The United States offers one of the best environments for entrepreneurs in the world, with relatively low tax rates and open policies that make it easy to innovate and work with others. Combined with advances in technology that allow more people to start digital businesses or start businesses remotely, you’d think entrepreneurship rates in the U.S. would be at an all-time high.
However, this doesn’t appear to be the case. From the 1970s to the mid-2000s, every year saw the rise of somewhere between 500,000 and 600,000 new companies. Now, we’re seeing less than 500,000.
Entrepreneurship and small businesses play a major role in the growth of the economy, creating new jobs, new markets, and new opportunities for everyone in the country. So what, exactly, is responsible for this decline, and what can we do to fix it?
New Opportunities, But Who’s Getting Them?
First, let’s address the rise of new investment opportunities for startups. Starting a business, even in the digital era, is capital-intensive, which means entrepreneurs need to seek out some way to get the money to start their ideas. There are many niche offerings you can explore online, from highly approachable hotel financing options for entrepreneurs who want to focus on real estate to angel investor networks for entrepreneurs with more specialized projects.
Funding is, hypothetically, more available than ever before. However, there may be an issue with how these opportunities are concentrated. For example, the availability of venture capital (VC) has increased significantly, year after year, ever since the dotcom boom of the early 2000s. The total number of VC investments was higher in 2018 than any other year. However, VCs tend to be more discerning with where they put their money; they’ll willingly sink millions, or even billions of dollars into the companies and ideas that seem the most promising, but the total number of businesses receiving capital is not increasing at the same rate.
There are many more opportunities for entrepreneurs to start digital and remote businesses as well, but these opportunities aren’t equally available for physical retail stores or similar businesses that exist in real life. In fact, physical businesses are facing increased competition from their digital counterparts, in some ways making it harder for entrepreneurs to start those businesses.
The Lingering Effects of the Great Recession
The Great Recession is now 10 years old, but there is some evidence that it could have an indirect impact on the development of entrepreneurship rates. Interestingly, higher local unemployment rates tend to have a positive impact on entrepreneurship and business creation, since people find themselves with more free time on their hands, but lower home values and poor economic conditions have a depressive effect. This could result in a mixed influence on entrepreneurship rates in the wake of the Great Recession. Many years down the line, as unemployment rates have stabilized and reached near-all-time lows, business creation can be stifled.
The Great Recession may also have had an impact on the public’s willingness to take economic risks. Some studies have shown that millennials are disproportionately unlikely to invest in stocks, for example; after witnessing the collapse of the stock market firsthand as they entered adulthood, they lost faith in stocks as a good investment. If they’re afraid of taking economic risks, and would prefer trying to forge a conventional career, it doesn’t leave much room for entrepreneurial growth.
Less Room for Competition
There may also be a dampening effect due to the emergence, growth, and lasting popularity of major competitors in most available niches. For example, if there’s a Walmart down the street from your home, it wouldn’t make sense to open your own grocery store; you don’t have the infrastructure, supply chain, or brand recognition in place to offer any semblance of competition to this corporate powerhouse.
The objective data seem to confirm this effect; in areas with several chain stores and encroaching big businesses, entrepreneurship rates tend to decline. In some areas, competition would require years, if not decades, of resource development; for example, Google has been continuously refining its search engine algorithm for 20 years, so it’s borderline impossible for someone to dethrone them without an inordinate amount of money and support to back them.
How Can We Improve Entrepreneurship Rates?
Now for the big question: how can we improve entrepreneurship rates? Entrepreneurship and small businesses are good for the economy, and for individuals within that economy. Unfortunately, there isn’t much an individual can do to boost entrepreneurship rates, short of starting a business themselves.
A more universal distribution of small business opportunities could help, such as smaller-scale grants, loans, and fellowships accessible to entrepreneurs of businesses other than massive tech unicorns. We also need to improve the public perception of economic risks, such as quitting a full-time job to start a business or investing in an uncertain business opportunity. Without a willingness to engage in calculated risks, people won’t be willing to start businesses—even in today’s business-friendly landscape.