Recent research by the Ewing Marion Kauffman Foundation suggests the number of new startups grew slightly from 2014 through 2016 after hitting an all-time low in 2013 (Fairlie, Morelix, & Tareque, 2017). An upswing in activity looks promising, but the data also suggest greater challenges may lie ahead considering America’s demographic and cultural shifts. Immigrants, for example, are almost twice as likely to become entrepreneurs as those born in America, yet it appears the failure rate may be similar to native-born (Fairlie, Morelix, & Tareque). These failures might suggest the absence of a clear business plan, insufficient knowledge of basic business operations, the lack of education and training in support of entrepreneurship, or a combination of all of these factors might be preventing ongoing sustainable businesses. The small number of established businesses started by Asian, African American, and Hispanic entrepreneurs, the declines in startup activity among those under 34 and limited startup activity by women are just a few of the challenges to America’s economic growth in the coming years. It is time to think differently about entrepreneurship.
America is becoming increasingly multi-ethnic and multi-cultural. Demographers suggest the country’s racial and ethnic makeup will shift the thinking and direction of our society (Taylor, 2014). Today there seems to be an older, more conservative, more religious cohort struggling to maintain the status quo at odds with a somewhat younger, more liberal and more secular group where diversity is paramount (Taylor, 2016). Arguably this ideological and cultural divide that influences our country’s politics also transforms all aspects of our society. These ideological differences seem to make many less tolerant and, perhaps encourages others to cocoon or cluster around those most like themselves.
The cocooning and clustering of Americans appears to create a level of unintended segregation that has more to do with cultural fit than it does with skin color (Cowen, 2017). In a society that, for the most part, endeavors to be more diverse, there is an increasing “cultural segregation.” This unintended segregation, then, inadvertently creates a lack of diversity among our peer groups and affects how some think about the world, including where to live, what to do, and how to consume products and services. When surrounded with those who believe and act similarly, the result can be a staleness in thought and ideas.
This cultural segregation also limits entrepreneurial opportunity and ultimately impacts the American economy because the lack of diversity in our peer groups may well reduce exposure to those who pursue an entrepreneurial life. Unfortunately, reduced exposure to entrepreneurship typically begets reduced entrepreneurial activity (Cowen). Given the rate of startups today, it seems fewer people are exposed to entrepreneurial activity and sustainable small businesses than those who in the 1980s. There may not be a sufficient number of successful role models for young adults, women, Asian, Hispanic, and African Americans on which to model startup activity and long-term sustainable small businesses.
The 2017 Kauffman Index of Startup Activity indicated that startup activity in 2016 merely returned to 2006 activity levels. The rate of new entrepreneurs—those non-business owner adults starting a new business—has declined slightly from 2015 (Fairlie, Morelix, & Tareque, 2017). Moreover, the gain in entrepreneur activity seems to equate to single-employee companies (i.e., a “job” for the entrepreneur), and not to the job creation activity necessary for overall economic growth and stability. While the data is not presented in a cross-tabulation to allow for further analysis, it appears the greatest number of new startups in 2016 may be native-born white men, age 45+, with college educations (Fairlie, Morelix, & Tareque). The Index reports increased entrepreneurial activity among the Asian and Hispanic populations and to a smaller degree African Americans. Although this entrepreneurial growth may be keeping pace with the America’s changing demographics, it is important to remember that higher rates of startup do not necessarily translate into ongoing mature businesses (Kelley, et al., 2016). A good many startups fail. While there seems to be slight growth in startup activity in the last year, this should not suggest that increased entrepreneurial activity will necessarily translate to long-term economic growth related to such activity.
It is important to keep in mind that a modest increase in startup activity does not always translate into sustainable business ventures that provide jobs and opportunities within their communities. The lack of sustainability creates challenges to entrepreneurial activity across the board. For example, the lower number of startups among women and those under 34 might suggest a lack of opportunity and training, rather than a lack of interest (Kelley, et al., 2016). The lack of established businesses, particularly among Asian, Hispanic, and African Americans might suggest the need for training and support in ongoing business operations. For example, training might include courses on how do to identify a market opportunity, fundamentals of business operations and management, how to price products and services, how do develop a market, and much more. Support might come in the way of hands-on mentors who are interested helping the entrepreneur achieve success or perhaps more start-up incubators designed specifically to educate, serve, and support those classes of entrepreneurs not well served at present.
It seems clear that targeted support and intervention is necessary to ensure the long-term viability of entrepreneurial ventures. The vicious cycle of creation and failure of startups suggests the entrepreneurial approach that American’s have deployed for more than two-hundred years may not be as efficient as it could be. This applies in particular to younger adults and women, where startup interest is lagging, and to Asian and Hispanic entrepreneurs where the sustainability seems underperforming when compared to the immigration rate.
It is essential to create a foundation for greater entrepreneurial successes as the country evolves culturally. This new foundation requires different thinking and approaches to encourage stronger startups and enable growth and sustainability for the nation’s small businesses. America’s long-term economic viability may depend, in part, on the long run growth and success of all of its entrepreneurs.
Cowen, T. (2017). The Complacent Class: The self-defeating quest for the American Dream. New York: St. Martin’s Press.
