The Startup Ecosystem Is Broken — Part 1: Why Does Entrepreneurship Matter?

I am passionate about startups, how they work, how they are born, and how they grow.

I am one of the first employees of a cybersecurity startup from Argentina (now almost 200 employees and over $60M in funding). As a front-row spectator for more than 6 years, I experienced all the stages and lived through all the growing pains. I recommend that everyone join a startup as early as possible — it is an amazing experience.

I was granted a full-time scholarship managed by Fulbright to study in the US. So I moved to Boston a year ago to start my M.S. in Innovation and Management at Tufts University.

In my Master’s program, we take an applied approach toward learning how to build new ventures. In fact, each semester we have the opportunity to create an entirely new startup (let’s leave the discussion about this type of programs vs MBAs for another post). After my first project, I started to think about how business accelerators work. Was I part of a college startup accelerator? Then my research started. This series of posts is about my results and conclusion: the startup ecosystem is broken.

In this post, we will a discuss a basic (perhaps obvious?) question: Why does entrepreneurship matter?

The socioeconomic benefits of entrepreneurship are numberless. Entrepreneurs start companies, which create jobs and positively affect local economies. Entrepreneurship becomes the principal mechanism through which economies grow and develop. Startups also empower communities and enable individuals to address societal problems in a sustainable fashion.

According to the Monitor Group, startup companies have positive effects economically, socially, and politically. In the US, 99.7% of the companies are classified as small businesses. They employ 48% of all private sector employees. Based on a report from the U.S. Small Business Administration, small firms have generated 63.3% of net new jobs annually since 1992.

In Argentina, a developing country that suffers aneconomic crisis every 10 years, 99.8% of the companies are small or medium-sized. Furthermore, 64% of the jobs are created by small and medium-sized companies.

From a social standpoint, entrepreneurship provides social mobility and advancement. It is a source of social opportunities. It provides hope, empowerment, and inspiration to people.

As consequence of the economic and social benefits, political benefits arise. Entrepreneurship helps start or accelerate a virtuous cycle where economic well-being creates security that in turn produces more prosperity. It provides more social sectors to be included in the economy. It encourages integration of many diverse communities into the socioeconomic fabric.

In summary, Entrepreneurship produces more prosperity, security, and stability.

(In further posts, we will analyze the problems of the entrepreneurship ecosystem, trying to understand if it is actually leading towards its theoretical goal or not.)

The Information Technology & Innovation Foundation (ITIF) has recommended that public policymakers should:

• Encourage individuals to create or join technology-based startups,
• Increase survival and success rates of technology-based startups, and
• Enable technology-based startups to scale their growth faster and become larger.

The ITIF recognizes the prosperity startups offer, as do the American people themselves. Americans of all ages are interested in starting their own companies. The majority of Americans, 61%, would prefer to be their own boss. Younger Americans show an even greater desire for this type of professional independence. Based on the above, American market and society seem to be open for entrepreneurship and thriving.

However, closer examination of surveys and industry data reveals that entrepreneurship has actually been declining in the USA. As of 2014, the number of businesses launched was near a 40-year low. This can be attributed to the 2008 market collapse, yet is influenced by several other factors. Massive corporations have come to dominate both physical and online spaces. Besides, these big companies have become more entrepreneurial, attracting new talent to work for them. This has crowded out opportunities that might have once been available to startups.

Some higher startup generation rates belong to a select group of serial entrepreneurs that are starting more businesses. However, studies have found that a smaller percentage of the millennial demographic are starting more companies.

The benefits of entrepreneurship are not related to one type of country or city, or to one specific social sector. Entrepreneurship is always good: it generates a win-win scenario where everyone receives benefits. In the long term, more startups will generate more jobs, growing the economy and reducing social inequalities.

We should all be pushing for more entrepreneurs!

Based on the end results (number of new startups), we can assume entrepreneurship is not thriving as we would expect. And, as we conclude from its benefits, the lack of more entrepreneurs mostly impacts to the most vulnerable social sectors. We will explore this further in upcoming posts.

Our next question is: Who are the current stakeholders and what are they doing? We will discuss that in our next post. Stay tuned!