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Startups In Decline

Written by Ken Gaebler
Published: 5/9/2014

Percentage of businesses less than one year old has fallen by half over the past three decades, indicating that the U.S. is becoming less entrepreneurial over time.

The U.S. has historically been seen as a bastion of entrepreneurism--a mecca for individuals eager to launch business startups and convert their dreams into marketplace success. But according to new research from the Brookings Institute, America is becoming less entrepreneurial over time, an assertion that is supported by a steep decline in startup numbers.

Startups By Year Declining

Between 1978 and 2011, the firm entry rate (firms less than a year old as a percentage of all businesses) decreased by half. Since 2006, the firm entry has suffered an especially sharp decline, from 11% to less than 8% during the height of the recession in 2010. And for the first time in the 30-year history of the Brooking Institute's data, business "deaths" now outpace business "births."

Not even the technology sector -- known for its robust startup activity -- seems to be immune from the decline in entrepreneurial activity. Surges in tech startups are "a blip in a long-term decline in high-tech start-up rates and dynamism," Kauffman Foundation VP Dane Stangler told VentureBeat.

Economists agree that the slowdown in U.S. startups is bad news for the economy as a whole. Time and time again, the startup economy has proven itself to be a valuable resource for economic and employment growth. If startups are truly in decline, it may be an indication that one of the pillars of American economic strength (entrepreneurism) is in jeopardy.

To increase the pace of startups, Brookings recommends policy changes that would encourage increased entrepreneurism among immigrants. According to the Brookings Institute report, the fastest and most effective way to reduce the decline may be to "significantly expand the numbers of immigrant entrepreneurs granted permanent work visas to enter and remain in this country."

For would-be entrepreneurs, doing your research and avoiding a trend company are more important than ever. As much as possible, you need to understand the economic outlook for your industry and invest in a business that has the staying power to survive over the long-term.

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