The United States is seen as the land of opportunity to start a business and achieve the American dream. While the U.S. economy faced a devastating crash during the 2007-2009 Great Recession, entrepreneurship remained strong in the United States. Millennials, however, were raised during the Great Recession and therefore may hold on to those financial concerns while they get ready to become the majority of the working population. The question is whether they will put those worries aside and begin their entrepreneurial journeys towards starting their own business.
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Are small businesses on the wane?
According to the report United States Census Bureau: Statistics of U.S. Businesses, published in 2013, over 50 percent of the working population in the country (comprising 120 million individuals) worked in small businesses. Another Small Business Administration (SBA) report from the same period informs us that over 65 percent of the net new jobs created since 1995 owe their existence to small businesses.
This underlines the need for the continuing growth of small businesses. During the last Great Recession of 2007-2009, the formation rate of the start-ups started to rise at a rapid speed, reaching its peak in 2009. The growth rate at this time recorded a 17 percent high to what it was at the start of recession.
However, a significant portion of these startups was triggered by the looming threat of unemployment during the economic downturn. This partially explains the significant drop in the growth rate of small businesses in the immediate post-recession era. From 2010 to 2014, the start-up rate for new businesses dropped by 5.9 percent. In the three years following the depression, more new businesses closed than opened and this includes both employer start-ups as well as nonemployers.
The year 2009 witnessed the most drastic rate in the closedown of startups, but the trend continued in the following years as well which leads to another startling statistics concerning the health of small businesses, namely, in the period 2010-2014, about 60 percent of US counties saw more businesses closing than opening.
Dominance of older firms and why it must worry us?
This ought to trigger concern for a number of reasons. For one, the wane in the number of startups has played back into the hands of the older incumbent companies and for the time being, they tend to dominate the current economy. The percentage points of the share of these firms have increased and so has the workforce employed in these firms.
This augurs bad for the overall economic health of the country for two reasons. Firstly, these older companies are far less dynamic when compared to new businesses and therefore, are less likely to witness strong rates of growth on a consistent basis. Secondly, young businesses account for nearly all new net job creation whereas older firms let go of as many workers as they add.
Another important aspect in the growth in entrepreneurship during the recession era is the uneven distribution of growth across sectors. The most number of new businesses (27 percent) was concentrated in the professional services sector, whereas the manufacturing sector experienced a meager growth of 4.5 percent. (The rest being somewhat evenly distributed among retail, education and health services and construction sectors, with the latter enjoying a slight edge over the other two.)
This trend has continued steadily in the post-recession era, which has seen a relatively strong job growth than the years preceding it. So, we see most of these jobs being generated in a handful of ‘knowledge economy’ hubs at the same time as we see old and once prosperous industrial areas sink into states of greater stagnation.
We find another striking statistics that touches on this issue, which is that the fastest growing sector for freelance businesses (a large part of them nonemployer businesses) in the year 2011 included dry cleaners, beauty salons and auto repair shops.
As regards manufacturing, the general consensus seems to be that it is next to nigh impossible to recover this sector as a huge percentage of manufacturing assignments being outsourced to developing countries. This is reflected in the interests witnessed in the millennial entrepreneurs who are most active in the retail, e-commerce, technology and investment management sectors.
To come back to the state of new businesses at present, a statistics from Labor Department shows that startups less than one year old contributed 5.2 million jobs in the fiscal year 2013-14, down from roughly 6 million in the years leading to the economic depression and a good way off the usual 7-7.5 million jobs a year customary throughout the 1990′s.
New hope on the horizon
However, the picture may not be as bleak as it may appear on first glance and there are different ways to interpret the drop in the start-up rates in the post recession period. For one thing, most startups launched during the Bear Market era, as we have already mentioned, were a direct response to the fear of going unemployed. In other words, many starting new businesses were people who thought that they couldn’t find a suitable job at that period. In the recovery period however, as the economy strengthened, many closed down the startups and opted for more secure jobs-which is what strengthened the dominance of older firms, especially ones that were 16 years old or more.
On the other side, however, there are signs which point to a possible imminent growth in new businesses. The entrepreneurial sentiment runs high as never before with 25 percent of small businesses expecting to recruit 20 or more employees in the next five years and 51 percent of the workforce believing that promising opportunities exist for new startups in the country.
Additionally, although the share of new business employers has decreased by 51 percent between 1977 and 2013, there is a 30 percent decline in the small business failure rate since 1977.
We may also take heart from the fact that Millennials have launched twice as many companies as baby boomers have and 75 percent of the former believe that their business revenues will increase in the next one year. Couple it with the fact that millennial entrepreneurs, on an average, lead teams of 122 employees compared to 30 by boomers and one may see why there are reasons for hope.
Moreover, Millennials, largely grown up as they have in the digital age, are well accustomed to and versed in diverse technological innovations and digital platforms. And in another five years, they will also represent the largest demographic of the US population.
Additionally, the success stories of the likes of Zuckerberg, Elon Mask, et al are expected to foster greater ambitions in the newer generations of entrepreneurs who will be more daring to pursue their goals and to set higher challenges for themselves.
Finally, another encouraging factor is the more or less even distribution of new startups in the last year across different age and gender groups, geographic regions and ethnic groups. American immigrants have historically started far more new startups than native-born Americans, and although the rate has dropped slightly in the recent years, it is predicted that immigrants (now often second or third generation) are twice as likely to start new businesses in the country as native-born Americans.
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