That looming entrepreneurship boom (that’s already booming)

Posted on | July 10, 2009 | 1 Comment

One of the biggest problems I have when reading other people’s work on startups and small businesses is that dratted word entrepreneur.

Sometimes, writers and researchers use the word to refer to anybody who sticks their neck out and starts a business. It can be a nonemployer or a microbusiness or a larger small business, that doesn’t matter. For folks like that, everybody who is self-employed is an entrepreneur.

On the other hand, there are the folks who only want to use the word to refer to folks who take the traditional start a firm, grow in fast, sell it for a tidy profit of a few million or so, rinse, lather, repeat. They generally pay no attention to anybody except the 4% of U.S. firms that take the fast growth gazelle route.

Everybody else is chopped liver.

Now, most of the time, the folks from the Kauffman Foundation fall under that second category. A lot of years ago, when I was originally connecting with them, we mutually noted that we might see some overlap but most of the time their interests did not coincide with mine.

Except when it does.

So, it has taken me until to take a look at Kauffman’s recently released study, The Coming Entrepreneurship Boom (PDF), because I thought it concerned itself with the second perspective rather than the first. And that’ll teach me to jump to conclusions about my buds at Kauffman.

As you can probably guess from the title, the study’s author, Dane Stangler, predicts that the U.S. will emerge from the current recession quite strongly because it may be “on the cusp of an entrepreneurship boom — not in spite of an aging population but because of it.”

Turns out that, in spite of the sexy image of the swashbuckling 20-something daredevil risk-taker launching one fast-growth gazelle after another, most of the new business formation that has happened between 1996 and 2007 was brought to us at the hands of the 55-64 year old crowd.

Or, to put it more accurately, the 55-64 cohort had a higher rate of entrepreneurial activity than the 20-34 cohort — one that was, in fact, roughly a third higher. That trend is exacerbated by the fact that long term employment, such as our grandfathers knew (”40 years, a watch and a pension”), is very much a thing of the past.

[Note: Immodest as it may be, I can't help pointing out that I wrote pretty much the same thing -- and more -- about the entrepreneurial trends I was seeing back in 2004, in The Entrepreneurial Economy.]

The paper notes that these demographic trends and business formation rates are not a new way of being but merely a one-time occurrence. I’m not sure if I agree with that, though. And, on a certain level, I’m not sure that it matters.

As Strangler puts it in the conclusion of this report, “We will see increasing numbers of new, smaller firms as they compete and cooperate; challenge incumbents; and, perhaps, rise and fall at faster rates.”

Regardless of who they are or how old they are, a lot of Americans are going to be starting new firms in the years to come. Most of those new firms will be nonemployer businesses; they will be viewed by most as independent contractors, lone economic actors that contribute little to GDP individually but can be a huge force collectively.

And, of course, the question that nobody at all answers is this: what will be the impact of all this entrepreneurial activity on the economy as a whole?

Most of this is not going to be gazelle-style stuff; most of it will be microbusinesses, growing just enough to support its owners and employees. All things considered, there might be something to be said for slow (if not sluggish) growth. Small and sustainable are ‘in’ and eventually public policy will have to catch up.

I guess now might be a good time to place bets about how long it’ll take our nation’s leaders to figure all this out.

Something to ponder over the weekend. Happy Friday, folks!

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