This guest post is the sixth in a series by Kauffman Foundation grantees and other partners sharing insights on entrepreneurship diversity and inclusion. These timely topics will be discussed at this year’s Mayors Conference on Entrepreneurship, Dec. 1-2, in St. Petersburg, Florida.
The United States has a startup problem—one that encompasses the number of new firms being born, where those births take place and the demographics of who gets to participate in the startup economy.
First, the numbers. Recently released data from the Census Bureau show that startups remain hovering near all-time lows when it comes to their share of both the U.S. business community and total employment. And, the total number of new firms launched each year has fallen as well—even as the economy grows larger and larger. Only 404,000 new firms were created in 2014, compared to an annual average of 498,000 from 1977 to 2008. To put that into perspective, in 1977 the U.S. economy generated 95 startups per $1 billion of GDP. By 2014, that ratio had fallen to only 25 startups.
Number of Startups vs. Startups per $1 billion of Real GDP
Source: EIG analysis of U.S Census Bureau, Business Dynamics Statistics data
Not only is the rate of new business formation in decline, but the geography of entrepreneurship is contracting too. EIG’s research on the past three economic recoveries found the number of counties generating half of the country’s new business establishments fell from 125 in the 1990s to only 20 in the 2010s. Half of the country’s metro areas saw the number of new firm starts fall from 2013 to 2014, according to the latest Census data.
Number of Counties Accounting for Half of the Recovery-era Establishment Growth
Source: EIG analysis of U.S Census Bureau, County Business Patterns data
The United States not only needs more new businesses in more regions, but it also needs to expand access to entrepreneurship as a career path. According to the Census Bureau’s newly-released Annual Survey of Entrepreneurs, African Americans owned only 2 percent of the nation’s companies with employees in 2014, and women owned only 20 percent. Women and minority entrepreneurs have historically received less than 10 percent of the country’s venture capital. For every nine men that raise equity financing to start and scale their business, only one woman does.
Why do these trends matter? Because a less entrepreneurial economy is one with fewer opportunities to achieve the American Dream. EIG’s Distressed Communities Index found that business openings, job growth and economic well-being are intertwined down to the zip code level.
Mayors must be at the vanguard of making U.S. entrepreneurship more demographically and geographically inclusive. The playbook to get started is clear:
- Have a strategy. In the face of national headwinds, every mayor should have a startup strategy—one designed to strengthen the local ecosystem and place entrepreneurship at the center of a city’s economic development agenda. Mayors should support incubator, accelerator, mentorship and apprenticeship programs that aim to expand entrepreneurship’s reach. Programs like Venture for America show how to harness entrepreneurship toward multiple reinforcing ends: fostering economic growth, expanding access to opportunity and revitalizing urban neighborhoods.
- Advocate. Mayors can be powerful advocates for their startup communities’ needs at the state and federal level, particularly when it comes to pushing for incentives and regulatory policies that enhance the local entrepreneurial landscape. One such idea is the Investing in Opportunity Act, bipartisan federal legislation aimed at unlocking access to capital in communities starved for new enterprise. Mayors may not have a vote in Congress, but their voices matter to those who do.
- Make it easier to start a business. State and local rules often present just as big a hindrance to would-be entrepreneurs as federal ones. One prime example is the growing morass of occupational licensing rules, which can unnecessarily prevent individuals in relatively low-wage sectors from establishing their own independent businesses.
In tackling America’s startup problem, mayors should emulate entrepreneurs themselves: be bold, move quickly and embrace new ideas. The good news is, from Cincinnati to Nashville to Salt Lake City, a new generation of mayors is leading a wave of creative approaches to fostering local entrepreneurship and building the next generation of new industries. As mayors work together to build a new playbook, their efforts will help ensure a more vibrant and inclusive future for U.S. entrepreneurship.
John Lettieri is the co-founder and senior director for policy and strategy at the Economic Innovation Group, where he leads EIG’s policy development, economic research, and legislative affairs efforts.