Why entrepreneurship is on the rise
A report shows 550,000 Americans start new businesses every month. Experts attribute the rise in entrepreneurship to cultural and economic factors.
Who says the American Dream is dead?
A new report from the Kauffman Index of Startup Activity shows that 550,000 Americans launch new businesses each month, keeping with an upward trend in entrepreneurship in recent years.
The growth in entrepreneurship – or, as the Kauffman report defines it, "adults switching into self-employed business ownership" – is due to a number of factors, both cultural and economic, experts say. On the bright side, technological innovations make entrepreneurship more accessible to a wider swath of people.
At the same time, the changing face of the traditional job market, with more people living paycheck to paycheck and stringing together multiple income streams, may lead to workers being counted as "entrepreneurs" not because they're starting the next great company, but because they have no other choice.
Easier than ever
"There's an increase in people who want to become entrepreneurs because the startup environment in the US has changed – they see opportunity, problems to solve, and are finding ways to make something happen," says Debi Kleiman, the executive director of the Arthur M. Blank Center for Entrepreneurship at Babson College.
On a practical level, it's easier to start a new business than it has been in the past, Ms. Kleiman tells The Christian Science Monitor in an email: the technology needed to launch an app or website – in many cases, just a laptop – is "relatively inexpensive and accessible."
Also more accessible: funding.
After the Great Recession, capital restraints for small businesses made it difficult to borrow money, says Josh Lerner, head of the Entrepreneurial Management unit at Harvard Business School. In recent years, those restraints have eased, he tells the Monitor in a phone interview.
The ease and relatively low cost of starting a business have begun to attract a more diverse population of small business owners, Dr. Lerner says. "There is a sense that the pool of people who are considering entrepreneurship, whether it's due to social tastes or other things ... seems to have changed quite a bit."
He notes that many of his students choose to found their own businesses, while in a different era they likely would have followed a more traditional corporate career path.
A changing economy
The Great Recession may also have shifted societal priorities, especially among young people, says Barbara Hou, the author of "Startups Demystified: Founders Share Strategies, Secrets, and Lessons Learned."
For one thing, she says, the financial crisis in 2008 led many people to distrust traditional career avenues, such as the finance industry, as weakened job security made such jobs much less appealing.
"Millennials also want more than a paycheck; they want meaningful work," Ms. Hou told the Huffington Post in June. "If you talk to young startup founders, many aren’t just looking to cash in, they are looking to make an impact and to solve problems. It’s an optimistic outlook."
At first glance, the numbers in the Kauffman report don't show steady growth: the number of new entrepreneurs in the US peaked in 2009 and 2010, then began a sharp decline that lasted until 2013, when things began to pick up again.
Both Lerner and Edward Roberts, the founder and chair of the Martin Trust Center for MIT Entrepreneurship, caution that these numbers can be misleading, as they take into account all new businesses, both "high-potential" – for example, a tech startup – and "low-potential" small businesses.
"What Kauffman is seeing may in fact reflect the lousy state of the economy outside of the innovation sector," Professor Roberts writes in an email to the Monitor. "It may reflect the move by so many unemployed or poorly employed in desperation to [start] their own companies as the equivalent of second jobs, i.e. to produce a living family income."
"Calling everyone an entrepreneur is a big part of the misunderstanding," he adds.
Kauffman reports that the percentage of new business owners drawn to entrepreneurship out of opportunity, rather than necessity, increased to 84 percent in 2015: 10 percentage points higher than it was in 2009.
Meanwhile, Roberts and Lerner say, throughout the overall fluctuation, opportunity-driven entrepreneurship in high-potential tech and innovation-based businesses has steadily grown – and with it, a more diverse pool of founders.
"It's women and minority groups who are jumping in at strong rates and I think this is because there is more support for them, both in technical ways and also contextually – it's giving more confidence to people who might have thought it wasn't for them, but now they see that they can do it and they aren't alone," Kleiman says.
Babson College, where she teaches, is one of a number of colleges that have taken steps to encourage female students to start their own businesses. Babson has a dedicated Center for Women's Entrepreneurial Leadership, featuring the Women Innovating Now (WIN) Lab, an accelerator program where women can develop business skills under the guidance of female mentors and coaches.
Elsewhere, initiatives such as digitalundivided, an organization that offers career support and training to black and Latina women founding tech startups, have become increasingly common.
"I think our culture in the US in recent years has created an optimism about entrepreneurship that is empowering and exciting," Kleiman says.