There is no doubt that there has been a decrease in the number of start-ups being created in the US in recent years. In 2006, 558,000 businesses were created; this number had dropped to 414,000 by 2015. Part of the reason for the slump can probably be attributed to the global financial downturn which began in 2007; but it does not seem as though this is the full story.
If it was then it would seem that there should have been more of a recovery as the financial crisis eased. Instead, it seems as though there is an ongoing decrease in the number of people investing in their ideas and using start-up services to create new businesses.
What are the reasons for the slump?
There is no doubt that it has become a lot harder to gain access to equity since the global financial crisis. This could obviously be a major disadvantage for budding entrepreneurs. There has also been a rise in regulatory restrictions in the US. These sort of regulations can prove difficult for a start-up which has to invest in manpower to deal with compliance. The tightening of regulations seems set to ease under the Trump regime; it will be interesting to see what effect this has. Aside from these obvious issues, one other potential contributing factor has been identified by some experts; the effect of big business.
Why is big business such a hindrance to start-ups?
The fact is that big businesses have market power in the US. They are dominating across several industries. Those start-ups that have achieved major success, such as Instagram, have sold out to industry giants, and many lower profile start-ups seem to have followed suit. This is a situation that could be increasingly dangerous for the US economy if it continues.
Why is the decrease in startups so important to the economy?
It’s not just the decline in business start-ups that is the issue. This has happened before, with the decline of independent retailers on the high street, back in the 1980s and 1990s. It’s the fact that this slump has occurred in areas such as the tech industry that is cause of the most concern. Start-ups in these industries are known for their innovation. Without this innovation, industry begins to suffer. Existing businesses do not have to improve to compete with new arrivals and innovations so their productivity levels remain stagnant. This in turn has an adverse effect on the overall economy of the country.
It could be that there is no simple solution to the reduction in the number of start-ups. It does seem as though the market power of big business is an issue, although there is no concrete evidence to support this theory. The one thing that does seem certain is that a continued slump in start-ups will likely continue to have a detrimental effect on productivity levels and the economy.