The Looming Entrepreneurial Boom:

How Policymakers Can Renew Startup Growth

By Dane Stangler Vice President, Research & Policy Ewing Marion Kauffman Foundation
Dane Stangler
Dane Stangler

About the New Entrepreneurial Growth Agenda

Entrepreneurship drives economic growth, propels job creation, and creates opportunities for upward economic mobility. Yet, fewer Americans are starting businesses today than in the past, and overall, the economy has been growing slower than in the post-recession periods of decades prior.

Seeing these trends in 2014, the Kauffman Foundation announced a two-year initiative to develop new ideas for how to spur broad-based economic growth and opportunity through entrepreneurship. The result is the New Entrepreneurial Growth Agenda, a collection of essays written by the nation's leading researchers and policy experts offering recommendations for how national, state, and local governments can foster entrepreneurship. These essays are rich in content and cover myriad issues that affect entrepreneurship and vice versa, from technology creation and destruction, to inequality, talent, and education improvements, to a focus on cities, overall policies, and politics.

We commend them to you and look forward to robust debate and, ultimately, the implementation of policy that helps entrepreneurs and spurs growth.

In August 2008, the United States economy lost 259,000 jobs, and the unemployment rate rose to 6.1 percent. The country was in the midst of a stretch of twenty-three consecutive months of job losses. That same month, the startup Airbnb was officially formed. Seven months later, in March 2009, the U.S. economy lost 824,000 jobs, and the unemployment rate rose to 8.7 percent, on its way to peaking at 10 percent shortly after. That same month, the startup Uber launched a prototype, and Airbnb was admitted to startup accelerator Y Combinator.

Today, Uber is valued at $51 billion, and Airbnb is valued at $25.5 billion. The two companies represent the vanguard of both the “unicorn club” and what is variously known as the “sharing,” “peer-to-peer,” or “on-demand” economy.1 They also have come to represent modern American entrepreneurship, the phenomenon that fuels our economy and ensures job creation and growth.

In fact, in any given year, new and young businesses create nearly all net new jobs in the U.S. economy. Put more starkly: if you want new jobs, then you want new and young firms. Older, established companies tend, on balance, to be net destroyers of jobs.

This apparently straightforward conclusion, however, becomes more complicated when we examine new and young businesses more closely. Each year, tens of thousands of new companies are formed in the United States.2 Many of these companies don’t survive. On average, 20 percent will fail within two years, and half won’t make it past the five-year mark. Most of those that do survive will not grow significantly in terms of revenue or employment; the vast majority of new and young companies will remain small businesses.3 Only a handful of young firms grow much more rapidly than most others.

Indeed, much of the net job creation and productivity attributed to startups comes from this small group of fast-growing firms like Airbnb and Uber and those on the Inc. 5000 list of new, young, and fast-growing firms. At the ninetieth percentile, some of these young companies enjoy employment growth rates of between 60 and 100 percent each year.4 Some of them grow rapidly to fifty employees and then remain there; others grow to employ a few thousand people.

And, importantly for the economy, these young, high-growth firms can be found in every sector, not just high tech.5 In this respect, the United States is not unique—many developed and emerging economies have similar patterns wherein new companies and high-growth young companies account for nearly all net job creation.6 Economists describe this distribution by saying that there is a lot of “skewness” among young firms. This skewness, or dispersion, is a feature of entrepreneurial growth and is the heart of dynamism and job creation.7

* * *

Unfortunately, the United States recently has experienced a “startup deficit,” coupled with a decrease in skewness. The startup deficit has three components, none of which augur well for overall economic growth and productivity.

First, the overall pace of business creation, which had been falling steadily for many years, decreased precipitously in the 2008–2009 recession. As many researchers have found, the startup rate in the United States has roughly halved since the 1980s, creating an overall startup deficit that helps explain the tepid growth of the 2000s and the slow recovery in employment following the recession.8 Indeed, the lower business entry, relative to the 1980s and 1990s, has resulted in not only a startup deficit, but also a corresponding jobs deficit. Had the startup rate been what it was in the 1980s, the U.S. economy would have returned to pre-recession levels two years earlier (i.e., in 2013).9

To be sure, the United States has experienced declines in business creation before. Thanks to back-to-back recessions in the early 1980s, new business creation in 1983 was 23 percent lower than it had been in 1977. It jumped back by 13.8 percent in 1984. Likewise, business creation hit a nadir in 2010, when it was 30.9 percent lower than the most recent peak in 2006 (when the highest number of new businesses since 1977 was started). This was a sharper drop in a shorter period of time than in the 1980s, but we have not had nearly the same kind of rebound. Business creation in 2013 was only 4.5 percent higher than the low point in 2010, and still 27.6 percent lower than in 2006.10

Second, the large hit that the recession dealt to entrepreneurship created a “missing” or “lost” generation of new firms that were never created.11 And third, the new firms that came into existence during the recession and slow recovery and survived will bear the scars of that period—they will remain smaller and grow more slowly than other businesses.12 These second and third components of the startup deficit create a python effect that will continue to move through the U.S. economy, adding up to hundreds of thousands of fewer jobs.

