What Is Total Entrepreneurial Activity, and Why Is It Important?

How many adults are starting and running new businesses? What do those entrepreneurs’ experiences and backgrounds look like? What are they trying to build? Where do opportunities and barriers persist? 

These are just some of the big questions that the Global Entrepreneurship Monitor (GEM) attempts to answer every year. 

GEM was co-founded by visionary academics Bill Bygrave of Babson College and Michael Hay of London Business School. Beginning as a study of 10 economies in 1999, it has since grown into a global network that has included researchers in more than 120 economies. 

One of GEM’s most widely cited indicators is Total Entrepreneurial Activity (TEA), a participation rate that captures the share of adults engaged in early-stage entrepreneurship. Because TEA is based on a large, nationally representative survey of individuals—rather than only business registrations—it can illuminate entrepreneurial dynamism that traditional sources may miss. However, TEA is also frequently misunderstood as a proxy for economic impact or business success. 

Here, Babson College professors Donna Kelley P’24 and Jeffrey P. Shay ’87, MBA’91—the co-leaders of the GEM U.S. team, which is preparing the new GEM United States Report, due out in March—help clarify what TEA measures, what it doesn’t, and how leaders can use it responsibly.  

What is Total Entrepreneurial Activity? 

“Total Entrepreneurial Activity is a well-established and widely cited participation rate,” Shay says, pointing to hundreds of published articles that have used TEA. “It measures the share of the adult population engaged in early-stage entrepreneurship, combining nascent entrepreneurs and new business owner-managers, with the latter defined using GEM’s 3- to 42-month criterion. Therefore, it does a great job capturing entrepreneurial dynamism and early engagement that traditional data from government and other sources often miss.” 

“The GEM report captures not only the number of entrepreneurs, but also the impact that entrepreneurs and entrepreneurship have on the economy and society,” adds Kelley, who has co-authored 44 GEM reports since 2008. “Entrepreneurs are not all the same. They have different ambitions for job creation, innovation, global competitiveness, technology, and industries. So, it’s not just about the rate of entrepreneurship but also entrepreneurs’ collective contribution.” 

What are the misconceptions of TEA? 

“At the same time, there is a tendency for TEA to be interpreted as either a comprehensive measure of entrepreneurship or a proxy for impact. In reality, it is neither,” says Shay, who also is the Chair of the Board for the Global Entrepreneurship Research Organization, the governance board for GEM. 

 “TEA is intentionally focused on prevalence, not outcomes. GEM does not specifically measure failure, though it does separately measure business exit/discontinuation, and we also collect information on characteristics and aspirations of early-stage entrepreneurs, such as current employment levels and expected hiring, which can be analyzed alongside TEA but are not part of the TEA rate calculation itself.” 

TEA is just one metric the GEM report captures annually. How does TEA fit within GEM’s broader indicator framework? 

“TEA is one of the most visible metrics of GEM, but it’s not the only important indicator. GEM also captures job growth aspirations, innovation and geographic reach, among other indicators,” Shay says. “Entrepreneurship benefits from broad participation in order for a society to fully realize its economic potential. Because GEM focuses on individuals, rather than firms, this enables us to assess the extent to which there is equal participation across different age categories, genders, racial and ethnic groups, income levels, and other characteristics.” 

“A healthy entrepreneurial economy requires people in multiple phases: intentions, TEA, established business ownership, and even those closing who may re-enter entrepreneurship in some way,” says Kelley, also the Frederic C. Hamilton Professor of Free Enterprise Studies at Babson. “Each phase requires a foundation of those in prior phases.” 

Why was TEA created, and how has it evolved? 

“Firm-level metrics provide little detail on entrepreneurs and business owners,” Shay says. “With GEM’s Adult Population Survey, we can gain insights on how many people—and who—start businesses. TEA, like most of the GEM indicators, has been measured consistently over the years, enabling comparisons over time and providing insights on shifts and trends. GEM teams can also add questions to a survey. For example, the U.S. team recently added questions about the impact of tariffs, military and veterans, and sources of finance.” 

“TEA helps answer a fundamental question: How many people are actively engaging in the process of entrepreneurship?”
Babson Professor Jeffrey P. Shay ’87, MBA’91

What trends has TEA revealed over the years? 

“Because TEA has been measured consistently for more than two decades, it offers a rare longitudinal view of how entrepreneurial participation responds to major economic and social shifts,” Shay says. “One of the most important insights from GEM’s time series is that entrepreneurial activity is dynamic and responsive to context, rather than static. 

For example, TEA has shown clear sensitivity to macroeconomic disruptions, such as the global financial crisis and the COVID-19 pandemic. In some periods, economic shocks have dampened entrepreneurial participation; in others, they have coincided with increased entry into entrepreneurship, often reflecting changes in labor markets, perceived opportunities, or necessity-driven activity. 

“Over time, GEM data also shows that the composition of early-stage entrepreneurship changes, not just the overall rate. Shifts can be observed in entrepreneurs’ growth aspirations, innovation orientation, and motivations, underscoring why TEA is most informative when analyzed alongside other GEM indicators rather than in isolation.” 

How is TEA used by others? 

“Researchers use TEA to examine how entrepreneurship relates to economic conditions, institutions, culture, and policy environments,” Shay says. “Policymakers and ecosystem leaders often use TEA as a benchmarking tool, comparing entrepreneurial participation across regions, demographic groups, or countries, and tracking changes over time.” 

Why is TEA important? 

“TEA helps answer a fundamental question: How many people are actively engaging in the process of entrepreneurship?” Shay says. “This makes it particularly valuable for understanding the health of the entrepreneurial pipeline and for identifying where participation may be expanding, stagnating, or declining. 

“Not everyone starts a business, but entrepreneurship does not happen in isolation. Customers, employees, advisors, investors, educators, and institutions all play critical roles in shaping whether early-stage ventures can emerge and persist. 

“By highlighting how many people are engaged in early-stage entrepreneurship, TEA underscores that entrepreneurship is a collective, ecosystem-driven phenomenon,” Shay continues. “Understanding participation at this early stage helps communities, organizations, and policymakers better recognize where support structures matter most—and how a broad range of actors contribute to entrepreneurial outcomes.”