Good Signs for Startups, but a Long Way to GoJune 6, 2019 The improving economy is showing positive signs in an area of continuing economic concern: new business startups.
The latest economic data from the Bureau of Labor Statistics show an elevated number of new business establishments in Oregon from 2015 onward, especially relative to the early recovery from 2009 to 2014. One-year establishment survival rates are also up to nearly 80 percent, after bottoming out at about 70 percent in 2009.
More new establishments and more establishments surviving past their first year are good economic signs. We need new companies for economic dynamism. A large part of net job creation comes from young companies, and startups play an important role in bringing innovative ideas to market.
However, while the good news is welcome, there’s still an enormous amount of ground to cover.
Although it may feel like we focus on entrepreneurship more than ever before – think about Silicon Valley’s booming tech industry or “pitch” shows like Shark Tank, for example – the U.S. remains near the lowest level of startup formation in generations.
Let’s look at Lane County. By Census Bureau estimates, we had over 1,000 new employer establishments in 1977 and 1978. In the middle of this decade, we averaged around 450 new establishments per year.
If we consider that Lane County added more than 100,000 residents over that time, the decline of startups is even more evident.
The dwindling rate of new business formation is a national issue. Most places in the United States have seen a significant long-term decline in startup rates. The trend seems to get worse with each recession, with startup rates making little or no recovery afterwards.
These graphs fail to capture the activity of the small-scale entrepreneurs who don’t employ anybody – so called “nonemployers”. Nonemployers make up a large portion of all businesses, especially new and small establishments, and so are an important figure to track.
Nationally, the number of nonemployers has grown quickly since the late 1990s, although the trend is much less pronounced in Oregon. In Lane County, the number of nonemployers has more or less tracked with population growth in the last 20 years.
While recent signs of new business development are encouraging, we have a long way to go before we make a dent in the long-term trend. Thankfully, entrepreneurs are used to long odds.