In addition to the deficit we are experiencing in all startups, we started seeing a reduction in the skewness of young firm growth even before the recession. The U.S. economy is producing fewer young, high-growth firms that are a principal source of job creation and productivity. Since 2000, there has been a dramatic reduction in high-tech high growth, and particularly a decrease in the larger “superstar” high-growth firms. Those that do exist appear to be growing less rapidly than those of prior generations, and the distance between fast-growing young firms and firms that don’t grow is shrinking, which means lower job creation and productivity.13 Airbnb and Uber may be household names, but they appear increasingly lonely in that category.

These trends together are contributing to the erosion of American economic dynamism. The core elements of dynamism and entrepreneurial growth are the entrants of new firms, the rapid growth of young firms, the shifting of jobs from less productive to more productive businesses, and the movement of workers into and out of jobs.14 We have seen the overall pace of job churn (creation and destruction together) falling across the economy,15 and labor market “fluidity,” which determines the ease and velocity of job finding, has declined, with a corresponding rise in labor market rigidity.16 A worrisome implication of this latter trend is that the biggest impact of diminished fluidity falls on young workers and those on the margins of the labor force, including the less educated. The quiescence of these important elements of dynamism has contributed to slower productivity growth, slower job creation, slow wage growth, and a sense of pessimism about the American economic future. Regrettably, this decline in economic dynamism has accelerated—and spread to the high-tech sectors.

Nevertheless, despite these ill entrepreneurial tidings and their deleterious effects on job creation, rumors of the death or disappearance of American entrepreneurship may be exaggerated. One of the biggest matters of debate in Silicon Valley at the end of 2015 was whether we were in another tech entrepreneurship bubble that was about to pop. Venture capital financing and angel investing rose last year to heights not seen since the dotcom bubble. The aforementioned “unicorn club” counts nearly 100 members in the United States, with most of those startups reaching the $1 billion threshold only in the last year. Billions of dollars now flow through crowdfunding and marketplace lending sites, and equity crowdfunding is now permitted for non-accredited investors in the United States.

Entrepreneurship is infiltrating large portions of the U.S. economy, even in industries that do not typically see significant new business activity. Ask a banker whether she thinks we’re in an entrepreneurial slowdown, and she’ll point to the hordes of “fin tech” (financial technology) startups that are picking off bits and pieces of traditional banking.17 Talk to folks in the automobile industry—usually associated with the opposite of entrepreneurship—and you’ll hear about the dozens of VC-backed “auto-tech” startups.18 Check out the “periodic tables” compiled by CB Insights in areas like insurance, payments, e-commerce, digital health, and more, and it becomes hard to avoid the conclusion that the United States is enjoying a veritable entrepreneurial revolution.19 Driven by the inexorable spread of software, higher computing power, and cheaper server storage, entrepreneurs are “unbundling” entire economic sectors. Further waves of technological change in robotics and artificial intelligence promise more entrepreneurial opportunities.

It seems, then, that the United States has been in the midst of an entrepreneurial explosion in certain sectors and geographic regions. Inevitably, the high tide of startup financing will recede—and high-profile valuation write-downs may be the beginning—but there are some indications that this most recent tech startup boom will have permanent economic benefits.20 For one thing, the costs of starting a tech company and experimenting with different ideas have come down dramatically.21 The causes of this cost reduction—cloud computing, server access, etc.—will not go away. For another thing, there is evidence that “hot market” entrepreneurial financing can, in the long run, generate more radical innovations.22 And, in the more traditional “small business” sector, there are some indications that lending conditions (finally) improved in 2015 after a slow recovery from the recession.23 That recovery in lending, however, remains uneven across different types of lenders and companies.

How can this frenetic activity be reconciled with data showing the apparent decline of entrepreneurship and the overall “startup deficit”?

Some posit that entrepreneurial quantity and quality have become disconnected. Using a new methodology called “nowcasting,” researchers have found that, while the general pace of new business creation may have slowed, the quality of new businesses has actually risen.24 Indeed, it’s not obvious that a fall in the rate of business creation is prima facie bad, if quality is going up and if the causes of that fall are benign. The same research has found, however, that, even as entrepreneurial quality has risen over time, there has been a breakdown in the conversion of entrepreneurial potential into growth outcomes.

