Whither (or is that wither) the Entrepreneur…

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OK.  Guess which country has the most entrepreneurs?  Easy.  The United States.  Which country has the highest percentage of its population as entrepreneurs  Israe-l. Soon, neither may not be true.

Last week, there was a conference in Europe that decried their lack of entrepreneurial culture.  The panel was conceived to address the lack of funds that everyone believes is the issue holding back start-ups.  But, the panel realized this simple answer was not addressing the underlying cause.  European culture does not stress success and its educational system gears students towards corporate or state employment, with their promises of a steady job. Most citizens are in a comfort zone, unwilling to stick their necks out.  Moreover, the state has a significant safety net, providing funds for those that lack full employment.

Germany is among the more successful of the European markets.  Yet, its engineering approach stresses perfection, longevity, and “elegant” solutions.   That is not among the qualities needed to develop new, successful entrepreneurial ventures.   A typical entrepreneur sees a problem, conceives a solution, and iterates it until the customer demand is satisfied.  Rarely is everything fully designed from the start.

Except, it’s not much different here in the states.  Our current economy is providing some 100 to 110 million jobs (in the private sector). Moreover, there is churning of some 15% of that total (jobs created and destroyed in different elements of the economy).  Supposedly, this churning leads to more productive firms, but that’s not entirely clear.

As I stated earlier in this series, the US economy has been deteriorating since the 1990s.  The Great Recession just exacerbated that situation.  Now, the rate of job destruction is the same as before the Great Recession- but it lacks the concomitant job creation component.  And, that is the direct result of the dearth of new entrepreneurial ventures.

Oh, yes, I can hear it already.  One political party will claim that it’s the excessive tax rates that are blocking this expansion.  I have already shown that BS for what it is.  The other side may claim it’s the lack of expansionary fiscal policy.  I doubt the potential entrepreneur could give a rat’s … about the expansionary policy.

John Haltiwanger (National Bureau of the Census, National Bureau of Economic Research, University of Maryland) has been examining this phenomenon for a while.  He noticed that just like the wealth of America is being swallowed by the rich, the large national chains are gobbling up large portions of the markets, making it nigh impossible for new retail ventures to get started.

Moreover, many entrepreneurs now find themselves located in regions of the country that were high growth regions or ripe with manufacturing entities, so potential customers were easy picking.  Now, they feel stuck in these locations, unable to find buying customers or to sell their homes to move to better areas to ply those dreams they have.

Let’s also not forget that the Great Recession afforded the banks the opportunity to slash credit limits without notice or impunity to its customers.  The use of credit cards is one of the more common financing techniques for new entrepreneurial ventures (exceeding the second choice of financing, friends and family, by a wide margin). Couple these facts with the decline in home values and 401(k) plans, you can see that the capital needed for the entrepreneur to try out his dream is or is becoming beyond reach. Moreover, with wealth accumulating to the rich, leaving the realm of the middle class, the friends and family sources for capital will no longer exist, either.

 

4 July 2011:  An Update:

Intuit reports that almost 1.4 million folks are employed by firms of 19 staff or less, when compared to the start of the Great Recession.  But, 624,000 NEW positions have been provided since February 2010 (means 2 million folks lost their jobs at small business due to the Great Recession).  Scott Shane, Small Business Trends

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11 thoughts on “Whither (or is that wither) the Entrepreneur…”

  1. Entrepreneur opportunities are appealing because you can “be your own boss” and accomplish the task of hopefully satisfying a customer demand. However, more and more people seem to be getting involved with ventures like MLM companies, etc. Making the endeavor of diving into startup businesses rather intimidating. I’m still brainstorming to determine if I can find a newer, fresher approach geared toward my generation, and the incoming consumers and workforce. Your posts are helpful in gaining some more clarity of the environment of such feats. Thanks 🙂

    1. Marlene:
      MLM companies are one of those concepts that appeal to people, who think it may be a shortcut for their success. My psyche is not among those who find the appeal. But, to each their own. The idea you derive will be the one that works for you- it will be ALL yours! Good luck.
      Roy

  2. Hey Roy,

    A very interesting study here. We or at least I , on this side of the world, are surprised by such data. We still believed that America is still the greatest country in terms of “producing” entrepreneurs, maybe because lateral thinking is so focused on; unlike the education system we have here. So that made a lot of difference.

    But like you point that…. I am interested in what the future to this look like.

    Have a great day!
    Hajra recently posted..What are you tired of hearing

    1. Hajra:
      I am interested in seeing it continue, too. But, if banks can keep cutting your credit line for o good reason and policies are maintained to destroy the middle class (another source of capital for nascent ventures), then this drop in new business formation is bound to continue and accelerate.
      Thanks for our comments.
      Roy

  3. Aaahh, that graph at the bottom is shattering. The number of start-ups as a percentage of all business is at an all time low and it has reduced to half, since the last three decades. So, is there no room for start-ups, and no lack of opportunities? Absolutely not, it is just the attitude and the mindset which is sad. We seem to be enjoying our comfort cushions and not think ahead or different. It is really critical that, administrations take a note of these trends and take every possible measure to correct it.

    1. Thanks for dropping in, Kevin. I wish it were just the mindset- then (in spite of “No child left behind”) we could alter our educational system to some degree to change it. But, every venture needs seed money. And, if we eviscerate the middle class, then there is an evanescence of the seed money. I was lucky to have my own funds (from previous ventures, like selling cards [by the way, now you have to PAY for the cards in advance… when I did it 52 years ago, they sent them ON APPROVAL], selling and delivering magazines [take note- Business Week is now hand-delivered, no more post office]) to fund my own first big venture…
      Please come visit again. Love your addition to the conversation!
      Roy

      1. Yes, you are right; there will be many cases, where people are willing to take that plunge, but there’s lack of resources.
        But, if you truly want it, you can find those resources; if not at your time, after slogging for sometime for sure.

        1. Kevin- spot on! We need to find a way to marshal those resources- and seek out the lowest cost alternatives to insure we can grow our enterprises!
          Thanks for coming back to the well!
          Nice product offerings, by the way!
          Roy

  4. For me as for an online entrepreneur it is pleasure to hear the news that real actions are undertaken to resolve the problem connected with the lack of entrepreneurial culture.

    1. Nice to “meet you” Terje. You are absolutely correct; if we don’t find ways to make entrepreneurship more viable soon, our jobs picture will be devastating for a generation.
      Forget the political tripe- big business does not change our employment picture. They find it of use to terminate folks, move offshore, and then beg for mercy to repatriate income without paying their fair share of taxes.
      Small business hire workers. They will grow us out of this predicament. If they can’t get their meager start-up capital going again, it does not bode well.
      Thanks for dropping in!
      Roy

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