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The US Startup Is Disappearing (qz.com)
Dan Kopf, writing for Quartz: Historically, startups have been the engine of US economy. By creating new jobs and surfacing new ideas, startups play an outsized role in making the economy grow. It's too bad they are a dying breed. While companies that were less than two years old made up about 13% of all companies in 1985, they only accounted for 8% in 2014. From around 1998 to 2010, the share of private sector workers in companies that were less than two years old plummeted from more than 9% to less than 5%. A new report from the Brookings Institution, finds that in nearly every industry, from agriculture to finance, the share of new companies is falling.
In 1998 there was virtually no outsourcing and start-ups had people on staff that now work for companies like Wageworks and others. Maybe it's better to track the number of actuall start up companies?
There is a historical precedence where wild west era was followed by consolidated power of robber barons. Comparable is happening in modern technological world - we have Google, Facebook, Apple, Microsoft and so on filling all technological niches and monopolizing them. So until the next niche opens up, be it applied AI or something else, there is less to start up to.
Over regulation, cost of entry, corporate cronies in government, high taxation, have all conspired to hurt small businesses.
It's a Democrat/Republican problem though. You cannot pick just one. They are all to blame. If you want a healthy functioning economy with light regulation and sensible government spending & taxation, then you cannot vote for anyone in those two parties.
All of the stupid ideas have been vetted out and new startups are trying stuff that has some potential to succeed which cause fewer companies to start?
Start up risk is huge. That's the problem. It's massive. Sure there are some people that are successful and the risk pays dividends, but success is actually pretty rare. Most rational people look at the risk of starting your own company and shrug it off because simply being an employee is typically not that bad of a deal. In fact, it's really a pretty good deal. Your risk is greatly limited. Most people are perfectly ok with that.
As Trumpkin is busy eviscerating environmental & human protections (you know, those pesky job killing regulations) while reinforcing intellectual property protections for larger corporations, mergers and large companies buying small companies becomes more attractive.
seem less like an attempt to build a real business and more like an attempt to build something with enough patents and/or engineers for a buyout. I can't say I blame them. Thanks to our weakly enforced anti-trust law if you don't get bought out the big guys can just bury you.
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Over regulation, cost of entry, corporate cronies in government, high taxation, have all conspired to hurt small businesses.
It's a Democrat/Republican problem though. You cannot pick just one. They are all to blame. If you want a healthy functioning economy with light regulation and sensible government spending & taxation, then you cannot vote for anyone in those two parties.
so fine it's ok pay some one $2/hr to drive an car for uber with no real power to set there own rates or rules.
The picture you see in financial news places is an odd sort of "Economy" - measured mostly by how much rich people are willing to pay other rich people for a stake in a dwindling number of larger puddles.
It's kind of the same as the global warming debate. How? Well, to some folks, global warming is just dandy - it's just natural, and fine. The "environment' will still be the about the same to them - and large swaths of life going extinct, well, that's just part of the cycle.
Why? Because as long as their bubble remains unpopped for the moment, all that potential being killed off around them is insignificant compared to the benefit they're drawing at the moment.
They're manufacturing a world full of losers, so that they can be one of the winners.
In previous generations, that would be known as 'evil'.
All those new IPO expenses really saved the economy!
My God, it's Full of Source!
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Too many regulations have made it prohibitively expensive for startups. You need more lawyers than entrepreneurs to get your business started.
Gee, that was in the midst of Raygun and the Republicans' (not my cover band) onslaught of deregulation.
Btw, those of you who work for a living... has your company been bought lately by a bigger company? Mine's been *twice* in the last three years....
Meanwhile, the middle class is squeezed tighter and tighter.
But I can't guess why there are fewer startups....
Their definition of a startup is a company that is younger than two-years old. All this says is that there aren't as many people starting their own companies right now. What does that have to do with the economy? As long as the unemployment numbers aren't rising, those people are still working. It's just that they are dissatisfied enough with the job that they have to start a new business.
As far as startups being the "engine" of the economy, that might be true at some points in time. I wouldn't say that is a rule. What likely is a rule is "innovation is the engine of the economy". You might say that startups drive innovation. But startups aren't innovative. The people in them are. People need to be able to satisfy their need to be innovative and they create startups (unless they are allowed to innovate where they are and don't need to create a startup, which might be what is happening now).
