From the January 2004 issue of Entrepreneur

Fifty years ago, the typical entrepreneur was relatively homogenous and static. He was usually a white man, sometimes working together with his family, who owned a small Main Street retail shop or a local manufacturing company. He knew most of his clients, and his company focused on local goods and services.

Today, much has changed. America's entrepreneurs are much more diverse racially, gender-wise and age-wise, and an increasing number are starting service businesses rather than manufacturing or retail companies. Economists, sociologists and small-business experts say the key trends in American entrepreneurship-growing diversity, an aging work force, a preference for starting companies that fit personal lifestyles, and a move into higher-value, global industries-are only likely to accelerate in the coming years. A decade from now, they say, the entrepreneur of the future will be drastically different from even today's business owners.

The New Face of Entrepreneurship
Perhaps the biggest change we'll see in the entrepreneur of the future is that 2010's business owner is more likely to be a woman or a minority. According to the Center for Women's Business Research, the number of privately held women-owned businesses in America grew by roughly 11 percent between 1997 and 2002, while privately held businesses as a whole grew only 6 percent. Similarly, the Center for Women's Business Research found that more than half of Asian-American and African-American women small-business owners say their firms have grown over the past three years, a significant feat in a down economy. Indeed, Joel Marks, executive director of the American Small Business Alliance, an industry trade group, notes that the number of minorities and women participating in his organization has grown sharply in recent years.

Several factors may explain why more women and minorities are starting companies. Most obviously, the percentage of women and minorities in the U.S. work force is growing as more women work and immigration increases the population of minorities, so their participation in business ownership is naturally rising as well. "Entrepreneurship is still living the American Dream" and thus appeals to recent immigrants, adds Marks.

But more complex factors also come into play. As an earlier generation of minorities began to go into entrepreneurship in the 1970s and '80s, they provided critical role models like Magic Johnson and Oprah Winfrey, who have sparked many more, younger minorities to consider starting their own companies. "There are more minority role models in entrepreneurship [today, so] entrepreneurship is increasingly seen by minorities as an acceptable way to go," says William Bradford, an expert on minority-owned small businesses at the University of Washington, Seattle.

Women and minority entrepreneurs are not only becoming more visible, but they're also becoming more vocal. As these entrepreneurs become more established members of the small- and midsize business community, says Marks, they "want to take on issues beyond the day-to-day [concerns]"-issues such as health-care reform, for example. Marks says more women and minorities now take part in lobbying in Washington or in their state capitals, pushing state governments and the federal government to address entrepreneurs' concerns.

One big concern is access to capital for minorities, who still find it hard to obtain traditional sources of funding, such as bank financing, SBA loans and venture capital. "The main thrust of the VC industry is still dominated by high tech, and there are fewer minority IT firms," Bradford says. But, he adds, minority small businesses are getting more adept at tapping alternative capital networks, such as debt financing and VC firms that focus on minority companies. In the long run, Bradford says, these alternative capital networks will provide minority entrepreneurs with more tools to raise capital. And their future success may convince the mainstream financing industry to invest more heavily in minority firms.

As minority entrepreneurs fight to stand on equal footing with non-
minority entrepreneurs, women struggle to catch up in a still predominantly male arena. America's population of entrepreneurs consists of 1.6 men for every 1 woman, says Heidi Neck, an assistant professor of entrepreneurship at Babson College in Wellesley, Massachusetts. She believes this is partly because universities don't offer classes targeting women who are interested in entrepreneurship.

It's clear women and minorities still have considerable ground to make up. But as their numbers increase, the demographics will force the business community to reassess its biases.

Profiting From Experience

Not only is the U.S. work force becoming more diverse, but it is also aging, as baby boomers reach their 50s, 60s and 70s. As a result, experts say, the entrepreneur of the future is likely to be older, more attuned to the older population's needs, and more willing to trade some income for a better lifestyle. An SBA study released in 2000, "The Third Millennium: Small Business and Entrepreneurship in the 21st Century," notes that the average age of a worker will increase from 35.9 years in 1988 to 40.7 years in 2008. What's more, corporate downsizing over the past 20 years pushed many midcareer workers out of corporate jobs, enlarging the pool of older potential entrepreneurs. The SBA believes that, between 1996 and 2006, the number of self-employed workers will grow by 50 percent, in part because of these older entrepreneurs. This growth probably will occur no matter whether the American economy as a whole tanks or soars.