Another possibility is that existing companies have gotten better at providing internal opportunities for entrepreneurial employees. We know, anecdotally at least, that some large companies are doing more to identify such employees and give them the resources they need, allowing employee exploration, and restructuring to facilitate new idea testing.25 If “complementary assets” for potential entrepreneurs are more available at their current companies, then, absent a personal preference for starting a business, perhaps many of America’s missing entrepreneurs may have become “intra-preneurs.”

Data also show that, while the creation of new firms may have slowed, there has been a long-term rise in establishment formation by existing businesses. These new outlets also have raised their rates of job creation over time, helping offset the job creation lost from fewer new unique firms.26 In retail, for example, the displacement of single-location stores by chain or “big-box” stores has created massive productivity gains.27 Likewise, massive investments by large companies in new digital technologies, such as software-defined data centers and cloud computing, are creating new platforms to be potentially exploited by entrepreneurs.28

* * *

What is perhaps most frustrating is that there doesn’t appear to be a single culprit responsible for the startup deficit and declining dynamism. Researchers, however, have identified several potential causes.

Recent research indicates that demographic change—specifically, the slowing growth of the labor supply since the 1980s—may explain most of the long-term decline in the startup rate. Labor force supply is also constrained by recent trends in labor force participation, which, in the past few years, has fallen to levels not seen for forty years. The recession hastened this decline, and much of it is due to early retirement among aging workers. Many American workers, however, have removed themselves from the labor market out of discouragement.

Feedback loops between these trends only complicate the search for answers. Young firms are more likely to employ young workers, and they also act as a labor “soak” for individuals who are on the margins of the workforce. Sectors with lots of young firms—for example, restaurants, administrative services, temp agencies, and construction—are the same sectors that typically serve as entry points for young workers and the marginally attached. It’s no coincidence, then, that, as the number of startups has decreased, unemployment among young workers and those with lower levels of education has grown, along with growth in the number of discouraged workers. The two trends reinforce each other: a startup deficit, producing a shortage of young firms, limits the opportunities for these groups of potential employees to find work, and the supply of young firms is slowed when these workers leave the labor force out of discouragement. The stalled labor force participation rate, compounded by an aging population, doesn’t generate much optimism for change.

Increasing labor market constraints and strong intellectual property protection also may be hindering the movement of people and ideas and the combinatorial process of innovation. A rising regulatory burden may have made new business creation less attractive and growth more challenging.29 Others speculate that rising income inequality may be the culprit because fewer individuals may have  necessary resources to start businesses, or consumers may have fewer resources needed to sustain new businesses.30

There are other feedback loops created by the startup deficit, too—with fewer young companies in existence, fewer people get exposure to working in young companies. Entrepreneurship, like many other behaviors, appears to be viral: exposure raises the probability of engaging in it.31 So, less exposure, brought on by the startup deficit, will continue to result in lower business creation. Similarly, there is some speculation that greater specialization in existing jobs and educational programs also suppresses business creation because specialization does not foster the generalist skills that are important for entrepreneurship.32 Since most new entrepreneurs start businesses from their existing jobs, a shortage of generalist human capital also could translate into lower business creation.

* * *

Like many entrepreneurs, we at the Kauffman Foundation are optimists. We expect the trends of lower entrepreneurship and diminished dynamism to turn around. The United States, we believe, is on the verge of a new entrepreneurial boom.

One, perhaps counterintuitive, reason for our optimism is demography: this country is about to experience a surge of labor market entrants, thanks to the millennial generation. The millennials now span the age range between roughly sixteen and thirty-five, and their labor market heft will only grow over the next decade. As the millennials approach the “peak age” for business creation—their late thirties and early forties—we might expect a boost to overall business creation.33

Second, the early stages of the technology boom we’ve described, marked particularly by lower costs to start a company and the spread of smartphones, may progress and bolster entrepreneurial activity.34 The entrepreneurial benefits of this IT wave have not been realized fully yet. The explosion of mobile apps for smartphones undoubtedly has been a boon to many entrepreneurs, but it also appears that the initial stages of this new industry have been biased somewhat toward incumbent firms.35 Considerable room for innovation remains, and we are at the point in the cycle when the diffusion of IT will create even more entrepreneurial opportunities than the first stages did.36 We are entering the “learning by doing” stage, in which a greater diversity of entrepreneurs will help realize the full value of smartphones, cloud computing, the Internet of Things, and other technologies.37

This next entrepreneurial wave, however, is not inevitable. Public policy shapes the environment in which entrepreneurs start and grow companies, and policymakers can take specific actions to help foster—rather than inhibit—the era of renewed entrepreneurial growth we see approaching. The decisions made by government at the federal, state, and local levels, therefore, will have a significant impact, and it is certainly possible that public policy could derail our optimistic forecast.

