Legends and Losers has been talking about the Startup Crisis in America for a long time and the new June 2018 report from the Brookings Institute 'The State of Competition and Dynamism' is worthy of unpacking. Christopher had the chance to read the entire report and today shares some key pieces of that report.
They (Brookings Institute) paint a very very scary picture about the state of startups in the American ecosystem for entrepreneurship. - Christopher Lochhead
Three Things We Learned
Problems Facing the American Economy
Firms under the age of 10 made up just 19% of employment in 2015, down from 33% in 1987. The scary thing is, The Brookings Institute sees this as a long-term trend that the disappearance of startups is an ongoing trend and not primarily a cyclical phenomenon. The fall in startups since 2000 was particularly pronounced for high-tech firms.
Winner Takes All
As Christopher talks about in his book, Play Bigger, we are living in an economy where the category queen/king economics is playing out. The report says that markets are more concentrated and less competitive than they were a few decades ago. From 1997 to 2012, revenues of the top four firms in any given industry rose from 24 percent to an astonishing 33 percent of total industry revenues.
This data supports the idea that increased market concentration is making the environment for start-ups hostile. Potential entrepreneurs look at the marketplace and are faced with the question of 'how can I compete?'
Government subsidies are also deterring would be entrepreneurs. New businesses must compete with larger and established business that are receiving said incentives. Our government is creating an environment that is attractive and beneficial for big incumbents and hostile for start-ups.
Access to Capital
Small entrepreneurs rely upon their savings, friends, family and banks which are currently not lending to start-ups - at almost record levels! Many also rely upon their home equity as a source of capital. The Brookings report states that, "Places with larger collapses in housing prices experienced larger reductions in high-propensity business applications, suggesting that home equity is an important source of capital.