Because many of these older entrepreneurs come from the corporate ladder, they may not be willing to start businesses that force them to work like maniacs in occupations they don't love. Mark Henricks, author of Not Just a Living: The Complete Guide to Creating a Business That Gives You a Life and Entrepreneur contributing writer, calls these people who shun overwork and prefer jobs that suit their lives "lifestyle entrepreneurs." These are men and women for whom enjoying their personal life is as important as making a lot of money, and who set up companies in places they like, in ways that facilitate family time and in industries they enjoy. "The percentage of lifestyle entrepreneurs will go up [as the population ages because] your typical lifestyle entrepreneur is someone in midlife who is burned out, has skills and resources, and wants to do something more rewarding," Henricks says.

Indeed, Jane Pollak, author of Soul Proprietor: 101 Lessons From a Lifestyle Entrepreneur, says, "I'm part of the graying baby boomer generation. We don't want to play cards [in retirement]. We're saying, 'What can we do?'" More and more boomers are finding the answer in lifestyle businesses, Pollak says.

Nancy Peklo-Nosal, who left a travel agency she was working for to start her own business, providing administrative services to other travel companies, is a member of this lifestyle entrepreneur group. She says a major factor in her decision to start her company, Design Travel Management Group Inc. in Arlington Heights, Illinois, was "wanting to work from home. I'm more free to make my own schedule."

Pollak also believes the recent ethics problems in large corporations have turned people away from big business, driving them into lifestyle entrepreneurship. Indeed, in the future, lifestyle entrepreneurs may be more likely to create socially conscious companies-ones that pay higher wages or devote resources to community activism, for example-because they focus less on maximizing income and more on other goals. And because many lifestyle entrepreneurs are in their middle or older years, they may be more attuned to aging customers' needs. "We'll see more and more entrepreneurs adapting to an aging population," Marks says. For example, he believes more small businesses will offer flextime not only for parents of small children, but also for sons and daughters of elderly parents who need more care.

Technology and the revolution in business supplies will help facilitate lifestyle entrepreneurship in the coming years. Brett Schulte, 36, is a former dotcom worker who went on vacation to Mexico's Baja California and loved the area so much, he moved his family there. In the Baja, Schulte has set up shop as a Web consultant for local resorts. Speaking with Entrepreneur from a remote beach on a radio phone powered by solar energy, he says: "Technology is making geography less important. [VoIP] is enabling me to have a U.S. phone number in Mexico." So clients can call him in the United States and never know he's working from his laptop on a Mexican beach. What's more, because Home Depot and Staples now carry products for roughly the same prices as suppliers to large companies, small lifestyle entrepreneurs can source their supplies at the same low costs as big firms.

Second Chances

By the time he founded his logistics company, Tommy Hodinh had already succeeded in life-just by staying alive. A Vietnamese refugee who arrived in the United States in 1972 at age 18 with limited English skills, Hodinh managed to put himself through college. He then worked for IBM for 15 years, first as an engineer and later as a member of the management team. But the whole time he worked for Big Blue, he knew he wanted something else. "I always wished I had the money to start a company. I had experience, but I didn't have the capital," Hodinh says.

By the 1990s, the barriers to starting a small technology company had dropped considerably. "It didn't cost that much to start a business [anymore]," Hodinh says. "A small office cost a couple hundred dollars [per] month; you could get incorporated for a few thousand dollars. I could start a business with my own savings." In 1990, he co-founded MagRabbit Inc., a software duplication and logistics firm in Austin, Texas. Growth was slow and steady, but six years later, the company was big enough to get a commercial bank loan; now it has more than 100 employees, nearly $10 million in annual sales and clients around the world.

