The newest fad in business seems to be the billion-dollar startup. Every day another company with few employees and no profits reports having raised hundreds of millions of dollars in venture funding and, using valuation metrics understood only by those inside the deal-making sausage factory, are widely hyped to be worth more than a billion dollars – all before anyone in the general public has a chance to buy a single share. Facebook, Twitter, Pinterest, Alibaba are but the most notable in this growing list of (at least pre-IPO) success stories.
Against this backdrop of international buzz, it is notable to read in a recent report from the Kauffman Foundation (a nonprofit firm dedicated to promoting entrepreneurship) that new business formation and young firm growth are not booming but declining across the U.S.
“In the late 1970s,” Kauffman reports, “about 15 percent of all businesses in the U.S. were new; in 2011 that number hovered about 8 percent.”
This trend is true nationwide, holding true in every state and in every metro area but one. And to add to this gloom, not only is the number of startups falling, but those that do exist also are hiring fewer people. The very phenomenon of startup is having a less transformative effect across the broader economy, at least the labor market side of the economy.
So what do we make of the burst of activity surrounding startups and entrepreneurship in Maine? Is it just a fad, hundreds of kids doing the business equivalent of making music in garages while dreaming of becoming the next super group and living lives of fame and fortune? Will they have fun, struggle for a while, then eventually “grow up,” get a “real” job and settle down to a “normal” life? Or will it lead to something transformative, to a reversal of the two-generation of de-industrialization we have endured, to a change in what we come to expect as economically “normal?”
The answer to that question, it seems to me, depends on how we here in Maine, for ourselves, come to define and deeply understand two words: entrepreneurship and inequality. If we succumb to the rock star/celebrity definition of entrepreneurship, if dreaming of being an entrepreneur is the equivalent of dreaming of being Tom Brady, Lady Gaga, LeBron James or Mark Zuckerberg, then we’re condemning ourselves to the law of large numbers and the ever-widening inequality spawned by the rock star/celebrity, all or nothing definition of economically “normal.” We’re repeating the one “town father/mill owner” and hundreds of mill workers definition of “normal,” whose demise we are now suffering.
If, on the other hand, we can embrace as “normal” two simple ideas, then all this startup and create buzz will become transformative. The first is the idea that anyone can, drawing on her/his personal experience, imagine a product or service that tens of thousands of people will rush to buy once they experience it. The second is the idea that creating, nurturing and building an enterprise – a group of people dedicated to fully understanding, articulating, defining and elaborating the original “inspirational” idea and, as a team, bringing it into reality – is an occupation celebrated and supported by everyone in the state. Entrepreneurship is a team making an enterprise. If we can make that process not an impossible dream reserved for a select, fortunate few but the new “normal,” get ready to put on your shades, because Maine’s future will look amazingly bright.
Charles Lawton is chief economist for Planning Decisions Inc. He can be contacted at: