Amidst this tough economy, and perhaps because of it, many young people are trying something bold: they're starting a business. Where there are no jobs to be found, and the unemployment rate for young adults is astronomical, these new businesses can create jobs, spur innovation, and grow our economy.
The idea of youth entrepreneurship is sexy, and the Obama administration, among others, is rightly spotlighting the potential for economic growth through young, innovative talent, recently hosting a summit to hear directly from young entrepreneurs themselves how to foster new businesses and remove barriers to entry.
The summit is a smart first step to bringing more attention and study to a potentially transformative movement of young people creating businesses. But the idea isn't new and it isn't partisan. It reflects our American passion for big thinkers and risk-takers. Many see the facilitation of entrepreneurial activity as a rare opportunity for aisle-crossing in Washington. And there are high hopes placed on a younger generation that understands online markets and technology.
Yet we need to ensure that "youth entrepreneurship" isn't just another buzz word thrown around in DC, but a real possibility for those who want to pursue it. We need to acknowledge that fact that 1) many young people want to start a business but face ever increasing economic pressures, 2) less young people are starting businesses in this economy, and 3) the types of businesses they start in the Recession are going to be harder to sustain. And then we need to craft policies that allow Millenials to pursue their dreams to start a business, even during this tough economy, and that eliminate any barriers that may stand in the way of those businesses becoming successful.
Indeed, despite the stereotypes of unmotivated young people, a surprisingly high number of teenagers see entrepreneurial activity in their future. According to the Kauffman survey, 39 percent show interest in starting a business, and that number actually goes up as youngsters start to hit their 20s. Starting a business is an American dream for many Millenials.
But who is actually following that dream during these dark economic times? That's a more complex question. One measure of individual entrepreneurship done by the Global Entrepreneurship Monitor states that start-ups have been in decline for the past five years, dropping from 10.6 percent in 2005 to 6.9 percent in 2009. Importantly, the percentage of entrepreneurial activity engaged in by younger generations declined in that timeframe, while entrepreneurial activity for older generations increased. Another measure of entrepreneurial activity, the Kauffman Index, shows an increase in overall entrepreneurial activity, but still shows a slight decrease in youth entrepreneurialism. In other words, young people want to start businesses, but less of them are getting that chance right now.
The story becomes more complicated when we look at the types of enterprises formed by those who actually are setting up shop these days. When there are higher rates of unemployment, youth in particular are more likely to go into "necessity entrepreneurship," rather than "opportunity" entrepreneurship. In other words, more young adults decide to start some sort of a business during a recession because they need the income to eat and pay the rent, not because they find a gap in a market that they think they can fill with an innovative idea. This makes sense. Young adults have little capital or experience, and are the first fired during tough economic times. By starting a business, young people are simply being resourceful.
This trend toward necessity entrepreneurship is particularly prevalent when the cohort faces sustained high unemployment -- in other words, the precise situation Millenials find themselves in right now. But while necessity entrepreneurs are more common, they also, predictably, have lower initial earnings, less growth, and fail more often. Moreover, businesses started during a recession see lower earnings, even long after the recession. Unsurprisingly, most businesses started by young adults are not Facebook and are not going to attract large venture capital firms. These businesses start small, local, and can potentially create real jobs in their community. Unfortunately, the constraints that youth entrepreneurs face in today's markets make it more difficult for them to be successful.
This is precisely why we need the aforementioned buzz, in order to generate policies that will encourage more young adults to pursue their entrepreneurial dreams, and to enable young "necessity" entrepreneurs already struggling to become as successful as the more commonly lauded "opportunity" entrepreneurs. These policies need to address a number of questions.
How do we lower the barriers to success for all types of young entrepreneurs and companies, from the new bar down the street to the next Internet powerhouse? How do we address the access to capital problem for young adults with debt and little credit history? What small business loan policies and educational curriculum need improvement, and what training need be made available? What incentives need to be structured to turn today's unemployed Millenials searching for a way to make rent into tomorrow's leading innovators?
A concerted effort on behalf of all parties to find these answers will help put young people back to work, allow young adults their chance at their American dream, and create jobs in a struggling economy.
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There is also the concern of drawing money away from more reliable economic development.
Of course the downside is that these kids can create a lot of clutter in the investment markets with professional money that can slow or stall real businesses looking for investment.
My advice is always: Work a couple of jobs for at least 10 years. Save your money and learn your trade; then go start your business. Oh, and your spouse better be 100% into the idea or you will receive your regularly scheduled beatings from both ends.
It's a fast read and a good wake-up call to hard facts that definitely can change some minds (for the entry into the marketplace or not) as well as sharpen that business plan for better performance.
Problem with a new venture, being young and in business is a) lack of experience, b) inability to be taken seriously by the business establishment and c) lack of maturity. However each of these problems have benefits that can be capitalized on (see Facebook, LinkedIn, etc) in that a) lack of experience also doesn't cloud judgement or preclude ideas, b) while working harder to prove oneself, one finds (hopefully) better advisers/lenders/investors who understand and encourage out of the box thinking and c) you'll grow-up real fast or you'll just not make the grade.
If you don't think outside the proverbial box, you'll never truly succeed.
Wayne Spivak
SBA * Consulting LTD
www.SBAConsulitng.com
Twitter: @WSpivak
When I walk into a bank for instance and apply for a business loan .. even though our business and my personal credit score are excellent, the business is still declined.
With a lack of capital infusion will limit growth. If we had the opportunity to acquire more capital, this would lead to more jobs and more advertising, which would in our mind spur organic growth.
Being somewhat technology savvy, I am trying to build up my business using the latest social media tools and server technology to leverage our services. However, when I present myself to a bank of investment firm, sometimes the issue seems double sided. Some investment firms ask me about my age, and what qualified business experience do I have. Even though I have some, its not enough to compare myself to some big executive.
I firmly believe that entrepreneurship is important for this country, but its difficult to believe in something when there are so many opposed forces to helping you succeed.
- Ryan
Age 23
Tennessee
At 23 you have a lot of time. Our federal government is a huge problem for small business right now but having a business is still legal and I am hopeful that conditions will continue to improve.
Businesses don't create employment demand does.
We have seen literally hundreds of thousands of small businesses go belly up simply because they have no customers for their products. So the answer if for everybody to start a small business. HUH?
And you are right about another thing. An awful lot of this is the equivalent of apple selling. It's not going to do the economy or society any good in the long run.