Scottsdale -- 6 February, 2013 --
Entrepreneurship is a critical measurement of our country’s political vitality, and of our own personal liberties.
Over 200 years ago, James Madison wrote that the citizens who are their own masters “may be viewed as the most truly independent and happy.” So that it follows “that the greater proportion of this class to the whole society, the more free, the more independent, and the more happy must be the society itself.”
When citizens become more independent, our democracy is strengthened -- power and responsibility is distributed broadly. As Americans, we have always viewed entrepreneurship as a fundamental way for upward mobility, where average people can build their wealth through a business venture that can be passed on to their kids or sold at retirement age. It could be the family farm, a local restaurant or a retail store that provides income and teaches children, and others, the value of responsibility and working hard.
Compared to a generation ago, it is much harder to run a business in American and keep it running, The Washington Monthly reported. In 1980, “young firms”-- companies less than five years old -- accounted for 50 percent of all going concerns. Today, it is less than 35 percent.
In 1977, there were 35 new employer businesses for every 10,000 citizens. Today, there are fewer than 17. That’s a 50 percent drop. Startups made up 12 percent of U.S. companies in 1980; today they are less than 8 percent. We now average 7.8 startup jobs per 1,000 Americans, compared to 10.8 during the Bush years and 11.2 under Clinton.
So what is causing Americans to be less entrepreneurial than their fathers and mothers? The recession we’ve been grappling with for the last four years is an indicator, but it’s also much deeper than that. In addition to new regulations on health care reform, an increase in regulatory activity in several industries, and the uncertainty about taxes, there are several causes that come into play that make it so hard to become an entrepreneur today.
No. 1: There continues to be a shortage of financing alternatives to start businesses. Before the housing bubble, many Americans were using the equity in their homes as collateral for the financing of their business. Now that this equity has disappeared, borrowing against your house is just a pipe dream. Even though everyday venture capitalists are in the news funding the big hitters, in truth, only an extremely small fraction of startups have access to venture funds.
Venture investors with billions of dollars are pursuing a select group of entrepreneurs. Even though they fail to recoup their cash on 75 percent of their deals, the other 25 percent is big enough for investment companies to continue to be looking for those new cutting edge companies -- the mom and pop shop on the corner falls to the wayside. Add to this that bank loans to small businesses fell to a 12-year low in 2012 and you might find that financing may be the most powerful reason for the dramatic drop in entrepreneurship.
No. 2: Technology, which we think is helping to streamline work and create Internet-related businesses, is also responsible for displacing independent businesses across several business verticals. How many travel agents have lost their business to the Internet? Where are the video stores, the record stores, the bookstores? Why do you need to see a middle man to buy products when you can go right onto the Internet to find goods? Technology even provides the opportunity to combine small businesses into a few big ones -- just ask Amazon.
No. 3: The well-financed chain businesses are killing the little guy. Look what Staples has done to the office supply industry or Home Depot to smaller hardware stores or Best Buy to electronic stores. Wal-Mart controls close to 50 percent of some lines of the grocery and the general merchandise business -- a generation ago, thousands of families made their living selling these goods.
But America is still a beacon for entrepreneurs, or so The Economist thinks. Our country was settled by innovators and risk-takers who were willing to sacrifice what they knew to be safe for new opportunities.
In our current day, we read about the likes of Bill Gates and Steve Jobs, innovators who inspire us with how they built companies out of their garage. In a sense, this country was set up to encourage individuals to follow their dreams.
Our culture encourages risk-taking. American companies have the unusual freedom to hire and fire workers and at the same time workers have the freedom to leave companies for better opportunities. We have the belief that our fate still lies in our own hands.
Throughout our country there are close relationships between universities and industry. Our universities are economic engines rather than ivory towers. They promote technology offices, science parks, business incubators and venture funds. Stanford University gained $200 million in stock when Google went public. And close to half of the startups in Silicon Valley have their roots in the university.
Historically, U.S. immigration policy has been fairly open. We are a country of immigrants and the brightest from overseas can see this. Again, look at Silicon Valley, where 52 percent of the startups were founded by immigrants, a 25 percent increase from 10 years ago.
American consumers are unusually willing to try new products of all kinds -- even it means learning new skills and taking a bigger chunk out of their savings. The bold American consumer is vocal in getting manufacturers to improve their products to meet their needs. This is not a bashful country.
On one hand, we have statistical proof that entrepreneurs are fading from the American landscape. On the other hand, we have many pieces in place to nurture and grow the entrepreneurial spirit. Are we the generation that is going to let the great society our forefathers built on sheer determination fade away?
Undoubtedly, these are challenging economic times. A third of all startups fail within the first two years, and 60 percent are doomed to fail by the fourth year. Who in their right mind would play these odds, especially during these financially uncertain times?
So as a society, we must look back to our founding fathers, the ones who had the vision to create a nation that strengthens democracy through individuals taking the initiative.
Entrepreneurship is not dead; it’s just re-emerging on a different playing field where innovative people need to be technologically in tune with new roads to travel. Now is the time to stop dreaming and take action.
Just think: 16 out of the 30 corporations that comprise the Dow Jones Industrial Average started during a recession. Your business can, too.
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