The moral of the story is that we need a better indicator of innovation. The fact that there are fewer startups right now really doesn't say anything about the economy.
Large corporations (universally) set up economic and legal barriers-to-entry to protect their own interests. These barriers stifle startups before they can even start up. Inasmuch as this strategy is successful, we would expect to see fewer startups in an economy dominated by a handful of giants.
As it stands now, one must be kind of crazy, and kind of stupid, to attempt a start up. Getting your foot in the economic door requires you to work yourself to death while taking on considerable risk, including risking your personal finances and those of supportive friends and family. And the odds against success are overwhelming. And when you fail, you fail hard, all that money lost and you broke, in debt, and with nothing to show for it (and brain-damaged from all the stress and humiliation of failure).
It is simply not rational to attempt a startup in this environment. As an aside, this explains why the proprietors of so many small-to-medium sized businesses tend to be kind of crazy and a bit stupid....only such people even consider jumping into this game these days.
I am having a hard time reconciling the following two parts of the write-up: "Historically, startups have been the engine of US economy" vs. "While companies that were less than two years old made up about 13% of all companies in 1985, they only accounted for 8% in 2014". Even at their highest number of 13% during the, supposedly, "good old days", how can they be considered "the engine"?..
In Soviet Washington the swamp drains you.
The study does not say how many total companies there were/are, and has that grown so that the # of startups is actually the same. or larger?
nothing to see here - move along
The large tech giants pay so much that it skews the Risk/Reward of any startup-minded person. Usually start ups were created by people that did not see a payroll job as good enough and took the risk of starting their own. Now, even people on the bottom tier of a tech giant make a very good living. Very hard to give that up.
...of gutting education and immigration.
... is the whole point about "StartUps".
Fail fast is the motto and the most fail.
Something like 98%.
So this is news how?
We suffer more in our imagination than in reality. - Seneca
"While companies that were less than two years old made up about 13% of all companies in 1985, they only accounted for 8% in 2014. From around 1998 to 2010, the share of private sector workers in companies that were less than two years old plummeted from more than 9% to less than 5%. "
This makes sense given the timeline. In the mid-80s everyone was experimenting and you had tons of small companies chipping away at the monolithic UNIX/mainframe computing culture...as well as a few manufacturers actually making physical goods. From 1998 to 2010, you had the top of Dotcom Bubble 1.0, followed by the financial crisis in 2010, so you go from 8% at the height to 5% at the start of the recovery cycle. Then in 2014, you have the inflation of the Second Dotcom Bubble which (IMO) we're nearing the top of. plus smartphones and social media really go nuts from 2010 to 2014, hence the increase to 8%.
My opinion is that startups aren't sticking around very long, simply because they're easier to cobble together from outsourced parts. SaaS providers offer HR, finance, payment acceptance, logistics, and IT in a box. Cloud providers will host your workloads for a monthly fee which the VCs probably like a lot, because they slowly burn money rather than give millions at a time to build data centers and such. So, some guy building Yet Another Provisioning Tool or Yet Another Abstraction Layer on JavaScript can follow the First Dotcom Bubble playbook on an accelerated timeline...either they get big enough to IPO, or get bought by Microsoft/Facebook/Google/Netflix.
The other thing that might be driving this is just the sheer risk involved. Despite what the media portrays about SV startups, they are not stable places to work. It's great when you're fresh out of college and can continue the lifestyle...getting paid in free food and doing 100 hour weeks in the office with your buddies. But when you grow up, steady paychecks have a huge appeal, especially when you have a family.
It's not regulations. It's all those patents (especially software patents).
If you try to start something up, you get a massive amount of patent claims from the big "have-them-all" company's.
You can then choose to pay licenses that will make you bankrupt, of ignore it and get enough lawyers on your back to get bankrupt.
Whatever you choose, they will destroy everyone that tries something new, because there is always "something" they have patented.
The only thing you can hope for is a buyout, but other than that - Forget about starting something new.
It's an interesting fragment of trivia, but how's the larger picture?
The economy is booming.
It little behooves the best of us to comment on the rest of us.
