One would think that the U.S. would rank first among many nations regarding startup activity—not the case. The U.S. ranks 12th behind countries such as Hungary, Denmark, Finland, and New Zealand regarding 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 reports that the total number of new business startups and closures per year has changed places for the first time since the measurement began. While four hundred thousand new businesses are 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 six years, 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 exactly what it is being driven by. The party line: “The economy is coming back.”
This is Just Wrong Thinking
Those in leadership maintain that the answer to economic growth and job creation is more innovation, so we continue investing billions in it. However, how valuable is innovation without entrepreneurship? In other words, an entrepreneur needs to create a business model and turn the innovative idea into an actual product/service.
Let’s run some numbers. Many credible sources suggest that about 26 million businesses exist in America. Remember, roughly 20 million of these reported “businesses” are inactive and have no employees or sales. 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 have four or fewer employees – think of these as mom-and-pop type shops that aren’t interested in growing a business as they are sustaining a life. Of course, we 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. Hopefully, the list can continue, but you can see the overall picture of America and entrepreneurship. Let’s be clear here: American businesses are perhaps the country’s most important resource. For example, we have a strong military 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 and represent much of the tax base. They have essentially single-handedly generated the biggest economy in the world, and the economy, in turn, can afford military and social spending programs. Until now, the U.S. has dominated globally as far as the economy, with entrepreneurship as the backbone.
The problem is that when new businesses aren’t 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, as this will 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—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, the steps we’re taking to rectify the situation are wrong.
Entrepreneurship is not systematically built into our culture, unlike innovation or intellectual development. Even though it may seem like there’s a lot of entrepreneurial activity in the country, it is still declining 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 must return focus to entrepreneurs and those building this country’s businesses.