Fairlie, R., Morelix, A., & Tareque, I. (2017). 2017 Kauffman Index of Startup Activity. Kansas City: Ewing Marion Kauffman Foundation. Retrieved June 17, 2017, from http://www.kauffman.org/kauffman-index/reporting/~/media/c9831094536646528ab012dcbd1f83be.ashx
Kelley, D., Ali, A., Brush, C., Corbett, A., Daniels, C., Kim, P. H., . . . Rogoff, E. (2016). Global Entrepreneurship Monitor: 2015 United States Report. Babson College. Retrieved from http://www.gemconsortium.org/report/49562
Taylor, P. (2014). Next America: The New Us. Retrieved January 14, 2016, from pewresearch.org: http://www.pewresearch.org/next-america/#Immigration-Is-Driving-Our-Demographic-Makeover
Taylor, P. (2016, January 27). The demographic trends shaping American politics in 2016 and beyond. Retrieved June 17, 2017, from pewresearch.org: http://www.pewresearch.org/fact-tank/2016/01/27/the-demographic-trends-shaping-american-politics-in-2016-and-beyond/
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A recent article in the Harvard Business Revenue (HBR) has me thinking about the push and pull theories of entrepreneurship a little differently. The HBR article explores how entrepreneurs and innovators in Africa are breaking through long-standing barriers of corruption, flawed infrastructure, skills shortage, and a mistaken belief that the country’s middle class provides the most promising market segment to achieve successes where global corporations could not (Christensen, Ojomo, & Van Bever, 2017). The authors suggest that entrepreneur’s desires “push” a product or service, while “pull” responds to the specific needs of the market (Christensen, Ojomo, & Van Bever). The authors argue the push approach is what has prevented the global corporations from being successful in Africa, yet the pull approach is resulting in a good many smaller wins because of a more thorough understanding of the customer needs.
In a previous post, we discussed the decline in entrepreneurship in the United States over the last twenty-five years or so. Over that time, there have also been gradual changes in culture and society that affect how we engage and interact. Since 2001, we have seen a significant rise in multiculturalism and a decline, for the first time in history demographers report, of the dominant racial group and it appears that minorities are likely to be driving America’s economic and population growth into the next century (Morello & Mellnik, 2013). Yet, minorities face greater barriers to entrepreneurship, including lack of access to education, business networks, and capital (Bradley, 2016). One has to wonder if the decline in entrepreneurship in the United States has to do with these facts: changing demographics, shifting culture, and lack of access for minority entrepreneurs.
It seems clear that if a business is creating products or services that without a solid understanding of the marketplace and customer needs, and then attempting to force those goods and services into a market, it will not be as successful as it might be if it were to align with those needs. The pull approach takes it further, suggesting that products and services created to meet the current needs and struggles of particular segments—even micro-segments—of consumers can have a high degree of success, but not much breadth of the market (Christensen, Ojomo, & Van Bever, 2017). This approach would be true in any market, not just in Africa. In fact, I would argue this happens regularly throughout the world. Still, I wonder if something bigger is not at play as it relates to entrepreneurial activity in the United States. Does growing multiculturalism influence entrepreneurial growth?
With demographic and cultural changes happening so quickly, it may be that the established entrepreneurial networks are out-of-touch with market needs. Rather than focus on micro-segments, as is now being done in Africa, it could be that many new entrepreneurs in the United States target larger market opportunities. This might create a “push strategy” of a product or service that misaligns with current needs and struggles of minority market segments. That failure to find an audience often means the entrepreneurial venture dies. Increased business failures due in part to product/market misalignment and inadequate access to capital and business support networks by prospective minority entrepreneurs would seemingly dampen entrepreneurial growth.
Tom Peters argues companies that keep focused on the customer need, that is those that insist the customer remain at the center of the business, are those that enjoy the greatest success (Peters, 1994). The United States Census Bureau expects the minority population to grow to fifty-six percent (56%) of the total population by 2060 (Bradley, 2016). More than ever before it is critical for entrepreneurs to be emersed in their market and not just have a broad understanding of it given the extent and speed at which culture and society are changing. Prospective entrepreneurs—minority or not— as well as government and business networks, must begin to shift their focus and investment toward these rapidly growing, yet still underserved market opportunities. This shift is critical if we are to stem the declines in entrepreneurship in the United States.
Do you agree that a lack of understanding of minority marketplaces by the established entrepreneurial networks contributes, in part, to the slowdown in entrepreneurial activity in the United States?
Bradley, M. (2016, February 10). Investing in Minority Entrepreneurs: An Economic Imperative for the U.S. Retrieved February 21, 2017, from kauffman.org: http://www.kauffman.org/blogs/growthology/2016/02/investing-in-minority-entrepreneurs-an-economic-imperative-for-the-us
Christensen, C., Ojomo, E., & Van Bever, D. (2017, January - February). Africa's New Generation of Innovators. Harvard Business Review, 95(1), 128-136.
Morello, C., & Mellnik, T. (2013, June 13). White deaths outnumber births for the first time. Retrieved February 21, 2017, from washingtonpost.com: https://www.washingtonpost.com/local/white-deaths-outnumber-births-for-first-time/2013/06/13/3bb1017c-d388-11e2-a73e-826d299ff459_story.html?utm_term=.c59c5ad4a656
Peters, T. (1994). The Pursuit of Wow! Every Person's Guide to Topsy-Turvy Times (1st ed.). New York: Vintage Books.
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