In the summer of 2015, the Kauffman Foundation convened an esteemed group of more than three dozen individuals who offer a variety of perspectives and represent a range of disciplines at a New Entrepreneurial Growth Conference. Thought leaders from academia, journalism, politics and policy arenas discussed the trends we’ve seen in entrepreneurship, their causes, and potential policy prescriptions to address them. This volume includes essays from each participant, as well as summaries of the conference sessions.

The papers herein illuminate the many ways the United States can renew the entrepreneurial growth we need. While the Kauffman Foundation does not necessarily endorse or agree with all of the policy recommendations (public and private) that can be found in these essays, they all raise interesting questions about the future of American entrepreneurship.

We present our own policy priorities for entrepreneurial growth below, incorporating many of the conclusions in the papers that follow. The policy changes we need, including those discussed here, are much harder to implement than the announcement of a government agency’s superficial new entrepreneurship program. Subsidizing business creation is not the same as fostering entrepreneurial growth, and, above all, policymakers must focus on identifying ways to, as economists put it, lower the costs of entrepreneurial experimentation or reduce the “frictions on experimentation.”38

Even as we pursue better entrepreneurship policy, however, we must be mindful that there are limits to the amount of entrepreneurial activity that public policy can create—and that better policy alone will not necessarily lead to more entrepreneurial success. A recent compilation of interviews with unsuccessful entrepreneurs and investors concerning the reasons for their business failures is telling: entrepreneurs most often cited factors related primarily to management or strategy, rather than regulation or money.39 Entrepreneurship is, and always will be, challenging—a “hard thing.”40 That said, policymakers can take specific actions to help foster a new era of entrepreneurial growth.

Mobility and Risk. Many commentators, observing an overall decline in the rate of American firm formation, have wondered if Americans have somehow become more risk averse over time. While we hesitate to make broad demographic or cultural generalizations, a shift in the policy perspective toward entrepreneurs could make a difference in Americans’ labor mobility and attitude toward risk.

For many years, the approach to most entrepreneurship policy and programs has focused on sufficiency: entrepreneurs and potential entrepreneurs, policymakers have observed, have insufficient resources – primarily money, but also talent and expertise. Policy and programs, therefore, have focused on providing them with the resources needed. As the notion that entrepreneurs faced severe financial constraints dominated these discussions, it was thought that alleviating these constraints—through loans, subsidies, grants, incentives, and so on—would increase entrepreneurship.

Yet, research has called this assumption of financial constraints into question. One common theme of the following essays and conference session summaries is that we may need to move from a sufficiency approach to what might be called an insurance approach. For many individuals, the barrier to starting a business is not insufficient funds, but the opportunity cost of trying. As one conference participant noted, “If we want people to take more risk, we need to make it less risky.” We need an entrepreneurial safety net, of sorts—something that creates a form of insurance to reduce the opportunity cost of entrepreneurs and enable more people to experiment with ideas. This effort could take the form of a new type of social insurance program or a tweak to a current program, like unemployment insurance.

Social insurance, of course, is a politically complex term. There are those who believe that the very idea of entrepreneurship, red in tooth and claw, is incompatible with the idea of social insurance. But we believe that we need to think about social insurance in terms of risk, the personal risks we wish entrepreneurs to take in pursuit of starting up companies. As our economy changes, we need to walk in the shoes of those trying to make the decision whether or not to start companies, and find ways to help them. If social insurance needs to be part of that discussion, so be it.

Labor Supply. Another approach to renewing entrepreneurial growth is to focus on the labor supply. If—as preliminary research suggests—slowing labor force growth is found to be the principal reason behind the long-term fall in business creation, then attention should be directed at ways to encourage faster labor force growth. That’s much easier said than done, of course, and attempts to expand the labor force would run up against large demographic trends.

Immigration, however, is an obvious place to look for more people to enter the labor force. The Kauffman Foundation and others have touted the economic benefits of immigration for many years, including immigrants’ high rate of entrepreneurial activity. If and when immigration reform is enacted in Washington, research strongly suggests that it should include new pathways for immigrant entrepreneurs, including a startup visa program.41 The federal government also should encourage and support the early-state experimentation using H-1B visas for “resident entrepreneurs” that has occurred at universities in Massachusetts and Colorado, and clarify administrative rules regarding Optional Practical Training (OPT) and Curricular Practical Training (CPT) opportunities to ensure that they can include entrepreneurship.42

To encourage younger workers to enter the labor force, educational institutions should expand the range of startup apprenticeships available for high school and college students. Apprenticeships have gained credence with many observers in recent years, and we need to ensure that entrepreneurial companies have the resources to support apprentices and interns. More exposure to entrepreneurship in these settings may lead to more new business creation later.

