Entrepreneurship / Small Businesses

Perception vs. Reality: Determining Local Government Support for Entrepreneurs

By Shaheer Burney, CEDIK Graduate Assistant

A robust entrepreneurial environment is vital for the development of an economy. Startups and small businesses constitute an astonishingly high proportion of total economic activity in the United States.

In 2014, establishments with less than 20 employees comprised about 85% of total establishments in Kentucky and about 86% of total establishments in the entire nation (U.S. Census, County Business Patterns).

However, despite their efforts, local governments have had mixed success in promoting entrepreneurship. One reason is the discrepancy in the perception of local governments’ support for entrepreneurship between entrepreneurs and non-entrepreneurs. While the sentiment of the community may be overwhelmingly positive, it might be driven by residents with no prior entrepreneurship experience and no plan to initiate the startup process. As a result, governments’ efforts to promote entrepreneurship might be impaired by incomplete or inaccurate knowledge. Furthermore, a negative view of government support might discourage individuals with entrepreneurial intent from engaging in new venture creation. To conduct a meaningful evaluation of perceptions, it is incumbent on local governments to rely on data-driven approaches that provide a comprehensive view of perceptions.

In 2014, CEDIK collected data with the Kentucky Entrepreneurship Survey (KES), a Kentucky-wide survey conducted by an interdisciplinary team of researchers, to explore the role of governments in promoting entrepreneurship. The survey was designed to represent all major economic backgrounds in the state such as farming, mining, and technical fields, and sampled residents from urban and rural counties. The resulting data used in this analysis includes 888 households out of which 408 respondents identified as entrepreneurs. The survey provides unprecedented detail into the perceptions of Kentuckians regarding their local government’s support for entrepreneurship.

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We gauge perceptions by how respondents ranked the statements, “Local government does its best to support small, local business through financial assistance and encouragement” and “local government is focused on supporting large industries more than supporting local start-ups.” In addition, we asked entrepreneurs to rank the level of difficulty of dealing with government regulations during the startup process.

Our analysis reveals several interesting findings.

Entrepreneurs seem to have less confidence in their local government relative to non-entrepreneurs.

Entrepreneurs are defined as individuals who either currently own a business or were business owners no more than 10 years prior to the survey date. Among non-entrepreneurs, 62% of respondents agree that their local government does its best to support small businesses.  Only 45% of entrepreneurs agree with that same statement. Those with first-hand experience in starting a business have better knowledge about entrepreneurship-targeted government programs and are more likely to base their perception on the actual availability of public resources. On the other hand, the perceptions of non-entrepreneurs are likely shaped by other unobservable factors such as community sentiment toward local government, marketing of entrepreneurial-friendly initiatives, and having an entrepreneur in the respondent’s social or professional network. This is an important result as it clearly indicates that any measure that does not disaggregate perceptions by entrepreneurial experience shows a biased picture.

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On average, the most problematic impediment among entrepreneurs is dealing with government regulations.

Of the individuals who ranked government regulations as a severe or somewhat severe hurdle, most entrepreneurs sought help from their local Chamber of Commerce and were only moderately satisfied with the assistance they received. This is especially informative because other impediments such as acquiring startup funds, recruiting qualified workers, developing a supply chain, and finding potential markets for their products were ranked lower than onerous regulations.

The extent of entrepreneurial experience influences perceptions as well. Entrepreneurs who have only started one business have a more positive perception of local government relative to entrepreneurs who have been involved in multiple startups. A possible explanation is that because seasoned entrepreneurs have likely had greater exposure to local government’s support programs and regulations, they are better able to evaluate the level of available support from their local institutions.

Residents of urban counties consistently rank local governments more favorably on entrepreneur support than rural residents.

Urban respondents recorded local governments are more focused on supporting large industries than local startups slightly more than rural residents. While urban residents have a comparatively favorable view of their government’s efforts to support small businesses, they also consider these efforts insufficient relative to government assistance for larger businesses. This result is intuitive as governments of urban counties usually provide greater support programs for entrepreneurs but also have a higher number of large businesses within their jurisdictions.

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Some demographics of the entrepreneur have a significant effect on perceptions.

In particular, males and respondents with annual income less than $20,000 have a more negative view of their local government while older respondents and those with a college degree have a more positive perception relative to their counterparts. Race and employment status exhibit virtually no effect.

The Kentucky Entrepreneurship Survey results clearly show the perceptions of local government’s support for entrepreneurship is dependent on a number of explanatory factors. It is pertinent for governments to understand these nuanced differences in attributes of their residents instead of evaluating their provision of entrepreneur support based on broad-strokes measures. Tailoring support programs that produce quantifiable results will help government support a successful entrepreneurial environment.

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