Over 200 years ago James Madison wrote "the 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 less than five years old -- account for 50 percent of all going concerns. Today it is less than 35 percent. In 1977, there were 35 new employer businesses for every 10,000 citizens. Today there are fewer than 17; a 50 percent drop! Start-ups made up 12 percent of U.S. companies in 1980 and today they are less than 8 percent. We now average 7.8 start-up 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 health care 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. Even though every day venture capitalists are in the news funding the big hitters, in truth only an extremely small fraction of start-ups 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 percent of their deals, the other 25 percent is big enough for investment companies to continue to be looking for those few new cutting edge companies; but has no affect with the mom and pop shop on the corner. Add to this that bank loans to small businesses fell to a 12-year low in 2012; financing may be the most powerful reason for the dramatic drop in entrepreneurship.
- Technology, which we think is helping to streamline work and create Internet-related businesses, is also responsible for displacing independent businesses across several business 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 middle man to buy products when you can go right onto the Internet to find goods? And technology 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 Home Depot did to hardware stores or Best Buy did to electronic stores. Walmart controls close to 50 percent 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 have the belief that 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. Close to half of the start-ups 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 percent of the start-ups were founded by immigrants, up from 25 percent 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 Foundation and the Case Foundation 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. At DollarDays on our Facebook page, we are giving away $5,000 worth of products in February to help small businesses launch or expand; so please nominate one in your community that deserves our help.
These are challenging economic times. A third of all start-ups fail within the first two years and 60 percent are doomed to fail by the fourth year. Who in their right mind would play these odds, especially during these financially uncertain times? So as a society, we must look back to our Founding Fathers that 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?