What happened to the traditional way of starting a business?
Then the Project Manager at the large company sees a new idea. A new project is proposed in the company with infinite funding. Original App goes out of business since there is no visibility or marketing budget or resources. In a twisted way, people are doing free R&D for large corps.
If you respected its predecessor law chance is that you are fully golden.
I've never met her.
Unfortunately, in our country we only have a binary choice for President. And our job as the electorate was to choose the person who is most qualified for the job and lead this country and our government.
Clinton was the better choice.
With Trump, we don't have a leader. He's making a fool out of us on the World stage. He's shooting the country in the foot economically.
And he spending all this time and resources on piddly little things. What he's doing about the immigrants and their children is appalling.
Illegal immigration was never that big a deal. It was blown out of proportion by right-wing media because their audience of old white male conservatives like it that way.
And the Evangelical Christians losers who continually support him have shown themselves to be stupid, hypocritical, disgusting human beings.
Others voted for him for change and he's doing everything but.
And then the Republicans who are a bunch of pussies won't stand up to him because the Republican base is a bunch of ignorant Bible thumping morons who still think the orange orangutan in the Whitehouse is going to save them - they are just too ignorant to understand that Trump is a member of the very small group of people who are shafting them but they want to continue to believe the nonsense that it's immigrants and leftists and progressives who are keeping them down.
The Republicans have shown that they cannot govern or lead. They just have vapid talking points for the ignorant masses to gobble down.
Many small businesses are started by people who don't get along well with others. Always mouth off to the boss? You'll get fired, and after a few repetitions nobody will hire you and you have to work for yourself. Same for people who are rude to customers or co-workers, or people who are grouchy or always complaining.
Similarly, some businesses are started by people who think they know how to run a particular type of business than anyone else. A few of them are correct.
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Historically, startups have been the engine of US economy.
NOPE! When you start with that, you're just telling everyone with a brain to tune the fuck out.
The biggest thing I don't understand in this is how people come from south of the border that can't even legally get a job, yet they manage to find enough income to be able to afford to live in a house with money to spare, and still they don't rely on shitty Uber. You know why? Because they actually...try...
The way the patent system is in US, any company trying to invent/improve anything without the giants (Facebook, Google, Microsoft) blessing, probably will be sued by them about about any stupid licensed stuff.
Bleh, edited that poorly, meant I don't understand why some say they rely on Uber, and yet...
It's "Starup boom is crazy" "Startup this and that" "Starup central here and there"
I don't believe this at all
Anyone can be a startup.
People just want to have, "AI" , or "Blockchain", or "Cloud" and get all kinds of money.
Some people are getting wise to this.
But then again, nobody ever got poor banking on american greed and stupidity.
An additional contributing factor might demographics. Consider the baby boomer population. This is often called the "Pig in the Python". During the 1990's, there were a large number of educated baby boomers in their 30's, in an environment where there were fewer open slots of any type above them. So there may have been a greater incentive to "create your own slot" by doing a startup.
It is worse post-dotcom-bubble with options not being valuable (+20k to +40k USD normally, unless your startup becomes the next Google, and that amount doesn't compensate for the lower salary typically provided at a startup) and startup companies taking much longer (more than 10 years instead of 4 years max). The presence of less startups may be the lack of profitability and the fact they have become a source of comedy in both book and tv show form (for very valid reasons). Also, consider that the US Federal Reserve is currently increasing interest rates... that means the long period of "free money" is ending and investors can shift money into things with more reliable returns than the bratty millennial businesses would ever provide.
The average company now has a life expectancy of more than three years.
How much of this is the ubiquity of non-competes that exist? It used to be rare, now pretty much everybody and the janitor has one. And who is starting these startups, if not people in the same industry thinking they can do a better job than their current boss? I don't think it is a complete coincidence that california is the home of startup culture, and non-competes are illegal there. Other states would be smart to follow suit, I think.
Most of the "startups" are a couple of guys who rent some office space and print business cards. Their "product" is an app that generates "kitty cat" emojis for Android. These guys are convinced they are the next multibillionaire silicon valley succcess story.
I don't want to hear about any company whose business plan is built around an "app".
Governments continue to strangle small businesses with tiresome burdens.
