Online Platforms Support Entry into Entrepreneurship, Aiding Business Owners Who Are Black, Female, and Younger
For Release
Wednesday
July 31, 2024
Online platforms have helped to fuel the growth of entrepreneurship in recent years, particularly aiding small businesses owned by people who are Black, female, and younger, according to new research from RAND.
Studying one large platform that is designed to help business owners start, grow and maintain their business, researchers found that the relatively low costs involved with doing business online—as well as built-in tools—appear to be critical to helping entrepreneurs get started.
Researchers from the RAND Lowy Family Middle-Class Pathways Center wanted to examine the role of online platforms in the growth of small businesses and are the first team to gain access to information from global commerce platform Shopify, which accounts for about 10 percent of the e-commerce market in the United States.
The RAND research is among the first large-scale examinations of online businesses, including information about more than 300,000 businesses that have an online storefront. The research was supported by independent funding from the Ewing Marion Kauffman Foundation.
“The data we examined provides evidence that platforms lower barriers to entry, enabling a new type of entrepreneur,” said Lisa Abraham, the project's coleader and an economist at RAND, a nonprofit research organization. “There are more women and more Black entrepreneurs using the platform than we see in publicly available data.”
The researchers also surveyed about 4,000 Shopify merchants to learn more about business owners' characteristics and the key challenges they experience while operating their businesses.
Business innovation in the United States has lagged in recent decades, with the nation experiencing a significant decline in rates of entrepreneurship and small business creation relative to other comparable nations.
But since the COVID-19 pandemic, rates of new business creation in the United States have increased dramatically. One potential contributor to this trend is proliferation of new online retail businesses and business owners.
RAND researchers studied all businesses that first began operating on Shopify anytime between 2017 and 2021, and examined their revenues between their first and second year on the platform. About 50 percent had higher annualized sales and 46 percent had the same or lower annualized sales.
About 73 percent of merchants operate entirely online with no physical storefront, and 28 percent have employees who require W-2 forms. While some entrepreneurs work full time with their online business, about half reported working fewer than 30 hours a week on their enterprise.
Most of the business owners who participated in the RAND survey were not serial entrepreneurs. Sixty-nine percent reported that their prior employment was a regular full- or part-time job, while only a quarter described owning another business immediately prior to starting their current business.
Most owners started their business with a relatively small amount of start-up capital, with more than half reporting they used less than $5,000 to establish their business.
About 66 percent of the business owners surveyed were female and 15 percent were Black, higher than is typical among owners of comparable retail/wholesale businesses nationwide, where just 44 percent are female and 7 percent are Black.
Forty-nine percent of Black business owners said that low-cost loans or credit were very important compared to just 19 percent of White business owners. Black owners were substantially more likely than White owners to report having had a loan application for their online business rejected at any point in the past.
“Female and Black entrepreneurs still face significantly greater challenges managing and growing their businesses than peers who are male and White, which is reflective of challenges that these entrepreneurs have historically faced,” said Benjamin K. Master, coauthor of the research and a RAND senior policy researcher.
The research is outlined in a RAND working paper, “The Changing Nature of Entrepreneurship in the United States: Evidence from Shopify,” and two related research briefs. Other authors of the research are Gabriel Hassler and Brian Phillips.
The RAND Education and Labor division is dedicated to improving education and expanding economic opportunities for all through research and analysis.
