Thanks to the data provided by Brookings Institution, the landscape of startups in the U.S. proves to be dreary. Nowadays, competitors that have been in the business environment for decades are on the verge of walking away with a much bigger share of the business.
One might be inclined to think that an increasing share of business is a solid enough reason to stick around for years to come. However, that is not really the case as longer survival rates come at the expense of startups. Why? Their share is rapidly decreasing, whereas entrenched firms tend to grow in numbers.
The report entitled The Other Aging of America created by the Brookings Institution shows, by examining the data of the U.S. Census Bureau, that the number of surviving companies over the last 16 years saw a significant increase, from 25 percent in 1992 to 50 percent in 2011. This study was published by Ian Hathaway, founder of economics research company Ennsyte Economics, and Robert Litan, a Brookings scholar.
On the other hand, the numbers of startups created over the last three decades has alarmingly decreased, from 15 percent in 1978 to 8 percent in 2011. The good news is that business failure rates bounced around quite a lot, and despite the fact that they are on the rise yet again, they are lower than they were 30 years ago.
In layman’s terms, creating a startup in today’s environment is much more difficult, especially in areas where there are a lot of major and established companies.
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The early-stage failure rates have substantially increased in almost every sector pertaining to the industry, in each company size, class, metropolitan area and U.S. state for that matter between 1992 and 2011.
Nowadays, the number of people that work for older and larger companies has never been higher, which isn’t really all that good of a news for the economy, given the fact that startups and the main job creators in the United States. In the last two decades, the number of employees that work within large and established companies has risen from two thirds to about three quarters.
For example, businesses with 100 employees or less have managed to hire far less people, while companies with 2500 or more employees saw a significant employee increase. Some companies employed even 10.000 or more workers, which translates into a share of approximately 30 percent of all employment in 2011.
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According to the authors of the study, it is extremely advantageous to be an incumbent, especially an older one and more difficult to be a startup. Considering the fact that all factors will remain constant, they foresee an economy with a higher concentration in older firms and less in new firms to exhibit a decrease in productivity, innovation and fewer jobs.
And that isn’t really a good thing if you take into consideration the hyper-competitive market and the global sales. Believe it or not, the small businesses are the ones that came with major innovations such as automobiles, airplanes, personal computers, etc.
