By Ray Leach
As CEO of JumpStart Inc., a non-profit organization founded to address the lack of entrepreneurial growth in Northeast Ohio, I am sometimes called upon to address the 30-year trend of shrinking entrepreneurship in the U.S.
These numbers are frustrating to many because, from a technological perspective, it should be easier than ever to start a business. Tech costs are falling while access is rising; IT assistance is plentiful, affordable and e-commerce continues to make it easier to compete in almost every dimension.
Some blame the numbers on our most recent recession, though others are quick to point out that no single downturn–even the largest since the Great Depression–can be held solely responsible for a three-decade trend of entrepreneurial decline.
Ask an economist about the problem and they might cite increasing government regulations, particularly the ones that wrap young startups in miles of red tape before they can even open their doors. This, they theorize, has stalled any economic boost we might be getting from such low technological barriers to entrepreneurship.
They all have a point to some extent, but the real problem is more systemic.
Creating Better Entrepreneurial Ecosystems
Our 20th century investment and economic development models were set up to serve existing businesses in traditional industries. With a few notable exceptions, these old models have proven largely ineffective at developing the kinds of strong entrepreneurial ecosystems that new ventures need to thrive.
Entrepreneurs and the startup ventures they create do not exist in a vacuum. They are part of a complex community-based network, or ecosystem, and they will not thrive unless those ecosystems are strong.
Entrepreneurs who create great new firms, the experts and investors that support them, the talented people who come to work for startups and the educational institutions that inject new talent and ideas — all of these actors are interconnected. In every neighborhood, city or state, they rely on each other in order to advance the success of the collective group.
In struggling regions, many of these actors have not adapted to the changing world. As a result, their ecosystems are failing to thrive.
Many individuals over 40 who are working in the U.S. today are not interested in being an entrepreneur or even working for a startup. Some refuse to accept that the economy of the past is not coming back. Others see the writing on the wall, but have grown so used to traditional business culture they are unable to successfully adopt a startup mindset.
Those who are able to gather the courage and the knowledge to enter the sometimes lonely and challenging world of entrepreneurship are often in for a bumpy ride when they find that their community, including local investors and many economic development organizations, is focused mostly on ways to help businesses in traditional industries, not risky startups.
Many of these ventures do not lack for intelligence or ambition, but without support many wither on the vine. Worse, their failure acts as a deterrent to other would-be entrepreneurs, further skewing the numbers.
Changing this pattern requires courage on the part of entrepreneurs, but it also involves an overhaul of outmoded economic development efforts that do not work in a modern economy.
In regions where this truth has sunk in, things are already improving.
While some struggling regions remain focused on “smokestack chasing”–the counterproductive practice of trying to lure large companies to their region with large financial incentives — more successful communities are pursuing a very different strategy, one that involves moving aggressively to encourage and support a sea of untapped entrepreneurship within their own community.
These homegrown ventures display an organic loyalty to their hometown because the people who started the business already live in the community. These are also the kinds of businesses that will drive almost all future employee and revenue growth in the U.S.
Many of these communities are building mentoring programs to connect experienced business leaders to these emerging local entrepreneurs, helping them build confidence and valuable business insight.
Of course, these young ventures also need funding, which can be a real challenge in today’s risk averse local cultures. To make up for the absence of robust private sector investment, some communities are leveraging crowdfunding or even setting up their own “pre-seed” investment funds. These efforts can help local entrepreneurs raise enough capital to open their doors and stay alive long enough to attract large-scale private investment.
None of these strategies alone guarantee success, but they are slowly beginning to bear fruit. We can’t overcome three decades of falling entrepreneurship overnight, but we can focus on making it easier to start and grow a small business today than it was yesterday.
It might not change the past, but it’s the key to building our future.
Ray Leach is CEO of JumpStart, a Cleveland-based nonprofit boosting entrepreneurship in Northeast Ohio.