Is Entrepreneurship Dead in America?

Over 200 years ago, James Madison wrote, “[T]he greater proportion of citizens who are their own masters, the more free, the more independent, and the more happy must be society itself.” Entrepreneurship is a critical measurement of our country’s political vitality and our own personal liberties. The more independent citizens become, power and responsibility will be distributed broader, which, in turn, strengthens our democracy. We, as Americans, 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 a place to teach their children and others the value of responsibility and working hard.

The Washington Monthly reported that compared to a generation ago, it is now much harder to start a business in America and keep it running. In 1980, “young firms”—companies [fewer] than five years old—account[ed] for 50% of all going concerns; [t]oday, it is less than 35%. In 1977, there were 35 new employer businesses for every 10,000 citizens; [t]oday, there are fewer than 17—a 50% drop! Startups made up 12% of U.S. companies in 1980, and today, they are less than 8%. We now average 7.8 startup jobs per 1,000 Americans, compared to 10.8 during the Bush years and 11.2 during Clinton.

So what is causing Americans to be less entrepreneurial than their fathers and mothers? We can all point to this recession we have been grappling with over the last four years, but I think it is deeper than that. In addition to new regulations of healthcare 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:

  • 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. [While] venture capitalists are in the news [almost every day] 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% of their deals, the other 25% is big enough for investment companies to continue to be looking for those few new cutting-edge companies but has no effect with the mom-and-pop shop[s]. Add to this that bank loans to small businesses fell to a 12-year low in 2012, and financing may be the most powerful reason for the dramatic drop in entrepreneurship.
  • Technology […] is also responsible for displacing independent businesses across several […] 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 middleman to buy products when you can go right onto the Internet to find goods? [T]echnology [also] provides the opportunity to combine small businesses into a few big ones—just ask Amazon.
  • The well-financed chain businesses are killing the little guy. Look what Staples has done to the office supply industry or [what] The Home Depot did to hardware stores or Best Buy did to electronic stores. Walmart controls close to 50% of some lines of the grocery and the general merchandise business, where a generation ago, thousands of families made their living selling these goods.

The Economist though still thinks America is a beacon for entrepreneurs. 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 continue to read about Bill Gates and Steve Jobs, 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 dream:

  • 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 [believe] 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, the United States immigration policy has been fairly open. We are a country of immigrants, and the brightest from overseas can see this. Just look at Silicon Valley again, where 52% of the startups were founded by immigrants, up from 25% just 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 at a crossroads where the determination of our forefathers built our great society, yet this generation is going to let it fade away?

America has realized that we have to do more to encourage entrepreneurs to follow their dream. Startup America Partnership was formed by the Kauffman and Case foundations to help entrepreneurs get their companies off the ground by delivering free or low-cost services and connecting them with larger corporations. Score is a nonprofit association helping small businesses succeed by using volunteer mentors who share their knowledge in an effort to give back to their community.

These are challenging economic times. A third of all startups fail within the first two years, and 60% are doomed to fail by the fourth year. Who in their right mind would play these odds, especially during these financially uncertain times? [A]s a society, we must look back to our founding fathers, [who] had the vision to create a nation that strengthens democracy through individuals taking the initiative and the chances to better those around them. Entrepreneurship is not dead; it is just reemerging 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 begin to act on your dreams. When you think that 16 out of the 30 corporations that make up the Dow Jones Industrial Average started during a recession, why can’t that be you?

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