12 ms·

A slump in new businesses is a drag on the economy

119 points by lkrubner 9y ago

tmh79 9y ago
Not noted in the article, but I feel like a lot of the reasons that the rate of people starting their own business is declining is that the costs of essential services like housing, education, healthcare and childcare have been increasing at a rate much greater than inflation [0]. It was comparably easier to pay for essential services 30 years ago than it is today, and it is difficult to take the risk of starting your own business when you need to pay higher costs for basic life necessities. [0] http://www.zerohedge.com/sites/default/files/images/user230519/imageroot/2016/08/18/College%20Inflation.png http://www.zerohedge.com/sites/default/files/images/user2305...
- cheez 9y ago
  Interestingly enough, the industries that show the highest growth according to that chart have significant government involvement (here there is subsidized daycare, not sure about the US).
  - jayd16 9y ago
    Are you not just projecting your own bias? Governments regulate cars, TVs, toy safety, cell phones, etc.
    - cheez 9y ago
      The government doesn't subsidize those things though.
      - spamizbad 9y ago
        The government absolutely subsidizes at least two the those industries: Cell phones/service and automobiles. https://en.wikipedia.org/wiki/General_Motors_Chapter_11_reorganization https://en.wikipedia.org/wiki/General_Motors_Chapter_11_reor... https://www.fcc.gov/general/lifeline-program-low-income-consumers https://www.fcc.gov/general/lifeline-program-low-income-cons... https://www.nap.edu/read/4816/chapter/5 https://www.nap.edu/read/4816/chapter/5 https://en.wikipedia.org/wiki/C-DOT https://en.wikipedia.org/wiki/C-DOT the list goes on... (I don't know much about those other industries but I'm sure there's billions behind them as well)
        cheez 9y ago
        Can you find programs? Sure. They are not as high a fraction of the tax dollar as the others.
      - stevenwoo 9y ago
        Correct me if I'm wrong, but I recall reading the US government gives some sort of tax benefit to the employer for providing parking spaces for employees. Some people say this subsidizes suburban sprawl. https://books.google.com/books?id=ZIqIN2j2LOUC&pg=PA82#v=onepage&q&f=false https://books.google.com/books?id=ZIqIN2j2LOUC&pg=PA82#v=one...
        zaroth 9y ago
        This was on HN a few days ago. My own comment in response is here. [1] To save you the click, IMO it's an utter BS claim. [1] - https://news.ycombinator.com/item?id=15258878 https://news.ycombinator.com/item?id=15258878
      - humanrebar 9y ago
        Regulations are subsidies for incumbents with procedures and specialists for handling all the regulation. See also: https://en.wikipedia.org/wiki/Regulatory_capture https://en.wikipedia.org/wiki/Regulatory_capture
- kylehotchkiss 9y ago
  Can't forget these massive massive student loans people have to pay off.
- eighthnate 9y ago
  Costs are a problem for sure. But the biggest factor is the FED. They have slowly increased rates the past 1.5 years and have stated that they are going to increase interest rates further and pop the economic bubble. Not only that, Yellen has said the FED is going to shrink their balance sheet. Credit is drying up and becoming more expensive and will be for some time. All business activity will slow ( new or established ). And we'll get a recession soon. It's only after the recession, when the FED decreases rates and loosens credit controls that business activity will start to increase again.
  - lovich 9y ago
    Should the rates be kept at 0 or near it forever? What happens when there's a recession despite the low rates, is the government supposed to pay banks to take their money? Some of your points can be argued for and I'd agree with them, but to put it out like the big bad government is just looking to turn off the economy is pretty disingenuous
    - eighthnate 9y ago
      > Should the rates be kept at 0 or near it forever? Of course not. > but to put it out like the big bad government is just looking to turn off the economy is pretty disingenuous Where did I say this? Also, the FED isn't "the big bad government". They are a private corporation. Why do so many people on hackernews read into things and get defensive? Recessions are a necessary part of an economy. All I said was that the FED exists to pop bubbles via their interest rates. I didn't say it was good or bad. I was just pointing out why recessions happen.
      - lovich 9y ago
        Forgive me if I read into your comment incorrectly. To me it read as if you are stating that the fed increasing the interest rate at all is what is going to lead to a recession and that businesses won't be started until they lower the rate again, even though that rate is historically low. Also the Fed is not a corporation like all the others in the US. They are indepentish because they aren't answering on day to day basis to the political side of the government but they still ultimately work for the government
arcanus 9y ago
This was the key insight to me: 'Many economists say the answer could lie in the rising power of the biggest corporations, which they argue is stifling entrepreneurship by making it easier for incumbent businesses to swat away challengers — or else to swallow them before they become a serious threat.' How many start ups are founded with an explicit target at being acquired by a megacorp? Increasingly a few massive monopolies in tech are siphoning up more and more markets, often without even extracting profit (its for data and customer acquisition). While it is good for the consumer, it certainly is not helping maintain a dynamic economy.
