If you really think about, one of the most tangible selling points of America — one that you’ll hear bantered about quite often — is the idea of “entrepreneurial spirit.” This ties back to the American Dream; it’s the concept that, because of freedom (the central American tenet), people can go and do whatever they want, so long as they have some kind of plan + work ethic around it. This has been a factor in the rise of many major innovation centers, from Detroit (back when) to Silicon Valley (today). Now, though, there’s a new Brookings Institution study indicating that entrepreneurship has reached a three-decade low. Ruh roh.
There’s no cause-and-effect relationships in the study mentioned, so people can fill that in themselves (dangerous). There are a couple of different charts to consider — aren’t there always? — but one semi-troubling one is this one:
Essentially, “firm exit” is now out-pacing “firm entry.” That essentially hadn’t happened since the late 1970s (the data set contained therein). Even if you think some of these results are skewed (and they may be), it’s hard to argue with this basic logic set: if more firms are exiting than entering, it’s probable that a smaller number of companies are being controlled by entrepreneurs.
A lot of this comes back to the idea of shying away from risk: the economy is better than in 2008, but it isn’t great. Jobs are hard to come by and the process of recruiting / hiring / developing is a bit off. Less people — not “nobody,” but certainly less — want to go all-in with their own money (often) or money from their family (also often) on a venture that, inherently, has a lot of risk.
There’s an interesting side corollary here, though: the idea that to truly be successful, an entrepreneur needs to embrace bureaucracy early on (i.e. Human Resources and other support services), which seems like the Antichrist to some entrepreneurs. Cue The New York Times:
The Stanford Project on Emerging Companies, a longitudinal study of 200 Silicon Valley start-ups during the first dot-com boom, found that tech entrepreneurs gave little thought to human resources. Nearly half of the companies left it up to employees to shape the culture and perform traditional human resource tasks. Only 6.6 percent had the type of formal personnel management seen at typical companies.
Bureaucratic H.R. is “loathed” by engineers because it adds costs and slows decision-making, the leaders of the study, James N. Baron and Michael T. Hannan, wrote in a paper in California Management Review.
Yet a human resource department is essential. The two found that companies with bureaucratic personnel departments were nearly 40 percent less likely to fail than the norm, and nearly 40 percent more likely to go public — data that would strike many Silicon Valley entrepreneurs as heresy.
“In the new economy, as in the old one, it turns out that organization building is not a secondary diversion from the ‘real’ work of launching a high-tech start-up,” they wrote. “It might well prove to be the main event.”
This is very interesting, because there are elements of Human Resources (and other support functions) that can be a train wreck, although I’d argue that a lot of that is rooted in historical context and not actualized fact. What I mean there is that oftentimes, people running a company in 2014 are in their 50s/60s — which means they came up working in an era when HR was “personnel” or “admin” or an abutment to the secretarial pool. There is still a big culture around HR as an office cop — they do reports on you and hire/fire you — but it can be made into a more proactive force in an office if you allow the people there to focus on (a) talent strategy (and really focus on it, not just do phone screens), (b) org development (culture of meetings, “fun” activities), (c) trainings (which are basically what separates a good company from a great one), and (d) data. Everyone loves Big Data, even though no one really knows what it is. HR already has the data on employees — from hire date to different reviews, etc. — so they should be a center of using that data for good (i.e. to move the company forward) as opposed to for stagnation (i.e. holding the data) or reversal (i.e. using the data to justify terminations and pay cuts).
That above paragraph is all an aside about how you can make HR seem less bureaucratic and more proactive, but these different studies, when taken together, have a lot of potential repercussions for the American economy. There’s long been a disconnect between how cities plan to attract entrepreneurs and what they actually want, but if their numbers truly are dropping, perhaps that matters less. We’re entering into an interesting time in the American workforce: as the Baby Boomers age out, we’re going to lose millions of jobs, and we may not have the people to replace them. If basic functions like the price of milk and meat and gas continue to rise (they logically will), people will feel pinched and the entrepreneurial spirit will continue to be in (general, not specific) decline. That means millennials will end up entering larger, more-established companies for work — which leads to interesting ideas about the potential demise of hierarchy (or not) — or will end up flooding “the leisure economy” (and probably making not a ton of money). In short, a worst-case scenario for the decline of entrepreneurship is (a) an even more shrinking middle class and (b) probably less cool beer bars being opened by disaffected hipsters.
It’s very easy to look at some of the above data/studies and say “Oh, that’s not right” or “Oh, America shall rise again, just like always!” Indeed, those things are probably true. But even if you think the idea of declining entrepreneurship is bollox — and maybe it is — it would be very hard to argue with the idea that the workforce is about to drastically shift (both in content and context) and the best companies will be the ones that are legitimately ready for that.