Enterpreneurship is Dying in America!

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**Easy E**

http://www.inc.com/erik-sherman/brookings-us-entrepreneurship-declining.html?cid=sy01304

Ever feel that being an entrepreneur is like having a membership at a big club? Heads up: The roster is getting smaller. According to a new Brookings Institution study, entrepreneurship has reached at least a three-decade low across virtually all of the country.

The paper doesn't pretend to understand why this trend has occurred--and beware of any impulse you may have to say, "Of course!" However, there are clear implications for those trying to run their own businesses. Some are good in the short term; many are bad in the long. It does mean that entrepreneurs have to look at a shifting landscape that could change the way they create and grow companies.

By the Numbers
Rather than try to measure psychological attitudes towards entrepreneurship, researchers Ian Hathaway and Robert Litan (the latter formerly a vice president of research and policy at the Ewing Marion Kauffman Foundation, which studies and fosters entrepreneurship) looked at some hard numbers.

One set was the difference between the rate at which new businesses were started and closed, based on U.S. Census data. The graph below shows the pattern:

Business entries mean companies that were less than a year old, expressed as a percentage of total businesses. Exits are the percentage of firms that went out of business for whatever reason.

For decades, the entrance of firms outpaced their exit, meaning a net increase in new businesses. The authors see that--reasonably, it seems--as a proxy to an inclination toward entrepreneurism. But since at least 1978, the lines have converged, albeit slowly. In 2008, they reached a watershed moment and crossed.

The math is simple: More firms leaving than arriving means a shrinking percentage of business is being controlled by entrepreneurs. And notice that the exits were relatively steady. It was the creation of new firms that has sagged.

The second set of data supports a conclusion that entrepreneurship faces a major challenge. Job reallocation--"a broad measure of labor market churning resulting from the underlying business dynamism of firm expansions, contractions, births, and closures"--has also been declining for decades. As people increasingly stay put, fewer are moving to other employment, including new ventures.

You might explain the second figure as a result of a tighter job market, a more conservative approach by employees, or general concern about the future. But put them together and you have a picture of people shying away from risk and not betting their future on a new business.

This also isn't an issue of a slump in some parts of the country. According to the report, the results are fairly even across every state and nearly all of the 366 metropolitan areas examined.

The Bottom Line
The implications for entrepreneurs are generally sobering:

•The authors conclude that there is a general atmosphere of consolidation in which older, larger businesses are doing increasingly better than new ones.
•An additional observation you could make is that as things contract, the general support network that had been available to entrepreneurs is likely doing the same. That includes the availability of mentors, partners, and investors.
•With lowering levels of entrepreneurship in the country, chances are that other countries could provide greater competition, often at lower labor rates, creating increased pressure on U.S. entrepreneurs.
According to the authors, the country needs to consider strong actions, because of the importance of new firms and entrepreneurs in the economy. They suggest allowing more foreign entrepreneurs to receive permanent work visas, letting foreign students in STEM fields to remain and work (particularly as they are twice as likely as native-born Americans to start businesses), and have state and local organizations and governments try new ways to encourage entrepreneurship.

Welcome to the future, ladies and gentlemen.

Of course, during the time period studied there was a small economic blip called the Global Economic Recession. I sense doom-mongering here.

**LordofHats**

Stuff like this is what irks me. The answer is not a secret; Wal-mart, the Internet, chain stores in general. The growth of large market brands has killed the need for mom and pop shops over time and the internet has put further nails in the coffin. Like any small business owner can compete in a general sense with large brands. Unless you're providing a specific service or a special need, you're likely wasting your time long term.

This is not a mystery.

**d-usa**

Big business survived the giant recession relatively intact and small business either tried to hold on, sell, or they went under. New business had a hard time starting up considering the economy.

Or everybody is playing candy crush on their ObamaPhones and waiting on their welfare check.

Could be either.

**frozenmilk**

I started a service business about nine months ago, and my business partner and I are doing well enough to know we can make it work if we work our butts off to keep growing. It is tough going though. Between figuring out the tax situation, getting a lawyer involved to at least draft a partnership agreement (if there's more than one owner) and perhaps even getting incorporated (which can get expensive, again with the legal and administrative fees and more headaches with taxes), just starting up can be really daunting. Nevermind dealing with employee's and all the demands and headaches that come along with that.

