Tag: Startups

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Many of us are familiar with some of the great things Mitch Daniels is doing as president of Purdue University including not raising tuition for a decade ( Press Release from Purdue ) or standing up for free speech on campus ( Mitch Daniels on Free Speech on Campus ) but many are not aware that […]

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Prof. Ed Roberts of MIT Sloan – Startup Prof Listen here: https://www.angelinvestboston.com/ed-roberts-mit-startup-prof Ed Roberts started the scholarly study of startups. Learn from this brilliant academic pioneer and seasoned investor in Sohu.com and HubSpot about the keys to success in founding a tech company. Along the way you will be entertained and charmed by his most engaging […]

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  Thrift is an under-appreciated virtue in the world of startups. The founders of Wistia exemplified this virtue in the the way they built their video streaming startup. They rented a dilapidated house where they lived and ran their business for the first few years. They eschewed venture money and mostly bootstrapped their profitable growth […]

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High-Impact Startups: America’s Herd of Gazelles Seems to Be Thinning

 

You may have seen some version of this ominous looking chart. America — the original Startup Nation — seems to be in the midst of an entrepreneurial crisis. Since the late 1970s, startups as a share of all firms have fallen by more than half. But not all startups are created equal. For instance, some economists differentiate between “lifestyle” startups — family restaurants, local dry cleaners, mom-and-pop antique stores — and high-impact “transformational” startups — the kind you find in Silicon Valley. Economists also refer to startups generating high job growth as “gazelles.” In the analysis “Disappearing gazelles: New evidence from administrative data,” researchers Benjamin Pugsley, Petr Sedlácek, and Vincent Sterk write the following:

We estimate that gazelles make up only about 5% of the startup population. However, despite their modest share among new firms, gazelles are key drivers of aggregate job creation and output. … Gazelles disproportionately contribute to aggregate employment not just because they grow faster, but also because they survive longer. By age five, gazelles account for about 35% of aggregate employment within their age group. The disproportionate growth contributions of gazelles to aggregate employment extends to aggregate output and productivity. Overall, these results indicate that the birth of high-potential startups is key to macroeconomic performance.

Is the Golden Age of Startups Over?

 

The early part of the 2000s will be remembered for at least two economic events, one terrible, the other pretty great: the Global Financial Crisis and the Age of the Unicorns. We are almost a decade past the first one. And the second one? Well, we may be at its end, at least according to TechCrunch columnist Jon Evans:

The web boom of ~1997-2006 brought us Amazon, Facebook, Google, Salesforce, Airbnb, etc., because the internet was the new new thing, and a handful of kids in garages and dorm rooms could build a web site, raise a few million dollars, and scale to serve the whole world. The smartphone boom of ~2007-2016 brought us Uber, Lyft, Snap, WhatsApp, Instagram, Twitter, etc., because the same was true of smartphone apps.

Because we’ve all lived through back-to-back massive worldwide hardware revolutions — the growth of the internet, and the adoption of smartphones — we erroneously assume another one is around the corner, and once again, a few kids in a garage can write a little software to take advantage of it.

From Startups to Jobs, America’s Lopsided Economic Recovery

 

twenty20_0c8ba4f6-db4c-4006-b0f8-ec1a4aa7dc73_startups_office_work-e1464018155556A new report from the Economic Innovation Group, “The New Map of Economic Growth and Recovery,” examines America’s startup scarcity in the 2010s. As the report explains, “New businesses play a disproportionate role in commercializing innovations, stoking competition, and driving productivity growth. They also create the bulk of the nation’s net new jobs and provide the extra demand that is critical to achieving wage-boosting full employment.”

And the numbers are distressing. Looking at other recent recoveries, the EIG report notes the 1990s saw a net increase of nearly 421,000 business establishments, and 405,000 in the 2000s. By contrast, over the first five years of the 2010s recovery, the number of business establishments increased by only 166,500.

That’s means we’re missing more than 300,000 startups and presumably all the good stuff that would have come with them. So less growth, less dynamism, less opportunity. Policymakers need to think hard about creating a better ecology for both startups overall and the ability of entrepreneurial/transformational startups — ones with the aim of getting really big —  to scale.

Where Are the Startups? Maybe the GOP 2016ers Should Start Talking About this Chart

 

Perhaps the next Republican debate will finally have a lengthy, serious debate on economic policy. Really hasn’t happened yet as far as I am concerned. Let’s see the Final Five — Trump, Kasich, Cruz, Bush, Rubio — compare and contrast tax plans, higher-ed reform, fixing Medicare and Social Security, and how immigration can be made to better serve economic growth and worker incomes. I would also love to ask them all about flattish productivity growth since the Great Recession. Amazingly — given that —  there has been little or no talk about this apparent problem, via a handy NBER summary:

The number of start-up firms in the United States has been declining in recent decades. Prior to 2000, the employment effects of this decline were partly offset by the presence of a small number of high-growth young companies. That pattern seems to have changed.skewiness_growth_02112016
In Where Has All the Skewness Gone? The Decline in High-Growth (Young) Firms in the U.S.Ryan A. DeckerJohn HaltiwangerRon S. Jarmin, and Javier Miranda show that the general decline in new firms has been accompanied, since around 2000, by a corresponding decline in the number of high-growth start-ups.

If Washington Isn’t Behind the Decline in US Startups, Then What Is?

 

021815startups

My (seemingly) never-ending mission to figure out what’s going on with the decline in American startup ventures — over the past three decades the annual entry rate of new firms fell approximately from 15% to 10% —  continues with research from George Mason University’s Nathan Goldschlag and Alex Tabarrok. They investigate whether federal regulations are to blame. Apparently not:

To investigate the extent to which the decline in entrepreneurship can be attributed to increasing regulation, we utilize a novel data source, RegData, which uses text analysis to measure the extent of regulation by industry. Our analysis suggests that Federal regulation is not a major cause of the decline in US business dynamism. … Contrary to expectation, there is a slight positive relationship; industries with greater regulatory stringency have higher startup rates. We find a similar relationship with job creation rates.