#523. The Future of Entrepreneurship

Posted on | The Agurban

The Future of Entrepreneurship

The Kauffman Foundation, whose mission is “to help individuals attain economic independence by advancing educational achievement and entrepreneurial success”, recently released their State of Entrepreneurship Address entitled The Future of Entrepreneurship. We want to share their summary with our readers. As our loyal readers know, we are huge proponents of entrepreneurism, especially millennial entrepreneurs. This Kauffman report draws attention to some issues our present and future entrepreneurs will likely have to address.

The Future of Entrepreneurship: Millennials and Boomers Chart the Course for 2020

By many measures, entrepreneurship is enjoying a renaissance. Venture and angel investment levels in recent years mirror those of the late 1990s and very early 2000s. Startup valuations have skyrocketed. City and state governments increasingly build economic development strategies around entrepreneurship, and colleges and universities offer more entrepreneurship education than ever before.

Despite these positive indicators, other indicators reveal reasons for concern. Data analyses increasingly show that U.S. business creation is trending downward and that new firm survival rates have fallen consistently for nearly twenty five years. More distressing still is the fact that high-growth firms are less dynamic than they historically have been. Dynamism—the rate at which employees change jobs and at which businesses start and fail, grow and shrink—has been dropping, a factor that could portend lower economic growth.

Given these contradictory signals, observers disagree about whether entrepreneurship is on the brink of resurgence or whether it has reached a “new normal” of low rates of entry and growth. For insight into America’s entrepreneurial future, the Kauffman Foundation considered two of the country’s biggest demographics developments: the emergence of Millennials and the aging of Baby Boomers. These shifts will, in different ways, shape entrepreneurship in the decade ahead. This report analyzes the potential impact each of these generations may have.

Millennials (born from 1981–1997) have created fewer and fewer businesses since they entered the workforce in the early 2000s, despite expressing strong interest in entrepreneurship and having been exposed more than any previous generation to entrepreneurial training. As they reach the “peak age” for starting companies—around forty—there are reasons to hope that entrepreneurship will grow:

  • * Millennials, who came of age as the IT revolution flourished, are well positioned to turn new technologies into new entrepreneurial ventures.
  • * Millennials enjoy near-ubiquitous exposure to entrepreneurship.
  • * Millennials have high levels of education that will equate to the creation of stronger businesses.
  • * Millennials, on the cusp of mass entry into the “peak age” bracket for entrepreneurship, will be the largest cohort at these ages in American history.

At the same time, there are reasons to be skeptical about Millennials’ impact on future business creation:

  • * Saddled with student loan debt, Millennials can’t afford to be entrepreneurs.
  • * The Great Recession dealt a permanent blow to Millennials’ entrepreneurial potential.
  • * Fewer young companies, which tend to hire younger workers, will mean fewer exposure opportunities for Millennials, which will mean lower rates of entrepreneurship.
  • * The explosion of entrepreneurship education on college campuses may not have much impact on actual business creation.
  • * Millennials won’t have the same social and economic resources at their disposal that past generations did.

Many Boomers (born from 1946–1964) who became entrepreneurs during the information technology revolution in the 1980s and 1990s are today’s serial entrepreneurs. Some data show that these fifty- and sixty-year-old founders have started more businesses in the last ten years, while in the meantime, the rate of business creation among twenty to thirty-year-olds has slowed. With life expectancy rising, Boomers should be an important economic force for years to come:

  • * Boomers have been, and will continue to be, an entrepreneurial generation.
  • * As they work longer and live longer, Boomers also will be entrepreneurs for longer periods of time.
  • * The aging of Baby Boomers will create numerous challenges and entrepreneurial opportunities—and Boomers will be the ones who start companies to capitalize on them.
  • * Boomers are the best-positioned people in America to start new companies.

Nevertheless, the aging of the Boomer generation could further slow entrepreneurship:

  • * Boomers won’t start as many new companies, and the companies they do start will have less economic impact.
  • * Common sense indicates that an older population won’t start new companies at a very fast pace.
  • * Higher labor force participation at older ages belies large numbers of dropouts and won’t produce growth companies.
  • * Boomers, also hit hard by the Great Recession, can’t afford to start new companies.

Given what we know—and what we don’t know— about the effect of coming demographic changes on entrepreneurship, the Kauffman Foundation organized a discussion panel at our annual State of Entrepreneurship event in Washington. This panel will explore the different scenarios for entrepreneurship in the context of demographic change, and discuss ideas for maximizing the entrepreneurial potential of Millennials and Boomers, and minimizing those barriers that may impede entrepreneurship. Policy areas that deserve further attention in this context include student debt, taxes, and regulation.

Full report.