It's no secret that entrepreneurship — and small businesses in particular — are an integral part of the very foundation of the United States economy. According to a number of recent studies, however, that foundation may be weaker than it has been in many, many years.
Drawing on data collected by the Census, The Kauffman Foundation revealed that the number of companies less than a year old (meaning startups) had actually declined as a share of all businesses in the country by a massive 44% between 1978 and 2012. This is despite the fact that unemployment has fallen and the stock market has absolutely bounced back from The Great Recession of a decade ago.
So, what exactly does this tell us? Is this simply a natural lull in entrepreneurship, or are we witnessing the death of that very idea in the U.S.? We asked a number of financial professionals and other experts about their thoughts on that very topic, and their answers were enlightening, to say the least.
Why Is Small Business Creation Slowing? Our Experts Break Things Down
When asked to give their "boots on the ground" perspective about the current startup creation situation, some of our experts were in agreement that they're not even sure something strange is going on at all.
"I am not sure I agree with the idea that the decline in entrepreneurship is permanent," said Crystal Scanlan of Integrity Accounting. "If there was a decline, it was likely due to the recession we experienced a few years back. It likely scared people and pushed them towards something with significantly less risk."
Her idea of the future, however, is a hopeful one: "I predict that as more and more millennials begin to dominate the workforce, the number of small business startups will increase. Eventually, those of us who were scared away by the recession may even decide to give entrepreneurship a second chance."
Dmytro Arshynov, EA, CAA of DMA Financial Management, LLC had similar thoughts on the topic, albeit from a slightly different perspective. "I believe in the past years, due to the weaker economy, the unemployment rates were high — which actually created a new need for entrepreneurship." He elaborated, saying that "once the market stabilized, while some areas like driving for Uber got saturated, those freelancers and independent contractors found full-time jobs with benefits."
To put it another way, Arshynov acknowledges the decline in entrepreneurship and even the commonly accepted reasons for it, but he doesn't think it's a sign that something nefarious is going on. Small business creation is simply a victim of circumstance — and likely a temporary one, at that.
The Best-Laid Plans...
Brian Dela Cruz, CPA, MBA of Take Flight Business Solutions, LLC said that he's actually experienced this phenomenon up close and in person. "I had one client who didn't do so well because they didn't take their fiduciary responsibility seriously, and they didn't keep good track of the rents received." He went onto say that "they had difficulty separating business funds from client funds, and thus ran into trouble because of it."
Indeed, one has to wonder how many other small businesses ended prematurely because of A) the uncertain economic conditions of the last decade, and B) the unwillingness of the people to "look before they leap." As Dela Cruz says, entrepreneurs must "keep good records of all of these types of factors and stay out of trouble.”
Arthur Rubin, EA, MBA, CFE of Accountants and Counselors, agreed with that idea wholeheartedly. He agreed that there has been a noticeable slowdown in the rate of small business creation, "not including the increase in franchised businesses, which added a significant number of startup firms as well as empowered the creation of jobs by entrepreneurs for companies like Uber.”
Expanding on his theory behind this, he said that "more and more employees that lost jobs during the recession have become self-employed." So, it may be that the entrepreneurial spirit in the United States isn’t dying, but that people are taking that passion and looking elsewhere — at least temporarily.
He finished by saying that "the success of any business, especially entrepreneurship, is based on planning. As Benjamin Franklin once said, 'if you fail to plan, your plan will fail.'"
Learning from the Past to Inform the Future
In the end, remember that everything is cyclical — the world of business is nothing if not one filled with ebbs and flows. While statistics may reveal that the rate of startup creation is slowing, that isn't necessarily anything unusual. Nor is it cause for alarm.
"Entrepreneurship is the backbone of America," said Joshua Standley, EA, ABA of DKK Accounting. "So long as there are problems, someone will create a solution to meet the demand to solve them."
If you're looking for a decidedly optimistic idea to take away from this entire situation, let it be that one.
About Lee Reams II
I am a tax and business news junkie who has spent the last 20 years developing and executing "best in class" word-of-mouth marketing campaigns for tax and accounting professionals. With TaxBuzz and CountingWorks we have taken that same commitment to quality content directly to the consumer. Keeping you up-to-date with the latest tax law changes, business growth tips and planning strategies to help you reach your best financial outcome.