Latest example is this bogus SCOTUS ruling about now every business can be subject to sales tax of every other state.
Not only is this an onerous burden on small businesses, to pay taxes for a state you in which you don't reside is literally Taxation Without Representation.
Regulatory burdens of all kinds are absolutely killing small businesses, which makes the buyouts from large players all that more lucrative.
Nice one Ivan.
I would wager that most of them know how to run a business better than their bosses if they are coming from large corporations. Bosses in large corporations know how to do politics, not run a business.
Maybe its just that the rest of the world is catching up to the USA in fostering startups and people are not coming to the US as much as they did in the past to start up a company?
Given enough time, unrestrained capitalism ends with oligopoly
Avantgarde Hebrew science fiction
White deaths outpacing white births now, how's the startup economy in Mexico?
Ha Ha Ha nice one Ivan
This is the inevitable result of the rise of intellectual property. At one time people creating new knowledge got a brief head start to reward them for their success. Now they get a virtually permanent ownership that they can use to prevent effective competition or new use or extensions of their idea. Disney created Mickey Mouse 80 years ago and it still holds a monopoly on the use of Mickey. But that is trivial compared to the impact of technology patents that effectively create monopoly businesses with the ability to stifle all competition. How would someone start a new company in competition with Amazon, Microsoft or Facebook? The answer is they can't, but the monopoly business is not limited to those handful of mega-companies. Instead it runs all the way down the ladder to small startups. If you can't create a monopoly, you don't have a business.
Perhaps the metric of "number of companies" is less relevant now that people with an entrepreneurial bent can do Task Rabbit, Uber, AirBnB, Etsy, Ebay, Kickstarter, etc. Entrepreneurs no longer need to form a traditional "company" to do their startup-y thing.
The problem is in fact that the big companies do not pay any taxes.
That makes them much more competitive than small ones, and the small ones disappear.
Tax the big ones, as it once was, it will be much more balanced.
aaaaaaa
The results follow the incentive structure. We reward drama and marketing and oligarchs, not innovators. There are basically no incentives for innovation in the US. You're better off getting a salary job (like in Japan. Hmmm) than taking on the immense personal risk necessary to go up against the behemoth oligopolies, rampant copying of ideas, patent portfolios of the well funded. Add to that the fact that the most aggressive dumb assholes end up at the top of any pecking order and you find innovators hiding out at big companies counting the days to retirement and keeping their heads down
It used to be that to have a "startup" you needed lots of $$$, but now you can get started for free. I assume they aren't counting sole proprietor businesses.
So we went from 13% of the population in 1985, when there were 237.9MM people in the US to 8% of the population in 2014 when there are approximately 318.6MM people. So from 31MM people in 1985 to 25.5MM in 2014.
But with that said, we were coming out of a recession. There's probably a considerable lag time. Anecdotally, the economy would need to be pretty healthy for quite a while before I'd risk working for a startup. So I'd be interested to see statistics in the 2020-2025 time frame. I'm not panicing yet.
Another consideration is that larger corporations are now able to create, and execute new ideas just as fast as startups. People used to be baffled concerning how slowly businesses would implement technology, but that seems to have changed. Not across the board, but where it counts.
The blame goes to:
1. Large corporations that see the small companies, steal their ideas and crush them with 'legal' bills when they try to protect themselves.
2. The amount of government red tape. At least Trump is trying to remove some of the crap but if you try to start a business in the west, especially Californication that requires the usage of land get ready for at least a FULL YEAR of paper work and delays before getting approval.
I was just looking into starting a company because I have an opportunity to pursue a $1M/year contract. I found myself inundated with ridiculously bad insurance "offers". Initial quotes for insurance came to $35k/employee for three people ... more than 10% of my projected annual revenue for the first year. I know there are other options, like co-employment companies but have not finished working through these details yet. CPA and legal fees are a drop in the bucket compared to insurance for a small business that has actual employees. There is a forcing function here that is not accounted for in the statistics presented in the article and I believe that the growing number of people working for startups as "independent contractors" offsets some of the perceived differences.
