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.

Comments

Historical precedence

[sinij]

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.

Re: Historical precedence

[DalM]

You know there are other sectors of the global economy besides tech, right?

Re:Historical precedence

[alvinrod]

There's always a history of new comers becoming incumbent giants and eventually being supplanted in turn. Look at Sears which once revolutionized the way that people shopped and is now a tiny bit player this is closing down its stores. Perhaps there's some cycle in the rate of new startups within that greater cycle of corporate birth and death, but I'm willing to bet that the bigger culprit is an increasing amount of hoops that a new startup must jump through. Government is always eager to put new hoops in place, while seldom bothering to remove old ones that may not be relevant. The existing companies love this as even though it costs them additional money in order to comply with those rules, it's much harder on the little guys. Look at the recent GDPR laws in Europe as an example and ask yourself how much of a pain that would be to deal with if you're a small one or two person company. Or consider companies like Uber, Lyft, etc. that are successful precisely because they're doing their best to skirt the draconian regulations surrounding Taxi services in most cities.

Re:Historical precedence

[angel'o'sphere]

Look at the recent GDPR laws in Europe as an example and ask yourself how much of a pain that would be to deal with if you're a small one or two person company.
Close to zero. While the GDPR is a big chunk of paper, it is for 99% of all companies irrelevant.
You simply only store as much information you need to perform the business with your customer, like billing address, and never share any information with anyone else. And that is the default for small companies. With whom for what purpose would I share any private data of any of my customers?

Re:Historical precedence

[Darinbob]

We never called these things "startups" in the past. The mentality of the startup is a modern thing. We used to innovate, but today we copy. I won't miss it if todays startups start to vanish, we can get back to having real companies whose valuation isn't listed in the fantasy section.

And how long is a startup a startup? For one day? Two years? I know private companies that go along fine being profitable for a decade, but somoene calls them a "startup" just because they're not publically traded.

Over regulation

[Anonymous Coward]

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.

Re:Over regulation

[cayenne8]

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.

Yep...and it is getting so bad, that ONLY the big guys can afford full time staff dedicated to the tax and paperwork....keeps the upstarts out.

Re:Over regulation

[Sperbels]

You think third parties are inherently less corrupt? They're just as likely to be bought off or bullied as any other politician.

Re:Over regulation

[terrycarlino]

Would that be the Republicans, not one of which voted for it or had any say in the contents of the bill?

You can't have it both ways. If the ACA sucks it's because the Democrats passed it. If it's great its because Democrats passed it.

Anyone with a brain knew that if you make a business take on a large cost for employees who work more than 30 hrs a week all of a sudden there's going to be a lot more employees working 29 hours a week. So now instead of working 32-40 hours a week and not having benefits you get to work 29 hours a week and don't have benefits. So less money and still no benefits.

Maybe

[ogar572]

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?

Risk vs reward

[DalM]

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.

Re:Risk vs reward

[alvinrod]

That's generally established and I think everyone knows that. The question being put forward is why the rate of people who are taking these risks is decreasing. Have people suddenly become much more risk averse? Is there some kind of economic interference that's resulting in this reduction? Is it just a small dip that happens from time to time for no real discernible reason? Are the number of startups still about the same, but what we're really seeing is a much more rapid failure in startups?

That few people start their own business is not surprising. What's interesting is that fewer people than usual are doing it.

Re:Risk vs reward

[DalM]

Honestly I think it's mostly that being a middle-class employee is generally becoming a better trade for the employee. If you have a salaried position (guaranteed reliable and regular pay), have general health benefits, and an IRA or 401K, why would you throw that away just to work harder and be responsible for entire company?

Being a lower-class employee is getting worse, but those people are less likely to have the ability to raise the funds necessary to start their own companies.

Re:Risk vs reward

[terrycarlino]

I think a good part of it is regulation. Not just federal regulation either, though a lot of EPA and OSHA and other regulations don't help either.

Before anybody screams about libertarianism or small-goverment or even socialism lets take a dispassionate look at things.

In 1960 if you wanted to start a business washing cars you rented a place, hired some people and dumped your dirty water either in the street or the sewers. In other words you externalized your disposal cost.

The same thing if you had a company that constructed batteries. You dumped your used chemicals somewhere at no cost. You externalized your disposal costs.

Now the EPA came along and suddenly you have to pay fro proper disposal. Your company is less profitable. The small guys, the ones most likely to running on the edges with little profit now become unprofitable.

So prohibiting companies from externalizing their disposal cost is good for society, however it does reduce the number of new business that are started because it raises the bar necessary to enter the market. This might be a societal bad, but on balance is better than allow cost externalization that we all pay, in both cost and reduced quality of life.

Do this for a number of decades and of course you're going to see a decline in the number of new business.

Re:Risk vs reward

[Srin Tuar]

> Now the EPA came along and suddenly you have to pay fro proper disposal. Your company is less profitable. The small guys, the ones most likely to running on the edges with little profit now become unprofitable.

Slight adjustment there: The EPA has no problem shielding companies like BP from hundreds of billions in pollution lawsuits, such as wrecking the entire gulf of mexico.

The EPA working as designed to protect he big polluters from competition.

If you actually cared about pollution, it would not be solved via regulation but by liability.

