Below is a complimentary Demography Unplugged research note written by Hedgeye Demography analyst Neil Howe. Click here to learn more and subscribe.

U.S. Entrepreneurship Thriving? Think Again.  - 8 4 2020 10 37 23 AM

Over the past 20 years, most measures of U.S. entrepreneurship have declined or (at best) remained flat. The gap between those who can access venture capital and those who can’t is growing, with a select few riding to Silicon Valley-esque success while other small business owners struggle. (Bloomberg Businessweek)

NH: Think entrepreneurship in the U.S. is thriving?

Think again.

This piece is a great overview of an important topic I’ve often returned to: the long-term decline of business dynamism. For two decades, entrepreneurship has trended down according to basically most indicators, with fewer new businesses and falling self-employment rates. (See “Declining Business Dynamism: A Visual Guide.”) Data show that Millennials are less entrepreneurial than earlier postwar generations.

Over time, the share who are self-employed has remained consistently lower than Xers’ and Boomers’ rates at the same age. 

U.S. Entrepreneurship Thriving? Think Again.  - August5

As writer David Sax points out, however, media coverage would have you believe the opposite is true. The runaway success of venture-backed startups like Uber and Airbnb receive a disproportionate amount of attention, when in reality they represent less than 1% of companies. They also receive a hugely disproportionate share of VC funding. In 2019, almost half of all VC funds went to companies in the Bay Area. 

These flashy tales don’t reflect the experiences of most business owners. In fact, average Joes and Janes have found themselves with less access to financing.

New business owners most often request loans of less than $100,000, but the number of community banks nationwide has fallen by almost half since 1997. Now they increasingly have to seek funding from national and global banks, who are less likely to accommodate small loans.

Could the pandemic open the doors to an entrepreneurship revival? After plunging at the start of lockdown, the number of new-business applications is already rebounding strongly in many states. In the midst of global upheaval, would-be entrepreneurs may be deciding that it’s now or never.

But the “lone wolf” vision of entrepreneurship no longer appeals to many of those just starting out, who not only want financing, but also education and a support network.

This points to a key tension at the heart of entrepreneurship today. Starting a business Is an inherently risky move: Almost by definition, you are putting a lot more of your time and money on the line than if you just got a job, which means a much larger downside in the event of failure. All the financing and education in the world won’t convince a young person who doesn’t think the risk is worth it. (See “Are Millennials Killing the Entrepreneur?”)

And yes Millennials are, across the board, more risk averse at the same age than Xers and Millennials--as measured by their attitudes toward education, career paths, credit cards, borrowing, and investing as well as their track record on violent crime (less), sexual activity (less), tobacco (less), gambling (less), geographic mobility (less) seat belts buckled (more), and monthly retirement contributions (more). See for example "The Young and the Anxious," "A Round of Applause for Failure," "Millennials Are Seeking (And Finding) Traditional Work." 

Sax observes: “More than anything, we need to restore the belief, so deeply ingrained in America’s identity, that entrepreneurship remains desirable and attainable.”

Increasing access to resources would certainly be a boon for entrepreneurs who are hesitant about taking the leap.

But it will take more to change the minds of those who don’t even want to go near the cliff.

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Neil Howe is a renowned authority on generations and social change in America. An acclaimed bestselling author and speaker, he is the nation's leading thinker on today's generations—who they are, what motivates them, and how they will shape America's future.

A historian, economist, and demographer, Howe is also a recognized authority on global aging, long-term fiscal policy, and migration. He is a senior associate to the Center for Strategic and International Studies (CSIS) in Washington, D.C., where he helps direct the CSIS Global Aging Initiative.

Howe has written over a dozen books on generations, demographic change, and fiscal policy, many of them with William Strauss. Howe and Strauss' first book, Generations is a history of America told as a sequence of generational biographies. Vice President Al Gore called it "the most stimulating book on American history that I have ever read" and sent a copy to every member of Congress. Newt Gingrich called it "an intellectual tour de force." Of their book, The Fourth Turning, The Boston Globe wrote, "If Howe and Strauss are right, they will take their place among the great American prophets."

Howe and Strauss originally coined the term "Millennial Generation" in 1991, and wrote the pioneering book on this generation, Millennials Rising. His work has been featured frequently in the media, including USA Today, CNN, the New York Times, and CBS' 60 Minutes.

Previously, with Peter G. Peterson, Howe co-authored On Borrowed Time, a pioneering call for budgetary reform and The Graying of the Great Powers with Richard Jackson.

Howe received his B.A. at U.C. Berkeley and later earned graduate degrees in economics and history from Yale University.