The still fragile economy, combined with tax and regulatory changes, are making the U.S. seem less accommodating to entrepreneurialism, according to a survey of mid-market corporate executives by Deloitte.

Tom McGee

Only 59 percent of executives surveyed by the firm ranked the U.S. as the most accommodating country for entrepreneurs, a 32 percent drop from how those same executives said they felt in past years.

While 35 percent of mid-market executives claim their own organization has grown more entrepreneurial, 15 percent said their company is less entrepreneurial, despite the clear benefits in terms of greater productivity and profit margins. Among respondents who did not choose the U.S. as the most attractive environment for entrepreneurs, 42 percent selected China, followed by India (26 percent), Brazil (21 percent) and Australia (18 percent) as the most accommodating.

“We surveyed over 650 mid-market executives to understand their views and expectations of the general state of the economy and their individual business, as well as to gather their views on the broader topic of entrepreneurship here in the United States,” said Tom McGee, national managing partner of Deloitte Growth Enterprise Services. “The majority of the respondents, nearly 60 percent, believe that the United States is the most accommodating country for entrepreneurs in which to start a business. However, that has dropped from how those same executives felt in the past.”

In defining “entrepreneurial,” 81 percent of the survey respondents said that any company, large or small, can behave in entrepreneurial ways. Mid-market executives said that being creative, unique, different, innovative and taking risks with the acceptance of failure are the most important factors for keeping their companies successful.

Among the mid-market executives who indicated their companies had become more entrepreneurial, they cited innovation to create entirely new businesses, enhancing products and services, and discovering and penetrating new markets as the primary behaviors driving their organizations.

The mid-market executives who cited a decline in entrepreneurialism attributed it to C-suite leaders’ desire to be risk-averse (36 percent) while 17 percent expressed their desire to avoid volatility by sticking to tried and true business practices.

Overall, the survey indicated entrepreneurial companies are succeeding at a faster pace in the marketplace.

Compared to all survey respondents, those who identified their companies as more entrepreneurial are more likely to have increased capital investment (38 percent), experienced greater worker productivity (59 percent) and generated higher profit margins (49 percent). Nearly one-third (30 percent) of mid-market executives were more likely to cite ongoing investment in technology and people as a driver of success.

Uncertainty, however, has not diminished. The survey showed consistent increases in the level of uncertainty, particularly in an election year in which fiscal policy, taxes and regulation hang in the balance.

“Generally speaking what we found is that the respondents were heavily influenced by the broad topic of uncertainty that exists in the marketplace, whether that’s the result of recent subpar economic growth or the presidential campaign that was going on at the time of the survey,” said McGee. “There are some real concerns over the impending fiscal cliff and the longer-term budget deficit and the related challenges associated with dealing with those matters, and how they might impact businesses. Obviously there are individual concerns about the level of corporate tax rates, regulatory costs, etc., but I think the broader finding was really this concern around the uncertainty that exists in the marketplace, what the implications are of dealing with the challenges we have as a country with our fiscal situation and how that will impact the business climate and mid-market companies on a going forward basis.”

McGee noted that of the 50 newest entries in the S&P 500, 20 were founded in 1990 or later. “That sense of entrepreneurship and starting and founding businesses is critically important to the future growth of even the largest companies here in the United States,” he said. “But I think the sense of entrepreneurship is also important as executives manage and control larger enterprises beyond the startup stage. We found that most mid-market businesses that deem themselves as entrepreneurial experienced above normal revenue growth and productivity, and were more likely to increase investment and hiring compared to their peers. That mindset of entrepreneurship, that mindset of challenging the status quo is important in starting and founding businesses, and obviously that is the classic view of entrepreneurship that we often have in our minds. But also there is this sense of entrepreneurship in constantly challenging and improving your ongoing business, so when you continue to have a culture of entrepreneurship within your organization, it seems to lead to much better results, particularly around revenue, productivity, expectations around hiring, etc.”

Companies that have become more entrepreneurial are likely to have increased their workforce by more than 10 percent during the past year, and plan for the same in the year to come. In addition, this segment of survey respondents expects their revenue to grow by more than 10 percent next year. However, mid-market executives are still feeling a great deal of uncertainty about the economy, and many are continuing to hold back on their hiring plans.

“Broadly speaking, there’s a lot of uncertainty, and that’s tempering appetite for investment and hiring,” said McGee. “What we found, broadly speaking, was the status quo. We do not see an expectation for broad-based hiring. We also didn’t see an expectation for broad-based resource reductions or employment reductions, but we didn’t see much change in either direction.”