Data and Measurement. The government also should use its statistical and funding powers to gather and publish data on pathways to entrepreneurship. The federal government has compiled an enormous set of data on earnings by degrees and on various institutions among colleges and universities. Such data are useful and have greatly expanded the amount of information prospective students, their parents, and future employers have about the links between college degrees, fields of study, and employable skills. But, they don’t always reflect the realities of the labor market and how people fall into certain careers. With the Census Bureau collecting reams of new information on business owners through the new Annual Survey of Entrepreneurs, there should be scope to compile data on the routes people take to entrepreneurship. This could take some of the mystique out of entrepreneurship—you don’t have to be a Stanford dropout to do it—and show people that there are multiple pathways to entrepreneurial success. More information should enable people to make better decisions about whether and when to start businesses.

Government Resources. Investment in the basic building blocks of entrepreneurship and innovation, particularly research and development, is another opportunity for policymakers. In previous waves of entrepreneurial growth, of which the information technology revolution is the most well-known, federal spending helped catalyze entrepreneurship and innovation. The challenge today, however, is that the federal government’s budgetary leeway is vanishing. Because of the permanence baked into large-scale entitlement program spending increases, as well as rising debt service, we do not have the same kind of fiscal freedom to apply federal dollars to catalyze entrepreneurial growth.43

While fiscal resources likely won’t be freed up at the federal level anytime soon, there could be revenue-neutral ways to modernize and improve government. First, we need to recognize that government needs adequate resources so it can adapt to entrepreneurial growth and provide policy certainty. Across the country, companies like Uber and Airbnb have challenged existing regulatory structures. Other challenges are being thrown up in finance and pharmaceuticals. The presumption does not necessarily need to be that new entrepreneurs are good and existing regulations are bad. But, regulators need more resources to be able to strike the right balances between innovation and its effects. Money that would allow government agencies to adopt advanced data analytics, for example, could be found by eliminating many outdated regulatory processes. Likewise, some contributors here suggest allocating more resources for Congressional committee staff.

Globalization. Entrepreneurship also must be considered during trade negotiations. We believe that expanding free trade between the United States and other countries will continue to be good for entrepreneurs. Opening up markets elsewhere for American entrepreneurs and exposing them to global competition will strengthen innovation here. Nevertheless, we share some of the concerns that have been expressed over the impact of the Trans-Pacific Partnership on entrepreneurship, particularly with regard to the treatment of intellectual property, such as trade secrets.44 Low barriers to the movement of knowledge—both formal and informal—between people and firms historically have been fertile sources of entrepreneurial activity. Silicon Valley, for example, likely wouldn’t be nearly what it is today without California’s lax legal orientation toward non-compete agreements.45

Incumbent protection. One final theme of this collection—found in the papers of conference participants across the political spectrum—is rising incumbent protection in many sectors of the American economy. In the case of intellectual property, stronger protection of patents and copyright may be raising costs for entrepreneurs and limiting the flow of ideas that drives innovation. In land use, restrictive zoning regulations preserve the position of incumbents and raise costs for entrants. And, in immigration, there is some evidence of incumbent bias in visa processes.46 Direct support or subsidization of entrepreneurs (the sufficiency approach) may be less effective than an approach that aims at preserving entrepreneurial entry and competition, and holding the line against incumbent bias.

The fact that the United States and Europe, the world’s two largest single markets, have very different records and environments for entrepreneurs shows how difficult it is to understand and manage the cause-and-effect relationships in this field. Michael Moritz, the chairman of Sequoia Capital, recently criticized the European Union’s politicians for their attacks on the market power of America’s technology giants. He wrote in the Financial Times:

Few, if any, of the politicians hurling abuse at American companies seem to have considered that the same groups have furnished Europeans with scores of attractively priced goods: phones more powerful than the $35m computers of 40 years ago; breathtakingly cheap ways to manipulate and store the vast amounts of data required for scientific experiments and engineering simulations; simple ways to transfer money, and pleasurable, easy ways to amuse and entertain themselves. Amazon Apple, Facebook, Google, Netflix, and scores of other U.S. tech companies do well in Europe because they have invented things Europeans yearn for.47

Moritz’s essay shows how diverse and disputatious the arguments remain when it comes to the politics of entrepreneurship and innovation.

