Reliable news sources -- including CNBC, the Kauffman Foundation, US News & World Report, and others – have published articles about the boom in entrepreneurship. While it may make for a great story, a quick look at the numbers shows otherwise.
According to recently published statistics from the U.S. Labor Department, just 3.6% of Americans under 30 own equity in a business, a drop of over 66% since 1989, when the US population was 247 million compared to the current 327 million. That’s a drop of almost 15 million individuals.
A number of factors can help explain this long-term trend.
· Debt from student loans Money spent to repay student loans means it takes longer to save money to self-fund a business. With high student loan default rates and flat or minimum increases in wages it’s difficult to save enough money to start a business.
· Post-recession fallout Prior to the Great Recession, Millennials had generally grown up in an economy which was stronger than the historical average. Seeing job losses and company closings is scary for those undergoing their first economic downturn. Safety and stability often become more desired than controlling one’s destiny by starting a business. It takes time and maturity to understand that the economy is cyclical.
· Fear of failure Some social scientists have pointed out that over-protective parents with a risk-averse mentality cannot possibly create a home environment conducive to the curiosity and joy of discovery needed by entrepreneurs.
· Lack of exposure to conventional business models Starting on a shoe-string budget, slowly building revenues, taking on little or no debt or investor capital, and being profitable from the beginning are business attributes seen as boring by many Millennials. Ignoring business models in non-tech industries reduces the number of opportunities available to potential entrepreneurs.
· The political environment Anti-business activist groups ignore the many positive contributions made by small and startup businesses. Lack of exposure to positive contributions by businesses reduces the desire to be an entrepreneur.
· Fewer workers and more independent contractors As companies outsource more jobs to independent contractors, many workers are self-employed yet have few or no benefits and low pay, factors which contribute to an inability to grow their independent contractor businesses.
Trends like this don’t turn around overnight but there have been positive signs lately. Lower gas prices have increased American’s confidence in the economy according to the University of Michigan’s Index of Consumer Sentiment, up 13.5% in 2014 compared to 2013 and up 5.4% in December, 2014 compared to November, 2014. Confidence in the economy generally means an increase in the number of business startups.
More Millennials are moving from their parent’s homes into their own dwellings. This requires the purchase of household items which gives an overall general boost to US GDP. This also contributes to consumer confidence.
The “Internet of Things”, which brings technology to items typically thought of as non-tech, opens many opportunities for those who have grown up with, and are comfortable using, technology.
More colleges and universities are now offering degrees in Entrepreneurship which can hopefully give potential entrepreneurs some of the skills and confidence they’ll need to start businesses.
Just as the Depression spawned the mindset of The Greatest Generation, I’m confident the Great Recession and the slow recovery have taught potential entrepreneurs how to be resourceful, which is one of the most powerful skills an entrepreneur will need.