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* Purdue University Department of Agricultural Economics

March 27, 2007

Survey: 'Big box' retailers sweeter than home to entrepreneurs

WEST LAFAYETTE, Ind. - Having a large retailer located down the street is more likely to motivate an entrepreneur to start a business than if they own their own home, a Purdue University study indicates.

The study, based on surveys with 101 Indiana entrepreneurs between 2004 and 2006, found that the presence of a major retailer in a community had a positive rather than negative impact on entrepreneurial activity. Also, entrepreneurs were less inclined to start a business if they owned a home.

Those surveyed also indicated that having a net worth of $50,000 to $75,000 was a stronger influence on starting a business than having a net worth of $100,000 or more.

The survey provides an interesting look inside the minds of entrepreneurs - especially those who have moved beyond the business idea stage, said Maria Marshall, a Purdue agricultural economist and the study's lead researcher.

"There are a lot of studies about entrepreneurs who have already started businesses," Marshall said. "In this study, we were trying to gather information about those in the 'gestation' stage, where they've reached the point of making a decision about whether or not they follow up on their business idea."

Two areas that factor into those decisions are existing retail businesses and home ownership. While it might seem strange that entrepreneurs would be more likely to establish a business in a community with a major retailer and less likely if they own a home, those tendencies can be explained, Marshall said.

"The reason that having a big box retailer like Wal-Mart, Target, Sam's Club or Lowe's increases an entrepreneur's chances of starting a business could be because there's more of a customer base to start a smaller business," Marshall said. "They also could supply the big box retailer or, once they've opened their business, find the niche markets that the big box retailers can't reach.

"You'd think home ownership would be a positive factor in starting a business, because you'd be able to do some debt financing and those sorts of things. Many small businesses start from credit cards or some other types of loans, and many people don't want to put up their homes to start a business. It's just too risky."

Survey questions about net worth levels and how they play into business start-up decisions also generated interesting responses, Marshall said. That entrepreneurs would say they are more likely to start a business with a net worth of between $50,000 and $75,000 than with a net worth of $100,000 or more could indicate entrepreneurs are less risk-taking once net worth eclipses six figures, she said.

"It could be that with fewer assets, entrepreneurs might be looking for ways to increase their income level through investment in a small business, versus someone who already has a higher income or net worth," Marshall said.

The Purdue survey also found that:

*  Women and entrepreneurs with graduate degrees were more likely than other demographic groups to take an idea and turn it into a business. "Businesses owned by women in Indiana are increasing more rapidly than businesses owned by men," Marshall said. "Those entrepreneurs with graduate degrees often have more technical experience and expertise, which gives them a solid foundation for starting a business."

*  Entrepreneurs were less likely to start farm-related businesses than service, retail and technology businesses. Marshall said the high capital costs associated with many farm business start-ups could be a factor, or a large percentage of entrepreneurs in the gestation stage of business planning have agricultural backgrounds and wish to avoid farm industries.

*  Attempting to develop a business plan usually motivated entrepreneurs to take the plunge into business ownership. Business plans typically include an industry analysis, marketing goals and pricing structure.

"Learning more about the industry you're going into goes hand-in-hand with writing a business plan," Marshall said. "People sometimes tend to overlook business plans, but I think they are very important."

The Purdue survey was conducted at workshops hosted by the university and the Indiana Small Business Development Centers. Sixty-one percent of respondents were female and 39 percent male. Of those involved in a business start-up, 77 percent were female and 23 percent male.

A report on the Purdue study, "Demystifying Hoosier Entrepreneurs," by Marshall and graduate student Whitney Peake, can be accessed online at http://www.agecon.purdue.edu/extension/pubs/
paer/2007/February/marshall.asp
. Additional information and resources for entrepreneurs are available at the Purdue Extension Means Business Web site, at http://www.ces.purdue.edu/extbusiness/start.htm

Writer: Steve Leer, (765) 494-8415, sleer@purdue.edu

Source: Maria Marshall, (765) 494-4268, mimarsha@purdue.edu

Ag Communications: (765) 494-2722;
Beth Forbes, forbes@purdue.edu
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