- HillaryBriss 9y ago
  yes. good for the consumer. and, as you suggest, probably not so good for entrepreneurs. their upside is limited. fewer small companies can hope to grow large, remain independent. fewer founders can grow into full fledged, mid or large company CEOs.
- jliptzin 9y ago
  how are large behemoth corporations better for the consumer than an array of small businesses competing for the same dollars?
  - jonknee 9y ago
    It’s easier. I like the convenience of just going to Amazon and ordering what I need without having to think about it. When I’m in a new city for a night I could research and pick out a boutique / bed and breakfast, or I can just open the Hilton app and get a consistent room without any work.
    - jliptzin 9y ago
      Right now it's great. Come back to this question after competitors are driven out of business and you don't have much of an option should Amazon decide to capriciously raise prices. I tend to think decentralization is a good thing even if it's not more convenient at every level.
EternalData 9y ago
This feels like a conversation meant to get a veiled point through, perhaps pushed by the same minds behind reevaluating anti-trust around large technology companies: http://www.politico.com/agenda/story/2017/09/17/open-markets-google-antitrust-barry-lynn-000523 http://www.politico.com/agenda/story/2017/09/17/open-markets... It'd be interesting to get a split beyond just pure volume of startup businesses to dive a little deeper -- small businesses divided by industry, and also revenue/profit per small business might be interesting to look at. Anecdotally, it doesn't feel like small businesses have slowed, though I live in the eye of the Silicon Valley storm. I'd love to dive deeper into the stats to try to reconcile what I'm anecdotally experiencing and the systematic truths that might be out there.
vonnik 9y ago
It would be useful, at least on HN, to distinguish small businesses like a new pizzeria from what most of us call a startup; i.e. a tech company that's probably building software to solve a problem and scale. That aside, I would point out that startups and small businesses are no match for the incumbents when it comes to lobbying and regulation. The principle of "concentrated benefit, diffuse harm" applies, especially when the power is already concentrated in a corporation looking to weaken future rivals. Few politicians and policy people on either side of the aisle understand tech, startups, their financing or incentives, and vast swaths of the tech sector are remarkably disengaged from educating those decision-makers even as Washington and the state capitols pass laws that affect their interests. Immigration restrictions, for example, will have an enormous and damaging effect on US tech. How many people do you know have actually spoken with their senator about it?
- dang 9y ago
  Ok, we replaced 'startup' with 'new business' in the title above.
- TheAdamAndChe 9y ago
  > It would be useful, at least on HN, to distinguish small businesses like a new pizzeria from what most of us call a startup A new, small business _is_ a startup though[1]. Just that our current trade policy dictates most small businesses are service-oriented doesn't mean other small businesses are somehow different in purpose. > That aside, I would point out that startups and small businesses are no match for the incumbents when it comes to lobbying and regulation. > Immigration restrictions, for example, will have an enormous and damaging effect on US tech. Legislation finds a balance between business development and quality of life for its people. For decades, legislation has been skewed in big business's favor, leading to an incredible spike in income and wealth inequality. While immigration reform isn't what's best for business, it is in reaction to a growing need to help our middle class again. Lobbying can only work so much when widespread dissatisfaction in our government and economy leads to populist uprisings. [1] http://www.investopedia.com/terms/s/startup.asp http://www.investopedia.com/terms/s/startup.asp
  - 9y ago
Clubber 9y ago
I wonder how much the amassment of frivolous patents by large companies coupled with fear of litigation contributes to this trend. Even if you are right and it's a frivolous patent, you can't afford to defend yourself. Once you get big enough to survive on your own and establish a small foothold, the big boys will be looking to steal all your IP through the court system.
- bsder 9y ago
  Patent shakedowns are nothing new. See IBM and Sun from the 1980's. https://www.forbes.com/asap/2002/0624/044.html https://www.forbes.com/asap/2002/0624/044.html
  - Clubber 9y ago
    No, but the amount is new. Back then it wasn't it's own industry.
petra 9y ago
Before the Internet, small businesses had a few key competitive advantages going for them: being local. Process Knowledge. knowing your customers. Customers had hard time to compare. Etc. Now they're gone. After the the Internet and the recession, scalable businesses, had few advantages going for them: everything became scalable. A lot of VC funding. Technology is better(and the advantages come first to those with capital). Many things can be turned into a network. Everything became global. So those forces should decrease the number of small businesses. By a lot. On the other hand, small businesses still got some advantages, and the main among them: many new niche markets became accessible, mostly via targeted marketing, scalability and opening of larger markets. That was the new hope. Did could it be that this hope has failed us ? and if so, Why ? What can be done to enable more niche businesses ? or is it the wrong answer ?