I don't think I'd start any business that required a physical storefront and/or inventory, because the risk is just too high. It's always been high, but as has already been said it seems higher now with e-commerce and the big box stores.

**Bookwrack**

A lot of entrepreneurship sprang from the middle class, and as both it's size and spending power has contracted, so has the ability for someone with a dream of opening 'their own place,' but lots of retail businesses are now in direct competition with massive retail change. How well can a local hardware store compete with home depot? Can someone starting their own bakery generate enough specialized draw to be profitable in competition with Walmart's much cheaper bakery department?

Another area that's seen depression is businesses started by college grads, pretty much directly attributable to the amount of debt they're carrying post-matriculation.

One factory I've worked with long enough to see it completely change, and not for the better. When I first was introduced to them, everyone in management was a long term employee who'd started off working the assembly lines and been promoted up until they got into management. I have no idea what the actual pay scale was, but everyone seemed to be in a good place.

It's been bought a few times, and there is no a solid wall separating manufacturing and management. There's almost zero promotion off the work floor - everyone in the office positions are outsiders, and nearly all the old guys are gone, either retired, or given an early retirement package 'cause paying for that much seniority was bad for the budget. The workers on the floor are all cogs in the machine now with no effort made to retain them. Just replace them as needed (and this has cost them a LOT of money when inadequately trained and supported wage slaves are expected to run complex machinery 2-3 shifts a day), and pay them as little as possible.

I know of a couple local businesses that'd originally been spun off by former workers, a machine shop, and a tooling design office, that'd originally been spun off to support needs of the factory that weren't being met internally, and had grown big enough to support themselves, but it'd be very hard, if not impossible, for one of the workers to do the same thing today.

**daedalus**

Add to the above reasons this:

http://www.theguardian.com/world/2014/may/09/victorian-taxi-regulator-issues-fines-to-drivers-using-ride-sharing-app-uber

Built a business model that beats the existing ones? Get ready to get fined into oblivion, if you don't get strongarmed into disproportionately unfair royalty/patent/copyright penalties.

Hard telling why anyone tries. Legal concerns (and so much content released AB can't even keep up) is what halted my, uh, "futuristic wargame companion software" related project.

**insaniak**

It's worse in France. I hear they don't even have a word for 'Entrepeneur'...

Automatically Appended Next Post:

daedalus wrote:
Add to the above reasons this:

http://www.theguardian.com/world/2014/may/09/victorian-taxi-regulator-issues-fines-to-drivers-using-ride-sharing-app-uber

Built a business model that beats the existing ones? Get ready to get fined into oblivion, if you don't get strongarmed into disproportionately unfair royalty/patent/copyright penalties..

That little issue is nothing to do with patents or copyrights. Australia has laws governing people offering transportation for money, to protect those who may wind up in an accident or some other incident as a result of driver error.

The people complaining about being fined for using this system are akin to someone using an app that tells them how to re-wire a house objecting to being fined for carrying out electrical services without the appropriate licences.

The moral of the story is simply to do your homework before starting up a service you are intending to get paid for.

**Easy E**

Bookwrack wrote:
Can someone starting their own bakery generate enough specialized draw to be profitable in competition with Walmart's much cheaper bakery department?

Speaking of small bakeries, I own one. Once we were accidentally sent the bill for a Target (large retail store) bakery department in California in error. It was really fun to see that they got a straight 20% discount on everything they ordered from the distributor. In essence, our small business was subsidizing our larger competitors and helping them drive their own costs down at our expense. That makes no sense to me, but I'm sure some one will natter on about economies of scale or some such.

**Bookwrack**

It's all about the money - they offer Target the discount, and because of the size of the orders Target makes, they're still making good money.

Also, or as well, if they're too stubborn to meet the terms a major company like Target wants, that company takes their business elsewhere (and with the corporate support structure behind them, have the ability to fairly easily do so, whereas a local company might only be able to afford a local regional supplier and so cannot easily change vendors). They either sell to the company for cheaper, or they don't get the business at all.

**Jihadin**

As much regulations, ordinance, taxes, and whatever tax laws involve. Plus EPA standards. Also probably a few other agencies involve. I be firing up my business in Thailand