Where Are The New Entrepreneurs?

Historically, there has been an old cliche that small business was the growth engine of both the overall U.S. economy and job formation. A cliche, yes, but it was still true. As we write in late 2017, the landscape has changed. Fewer people are starting their own businesses than even a dozen years ago. What is causing this sea change and can it turn around?

The Great Recession of 2008-2009 savaged the U.S. economy and people who were hurt then and saw many others who had businesses go down for the count, appear to be a bit gun shy. So, while, the terrible downturn is still reasonably fresh in people’s minds, the memory of it probably inhibits some from doing a start-up. Here are some other reasons that I have pulled together from several sources plus some of my own personal conjecture:

1) Regulation—conservatives scream a lot about businesses being over-regulated but there is definitely some truth to it. Talk to anyone who has started even a small shop in the last few years and they will, to a person, complain about the heavy licensing and permitting that is needed for even the most modest enterprise. Also, many people who leave a job have non-compete clauses which prevents them from getting back into the same fray for months or even a few years.

2) The Wal-Mart-ization of America—no, this is not a complaint about how the world’s largest retailer underpays its workers and may be skinny on benefits. It is simply that ultra-big companies have scale and small players cannot compete against them in many categories. Add Amazon to the retail mix, and many rural businesses never see the light of day as online shopping continues to escalate.

3) Big companies are showing more entrepreneurial flair than ever. Leading firms such as Google and Facebook have venture departments within their companies that fund and experiment with new arenas. Many would be entrepreneurs embrace the heady atmosphere of being around lots of big brains in a super stimulating environment. The workplace has to be fascinating.

4) Immigration reform—The term entrepreneur was coined by early French economist Jean Baptiste Say and is translated as “adventurer”. I love immigrants—they are hungry, work their butts off, and come to our rocky shores hoping for a better life. By pulling up stakes and coming here, many, almost by definition, have the spirit of an “adventurer.” If we had a sane immigration policy that fast tracked people with skills that we desperately need, you can bet that more new companies would be formed.

5) Most new products fail and most new ventures go bust within three years. Only .4% of firms last 40 years. It is a high risk game. Today, many have become risk averse and it is hard to blame them.

6) As technology improves, there is no question that new jobs are created. Yet, do not forget one important point. A tech company today can get to $1 billion in sales with a relative handful of employees compared to any time in the past.

7) New companies seem to be mushrooming the most in areas that are the usual suspects—Silicon Valley, The Boston Area, Austin, and Brooklyn and Manhattan. As rural areas empty out, there is little growth in business startups there even though living and operational costs may be low.

There is one statistic that has me encouraged. Over the last two years, there has been more small business births than deaths. If this is the beginning of a trend rather than a short term blip on the screen, there may be fine things on the horizon for our country.

Take the advertising business, for example. Few people are starting new advertising agencies these days. Always a highly speculative venture, advertising is changing so fast that starting a full service shop these days from scratch is generally a child’s dream.  However, small boutiques with speciality services are popping up all over. Graphic designers who were doing project work a year or two ago are morphing in to small shops known for fast turnaround, zero pretense and low fees. Experts on mobile are doing well although some of the real stars are getting snapped up by WPP and other giants. There will always be talented and unappreciated men and women who will go out their own. Others may simply have to be their own boss and hang out a shingle.

Watch new business formation carefully. It is an important bellwether for tracking the vibrancy of a free market economy.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.