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Start-Up Fizzle

October 17, 2016

There’s been a dramatic decline in U.S. new business creation – in fact, it’s at a 40-year low!

A big reason we should all care is that startups create half of all new jobs annually. If these job-creating enterprises don’t materialize regularly, the logical result is fewer and fewer new jobs.

Slightly fewer than 453,000 firms were created in 2014, the most recent year of data. Compare that to the 500,000 – 600,000 new companies created from the 1970′s through the mid-2000′s, and things don’t look too bright.

In the age of Shark Tank and Silicon Valley, you’d think everyone was working at a startup. But the truth is people are starting fewer businesses, and it’s understandable. After the Great Recession, people don’t have the money or resolve to strike out on their own. Here are four reasons why.

Supply Chain is King

Local businesses can’t compete with national firms on price because the large enterprises source goods so cheaply. For some, that’s a deal-killer.

Regulation

Nobody likes paperwork, especially Millennials! Nothing kills the entrepreneurial spark like business permit applications. And it’s not just small shops who are avoiding incorporation – hardly any new domestic banks have opened since the last financial crisis!

Worker Restrictions

It’s more commonplace for companies to lock people down with non-compete clauses in employment contracts. Such practices prevent, or at least delay, employees from leaving to start new companies.

Intrapreneurship

Big companies are becoming more entrepreneurial themselves. Companies like Google and Tesla practice intrapreneurship, allowing for unique and well-funded R&D efforts. Why leave when you can scratch that itch at your full-time gig?

It will take time, but hopefully this trend reverses. If not, our future job prospects dwindle greatly.

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