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?

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: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.

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.

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"?..

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.

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.

"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.