The trends we’ve described here in American entrepreneurship are not monolithic; they vary by sector and geographic region. While we firmly believe that the United States is on the cusp of another entrepreneurial boom, we must address the pressing challenges to entrepreneurship that we face. Abandoning the sufficiency approach is the first step toward positive policy change. In its place, policymakers must move to enhance the exchange of ideas, increase the labor market supply and velocity, enrich individuals’ exposure to entrepreneurial learning, reduce the opportunity cost of entrepreneurial experimentation, and decrease incumbent bias. Accomplishing these goals will increase the likelihood that the emerging era of new entrepreneurial growth will be robust and sustained.

* * *

Many of these ideas, as well as research to support them, can be found in the pages that follow. In addition to essays written by participants in Kauffman’s New Entrepreneurial Growth conference, we have included summaries of the conference discussions, with non-attributed remarks from participants on a variety of topics relating to entrepreneurial growth. Each section of this volume addresses an important topic related to the challenges at hand. 

Section 1, Technological Creation and Destruction, focuses on researchers’ visions of the future technology will create—at the very least, a more interdependent, networked society. This interconnected environment may offer more opportunities for entrepreneurship, but it also may bring new risks and barriers to business creation. Furthermore, adverse events in this networked society are inherently more complex and have more far-reaching repercussions.

In Section 2, General Economic Trends, researchers discuss current economic trends and possibilities for the future. They offer a wide range of projections—from a forecast of secular stagnation to a more optimistic identification of opportunities for growth. This divergence, in part, is rooted in researchers’ confidence in our society’s ability to use public policy to create the future we want and need. While researchers agree that public policy has the power to change our economic and social environments and to determine how technology and entrepreneurship will affect our world, not all contributors believe that our society has the political will to make necessary changes.

Section 3, Entrepreneurship Trends and Measurement, concentrates on the decline in startup activity and dynamism both in the United States and internationally, and the potentially negative implications these declines could have for job creation and innovation. Discussions of these data center on the potential causes for the declines—from globalization to intrapreneurship—as well as the impact they may have. Questions related to measurement, however, also open up the possibility that we may see different trends if we distinguish between various types of entrepreneurs. These data reflect overall activity of new firms, but a closer look at high-growth entrepreneurs alone—or perhaps other subcategories of entrepreneurs—may yield more positive results.

This discussion continues in Section 4, Technology, Its Implications and Inequality. Researchers consider income inequality, as well as social mobility, political inequality, consumption inequality, and the causes and effects of each. Looking at the inter-relationship between technology, entrepreneurship, and income inequality, researchers find not only that technological advance and entrepreneurship have implications for income inequality, but also that income inequality has a negative impact on entrepreneurship. Even as technology may displace humans in some areas of work or make employment more precarious, it also will create new types of work and opportunities. Policy has an important role to play here to create the stability we need, and researchers offer different opinions on the need to expand the scale and scope of the safety net, the relationship between the social safety net and the willingness to take risks, and the impact of the close tie between employment and social service insurance in the United States.

The effort to renew entrepreneurial growth is closely linked to issues of education, skills, and human capital, the topic explored in Section 5, Skills. Entrepreneurial firms’ biggest challenge is talent recruitment, and we need an education system that prepares students to be entrepreneurs and innovators. Changes in family structure, challenges in our primary education system, a societal reduction in risk-taking, and other demographic trends, however, currently contribute to a skills gap that we need to close in order to meet employers’ changing demand.

In Section 6, Cities, the discussion moves to the importance of locality and the role of local government. Entrepreneurship is a hyper-local phenomenon: people generally start businesses where they are already located, and many of the barriers entrepreneurs face and resources they access are at the local or regional level. Researchers consider cities as a vehicle for entrepreneurial growth, articulating the divergent growth goals of different communities; the power of local government to affect economic growth—and the limits to that power; and the challenge inherent in applying lessons from one locality to another city that is vastly different. A rural perspective complements this focus on cities, revealing both the challenges of rural entrepreneurs and the benefits they offer to their communities.

Researchers discuss the importance of policy to determining our future throughout the book, and essays in Section 7, Policy, address a wide range of potential reforms, from changes to occupational licensing, land use regulation, and unemployment insurance, to tax reform, immigration policy, and fiscal policy.

Finally, the role of politics cannot be neglected, and researchers explore issues in this realm in Section 8, Politics. The challenge policy and regulatory uncertainty poses to entrepreneurship is a common theme in essays throughout the volume. Here, researchers discuss the need to reform the political environment; the role of money in politics and the political inequality that economic inequality engenders; redistributive strategies to increase economic growth; and political obstacles to potential solutions. Researchers identify a misalignment between our government and our changing economy and call for a new approach.

