The Importance of Making “Entrepreneurship” a Top Priority
by Eric Corl @EricCorl
Photo by Matthew Guay on Unsplash
There are two types of startups. We will focus on one.
“Subsistence” startups are those that are not planning to be a big company. Their goal is to have a level of financial independence while enjoying what they do.
These startups have become fewer since 2013, equal to the number in 1980, when the population was smaller. In recent years, there are fewer people aiming for subsistence startups.
Startups that significantly affect the economy are the “Transformational” startups. These startups have the most impact on economy, aiming to become nationwide or international.
According to a 2016 report from the Kauffman Foundation, transformation startups have been launched at a faster rate in recent years but still has a way to go.
These “high” growth firms make up just 15% of all companies. But they contribute an estimate of 50% of total jobs created. These young companies comparably invest more in research and development (R&D) than older ones.
The focus of this article is on Transformational startups.
The Big Small Impacts
Startups may be small. But they create ripples in the economy that change people’s way of living.
Here are the ways startups disrupt the economy and forces it to evolve, taking technology one -or several steps- higher.
1. Advance Technology
Older companies or incumbents are more likely to invest in R&D on existing technologies and incremental innovation. While startups are more focused on new technologies and cutting-edge innovation.
Free from a multilayered corporate bureaucracy, startups are more agile and able to build an idea into a product and improve it upon consumer demand with faster decision-making communications. Its high stakes deeply motivate its employees to do whatever it takes to succeed.
Giant companies like Google and Microsoft often acquire startups and use their size and distribution channels to improve the innovation and boost its sales.
However, a member of Harvard’s Labor and Worklife Program, Vivek Wadhwa argues that “when technology’s top guns join these companies, they seem to make a smaller impact than those that don’t get hired.” He then advised that startups must be armed with seed financing in order for the economy get more technological innovation.
2. Open New Markets
Startups create new markets or completely transform old markets by introducing products that change the world. Giants today like Apple, Facebook and Google were once small but ambitious startups.
New technologies often create new opportunities that startups take advantage of. Startups then create a massive value over mature businesses, inspiring competition and disrupting the economy to evolve.
However, not all startups succeed. According to James Surowiecki of MIT Technology Review, the reason behind this is the increased power of established incumbents. Though incumbents have been toppled before, the American industry has grown more concentrated over the last 30 years.
3. Boost Production of Goods and Services
According to Bryan Ritchie and Nick Swisher of IDEA Center, startups disproportionately have higher technology. This drives up production of goods and services.
In a 2017 report by the Center for Economic Studies at the US Census Bureau, they have found that firms that have a high growth output are disproportionately young and “makes disproportionate contributions to output and productivity growth.”
In another paper published on 2011 by Small Business Administration, startups were discovered to generate more revenue with the same number of capital inputs than older companies.
4. Increase Employment
Startups create jobs. These “high-growth” firms are companies that add jobs at a rate of 25 plus percent.
Wadhwa states, “Without startups, there would be no net job growth in the US economy. From 1977 to 2005, existing companies were net job destroyers, losing 1 million net jobs per year. New businesses in their first year added an average of 3 million jobs annually.”
In a 2017 report by the Progressive Policy Institute, the private sector job growth is significantly higher where the startup activity is high. In contrast, regions with few startup activity experience less than half the job growth.
5. Direct Local Impacts
Startups also have a direct change on the cities where they are located such as how Microsoft has transformed Redmond and Google has changed Mountain View California. They bring in wealth and a large inflow of graduates and experienced professionals from other locations who are looking for job opportunities.
Startups are a Driving Economic Force
Startups are engines of growth. To avoid economic stagnation, methods must be sought to foster competition and assist transformational entrepreneurs.
While it is important to get support in a federal level, the effort must be focused in a local level. Cities need to foster programs that encourage entrepreneurship. It is absolutely critical for growth at a local and national level and legislative and political motives can no longer take entrepreneurs into account as an after-thought.
Removing barriers. Facilitating connections. Empowering startups. These are just the few ways for civic leaders to give a better edge to entrepreneurs.
Over the years, I’ve gotten more and more involved in advocating for other entrepreneurs and I’ve been introduced to some great organizations. For one, the SBE Council (http://www.SBECouncil.org) is doing a wonderful job on the federal level advocating for entrepreneurs and small businesses to make sure our voices are heard. Please follow them and support them online.
The Small Business Administration is also doing great work with their main street leaders program to connect local businesses to Washington, DC. If you have a business, they want to hear your voice.
Remember, startups are the driving force behind our economy — we must advocate for the entrepreneurs behind them and continue to foster innovation.
Sources
[1] Surowiecki, J. (2016, June 15). Why Startups Are Struggling. Retrieved from https://www.technologyreview.com/s/601497/why-startups-are-struggling/
[2] Wadhwa, V. (2010, August 14). Startups Or Behemoths: Which Are We Going To Bet On? Retrieved from https://techcrunch.com/2010/08/14/startups-or-behemoths-which-are-we-going-to-bet-on/
[3] Ritchie, B. & Swisher, N. (2018, July 15). THE BIG SMALL: THE ECONOMIC BENEFITS OF STARTUPS. Retrieved from https://ideacenter.nd.edu/news-events/news/the-big-small-the-economic-benefits-of-startups/ .
[4] Ritchie, B. & Swisher, N. (2018, July 26). THE BIG SMALL: STARTUPS, THE ENGINE OF INNOVATION. Retrieved from https://ideacenter.nd.edu/news-events/news/the-big-small-startups-the-engine-of-innovation/
[5] Parvinrouh, M. & Doedderlein. (2017, August 21). The role of startups in the economy. Retrieved from http://www.cobizmag.com/Trends/The-role-of-startups-in-the-economy/
[6] Didar, A. F. (2016). Role of Startups in Economic Prosperity. Retrieved from https://www.startupgrind.com/blog/role-of-startups-in-economic-prosperity/
[7] Entrepreneurship is Key to Economic Growth for Cities. (2018, April 7). Retrieved from https://digitalsplashmedia.com/2018/04/entrepreneurship-is-key-to-economic-growth-for-cities/
