Why Is New Business Growth Down?

120_large

When it comes to new business creation, business as usual is not working.

The terms “entrepreneurship” and “serial entrepreneur” may be trendy buzz words, but that doesn’t mean new business is booming in the United States. It’s unfortunate but true: while new businesses made up 15% of companies in the United States as recently as four decades ago, by 2015 that percentage had nearly been cut in half. And it’s not that local and state government are indifferent to entrepreneurship and job creation. They’re not. It’s just that what they have typically done to support entrepreneurship isn’t yielding the desired results.

According to Jason Wiens, policy director at the Kauffman Foundation, “Cities and states have been devoting a great deal of energy and resources toward the promotion of entrepreneurship, yet entrepreneurship has been sputtering. . . . The traditional methods of encouraging entrepreneurship are not producing desired results and should be replaced with methods that are more likely to gain traction.”

This is a big deal when we know that tech companies between one and five years old are the only businesses creating net new job growth. This graph below from Kauffman visibly highlights this fact and the importance of encouraging new tech businesses in order to spark job creation.

In a report published this spring, the Kauffman Foundation also outlined a series of proposals for ways that local and state governments can reverse the downward startup trend and better promote entrepreneurship in their jurisdictions. The accelerator model is one way to turn around this decline in new business. Accelerators have proven to be successful in aiding startups in going from ideation to execution, creating more job growth, improving local economies, and establishing an overall entrepreneurial spirit. In our network alone over 11,000 jobs were created from the startups that completed one of our accelerator programs. As for sustainability of these companies, most remain in business or are acquired – a staggering 80%.

The results coming out of accelerators have caught the eye of other industries – governments, universities, and corporations are increasingly choosing to fund accelerators. Just last year almost half of the accelerators in our network were funded at least partly by government, university or economic development agencies, and we are expecting to see that number grow for 2015.

Accelerators have also caught the attention of investors because the startups coming out of these programs are already more accredited simply by being accepted into the program and completing the program. We’re seeing 66% of our companies being funded by local investors, both VCs and angel investors.

Community leaders and drivers of entrepreneurship should partner with local and state governments – as well as corporate partners, investors, mentors, universities, and other community stakeholders – to promote entrepreneurship and job creation. As we’ve seen in communities around the world, it flat out works.