One would think that the US would rank first among many nations as far as startup activity—not the case. The US actually ranks 12th behind countries such as Hungary, Denmark, Finland, and New Zealand when it comes to entrepreneurship.
This could be construed as our single most serious economic problem. And yet, not enough people are talking about it or even aware that we lag so far behind in entrepreneurship.
The U.S. Census Bureau actually reports that the total number of new business startups and closures per year have changed places for the first time since the measurement began. While four hundred thousand new businesses are being born annually, nearly 500k die over the same period.
Up until 2008, the fact was that startups outpaced failures by almost 100k per year—an encouraging statistic. However, in the past 6 years, we’ve seen that number turned upside down.
The Total Number of New U.S. Organizations Plummets
Why isn’t anyone talking about the number of business births and deaths and the consequent decline of entrepreneurship in this country? Probably because both Wall Street and the White House, no matter which party you are talking about, are huge persuasion institutions. The White House needs you to see the promise on the business front to stay in power. And Wall Street is all about fueling the stock market, regardless of what it is being fueled by exactly. The party line: “The economy is coming back.”
This is Just Wrong Thinking
Those in leadership roles maintain that the answer to economic growth and job creation is more innovation, and therefore this is why we continue to invest billions in it. However, how valuable is innovation without entrepreneurship. In other words, an entrepreneur needs to create a business model and turn whatever the innovative idea is into an actual product/service.
Let’s run some numbers. Many credible sources will suggest that there are about 26 million businesses in America. Keep in mind, though, roughly 20 million of these reported “businesses” are actually not active and have no employees or sales of which to speak. So the true number we need is that of how many current operating businesses there, in fact, are with one or more employees.
That number: 6 million; there are approximately 6 million businesses in the United States with one or more employees. And of those, almost four million of them have four or fewer employees – think of these as mom-and-pop type shops that aren’t really interested in growing a business as they are sustaining a life. Of course, we absolutely need them as well in this country.
Consider a million companies with five to nine employees, approximately 600k businesses with 10 to 19 employees, and 500k companies with 20 to 99 employees. The list can keep going, but you can hopefully see the overall picture in America and entrepreneurship. Let’s be crystal clear here, American businesses are perhaps the most important resource this country has. The reason we have a strong military, for example, is because of our growing economy.
When former Chairman of the Joint Chiefs of Staff, Adm. Mike Mullen, was asked in a Senate hearing about our biggest threat, his answer: “I believe our debt is the greatest threat to our national security.”
Declining Businesses Equals Fewer Revenues for Social Spending
It’s important to note that the 6 million active businesses provide jobs for more than 100 million Americans, not to mention they represent much of the tax base. They have essentially single-handedly generated the biggest economy in the world, and the economy, in turn, has the capacity to afford military and social spending programs. Until now, the US has basically dominated globally as far as the economy, with entrepreneurship as the backbone.
The problem: when new businesses aren’t being born, the free enterprise system ultimately declines, as does job creation. That consequently suggests declining revenues and smaller salaries to tax; it’s a domino effect actually, as this will then impact aid for the elderly and poor, funding for the military, for education—so essentially, declining revenues for everything.
America maintains the biggest tax coffers globally, given that its citizens have owned ¼ of all global wealth—certainly an impressive number. We prevailed in the battle of free enterprise without question—driven by entrepreneurship in the country. We are now, however, losing our edge. Why? For one, because the steps we’re taking to rectify the situation are dead wrong.
Entrepreneurship is not systematically built into our culture; not like innovation or intellectual development are. Even though it may seem like there’s a lot of entrepreneurial activity in the country, it is still on the decline for the first time since we began measuring it.
When Gallup asked Americans to rate how much they are worried about the various problems the nation is facing, the top 3 answers involved the economy by far. We are daily misdiagnosing the cause and effect of economic growth. We are misdiagnosing job growth as well. We need to return focus to entrepreneurs and those who build this country’s businesses.