LegiStorm

Summary:

Entrepreneurship generally refers to “an action, process, or activity that involves the startup and growth of a new enterprise.” While the umbrella of what may be considered entrepreneurship is large, in this report, the term refers to the creation and growth of a new business enterprise, especially one that provides economic growth or development. Entrepreneurship may be carried out by an individual business owner starting a new endeavor or within an existing firm that develops a new product, service, or process. In the United States, an average of 4.1 million businesses are started annually. Research indicates that the average annual cohort of startups “creates a total of 3.0 million jobs in the first year after startup and employs 2.6 million workers five years later.” With recent improvements in data availability and quality, researchers confirm that entrepreneurial firms are responsible for net job growth in the United States. This clarifies previous research, which credited small (but not necessarily young) businesses as driving job growth. Entrepreneurial firms are also associated with facilitating innovation, technological progress, and the transfer of knowledge. However, not all startups create jobs; a small number of young, high-growth firms and knowledge- and technology-intensive (KTI) firms contribute disproportionately to net job creation and other economic outcomes. Many view the cumulative impacts of entrepreneurship across various industry sectors as contributing to expanded market competition and the national economic base. Additionally, entrepreneurship development is a core component of many regional economic development plans, due to both its potential to create jobs and contribute to other economic activity. For some practitioners and policymakers, entrepreneurship offers an alternative to traditional business recruitment-based economic development strategies. Congress and executive agencies have sought to promote business development for decades, and those efforts have traditionally been through broader approaches, arguably focused less directly on entrepreneurship. For example, Congress and executive agencies have long supported small businesses, including through agencies such as the Small Business Administration. Although small businesses and entrepreneurial firms may share certain characteristics, the two are distinct. The defining characteristics of entrepreneurial firms are that they are generally younger and are associated with identifying and exploiting new products, processes, or markets. Policymakers may seek to distinguish between entrepreneurial firms and small businesses and consider whether to address the two with distinct policy pathways. In recent decades, federal policies have incorporated support for entrepreneurship in addition to—or as an alternative to— longstanding economic development programs that have previously focused on infrastructure and business development, particularly small business development. Due to the job creation and economic impacts associated with young and KTI firms, recent federal policies have further focused on assisting these types of firms. Congress may be interested in expanding entrepreneurial support activity depending on its priorities and policy objectives (e.g., job creation, innovation, energy transition, national competitiveness, regional diversification). Congress may also consider focusing on the establishment and growth of particular sets of entrepreneurial firms—such as those more likely to result in especially high growth and employment—or providing support for all entrepreneurs, including those whose activities may contribute to more modest or sustainable economic growth. Experts suggest that entrepreneurial support policies should be informed by an understanding of the distinct types of entrepreneurial firms, their unique needs, impact, and likely growth trajectories. As such, policymakers and practitioners may seek to further analyze specific business formation, business survival, and job creation data and trends, and how they correlate with expanded entrepreneurial activity, if at all.