I wonder if it is just caused by less companies failing. If you look at the number of companies being started each year (source), it has been failure steady over the past 20 years. Maybe the share of companies which are younger than 2 years is a symptom of less companies failing. If company failure rates were higher in the decades preceding 1985, then of course young companies would be larger percentage of all companies.
Could this just be a case of playing with statistics to create a good headline for a story?
-- All that is necessary for the triumph of evil is that good men do nothing. -- Edmund Burke
I know plenty of folks who ran small businesses and the tax and regulation paper work weren't bad at all. You do want to hire a lawyer for your incorporation but that's not because the gov't makes it hard but because if you screw it up and get sued by a private person/company and you're paperwork is off they can pierce the corporate veil and take your stuff.
Other than that and the most odious regulation I remember seeing a small business suffer through was having to throw electronic waste in the right pile at the dump when I worked for a small computer shop.
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There are a ton of people blathering about regulations. It's not regulations. Most of those are common sense, honestly. Don't dump your waste in a river. Duh. Don't abuse your employees. Duh. Don't operate unsafe working conditions. Duh.
It's not the cost of regulations. It's the cost of failure and it's the cost of healthcare.
I just tried to start a small business. I got as far as seeking funding, multiple visits to the SBA, my business plan was all polished up. I had the numbers run.... Hell, I WANTED to give my employees health insurance, because DUH, I want healthy workers.
We really need better safety nets in America. If my business failed, my family would be homeless or saddled with huge debt. The PITA of trying to shop for health insurance for employees is a PITA that's NOT in my business. I don't know! And I don't want to waste my time shopping for health insurance! I wouldn't have to if we had single payer or some other national health insurance scheme.
And I would have had to quit my job... and there's that health insurance thing again. I have kids. I can't NOT have health insurance. And I don't have guarantees on the first year of my business. If I can't find clients....
I'm pretty sick of dumbasses here talking about regulations. The only regulation that I ran into that caused me more work was having to have a wall between wood tools and welding equipment so we didn't start a fire. Duh. Regulations were NOT a problem. Uncertainty and the cost of failure, mainly due to health insurance, WAS. All these dumbasses are talking like they know, but they don't. They're spouting ideology without any practical experience.
Excellent choice of end-point. Fucking morons.
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The cost of education is far too high in the US today (should be free).
Students carry much larger debts today than in the past.
The priority is to have a good paying job now to pay that debt off.
Young people cannot afford to take the risk of undertaking startups with so much debt.
Startups have always been difficult and for minority. It's nothing like running a business.
What we see here are the exceptions, like mom & pop, which got impossible over time due to corps and globalization.
A facet of physics revolving around the entanglement of photons (and the correleation of them) = allows all the idea's of small entreprenuers to be stolen by the big companies that control the PE infrastructure. Thus, startups are history.
4 things changed in Austin Texas which reduced VC/investor opportunities:
- Rent-able office space like WeWork appeared in the last few years. Many that use these services are people with no external investment.
- Established vc/investors are leery of social applications or businesses based on integration with a 3rd-party API.
- The young social justice warriors cant give a pitch, don't understand the concept of revenue, rarely create readable documents, and don't dress particularly professional. In essence, the current wave asking for an investment are such a joke that no one with any money wants to hear them anymore.
- No team evaluation is performed. Investors used to be interested in who would create the technology and who would lead the company. Now the investment community seems to want to plan and control their companies behind closed doors.
Millions? Try hundreds :P
The homeless problem in red states is much worse, since the percentage of population affected is drastically higher. Think 8-10% compared to the 2-3% in California.
This is a no-brainer: Big Biz is, by far, the leading culprit.
Think about it. Do the easy research. Big biz either swallows-up those startups early (usually hostile takeover),
or squashes them (via product/patent theft, direct interference/manipulation, etc...) before they can get established.
Not to mention the difficulty in getting startup capital.
This is why big biz needs tighter regulation.
History has shown that big biz gets less and less individual-friendly as it gets bigger.
Self-importance and self-indulgence is the root of ALL evil.
What if the reason for fewer startups is the fact that large oligopolies will buy up his ideas and compete with him or her. Have a good idea about some feature in your field of expertise a very rich competitor will likely buy you up or copy your idea and keep you from growing or even remaining in business.
Leslie Satenstein Montreal Quebec Canada