Entrepreneurship Roars Back. How Do We Keep it That Way?
The Startup Boom is for Real. Finally
There’s a lot of excitement over entrepreneurship and startups. Even experienced angel investors have missed or ignored the long-term decline of startups in the United States. Now the 2015 Kauffman Foundation Index on Startup Activity shows that this year there’s finally good news. 2014 saw the biggest jump in year-over-year startup activity in the last 20 years, and a decisive improvement in the five-year downward trend.
Entrepreneurs are starting new companies at a fast clip. That’s because there are simply more opportunities thanks to gradual recovery in the broader economy and an improving employment picture.
Who Starts All These Companies?
The report also includes some interesting—and in some cases, counter-intuitive observations about the entrepreneurs who are starting all these new companies.
1. 52.4 percent of the founders are over 45 years old. In 1996, only 38.3 percent were. The dominance of college students and entrepreneurs in their 20s has been vastly over-hyped. Experience and proven expertise definitely have their place in startup businesses.
2. Along with “consultant,” “entrepreneur” has often served as a nice way to say “unemployed” since 2008. But 79.6 percent of the new entrepreneurs were starting their businesses because they wanted to, not because they were out of work. This is a huge improvement from 2010, which saw the lowest proportion of “opportunity entrepreneurs” in the history of this report.
3. Immigrants are very entrepreneurial: they’re twice as likely to start new companies as people born in the United States. Immigrants are a growing force in American entrepreneurial life. More than twice as many of 2014’s new entrepreneurs were foreign-born as compared to 1997.
4. Sadly, the number of women starting new companies has not increased much. 36.8 percent of new entrepreneurs in 2014 were women, close to 2008’s 20-year low of 36.3 percent.
5. Venture Capitalists funded less than 1 percent and angel investors funded less than 3 percent of all new firms. Debt is the most common capital source for new startups, most of which are not scalable enough to be interesting equity investments.
Silicon Valley, Boston, Austin… and Montana
Two complementary reports rank states and metropolitan areas in the United States.
Among the states, Montana is ranked number 1, followed by Wyoming, and North Dakota. Obviously, these are low-population states. Colorado is number 4, and Denver is number 5 among metropolitan areas, up from number 8 in 2014.
Austin, Texas is the top ranked metro for 2015, followed by Miami, Florida, and San Jose-Sunnyvale-Santa Clara, California (Silicon Valley). Rust-belt cities like Pittsburgh, Pennsylvania, Milwaukee, Wisconsin, and St. Louis, Missouri, continue to see fewer new startups.
Help the Good Times Keep On Rolling
For investors and civic leaders looking to foster entrepreneurship in their local areas, Kauffman provides a wealth of tips and things to consider.
1. Play to your local strengths. What are the industries or resources that can help encourage new businesses? Not every city can be another New York or Silicon Valley. Leverage key local players like large manufacturers and colleges and universities.
2. Be open to immigrants. Your local economy needs their drive and skills. Welcoming global talent is simply good business.
3. Make a fuss about successful local entrepreneurs. They are role-models for business founders, and can attract the press and investors.
4. Does your locality have any antiquated or unnecessarily restrictive occupational or professional licensing requirements that will discourage startups? It’s time to simplify and open things up to new talent.
5. Ditto local tax codes. Civic leaders would also be wise take a hard look at how hard it is to do business with your city. Is it easy to apply for permit—and to pay for them?
6. This one’s for state governments: Rethink your policy on non-compete clauses. Entrepreneurs thrive best when companies are not encouraged to overuse non-compete agreements. California, for example, disallows non-compete clauses except for equity stakeholders in businesses.
Angel investors, venture capitalists, and civic leaders will all welcome the large increase in new startup activity. These are the companies of the future, who will provide returns to the investors who back them and revenue and dynamism to the cities where they grow. It’s important not to take anything for granted. Taking a hard look at laws and policies would be a very good thing to do in order to keep the entrepreneurial renaissance growing.
From the Author:
Thanks for looking over my column. I have fun with writing about local business and administration matters. I’m an entrepreneur deep down, and enjoy folks who wish to grow companies and add to the marketplace.
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