Regulations increase pollution and reduce competition.

The startups I see

[rsilvergun]

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.

Re:The startups I see

[dyfet]

indeed, vc's seem only interested in those offering new ways to cheat people (business model innovations), not in new or better ways to actually do real things.

Seems self-contradicting

[mi]

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"?..

Re:Seems self-contradicting

[Peter P Peters]

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"?..

Engine is probably the wrong word, maybe fertiliser or seed is better. With less fertiliser or seed you eventually produce less food. This will have consequences sooner or later.

total # of companies? flawed study

[ole_timer]

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?

Top-of-bubble consolidation maybe?

[ErichTheRed]

"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.

Re:So what?

[Anonymous Coward]

Is it? Last time I checked unemployment was down, but wages are still stagnant.

The "economy" is booming if you have millions of dollars, if you are middle class or under, "the economy" being in a "boom" or a "bust" doesn't really matter since you are still treading water with far less buying power than your parent's generation.

https://hbr.org/2017/10/why-wages-arent-growing-in-america

You'll also note a line in that article that links the two ideas you flippantly disregarded: one factor that encourages large wage growth is young companies. High numbers of start-ups and younger companies tend to drive wages up. Without this competition, larger / older companies don't pay as well.

The "economy" isn't really booming-- the people at the top have simply found new ways to siphon more money off the lower and middle classes. Welcome to the end game of capitalism, we've managed to stay here a lot longer this time without the lower classed players breaking out the guillotine. I'm not really keen on seeing the end of this round, but I feel like we aren't as far away as I thought we were.

"Pig in the Python" effect?

[Steve1952]

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.

Re:Corporate Mergers

[iMadeGhostzilla]

I actually didn't hate Hillary so much as I hated the environment that propped her up and the tens of thousands of leeches who expected to profit from her reign or to keep being smug and tell others what to think. I loathed the idea of her being President but at some level I respected her as a person, she was fighting for what she thought was right (her becoming the center of the Universe), and she fought a good fight.

That she lost is, in my view, not just lucky for us, but for her too -- I believe the power she so craved would have made her mad before the end of the first term.

Re:You hate Clinton?

[terrycarlino]

Clinton was the better choice.

Actually she wasn't. She was and is a horribly flawed candidate, who only got the nomination because the DNC subverted their own primary process. You want to know the real reason she lost? She T'ed off enough Bernie Sanders voters by stealing the primary from him that they stayed home.

With Trump, we don't have a leader. He's making a fool out of us on the World stage.

He's doing that how? Let me tell you something about the world stage. Nobody is your friend. Each and every world leader is more interested in their own people than in anyone else's people. As they should be. I didn't elect Angela Merkel and I don't expect her to take into account whether her policies are good for me or not. Likewise it's not Trump's job to make Germans or Brits or Canadians happy. Likewise Putin doesn't have my best interest at heart, and I don't expect him too. That doesn't make him evil (or not evil for that matter.) That just makes him not someone I would expect to do good things for me.

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.

There are only seven states in the United States that have populations higher than the total number of illegal immigrants in the US. To me that sounds like a pretty big problem.

I suspect the parents of children killed by illegal immigrants might think it's a pretty big problem too. If you think they're mostly old white people let me fix that for you. Most of them are Hispanic. And they're being killed by gang members who are making their neighborhoods unsafe places to be. Maybe your nice upper middle class neighborhood doesn't have this problem.

And the Evangelical Christians losers who continually support him have shown themselves to be stupid, hypocritical, disgusting human beings.

So we've established that you're into identity politics. Would you care to make a comment about Jews or African Americans now?

Others voted for him for change and he's doing everything but.

I suggest you take a look at what he's done. Basically he's actually keeping his campaign promised, which is terrifying both mainstream Democrats and Republicans. A politician actually keeping his campaign promises is certainly a change.

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.

It's nice to see you are so tolerant of people who disagree with you. The "keeping me down" mantra is the mantra of the left, not the right. No one thinks illegals are keeping them down. No one thinks illegals are taking their jobs. No one thinks progressives are keeping them down.

What people who disagree with you see is vast numbers of people advocating ignoring laws they either cannot or will not change, creating what is likely to become a lawless society. I don't need Trump or any one else to save me, except from the policies that people like you would impose on me at the point of a government goon's gun, after you take mine away.

The Republicans have shown that they cannot govern or lead. They just have vapid talking points for the ignorant masses to gobble down.

Looks to me like you're the one ignorantly parroting talking points. I don't agree with everything Trump has done, but at least I fully believe he's the one calling the shots in the White House, not some unelected political adviser, like the last empty suit-in-chief or the husband-in-chief that we ducked in the last election, could you sure don't think Hillary was going to be running things do you? She couldn't even keep track of Bill.

Re:Venture capital vs. small business loan

[terrycarlino]

It got regulated out of existence. You need the VC money just to be able to hire the lawyers and tax accountants so you can start a business without other lawyers and the IRS putting out of business before you even come to market.

Re:How does outsourcing account for it?

[tattood]

Wageworks is a company that provides benefit consulting to companies. They are not an outsourcing contractor, so neither of these examples are really correct unless you are talking about the people at the startup that manage benefits.