Entrepreneurship is changing, and so is the economic development behind it

Tinkerers might often be the first to deploy a new technology. But commercial adoption is almost always led by big, established firms.

A century-old British caterer deployed the first business computers, to calculate the ingredients in breads and cakes. Early mobile phones were used by corporate executives. Instead of 3D printers landing in every home office, they are more widely used by manufacturing giants.

New technologies are typically expensive, and disruptive. Even if big firms overlook their importance, they typically employ people who are willing and able to be early adopters. No such luck for smaller teams.

No surprise then that big companies are most likely to already use some form of artificial intelligence to deliver products and services. An estimated 7.2% of all US businesses with at least 250 employees used AI in August, according to an analysis released last month by the US Census Bureau. That’s expected to rise above 1 in 10 businesses over the following six months. 

The surprise is that the second highest cohort of companies using AI is the smallest: 5.5% of what are called microbusinesses (with four or fewer employees) used the technology. Fewer of those in the middle — with between 5 and 249 employees — deployed AI. Every sized business group projected big gains in the next six months, though.

Will democratization of digital tools supercharge microbusinesses?

Two paths from here: Either tiny businesses just got a jumpstart and will see their adoption rates slow behind bigger firms, as happened with other technologies. Or, something is different about AI. 

Perhaps lightweight tools and low-cost starting points mean those with fewer employees will rely on AI more, while those in the middle with established processes but fewer redundancies than bigger firms will become laggards. This matters to them: Research shows firms that deploy more automation boost productivity and earnings for existing employees. 

Why does this matter to us? We think entrepreneurship may be changing, and with it, entire local policymaking strategies. 

This topic got special attention in a livestream Technical.ly hosted last month to release our second annual State of the Local Tech Economy reports, featuring a conversation I had with Victor Hwang, a longtime startup booster and founder of Right to Start, a pro-entrepreneurship pressure group. It’s worth more than a second look.

Last year marked four full years of record highs for “high-propensity” business creation, a category the Census Bureau tracks of new firms that are likely to hire employees. Nearly 160,000 such companies were formed just in November, 10% higher than the absolute peak of frothy business creation before the Great Recession in December 2006. Since January 2021, the month with the lowest number of new business incorporations in the United States — March 2022 — would have been a 15-year high, and one of the most entrepreneurial in decades.

“The pandemic was a shock to the system,” said Hwang. “It jarred people into rethinking their lives and careers, and it accelerated possibilities that were already there, like the democratization of digital tools.”

And business starts are increasingly representative of American demographics, as Technical.ly has reported. Women generally, Black and Hispanic women in particular, and people living in rural counties all continued in 2024 to create far more businesses than they did before the pandemic. 

These groups are still less likely to grow their companies — to employ people and add employees, which has traditionally been tied to revenues growing and wealth being generated. One of the drivers of entrepreneurship among women in particular was to create flexibility over finances, overcoming what economist Claudia Goldin calls “greedy jobs.” That means typically self-employed people earn less than their traditionally employed peers. 

Whether that link will remain true, or if so-called microbusinesses can be supercharged by AI, is an open question.

Economic development in the age of AI

Economic development executives are paying attention. Back in the fall, the International Economic Development Council, the industry’s membership group, hosted its annual conference with dedicated tracks of content on entrepreneurship for the first time, along with talent and storytelling. 

For years, declining business starts made courting startups a novelty, not a strategy. The cheap-money boom of tech unicorns in the 2010s convinced more regional leaders to pay attention. But many considered it faddish, or at least something happening only in a few tech hubs. 

“Even a few years ago, economic development was almost entirely focused on attracting and retaining big companies,” Hwang said. “But now, for the first time, there’s a growing recognition that entrepreneurship is just as valid a strategy for growing economies.”

Now every mayor wants an entrepreneurship strategy.

Technology-led economic development, which has its own trade group, appears to be merging with what might be called entrepreneurship-led economic development, which its most passionate boosters lovingly call ecosystem building. 

“The industrial economy is linear and planned, but the entrepreneurial economy is like a rainforest,” Hwang said. “It’s about interactions, connections and the synthesis effects of everything working together.”

What’s true about both technology and entrepreneurship is that they aren’t a single industry. One grew out of the narrow information technology sector. The other is considered (by the uninitiated) a synonym for small business. But both reflect an approach to any region’s economic mix.

Want to boost reshoring of manufacturing? Well, in Western Pennsylvania, the federally-funded New Economy Collaborative is pumping dollars into training tech workers and prototyping robotics startups. Leading a leading agricultural state? The Central Indiana Corp. Partnership is shepherding a coalition that connects agriscience, advanced technology and Indianapolis’s startup ecosystem. Need to repair a pandemic-tattered tourism and hospitality sector? Better encourage relationships with your region’s tech and startup organizers.

New businesses at different stages require different support. No surprise there. It’s possible though that the fundamentals of business creation are still changing. That means economic development can too, and good thing because the hundreds of billions of dollars that state and local governments put into boosting economic growth aren’t often going to the greatest need. 

More need may be coming. Though there are skeptics, OpenAI CEO Sam Altman wrote last week that “in 2025, we may see the first AI agents “join the workforce” and materially change the output of companies.” If so, that would materially change the lives of a lot of people too.