Kauffman Foundation: Entrepreneurship is on the Rise but Long-Term Startup Decline Leaves Millions of Americans Behind

New report released at 8th Annual State of Entrepreneurship Address reveals trends in entrepreneurship that are reshaping the U.S. economy

Kauffman launches ‘Zero Barriers to Startup’ initiative to identify and remove obstacles to starting a business

(WASHINGTON, D.C.) Feb. 16, 2017 – After a long hangover from the Great Recession, entrepreneurship is finally rebounding in the United States, according to the 8th Annual Kauffman Foundation State of Entrepreneurship Address held in Washington today. Kauffman President and CEO Wendy Guillies outlined how entrepreneurs are driving a resurgence of business activity in America but that a long-term decline in entrepreneurship has prevented millions of Americans from achieving economic success.

Despite recent upticks in business creation and growth indicators, new firm formation remains in a long-term deficit, roughly half of where it was a generation ago. Guillies described how this decline hurts more than just entrepreneurs. It is a trend with broad implications for America’s competitiveness while also negatively affecting American workers. New economic research demonstrates that the entrepreneurship deficit is tied to stagnant productivity, job loss, inequality and growth, which means lower wages and living standards for Americans.

“This needs to be a national wakeup call. The long-term decline in entrepreneurship is eating away at America’s spirit and competitiveness,” said Guillies. “As a nation, we must re-create the conditions in which optimism can thrive. We must increase support not only for entrepreneurship but for the key ingredients of its success. And we must remove the barriers that have been put in place and develop communities that will encourage, guide and reinforce startups.”

The Kauffman Foundation also released a new report that reveals three megatrends that are fundamentally reshaping entrepreneurship in America:

  1. New demographics of entrepreneurship: The U.S. is becoming more racially diverse, but entrepreneurs – 80.2 percent white and 64.5 percent male – do not reflect the changing population. That leaves many Americans without the opportunity to start and grow a business, with significant gaps for women and people of color. Under-representation of minority groups and women hurts the economy by reducing the number of businesses and jobs they would create. For example, if minorities started and owned companies at the same rate as whites, the U.S. would have over one million more businesses and up to an extra 9.5 million jobs.
  2. New map of entrepreneurship: Entrepreneurship is an increasingly urban phenomenon, and it is taking place in mid-sized metros and outside traditional hubs like Boston and Silicon Valley. People have migrated to cities, contributing to a decline in rural entrepreneurship. As a percentage, startup activity in rural areas now is even lower than the percent of the country’s rural population. 
  3. New nature of entrepreneurship: In the past, as companies grew their revenue, jobs would scale at almost the same pace. That’s no longer true. Technology has made it possible for startups to grow revenue without as much hiring, and high-growth companies by revenue are not creating as many jobs as they did in the past. New and young companies have been the biggest job creators for decades, and continue to be, but technology may change that. For example, in 1962, when Kodak sales first surpassed $1 billion (the equivalent of $8 billion today) the company employed 75,000 people. When Facebook reached similar revenue, it employed 6,300. 

To respond to these trends shaping entrepreneurship, the Kauffman Foundation is launching a new “Zero Barriers to Startup” initiative. The collaborative, nationwide effort will identify large and small barriers to new business creation to reverse the long-term decline in entrepreneurship. Along with entrepreneurs and policymakers, Kauffman will work to develop solutions and empower more entrepreneurs to pursue their ambitions.

“We believe that everyone has a fundamental right to turn an idea into an economic reality, regardless of who you are or where you’re from, with zero barriers in the way,” said Victor Hwang, vice president of Entrepreneurship at the Kauffman Foundation. “We’re calling on every entrepreneur – and everyone who fights for entrepreneurs – to help clear the path for the makers, the doers, the dreamers.”

Hwang will present the trends and Zero Barriers initiative today at a U.S. House Small Business Committee hearing on the State of the Small Business Economy, which will be streamed live.

Additional information about Zero Barriers to Startup is available at www.entrepreneurship.org/zero-barriers.