If you were skydiving over Africa and accidentally descended into a pride of lions, your immediate impression would be that there must be a lot of lions around. It would be hard to reach any other conclusion, given that you would now be surrounded by lions.
However, there are actually few lions in the world, and their numbers continue to decrease every year.
Such is the case with startups and entrepreneurship.
The amount of content focused on new businesses gives the impression that there are more startups than ever, and entrepreneurship is alive and well—similar to a skydiver who lands in a pride of lions and reports that there are a lot of lions around.
It's not true.
There are fewer entrepreneurs—and lions—than there used to be.
Why is that?
In her new book, Makers and Takers: The Rise of Finance and the Fall of American Business, economic analyst and columnist Rana Foroohar argues that the reason new businesses make up a third of all businesses today, rather than half, as was the case in 1980, is due in large part to the increased "financialization" of the economy.
According to Foroohar, financialization, a term used to describe the explosion of the financial sector, is the root cause of some of our most difficult and persistent economic problems, included stagnating job growth, decreased innovation, and a struggle to compete with international firms that do not face the type of extreme pressure related to quarterly earnings that American companies do.
And financialization plays a large role in the decreased number of new businesses.
That the proportion of startups is decreasing is a statistical fact.
But Foroohar's conclusion—that there is far less funding available from banks and other financial institutions, who have chosen to keep their money within a financial system that exists as a primarily closed loop—is something that is scarcely mentioned when discussing why fewer people are starting businesses.
Two reasons that are frequently mentioned?
Taxes and the regulatory environment.
Depending on the industry, the regulatory burden can be heavy, and in many cases needs reformed. And I have heard plenty of entrepreneurs and business owners complain about regulations—even business owners that benefit from regulations complain about their regulatory burden. (I was once an executive at a trade association whose entire industry was created by specific federal and state regulations. That still did not stop those owners from complaining about the heavy hand of the government.)
However, while regulations are a burden, every single person that I have ever heard make some version of the following statement, “Regulations are keeping people from starting business” is either:
Someone who has never been an entrepreneur.
I’ve been fortunate to work with and around a lot of entrepreneurs in my career. That list includes farmers, manufacturing company owners, professional services CEOs, tech executives, and others. They are all different, but a trait they all share is that they don’t let obstacles get in the way. The entrepreneurs I’ve known didn’t even think of an obstacle as an obstacle until he or she was telling what amounted to their company’s origin story over a drink, years after the obstacle was conquered.
If you are the type of person who says, “I was going to start a business…but then I read the regulations, and decided it would be impossible”, you are not the type of person to start a business.
Why? Because there are far greater obstacles you’ll face well before you’ll ever worry about government regulations.
There’s insecurity. Fear. A dwindling or empty bank account. Loneliness (yes, entrepreneurship can be lonely). Pressure.
The same argument can be made for taxes.
Is it painful to pay taxes?
(It's also painful to drive on unpaved roads, and to train an uneducated workforce.)
But again, the only people I have ever heard make some version of the following statement, “Taxes are keeping people from starting a business” is either:
Someone who has never been an entrepreneur.
Taxes and regulations need reform and modernization—or in come instances eliminated altogether—but they are almost never what stops entrepreneurs from starting businesses. Or, they are at least a part of a story, a story that includes the financialization of our economy and the decreasing access to capital for small businesses.
So why don’t we talk more about that? Is it because financialization is too complex for people to understand, whereas taxes and regulations are easier concepts to grasp?
It’s because financialization is bi-partisan. The financial sector contributes in a big way to both political parties—in fact, almost $500 million more than the healthcare sector—and includes the banks that Hillary Clinton speaks to and the banks that have lent Donald Trump millions of dollars.
This election has seen a dialogue that makes discussing issues like the role of the financial sector impossible, or at least highly unlikely. However, if we don’t eventually discuss the way our financial sector is a closed loop, and one of the primary reasons why fewer people have the opportunity to create the type of financial security that results from successful entrepreneurship, our future political dialogue is not likely to be a whole lot better.
And that’s pretty scary.
Dustin McKissen is the founder of McKissen + Company, and was recently named one of LinkedIn's "Top Voices on Management and Corporate Culture". He is also the author of "The Brand New Entrepreneur" on Inc.com. You can find him on Twitter @DMcKissen, or reach him at firstname.lastname@example.org.
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