The percentage of people under age 30 who own their own private business has reached a 24-year low: About 3.6% of households headed by adults younger than 30 owned stakes in private companies (Wall Street Journal, January 3-4, 2015). That is WAY down from 10.6% in 1989, and 6.1% in 2010. In 2013, the proportion of young adults who start a business each month dropped to its lowest level in at least 17 years (Ewing Marion Kauffman Foundation). The U.S. “startup rate”–new firms as a percentage of all firms–fell by almost half between 1978 and 2011 (Brookings Institution).
What about all those news stories about young 20-somethings who just became multi-millionaires in the latest IPO? It turns out they are pretty rare exceptions. For a country to have a vibrant, innovative economy, you need lots more innovation, not just of the famous tech millionaire variety.
No one’s really sure why. It’s some combination of:
- Difficulty raising money (no access to capital or credit)
- Fear of failing leading young adults to be risk-averse
- They haven’t acquired the skills and experience needed to start a successful business
- In the U.S., we’re seeing an unusually strong job market, and high salaries, in established technology companies. So why take the risk, when you’ve got several strong job offers at successful companies, with good pay and benefits?
This is a big problem for the U.S., because as Harvard’s John Davis says,
We need startups not only for employment, but also for ideas. It’s part of the vitality of this country to have people starting new businesses and trying new things.
Amen! The Wall Street Journal article doesn’t suggest solutions. I have a few:
- Increase entrepreneurship education in high school and in college
- Reduce the costs of failure (free health care for everyone is a good start, something conservatives should support to foster new venture creation; also various forms of tax breaks and credits)
- Increase availability of capital (perhaps with VC and accelerator funds)
- Provide more opportunities for mentoring and entrepreneurship education, in accelerator and incubator spaces
What do you think we should do to foster more entrepreneurship in our young adults?
The Creativity Guru 
Along with free healthcare, some sort of relief from student loans for new business owners would help the “availability of funds” part.
I am about to blog a review of the current issue of FOREIGN AFFAIRS which is the “special entrepreneurship issue.” Robert Litan’s article cites some of the same data sources mentioned in the WSJ article and makes similar points. Look for my next post by the end of this week!
This is really interesting. Thanks.
It might be that established companies are getting better at creating environments that young people want to work in. This would naturally reinforce itself as more young people join.
When I set up a business at at 22, part of the motivation was cultural. There wasn’t anywhere else I really wanted to work. Now the culture we wanted to create is a lot more common.
I’ve noticed that people often make big decisions for quite day-to-day prosaic reasons.