Startups with Extra Staying Power

The importance of startup capital and education in determining the success of a small company is becoming increasingly clear. The latest evidence comes from a January, 2007, working paper by economists Robert Fairlie and Alicia Robb of the University of California at Santa Cruz.

Looking at confidential economic, financial, and sociological data on business owners from the U.S. Census Bureau's 1992 and 1996 surveys, the economists found that, compared to businesses owned by whites, businesses owned by Asian Americans were about 20% more likely to have profits of more than $10,000, and their businesses were 17% less likely to close. Fairlie and Robb found that roughly 90% of the difference in failure rates was due to Asian owners having more startup capital and education relative to whites.

Among all business owners surveyed, having startup capital of more than $25,000 and a graduate degree reduced the odds of failure most.

While the CBO survey data are not the freshest, "I would be surprised if those determinants changed," says Fairlie. Separate research, conducted with University of California at San Diego economist Christopher Woodruff, used Census Bureau data from 1994 to 2004. It found that education and wealth account for about 85% of the difference in business startup rates between Mexican immigrants and Caucasians.

By James Mehring

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