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Report: Start-up Creation on the Decline

According to a new report from the Kauffman Foundation, as the economy improves fewer entrepreneurs are launching their own businesses.
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Entrepreneurs have always been a bit of a rare breed--but a new report suggests they might be getting even more rare.

According to the Kauffman Foundation's annual index of entrepreneurial activity, released Wednesday, business creation is on the decline. After analyzing a trove of data from the Bureau of Labor Statistics, the Kauffman Foundation found that fewer people started their own businesses in 2012 than in previous years since the recession. In 2012, 514,000 new business owners launched companies compared to 543,000 the year before.

This may be due, in part, to a steadily improving economy says Jared Konczal, a senior analyst for the Kauffman Foundation.

Konczal explains that an improved economy means lower unemployement rates and potentially better prospects for job seekers. The decrease in start-up activity in the report may indicate that fewer people are turning to self-employment as an alternative to unemployment as the economy improves. "Fewer people are being forced into entrepreneurship out of necessity," he says.

And that might not be as bad as it sounds. This thinning of the entrepreneurial ranks might create some breathing room for existing start-ups, for example.

"During the Great Recession when the labor market was at its weakest, business creation rates rose to record highs. The 2012 rates are a return to longer-term levels,” said Dane Stangler, director of research at the Kauffman Foundation, in a press release.

Konczal also notes that job seekers' improved prospects may be due, in part, to the success of recession-born start-ups that are now successful--and hiring.

"With the entire economy picking up, those people are now creating jobs," he says.

Despite a dwindling number of new entrepreneurs, at least one sub-group appears to be holding steady: Female entrepreneurs have maintained their foothold in the start-up ecosystem, even as other minority groups are launching businesses less frequently. 

So are the future Sheryl Sandbergs of the world finally "leaning in"?

That's one possibility, says Konczal. But there is another, darker, theory: Even as the economy improves, female workers may be having a harder time finding jobs than their male counterparts, he says.

Last updated: Apr 17, 2013

FRANCESCA FENZI | Staff Writer

Francesca Fenzi reports on entrepreneurship, technology and small business news from San Francisco. Her work has previously appeared in TIME, USA Today, Pop City and The Northside Chronicle.




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