I don’t often start a blog with a graph. But, I wanted to set the mood (not too gloomy, I hope).

It’s a pretty sad state of affairs that the number of start-up formations is way down- and that number is matched by the demise of other firms. In other words, no new net growth of businesses.  (Back when we started our venture, some 6 million new firms were started each and every year.)

And, it is still true that start-ups are the driving force for augmented employment and wages.

As the number of startups have dropped off, the economic strengths of our economy have been diminished. Because the newer companies are the ones that help improve productivity. They have less invested in old technology and processes- oftentimes, these ventures are the ones offering the new technologies- so, as they come on board, there is a notable effect to productivity and business growth. (As a matter of fact, Drs. T. Alon and D. Berger [both of Northwestern], R. Dent [Nomura Securities], and B. Pugsley [NotreDame] postulate that the lack of start-ups has cost the US some 3.1% of productivity growth. “Older and Slower: The Startup Deficit’s Lasting Effects on Aggregate Productivity Growth,”)

Moreover, as the start-up venture matures and  grows, it hungers for more bodies. So, the firm will offer jobs to those already employed (because they have the skills, experience, and or knowledge these nascent firms need to expand.) And, since they are start-ups, they tend to offer more compensation- or there’s no enticement for someone to leave their current position. Which also causes the existing employer to either up the wages or hire someone new. All of which stimulate the nation’s economic growth. (This phenomenon explains why the rate of job switching has been on the decline since the days of Ronald Reagan.)

(I can also state that another cause of decline may not be the lack of start-ups, but the two-earner family. It is far more difficult to find employment for both spouses, when a new job is to be offered than it was years ago when only one wage-earner was in the picture.)

But, the biggest cause for the lack of start-ups and the wage growth has been the abnegation of true competition. Part of this has been due to folks willing to sign non-compete agreement with their employer- which makes it nigh impossible for that talented employee to jump ship to another firm. (We’ve already seen how some folks walk out the door from their employers carrying its technology. It’s perfectly acceptable to retain one’s knowledge and capabilities- but not to leave with a hard drive stocked with blueprints, schema, and research. Yes, I’m talking about you, Anthony Levandowski!)

Moreover,  our government has failed to protect us from oligopolies. Firms buying other firms, consolidating their hold on multiple industries, with nary a regulatory peep about competition. When an economy is dominated by humongous, entrenched firms, the ability of an upstart to disrupt it becomes much more difficult. (The  term ‘Black Swan’ was developed about a decade ago to describe an unexpected financial demise. It’s a most infrequent occurrence to challenge these oligarchies.)

I’m not saying that the oligopolies are not worried about Black Swans (or Amazon, now another behemoth itself) entering their business domain. They are- so they are trying to co-opt them. By having “scouts” in Silicon Valley, the Boston Beltway, Tel-Aviv/Chaifa on the 2 corridor, and a few other technology pockets around the world. Intel, Walgreen (with its Boots cohort), Target, Home Depot, even Sears are among those with labs or scouts in these neighborhoods. They hope to find the technology or processes that will either keep their business growth- or would stifle it should a competitor obtain it, before they gobble it up themselves, instead.

And, this is not just a US problem.  As you can see from the above chart, it’s the prevailing problem in the developed economies.

All this make the job of the nascent entrepreneur that much harder.
Which reminds me of the joke one of my mentors shared with me decades ago.

Know what a nascent entrepreneur is? It’s someone with a fantastic new idea and has $ 5000 in the bank.

Know what a budding entrepreneur is? It’s someone with a business plan, a fantastic idea, and $ 1000 in the bank.

Know what an entrepreneur is? It’s someone with a new venture, $ 100,000 in sales to date, and nothing in the bank.

And, the successful entrepreneur? It’s the person with a 100-person venture, $ 5KK in sales, and owes the bank a half-million bucks.

Yeah. It’s one of those scarier things we learned when we were ‘extremely successful’ entrepreneurs. (We were on the Inc500 for the first four years of its existence.)