As someone who has grown up professionally in Silicon Valley's start-up culture and witnessed the seemingly ceaseless surge of creativity and entrepreneurship, it comes as a surprise that new business creation in the country, as a whole, is near a 40-year low.
A recent article in CNN Money, Where are all the startups? quotes U.S. Census data revealing that only about 450,000 new companies were created in 2014 – well below the usual range of 500,000 to 600,000 new companies per year that was the norm from the late 70's to the mid-2000's.
The article notes that the Great Recession had a negative impact on start-ups, but says the bounce back has not been as robust as anticipated. Two of the reasons given for why this is so are very revealing and I'll focus on them here.
First there is the sad truth that big can often be faster and cheaper than small, and that the U.S. has seen a big shift to national chains like Walmart and Costco that effectively drive specialty shops and "Mom and Pop" stores out of business. So the barrier to entry for small businesses in the consumer goods sector has risen over time. Another effect, not noted in the article, could be called the Amazon factor . . . if you can order a product online for a competitive price and have it delivered to your home next or even same day, why spend time driving around town or even surfing the Internet? The lure of one-stop shopping is irresistible for many.
In the tech sector, the big-guy-takes-all-the-marbles phenomenon is also in play. While there are plenty of entrepreneurs and the start-up dream still lives in Silicon Valley, the big companies like Apple and Google (to name just two) are competing for talent and founding their own start-up laboratories and ventures. And it's not just VC's and angels who are investing in start-ups these days . . . almost all the big companies have active investment operations in play. Young engineers can experiment and create inside the safety net of the biggest players, rather than enduring the risk and anxiety that founding a start-up entails. There is big cache in working for the big players. Moms everywhere now like to brag, "My daughter (or son) is working at Google." No more needs to be said.
There is, of course, plenty of pushback to this scenario from those who weigh the risk/reward equation a little differently. Many in Silicon Valley and around the tech world still feel the lure of doing something new on their own without the big company overlay. Of course, the realities of the marketplace (especially when it comes to finding and sustaining funding) place their own limits on entrepreneurial freedom, but for many that's a price they'd rather pay than going the big company route.
It's an interesting world we live in with plenty of opportunities to be seized. And speaking of opportunities, I want to welcome our new colleague at Womble Carlyle in Silicon Valley – Jay Landrum. Jay guides Silicon Valley clients in business transactions, including entity formation, buy sell agreements, and financing transactions (venture, private and debt), as well as general corporate matters. He also has a particular sweet spot when it comes to tech contracts and licensing. Speaking of entrepreneurship, Jay founded and led several companies, including ALCiS Health, Inc., a health products company. Welcome Jay!
That's it for this month. Back at you in October. Best, Steve
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