male/female-owned (-57,823), equally veteran/nonveteran-owned (-16,388), equally nonminority/minority-owned (-3,292) and equally Hispanic/non-Hispanic owned (-1,163). The reasons are unclear but could be related to efforts to weed out bogus companies established to take advantage of supplier diversity procurement programs.

By any number of statistical indicators (unemployment, poverty, housing foreclosures, etc.), the Great Recession wreaked havoc on the North Carolina economy. Clearly, matters would have been much worse were it not for the numerical growth of minority- and female-owned firms and the increased sales and receipts of these businesses between 2007 and 2012.

The key takeaway: As North Carolina continues to nurture and grow an innovation economy, conscious and concerted efforts to be more inclusive of people of color and women will likely yield big socioeconomic dividends. Such efforts also will allow the state to avoid the types of criticisms that have been lodged against Silicon Valley for the lack of diversity in its creative economy.

James H. Johnson is the William R. Kenan Jr. Distinguished Professor of Strategy and Entrepreneurship at the University of North Carolina Kenan-Flagler Business School.