Taken together, this work gives us a wealth of ideas to inform our grant-making and to share with policymakers and others. This volume represents an important step toward creating the policy environment that will allow for the creation of a new era of entrepreneurial growth and enable us to meet the challenges it brings.

Author Bio:
As vice president of Research and Policy at the Ewing Marion Kauffman Foundation, Dane Stangler leads a staff of more than twenty economic research analysts and senior scholars who are conducting or funding hundreds of studies on entrepreneurship and youth education. Charged with creating new knowledge about entrepreneurship, Stangler is the author of several research reports on what drives economic growth in an entrepreneurial economy.

Special thanks for the contributions of Alyse Freilich, Philip Delves Broughton, Lacey Graverson, Barb Pruitt, Keith Mays, and Mette Kramer.

New Entrepreneurial Growth Conference Sessions Summaries by Alyse Freilich


  1. “Unicorns” are private companies valued at more than $1 billion.
  2. We refer here only to employer firms, those that employ others aside from the owner or founder.
  3. Erik G. Hurst and Benjamin W. Pugsley. “Wealth, Tastes, and Entrepreneurial Choice.” National Bureau of Economic Research, Working Paper 21644, October 2015.
  4. Ryan Decker, John Haltiwanger, Ron Jarmin, and Javier Miranda. “The Role of Entrepreneurship in US Job Creation and Economic Dynamism.” Journal of Economic Perspectives, 28 (3), Summer 2014.
  5. In the case of companies on the Inc. 5000 list, three-year revenue growth rates can reach several thousand percent. These companies come from a wide range of sectors. See
  6. See, e.g., Flavino Calvino, Chiara Criscuolo, and Carlo Menon. “Cross-Country Evidence on Start-Up Dynamics.” OECD Science, Technology, and Industry Working Papers, 2015/06 (2015). See also the paper by Criscuolo in this volume.
  7. Haltiwanger, John, Ron S. Jarmin, Robert Kulick, and Javier Miranda. “High Growth Young Firms: Contribution to Job Growth, Revenue Growth, and Productivity.” Working Paper, December 2014.
  8. See, e.g., Benjamin Pugsley and Aysegul Sahin. “Grown-Up Business Cycles.” Federal Reserve Bank of New York, Staff Report No. 707, September 2015.
  9. See, e.g., Benjamin Pugsley and Aysegul Sahin. “Grown-Up Business Cycles. Federal Reserve Bank of New York, Staff Report No. 707, September 2015.
  10. Calculations based on Business Dynamics Statistics from U.S. Census Bureau; 2013 is the most recent year for which such data are available.
  11. Gourio, Francois, and Michael Siemer. “A Missing Generation of Firms? Aggregate Effects of the Decline in New Business Formation.” CESifo Conference on Macroeconomics and Survey Data, December 2014. Michael Siemer. “Firm Entry and Employment Dynamics in the Great Recession.” Finance and Economics Discussion Series, Divisions of Research & Statistics and Monetary Affairs, Federal Reserve Board, 2014–2056.
  12. Sedláček, Petr, and Vincent Sterk. “The Growth Potential of Startups over the Business Cycle.” Working Paper, September 2014. See also paper by Sedláček in this volume.
  13. Decker, Ryan A., John Haltiwanger, Ron S. Jarmin, and Javier Miranda. “Where Has All the Skewness Gone? The Decline in High-Growth (Young) Firms in the U.S.” National Bureau of Economic Research, Working Paper 21776, December 2015.
  14. See paper by Haltiwanger in this volume.
  15. Dvorkin, Maximiliano A. “Jobs: More Slowly Created, More Slowly Destroyed.” Economic Synopses, Federal Reserve Bank of St. Louis, March 2015.
  16. Davis, Steven J., and John Haltiwanger. “Labor Market Fluidity and Economic Performance.” National Bureau of Economic Research, Working Paper 20479, September 2014.
  17. Pignal, Stanley. “Slings and arrows.” The Economist, Special Report: International Banking, May 9, 2015.
  18. CB Insights, “Reinventing the Wheel: 41 Auto Tech Startups Disrupting the Car Industry,” November 11, 2015.
  19. See
