group. “The fear of failure among 25-to-34-year-olds can
reflect a greater level of caution, and a preference for more
stable employment when there is high uncertainty and a less
favorable environment for entrepreneurship,” says Donna
Kelley, a professor of entrepreneurship at Babson College
and GEM team leader for the United States. Massive student
debt can also contribute to young people’s fear of risk.
The broader problem may be that U.S. population growth
is shrinking. That alone explains part of the decline of the
startup rate, says Robert Litan, an economist at Brookings.
“On the supply side, if you have fewer people, there are fewer
companies being formed,” he says. “On the demand side, a
slowing population means less demand for new products.”
The population is also graying. “Look at Europe and Japan,
both aging societies, and their entrepreneurship rates are
way, way down,” says Lee E. Ohanian, a professor of economics at UCLA. “I don’t see how Japan is going to get out of this,
because it’s a very closed society.” The United States, though,
still has a chance, says Ohanian. “If we do immigration right
and bring in lots of talented, ambitious people who see opportunities here, then we may be able to reverse this.”
IT’S THE BIG GUYS
SOAKING UP THE OXYGEN _
ESTABLISHED BUSINESSES have always held the edge, and the
larger those businesses become, the fewer the startups that
sprout. “If you are a city or state with a rising concentration”
of chain stores, or branches of existing businesses, “you see
a faster decline in your startup rate,” says Litan.
Given that existing American companies opened roughly
50 percent more branches in 2011 than they did in 1978, the
challenge for startups is clear. Back then, 80 percent of “new
establishments” were startups; the rest were new locations
of existing businesses, according to data from the Federal
Reserve Bank of Cleveland. Today, that number is down to
60 percent. Panera has more than 1,880 restaurants, and
for consumers that’s great. It’s less great for the baker who
dreams of starting Capucine’s Croissant Café. (Thirty years
ago, the rise of big-box stores—now in decline—rained similar
punishment on small and young businesses.)
Economic development officials also tend to favor known
quantities looking to expand. “If I had a headline tomorrow
that said, ‘ 1,000 Call Center Jobs Move to Community X,’
I would have everyone in town high-fiving me,” says Karl
R. LaPan, former chair of the National Business Incubation
Association. “If my headline said, ‘Five Three-Person Businesses Started Last Year,’ it would end up on the back page.”
New research from Play Bigger, which advises business leaders
on creating new markets, found that tech companies today
achieve market-cap milestones—$500 million, $1 billion,
$5 billion—three times faster than they did 15 years ago.
Almost as soon as they are invented, major categories are
dominated by what Play Bigger calls “category kings,” which
own 70 percent or more of the market share. “You have this
giant player and a series of weak number twos, threes, fours,
fives, and sixes. And those disappear pretty quickly,” says
Play Bigger co-founder Al Ramadan. “The saying used to
be ‘A rising tide lifts all boats.’ That is no longer true.”
Size isn’t the only problem; longevity plays a role as well.
The share of companies aged 16 or older has increased by
about 50 percent since the late ’70s, according to Brookings.
That includes not just the Walmarts of the world but also the
major internet companies, which we tend to view as forever
young. If Amazon were human, this year it could legally
drink. Next year, Google would be able to vote.
We celebrate enduring businesses for good reason. But to
the extent they crowd out newcomers, innovation takes a hit.
“The major innovations of the past century and a half—the
telegraph, the automobile, refrigeration, air conditioning,
computers—they all came from entrepreneurs,” says Dearie.
Large, established companies also tend to hog talent. That
says more about why new companies don’t grow than about
why they don’t start—unless that talent is a fence-sitting
entrepreneur. “Is it just a lot easier for me to go to Google
than to start a new company?” says Ian Hathaway, an econo-
THEY GO FORTH AND MULTIPLY
When an area has a rising number of chain stores, the rate of new startups drops, says Brookings economist
Robert Litan. Each of the above chains has more than 1,000 stores across the U. S..
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