The role of entrepreneurship in spurring economic growth has long been recognized. Unfortunately, America seems to be losing its entrepreneurial verve, and millennials may be at least partly to blame.
According to government data, new businesses made up 14 percent of all new establishments in the United States in the 1980s, but fell to under 10 percent by the 2010s. At the same time, new firms have gotten smaller, creating just 4.4 jobs per firm on average today compared to 7.1 in earlier decades.
Even more alarming: “deaths” now outnumber “births.” Our business sector is shrinking because fewer people start companies.
These trends are troubling. Analysis from the Ewing Marion Kauffman Foundation, drawing on academic research, suggests that “new businesses account for nearly all net new job creation and almost 20 percent of gross job creation.” Without a healthy and robust business startup community, our long-term economic health will suffer.
To be sure, not everyone is cut out to be an entrepreneur. The entrepreneurs driving the startup economy are an elite group, just 0.3 percent of the adult population. They also tend to be immigrants, who now start new businesses at double the rate of native-born Americans. Increasingly they are Latinos and Hispanics, who make up the fastest-growing segment of new entrepreneurs.
Millennials, however, appear to be missing in action. Using data from the U.S. Census, Kauffman Foundation research reveals that 20-to 34-year-olds start businesses at lower rates than older cohorts did in 1996 and haven’t appeared to catch the entrepreneurial bug as other generations did. In fact, their startup rates have declined.
By 2017, the rate of millennials starting businesses had fallen to just 0.24 percent compared to 0.35 percent or higher for Generation X and Baby Boomers. Overall, 18-to 34-year-olds made up only 25 percent of new entrepreneurs in 2017 compared to 34.3 percent in 1996.
Granted, entrepreneurship is difficult. Harvard Business School lecturer Shikhar Ghosh estimates that as many as 75 percent of startups fail within five years. One-third of “high potential” startups go out of business.
Given the uncertainties, a large volume of new companies is crucial to keeping this sector vibrant. This makes the tepid interest in entrepreneurship among younger generations even more troubling. The combined effect of fewer new business startups and fewer millennials contributing to entrepreneurship bodes poorly for U.S. economic growth or the vibrance of the nation’s market-based economy.
Colleges and universities have responded by offering more than 500 entrepreneurship programs at undergraduate and graduate levels, a five-fold increase from the 1970s. Some universities, such as Florida State and Drexel, have established stand-alone schools.
But formal schooling probably isn’t enough. A longer-term solution must pay close attention to the values and concerns of millennials themselves, as well as their financial constraints.
Research finds that millennials desire more than a paycheck. They want to see their efforts serve a higher calling. When given a choice between working at one of Warren Buffett’s portfolio companies (profitable but business-as-usual) or a company that is both profitable and socially innovative, they favor the latter.
Examples are not hard to find. Whole Foods started out in a small store in Austin, Texas, in 1980, but became a global brand by shifting people’s food preferences to healthier options. Similarly, Uber revolutionized personal travel when co-founder Travis Kalanick wanted to reduce the cost of transportation. The company hired its first employee in 2010 and now employs 10,000 full-time nondriver workers.
Companies that reframe the entrepreneurial calling can inspire younger generations. So why haven’t they generated a wave of youthful entrepreneurs?
One reason is that millennials face major financial constraints. According to the Institute for College Access & Success, two-thirds graduate with college debt averaging nearly $30,000 per year. Not surprisingly, their need for a steady income outweighs the risk of starting up a new venture, whatever the satisfaction. Finding ways to lower the barriers will be important for reinvigorating the entrepreneurial spirit.
Millennial entrepreneurs have a critical role to play in the long-term health of the U.S. economy. Unfortunately, right now they are MIA. Helping them get onto the startup field will better ensure their prosperity and well-being—and ours.
Samuel R. Staley is director of the DeVoe Moore Center at Florida State University, teaches senior seminars in social entrepreneurship, and is a research fellow at the Independent Institute.