Startups in Lane County: Entrepreneurs WantedDecember 7, 2017 Many people ponder starting a new business as the year comes to an end. Whether it’s your New Year’s Resolution or you’ve decided you want to be on the selling end of next year’s Small Business Saturday, a new year is a good time to indulge entrepreneurial aspirations.
The success of high profile startups in recent years might make you think that more and more people are taking the leap into entrepreneurship. Despite recent gains, however, the rate of entrepreneurship is still quite low compared with the historical trend. The Kauffman Foundation, a nonprofit organization supporting entrepreneurship, found that new firm formation remains at half the level it was a generation ago.
In Lane County, you can see a decline in entrepreneurship from the employees’ perspective. This graph of the percentage of workers in 1992 and 2016 employed at businesses in different age categories shows a notable decline in the proportion employed by startups.
In both Oregon and Lane County in 2016, around 80 percent of private employees worked at a company that was more than a decade old. Lane County’s employment at young firms saw a slightly steeper drop than the state: the percentage of those employed at firms age five years or younger decreased by half over the time period.
The trend cannot simply be explained by older companies growing larger or new companies getting smaller over time. Fewer new companies have been founded since a recent peak in 2005 and 2006, a fact that gives the impression that entrepreneurs have simply gone “missing” in comparison with historical trends. For example, more new firms were founded in Oregon in 1990 than 2014, despite the fact that the state’s population grew by 40 percent over that period.
This data doesn’t suggest that Lane County is an outlier. There are a lot of economic factors affecting entrepreneurship, and the trend is similar nationwide. The recession set back new company formation, as business failures outpaced startups for the first time since the Census Bureau started collecting the data.
Millennials, despite their entrepreneurial reputation, are less likely to start a business than previous generations were at their age. Millennials face debt burdens, especially from student loans, that far outstrip that of young people of past generations, which may have an impact on their ability or appetite to start a business.
Finally, we might ask whether this matters – as long as employment increases, what’s the problem with older firms making up an increasing share of it? Quite a bit of economic research finds that entrepreneurship is a critical input to a healthy economy, without which we get less innovation and productivity growth. Young companies also have an increased impact on new jobs created.
In general, a resilient economy balances innovative and nimble new companies with stable and established older companies. If the rate of new business formation doesn’t increase, that could be cause for concern in a fast-moving economy.