Human Capital and its Effect on Entrepreneurship: A Key Component or Much Ado About Nothing?

Understanding the impact of human capital on small business development is crucial to both entrepreneurs and the entities that serve them. The objective of this study, therefore, is to determine the impact of human capital on entrepreneurs who are approaching firm birth, in order to provide entrepreneurs, small business development centers, and universities with the best resources possible. One hundred twenty-eight entrepreneurs in the gestation period have been contacted through workshops held by Purdue University and the Indiana Small Business Development Center. Sixty-five of those entrepreneurs agreed to participate in a two year study with follow-up information gathered at two month intervals, giving a current response rate of approximately 51%. Data has been and continues to be collected through a survey distributed at various small business development workshops. The preliminary survey instrument used in the analysis requests data regarding: personal demographics, community demographics, human capital, financial capital, and social capital. A logistic regression model was formulated using the preliminary results to determine the relative impact of human capital on an entrepreneur's participation in a small business start-up. Results show that human capital factors, such as college education and having attempted a business plan, are statistically significant. This indicates that funds allocated by small business development entities to the development of human capital are important in determining participation in a small business start-up. In addition to the information provided by the logit model, probabilities have been calculated to simulate those characteristics that affect an entrepreneur in participating in business a start-up. With the results from the two month follow-ups, additional information will be gained regarding the effect of human capital on the actual success or failure of the small business. Through panel data gathered as this study progresses, both entrepreneurs and small business development entities should be able to better understand the impact of human capital on participation in a start-up and the outcome of that start-up.