2017 State of Entrepreneurship Address:
President and CEO
Ewing Marion Kauffman Foundation
February 16, 2017
Good morning. Thank you for being with us today.
It's not hard to be inspired in this building, and with this view. I'm looking out and seeing the Lincoln Memorial.
President Lincoln was a great leader and visionary.
Throughout the darkest days of the Civil War, Lincoln held close a vision for the future of America. He saw a place of hope. A place where common people like him could do uncommon things.
Despite the division of our current politics, I strongly believe that America still provides that hope.
Yet, we need to recognize that not all of our citizens feel this way.
Our nation's economy may be buoyed by the long-term growth of the Dow, which broke 20,000 last month. But, industrial-era measures like that are simply not relevant to the tens of millions of Americans who no longer feel connected to today's economy.
Regardless of what you believed going into the presidential election—regardless of what you thought about the campaigns—regardless of what you think about the outcome—one cry from the American people came through loud and clear for us at the Foundation: the fear, anger, and anxiety expressed by so many who feel disconnected, across so many states, in so many regions of our country.
Many are being left out of this economy. A recent report expands on the connection between the long-term decline in entrepreneurship and the effect on productivity and growth.
The lackluster productivity drags wages and living standards down. Put simply – fewer start-ups mean a lower quality of life for Americans.
We need to reverse that long-term trend. Now. It's a national wakeup call, and it's eating away at America's spirit and competitiveness.
As a nation, we must re-create the conditions in which optimism can thrive. We must increase support not only for entrepreneurship, but also for the key ingredients of its success. We must remove the barriers that have been erected and develop communities that will encourage, guide, and reinforce startups.
That's what we're here to discuss today. I'll briefly describe the state of entrepreneurship, but we'll spend most of our time working together to gain your insights into how best to inspire people to believe in the opportunity of entrepreneurship again. To put aside their fear. To work together for uncommon solutions, so that we as a nation can achieve uncommon success.
To chart that path, we must start with a clear understanding of where we are today:
The State of Entrepreneurship
After a long hangover from the Great Recession, entrepreneurship is finally rebounding in the United States—with entrepreneurs driving a resurgence of business activity. We see this throughout our Kauffman Index of Entrepreneurship Series, which breaks entrepreneurship into three primary forms: Startups, where it all begins; Growth, measuring businesses that scale; and Main Street, tracking local small businesses.
Startup activity is up. More people are becoming entrepreneurs and creating more opportunity-driven businesses than in the recent past.
Growth is improving, too. New companies are gaining more traction and reaching scale at higher rates than in recent years.
And Main Street is nearing a two-decade high. More businesses are surviving their first five years of operation.
This recovery is evident beyond entrepreneurship indicators. We see improvement, for instance, in a dramatic increase in middle-class incomes—after years of stagnation.1
But, vast numbers of Americans are not feeling these improvements in their lives. The data are at odds with their experiences.
The explanation for the difference is simple, and it's crucial that we understand it and act upon it. The fact is, no one lives in "the" economy; everyone lives in "their own" economies, and the upswing in indicators is simply not reaching many Americans.2
The insights gleaned from Kauffman indices steer us in the right direction. But our analysis of the findings—taken all together—reveal three mega trends that are reshaping entrepreneurship and explain why so many are feeling left out of these gains.
These mega trends represent fundamental challenges and opportunities for entrepreneurship. Their impact is already being felt and is likely only to increase in the future.
The first mega trend involves demographics—and, specifically, the relationship between the demographics of the nation and those of entrepreneurship.
National demographics are undergoing a dramatic shift. The population is increasingly diverse, educated, and older.
Yet the entrepreneurial population is not changing as fast. That leaves too many Americans without the opportunity to start and grow a business. There are major gaps, specifically, for women and people of color.
As of today, minority businesses start smaller and stay smaller. While the average size of a mature non-minority-owned business is $2.3 million in annual revenue, the average size of a minority-owned business is $1.6 million at the same age. In addition, minorities are half as likely as non-minorities to own businesses that employ people.
That costs the nation. In fact, if minorities started businesses at the same rate as non-minorities, the U.S. would have more than one million additional employer businesses and as much as an extra 9.5 million jobs.
It's a similar story for women. Regardless of race, women are half as likely as men to own employer businesses. And that's a pattern that has been evident for as long as business creation rates have been tracked.
Breaking down the entrenched barriers for minorities and women isn't only the right thing to do; it will add millions of jobs to our economy.
The second mega trend in entrepreneurship involves geography. There is a new map of entrepreneurship in America, and it has two distinct characteristics:
First, entrepreneurship is more and more an urban phenomenon. A major reason for this is that the U.S. population is increasingly concentrated in urban areas. But the circumstances are even more pronounced when you look at the geography of new firms: the percent of startups in rural communities has dropped from 20 percent in the 1980s to 12.2 percent today. 3
Second, entrepreneurial activity is growing outside of the largest cities and spreading to mid-sized metro areas. Entrepreneur and investor Steve Case has documented this change, coining it "the rise of the rest."
These geographical trends create an interesting paradox: The first condition—increasing urbanism—is driving geographical inequality. The second condition—moving beyond the largest entrepreneurship hubs—is driving geographical equality. While we need to understand this further, it appears that when a mid-sized metro area like Kansas City is winning, rural Missouri and Kansas are losing.
To understand and address this new map of entrepreneurship, we at the Kauffman Foundation are changing some of our approaches. That's needed, because even in today's global economy, so much of entrepreneurship happens at the local level.
Entrepreneurs often seek money first from local investors. They first hire from the local market. They usually found companies with the people who live in the same area. In many ways, all entrepreneurship starts local.
Our work, therefore, must understand and reflect these changing local conditions, even as we work to combat the inequalities reflected in them.
The third mega trend involves technology, which is creating a new nature of entrepreneurship in the United States and the world.
In the past, as companies scaled their revenue, jobs scaled in an almost linear fashion. That's no longer true.
Take, for example, two technological behemoths of their own times: Eastman Kodak and Facebook. 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 11 times fewer people at 6,300.
On the one hand, that means that fewer jobs are created as companies reach massive scale. On the other hand, opportunities are more widely available from platforms that lower barriers to entry—from Airbnb to Etsy.
These three mega trends—the new demographics, map and nature of entrepreneurship—are sources of both concern and optimism. If we understand them, we can take advantage of them and use them to enhance job opportunities for the benefit of us all.
But it's not enough to be optimistic.
What will we at the Kauffman Foundation be doing about it?
We'll start where we always do—by following the inspiration of our founder, Ewing Marion Kauffman, and investing in improving education at all levels and facilitating the growth of entrepreneurship.
Mr. Kauffman believed that if you have an idea, you have a fundamental right to start a business to make it a reality. You should not need a formal degree. You should not need consultants to navigate the process. It shouldn't matter what your race is, what your gender is, or where you live. You should be able to do it quickly, inexpensively, without confusion, and without artificial barriers imposed by others.
So, we are taking this challenge head-on—just as our founder would have. For the next several years, our focus will be on this aspiration: Zero Barriers to Startup.
To discuss how we'll be tackling that goal, I now introduce my colleague Victor Hwang, the Kauffman Foundation's Vice President for Entrepreneurship. Victor recently joined the Foundation after nearly a decade as an entrepreneur and ecosystem-builder in Silicon Valley. He'll discuss our approach further and our desire to incorporate your insights into our future direction—starting now.
Source: Kauffman Foundation calculations from the U.S. Census Business Dynamics Statistics.