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Nation’s entrepreneurial engine needs a kick-start

WASHINGTON – By many accounts, the American economy is rebounding. Hiring is accelerating, wages are rising and the labor force is growing. Confidence among business leaders is up, too.

The city-run Epicenter in Downtown is part of an innovation district being created by UNM and the city of Albuquerque. (Jim Thompson/Albuquerque Journal)

The city-run Epicenter in Downtown is part of an innovation district being created by UNM and the city of Albuquerque. (Jim Thompson/Albuquerque Journal)

In one area, though, the economy seems to be in serious trouble: entrepreneurship.

“It all feels pretty good,” Mark Zandi, chief economist at Moody’s Analytics, said during a forum on entrepreneurship this past week in Washington. “But I think there are things to be worried about, and the state of entrepreneurship is one of those things.”

New research shows that the country’s rate of business creation, which peaked about a decade ago, fell 31 percent during the recession and has been slow to bounce back. That’s despite the fact that the share of the U.S. population between ages 25 and 55 – usually the prime years for starting a business – has expanded, according to new data released by the Kauffman Foundation, a research and advocacy group, at its recent annual State of Entrepreneurship symposium.

The Kauffman Foundation is one of several organizations that have taken an interest in Albuquerque’s efforts to build its entrepreneurial economy. A host of programs and collaboration among local government, business and public institutions are providing incentives, mentorship and assistance for aspiring entrepreneurs and innovators.

That includes building an innovation district Downtown in a partnership led by the University of New Mexico and the city of Albuquerque, plus a range of grass-roots programs, such as the weekly 1 Million Cups gathering of entrepreneurs and innovators to share ideas and provide mutual assistance; Startup Weekends that help people take the first step to form new businesses; “pitch events” where aspiring entrepreneurs present their ideas for feedback and networking; and a new city-run Epicenter Downtown to offer a gathering place for business-minded people with support services and skill-building workshops.

In addition to Kauffman, Living Cities, the Kellogg foundation and Village Capital have expressed interest in Albuquerque’s efforts and together may contribute as much as $20 million in support funds.

“Everything we’re doing is aimed at creating an environment that inspires the right culture, one where the community knows it can create its own jobs through collaboration, communication and connectivity,” Gary Oppedahl, director of the city’s Economic Development Department, said at the recent opening of the Epicenter.

But, nationally, jobs creation from new businesses is not as robust as it has been in the past. Zandi noted that firms less than a year old contributed 5.2 million jobs in the year ended June 2014, down from the usual 6 million they generated in the years leading up to the recession and well off the pace of the more than 7 million jobs a year they created in the 1990s.

“We’re getting less bang from our fast-growing companies,” Wendy Guillies, Kauffman’s acting president, told attendees. “I know the headlines look good but, when you dig a little deeper, something’s not quite right.”

As the rate of business formation slowed, the pace of business closures started to rise in 2005 and spiked in 2008, according to data from the Brookings Institution. As a result, business deaths now outpace business births for the first time since researchers started collecting the data in the late 1970s.

The result is that long-established companies represent an increasingly large share of U.S. firms, with those that have been in business for more than five years now accounting for more than two-thirds of companies. Meanwhile, the proportion of companies of every age from one to five years old has shrunk over the past 35 years.

One of the major problems there is that research has shown young businesses account for nearly all net new jobs (job gains minus job losses) created annually in the United States. Older businesses, by comparison, tend to shed almost as many workers as they add.

The Obama administration has taken note of the slump; two federal agencies recently announced new initiatives intended to support early-stage companies and kick-start the nation’s entrepreneurship engine.

Commerce Secretary Penny Pritzker unveiled a pilot program designed to teach entrepreneurs the ins and outs of exporting. The program will send agency officials out to business incubators to help new companies navigate various trade challenges, ranging from customs rules to currency issues to patent protections. The department will offer the training starting at the 1776 incubator in Washington, as well as three other incubators in Arlington, Texas, Nashville, Tenn., and Cincinnati.

“As many entrepreneurs will tell you today, you have to be born global,” Pritzker said in an interview. “Our plan is to help train these early-stage companies on how to export.”

Information from Journal staff was included in this report.

 

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