time when entrepreneurship had reached its
cultural apex and was widely viewed as the sole
sizzling ember in an otherwise cooling economy.
The business and academic worlds were left
slack-jawed: How could this be?
The implications are huge. “New businesses
are disproportionately responsible for the inno-
vation that drives productivity and economic
growth, and they account for virtually all net
new job creation,” says John Dearie, executive
vice president for policy at the Financial Services
Forum. “I would say, as a policy person, this is
nothing short of a national emergency.”
The underlying worry is churn. In a dynamic economy,
businesses are born, grow, and die; jobs are created and lost;
and resources are reshuffled according to their best use. If
there are fewer new companies and more aging ones, then
labor and capital hang tight in old industries. The economy
is not refreshed and growth slows.
What’s behind this drop off? Every reader of Inc. knows,
of course, that launching and running companies is not for
the faint-hearted. In his book Where the Jobs Are: Entrepreneurship and the Soul of the American Economy, Dearie and
his co-author interviewed more than 200 founders about the
challenges of building businesses. Their subjects cited five:
insufficient access to capital; difficulty finding people with
the right skills; immigration policies that keep talent out;
onerous taxes and regulations; and economic uncertainty.
Those go a long way toward explaining why companies
struggle to scale. But they offer only a partial explanation for
why fewer companies start in the first place.
Understanding why something isn’t happening is tougher
than understanding why it is. Is this just a statistical anomaly?
Or has the state of American entrepreneurship fundamentally
changed? Experts speculate that a host of factors may have
contributed to the decline in ways large and small. The data
points to four likely explanations.
IT’S A GENERATIONAL PROBLEM _
STEVE JOBS WAS A BOOMER. So is Richard Branson. Also Bill
Gates. And Oprah Winfrey. And Ben. And Jerry.
The Boomers are a startup-happy bunch—over the past
On the demand side, a
decade, the portion of founders in their 50s and 60s has
increased, according to Kauffman
data. By contrast, the portion of
20- and 30-year-old entrepreneurs
has declined. In 1996, young people
launched 35 percent of startups. By
2014, it was 18 percent. “We’re now past
the peak demographic bulge we got
from the Boomers,” says Dane Stangler,
Kauffman’s vice president of research
and policy. The Millennials, meanwhile
aren’t expected to start launching com-
panies en masse for five to seven years.
And, while technology is young
people’s oxygen, risk may be their car-
bon monoxide. According to the Global
Entrepreneurship Monitor (GEM), a
consortium of academic teams in more
than 70 countries, until last year 25-to-
34-year-olds were significantly more
worried about failure than 35-to-54-
year-olds. But there’s a hopeful sign for
startup rates: In the past year, young
people have begun to display more
confidence. In 2014, just 34 percent of
25-to-34-year-olds said fear of failure
would prevent them from starting a
business, down from 41 percent a year
earlier. Still, this remains a cautious
“On the supply side, if you have
fewer people, there are fewer
companies being formed.
slowing population means
less demand for new products.”
CHARTING THE STARTUP DECLINE
According to Census Bureau data reported by the Kauffman Foundation
and the Brookings Institution, the number of new companies as a
share of all U.S. businesses has dropped 44 percent since 1978.
NE W FIRMS OF TOTAL
1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 004 2006 2008 2010 2012
NE W FIRMS
56 - INC. - MAY 2015