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Why the Decline in Entrepreneurship Won't Last Long

Recent studies show that fewer new businesses are forming these days. Here's one reason you should be optimistic that the trend will soon turn around.
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With startup mania continuing in full swing, you could be forgiven for thinking now is the golden age of the entrepreneur. But that's not at all what the numbers say. High-profile boy billionaires aside, fewer new businesses are being formed in America these days than in the past, according to several studies and reports.

Some have speculated that the decline of mom-and-pop shops as larger retailers grab a larger slice of the market is a major cause of the trend, but the research shows the dip in new business formation is too broad for that to be the major driver. So what's going on? And is there reason for optimism--will America start churning out new entrepreneurs at anything like its old rate again anytime soon?

Demographics to the Rescue

High-profile blogger and Vox editor Matthew Yglesias thinks we have reason to hope that American entrepreneurship will bounce back--we just might have to wait a few years. Citing research on the average age of successful entrepreneurs, Yglesias points out that, despite the popular image of youthful startup founders building companies out of their dorm rooms, the most likely age to find success starting a business is actually 40.

"That's in part because 'professional networks were important to the success of their current business for 73 percent of the entrepreneurs,' and it takes time to achieve that success. Mark Zuckerberg founded a great company when he was in college, but that kind of super-young founder is the exception not the rule," he writes, quoting the researchers behind the relevant study.

Put that research together with the current demographic realities of the U.S. population, and you just might have a solid explanation for the dip in entrepreneurship. "Back in the early 1990s, there were a lot of people in their late thirties and early forties," Yglesias points out. "Nowadays that cohort of people's prime founding years are behind them."

But don't despair, hope is on the horizon in the form of the huge cohort sometimes known as Gen Y or the Millennials. "The most common age in the United States right now is 22 and 23," he points out. This huge group of up-and-comers might have entrepreneurial ambitions in spades, but they still mostly lack the experience and contacts to make it as founder. But just give them a decade or two.

"Ten to 20 years from now we'll be in a moment when a lot of experienced workers are founding new businesses," soothes Yglesias. No need for panic then (but, hey, this is as good a time as any to sort out the immigration, regulatory, and tax issues that might also be impeding new business formation.)

IMAGE: arsheffield/Flickr
Last updated: Aug 7, 2014

JESSICA STILLMAN | Columnist

Jessica Stillman is a freelance writer based in London with interests in unconventional career paths, generational differences, and the future of work. She has blogged for CBS MoneyWatch, GigaOM, and Brazen Careerist.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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