  20. In the fourth quarter of 2015, venture capital financing contracted sharply. “RIP Good Times? Venture Capital Funding, Unicorn Births, and Mega-Deals Plummet in Q4’15,” CB Insights, January 7, 2016, at
  21. Kerr, William R., Ramana Nanda, and Matthew Rhodes-Kropf. “Entrepreneurship as Experimentation.” Journal of Economic Perspectives, 28 (3), Summer 2014.
  22. Nanda, Ramana, and Matthew Rhodes Kropf. “Financing Entrepreneurial Experimentation.” National Bureau of Economic Research, Working Paper 21278, June 2015.
  23. See, e.g., Small Business Lending Index, Biz2Credit.
  24. See paper by Stern and Guzman in this volume.
  25. See paper by Agarwal and Campbell in this volume.
  26. Hathaway, Ian, Mark E. Schweitzer, and Scott Shane. “The Shifting Source of New Business Establishments and New Jobs.” Economic Commentary, Federal Reserve Bank of Cleveland, August 21, 2014.
  27. Decker, Ryan, John Haltiwanger, Ron Jarmin, and Javier Miranda. “The Role of Entrepreneurship in US Job Creation and Economic Dynamism.” Journal of Economic Perspectives, 28 (3), Summer 2014.
  28. See paper by Robert Cohen in this volume.
  29. Bailey, James, and Diana Thomas. “Regulating Away Competition: The Effect of Regulation on Entrepreneurship and Employment.” Mercatus Center, Working Paper, September 2015.
  30. Mondragón-Vélez, Camilo. “How Does Middle-Class Financial Health Affect Entrepreneurship in America?” Center for American Progress, May 2015.
  31. Guiso, Luigi, Luigi Pistaferri, and Fabiano Schivardi. “Learning Entrepreneurship from Other Entrepreneurs?” National Bureau of Economic Research, Working Paper 21775, December 2015. See also Paul Kedrosky, “Getting the Bug: Is (Growth) Entrepreneurship Contagious?” Kauffman Foundation, October 2013.
  32. See paper by Agarwal and Campbell in this volume. See also Edward P. Lazear, “Entrepreneurship,” Journal of Labor Economics, 2005.
  33. Spulber, Daniel F., and Dane Stangler. “The Age of the Entrepreneur: Demographics and Entrepreneurship.” Paper prepared for Innovation for Jobs Summit, March 2013.
  34. Evans, Benedict. “The smartphone is the new sun.” August 2, 2015.
  35. Bresnahan, Timothy F., Jason P. Davis, and Pai-Ling Yin. “Economic Value Creation in Mobile Applications,” in Adam B. Jaffe and Benjamin F. Jones (eds.), The Changing Frontier: Rethinking Science and Innovation Policy (Chicago and NBER, 2015).
  36. Bhidé, Amar. “The Demise of US Dynamism is Vastly Exaggerated—But Not All is Well.” Working Paper, Center on Capitalism and Society, Columbia University, January 2015.
  37. See, e.g., James Bessen, Learning by Doing: The Real Connection between Innovation, Wages, and Wealth (Yale, 2015).
  38. Kerr, William R., Ramana Nanda, and Matthew Rhodes-Kropf. “Entrepreneurship as Experimentation.” Journal of Economic Perspectives, 28 (3), Summer 2014.
  39. “146 Startup Failure Post-Mortems,” CB Insights.
  40. Horowitz, Ben. The Hard Thing about Hard Things: Building a Business When There Are No Easy Answers (Harper Business, 2014).
  41. Stangler, Dane, and Jason Wiens, “The Economic Case for Welcoming Immigrant Entrepreneurs.” Kauffman Foundation Policy Digest, September 2015; Jason Wiens, Chris Jackson, and Emily Fetsch, “Immigrant Entrepreneurs: A Path to U.S. Economic Growth,” Kauffman Foundation Policy Digest, January 2015.
  42. Luppino, Anthony, John Norton, and Malika Simmons. “Reforming Immigration Law to Allow Foreign Student Entrepreneurs to Launch Job-Creating Ventures in the United States.” Kauffman Foundation, August 2012.
  43. Steuerle, C. Eugene. Dead Men Ruling: How to Restore Fiscal Freedom and Rescue Our Future (Century Foundation, 2014).
  44. See, e.g., Dan Breznitz. “Trans-Pacific Partnership is a wonderful idea—for China.” The Globe and Mail, December 26, 2015.
  45. Stangler, Dane. “Non-Compete Agreements: The Good, the Bad, and the Ugly.” Xconomy, August 14, 2014.
  46. See comments by Malcom Goeschl and Angelo Paparelli in “Recap of the Small and Start-Up Business Listening Session,” Department of Homeland Security, August 31, 2011, at
  47. Moritz, Michael. “Europeans pursuing Google need to look closer to home.” Financial Times, January 28, 2016.