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Volume XXIX Number 2
Spring 2007

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The Next Small Thing

Small business is looming large in the U.S. economy. According to the U.S. Small Business Administration, signs of progress in the small-business economy were up across the board in 2005, with a record-high 671,800 new firms created that year.

In Indiana, small businesses come in large numbers too, according to a September 2006 analysis by Rachel Justis, managing editor at the Indiana Business Research Center at IU's Kelley School of Business. Writing in inContext, a monthly online publication of the IBRC, Justis notes that more than half of all Hoosiers who are employed in the private nonfarm sector are working in businesses with fewer than 100 employees.

Using 2004 census data, Justis reports that Indiana gained 1,834 small-business establishments in one year, with the largest share of these entrepreneurial operations (49.7 percent) employing fewer than five workers. Most of these very small enterprises concentrated in three sectors: forestry, fishing, and hunting; real estate, rental, and leasing; and professional, scientific, and technical services. When it comes to the total number of small-business workers, Justis says, "Indiana far outpaced its neighbors (between 2003 and 2004), adding almost 46,000 employees," compared to 10,693 in Michigan, for instance, or 11,703 in Illinois.

Still, small business is hardly a sure thing. The very definition of entrepreneur means someone who undertakes risks, and the SBA reports that 544,800 small businesses closed in 2005. Learning how to manage the risks is at the heart of the Kelley School of Business's top-rated entrepreneurship programs, offered through the Johnson Center for Entrepreneurship and Innovation in Bloomington.

IU Bloomington's entrepreneurship MBA program has been named a national model by the U.S. Association for Small Business & Entrepreneurship, and in an annual ranking conducted jointly with The Princeton Review, Entrepreneur magazine includes the graduate entrepreneurship programs among the top 10 in the country. Noting that IUB's entrepreneurship MBA is "both for students who want to become entrepreneurs and those who want to become managers in innovative organizations," the magazine cites the program's offerings in areas such as the life sciences, where entrepreneurship students work with researchers in medicine and the sciences to explore the commercial viability of their discoveries. Among the program's other offerings is the study of "social entrepreneurship"—applying entreprenurial practices for social, instead of commercial, gain. The social entrepreneurship program is operated jointly through the Kelley School and the School of Public and Environmental Affairs in Indianapolis and Bloomington.

Overall, more small-business entrepreneurs could mean good things for the United States, particularly for America's charities. In a 2006 study of high net-worth philanthropy conducted with the Bank of America, IU's Center on Philanthropy determined that "households with net worth coming from entrepreneurship gave much more than all other sources of wealth." High net-worth households with 50 percent or more of their net worth coming from entrepreneurship contributed an average of $232,206 to charity. In contrast, households with 50 percent of their net worth coming from real estate contributed an average of just $11,015.

"If I inherit a lot of money, I may feel a fiduciary obligation to preserve the corpus," said Patrick Rooney, director of research at the Center on Philanthropy, in an interview with CNNMoney.com. "But a person who creates wealth, a risk-taker, says ‘If I lose it all, I can go out and create it again.'"

—L.B.