Hodinh has proved to be an example to many other Asian Americans in Texas. "I was the only Vietnamese American in the software business [in Austin] when I started out," Hodinh says. "But now, the Vietnamese- American business community is much larger. I came here when I was 18, and my English wasn't good, but the [Vietnamese Americans] who were born here, they're well-equipped to compete in business."

Here to Serve

Few of these future lifestyle entrepreneurs will start companies in manufacturing or even retail, sectors of the small-business community that are in precipitous decline. Manufacturing alone has lost nearly 3 million jobs over the past five years, and small manufacturers have been particularly hard hit, as they have been unable to compete with low wages overseas. According to a 2000 study by the SBA, by 2010, "the relative shares of employment in the manufacturing and service sectors are expected to be just about opposite of the 1950 levels"; and by 2015, roughly 35 percent of American businesses will be in services. The most recent survey from the Global Entrepreneurship Monitor, a research program-funded by the Ewing Marion Kauffman Foundation and conducted by Babson College-that assesses the national level of entrepreneurship, says that over the next five years, the most highly educated entrepreneurs, who more often start IT or service businesses, will have the most employees.

As entrepreneurs of the future increasingly move into higher-value service businesses, they will also have to attain higher levels of education and interact more with foreign suppliers and customers to succeed. Howard Aldrich, a professor of sociology at the University of North Carolina, Chapel Hill, who has studied entrepreneurship, says that today, education is the key predictor of business formation-people with more education are more likely to start a business. What's more, for a service business to compete in an increasingly global marketplace, future entrepreneurs-in IT, biotechnology, customer service, consulting and other fields-will have to outsource, sell and purchase abroad. The Department of Commerce estimates the number of small companies that export tripled between 1987 and 1997, and small-business experts expect the trend to continue.

Looking to the Future Though the entrepreneur of the future may be more racially diverse, older, devoted to personal and family time, more globally focused, better-educated and more concentrated on services, he or she will still need some core traits to succeed. Alex De Noble, a professor of entrepreneurship at San Diego State University, says, "You need to have certain principles of personality" to succeed in small business at any time.

Indeed, by studying entrepreneurs in a range of locales, De Noble and several colleagues have concluded that successful entrepreneurship requires a certain amount of neuroticism, extro-version, conscientiousness, agreeableness and openness. Neuroticism, De Noble says, leads entrepreneurs to focus on details, while conscientiousness helps them plan. Agreeableness allows them to build external networks crucial for a new company to prosper, extroversion facilitates this network-building, and openness to new ideas is crucial for taking the leap into business ventures. Indeed, De Noble says, 10 or 20 years from now, we will still recognize the characteristics of successful entrepreneurs: Despite the changes in the external business environment, "running a business is still running a business."

Seeing Green

Trisha Anderson was a pioneer. In 1999, in her late 40s, she decided she'd had enough of the corporate life and wanted to try entrepreneurship-in an area that fit her lifestyle. "The life I was living, swept up in the rat race, was making me sick-physically and spiritually," Anderson notes. So she founded mybackyard.com, a Web site that provides information on organic foods, eco-friendly gardening and other environmental topics and also sells products related to these topics.

There was only one drawback: "There weren't older entrepreneurs around, and I felt very different," Anderson says. Regardless, she got her company off the ground, advertising it through link exchanges and word-of-mouth. By 2003, her homebased mybackyard.com had roughly 50,000 unique visitors each month, and Anderson had two employees working for her.

Even better, as the number of older entrepreneurs in America has skyrocketed, Anderson no longer feels so alone. "In the current economic environment, many ex-employees start companies," she says. Anderson credits the trade group Forum for Women Entrepreneurs (FWE) for putting her in contact with other people in her situation. "The FWE seemed to be age-blind," she says.

Today, Anderson has few regrets about her decision. "I have never wanted to go back to my old job," she says. "I didn't anticipate how totally life-consuming [entrepreneurship] would be, or how much stuff you have to do yourself when you start a business. But it has given me the confidence I need."

Anderson has been an inspiration to other older entrepreneurs as well: "My husband and his colleague are about to launch [their own] product."


Joshua Kurlantzick is a writer in Washington DC.