- TheAdamAndChe 9y ago
  > Did could it be that this hope has failed us ? and if so, Why ? What can be done to enable more niche businesses ? or is it the wrong answer ? Small businesses can't compete with global mega-corps who exploit cheap labor and lobby(bribe) the government in their favor. Young people can't afford to start their own businesses when the smartest among them have massive amounts of student loans, rising housing costs, and are under the threat of bankruptcy if they get sick. If we want to stimulate small business growth while also increasing economic development in rural areas, we need to do something about globalization. People need to feel economically secure to have the leverage to start a business, which necessitates a rising quality of life for all the classes, not just the upper class.
  - bsder 9y ago
    > Young people can't afford to start their own businesses when the smartest among them have massive amounts of student loans, rising housing costs, and are under the threat of bankruptcy if they get sick. You think that 35-year-old with a wife, 2 kids, and a mortgage has those problems any less? Not having universal health care is an economic drag. We have study after study on this. Rising housing costs are a drag by preventing labor liquidity. People can't just move from one area to another when so much of their wealth is tied up in an illiquid asset. Neither of these is inherently tied to globalization.
in_cahoots 9y ago
500,000 businesses a year means we’re not talking about high-tech startups alone. This entire article seems to be using a single statistic (100,000 fewer businesses are started per year now as compared to before the recession) to push an agenda. It talks about how useful these businesses are in employing the less-educated and as an entry point to the middle class, and then talks about YouTube and Instagram without acknowledging those are two very different types of business. I would be interested in seeing a breakdown by sector. My guess is that the number of new restaurants, laundromats, and nail salons has decreased the most, and that’s what’s driving the overall decline. And, rather than being the result of pressure from the Googles and Facebooks, it’s a natural result of the recession. Fewer people have the nest eggs to start a capital-intensive business, and fewer people have homes to use as collateral. Credit is harder to come by. And potential customers have less disposable income to shop with. All of these trends are well-established and seem to have a broader impact than the main points of the article.
- lkrubner 9y ago
  Remember the trend is almost 40 years old, starting in 1980: Yields on 10-year U.S. Treasuries hit an all-time low yesterday. Before you spin a story using recent events: remember long rates have been trending down for thirty odd years. And that’s true in most advanced economies. So think bigger than jobs day or Brexit or liftoff. And while I’ve got you thinking in decades not data releases … also consider that the share high-growth young firms, aggregate productivity growth, and general satisfaction have all been trending down since early 2000s. And again not unique to the United States. No single factor has a chance at explaining all these trends … Still I think a common thread of population aging and reduced risk taking is worth exploring. The idea that aging can change individual behavior is nothing new but sometimes the gradual and the familiar are easy to discount. Also, and a bit more provocatively, I want to argue that effects of population aging go well beyond the behavior and views of older individuals. ..As we age, we are less willing to take risks. In numerous studies, including my job market paper, older individuals are less willing to take risks than younger ones. In fact, I was able to see how much risk tolerance changed with age (and other factors) in decade-long panel study of older adults. Aging by a decade led to a 17 percent decline in risk tolerance. For comparison, women were 14 percent less risk tolerant than men, on average, even after taking into account several other observables including age. My main takeaway from this work was that persistent differences across individuals create more variation in the willingness to take risks than the changes within person over time. However, of the factors that seem to cause risk preferences to change, aging was by far the most robust in my data and shows up in other studies, including those with younger adults. http://www.smashcompany.com/business/the-decline-of-entrepreneurialism-in-the-usa http://www.smashcompany.com/business/the-decline-of-entrepre... Also: "Where are all the startups? U.S. entrepreneurship near 40-year low" http://money.cnn.com/2016/09/08/news/economy/us-startups-near-40-year-low/index.html http://money.cnn.com/2016/09/08/news/economy/us-startups-nea...
rrggrr 9y ago
Over 80% of small business loan applications are rejected. SBA loans in the US take 6 months - 1 year to get and still require cash down. Leasing companies hate start-up businesses. Landlords want financials and personal guarantees. In short, there's very little liquidity available for most start-up businesses in the general economy. Got cash? Great. Most high growth areas are short STEM graduates, short trades-people, but long on large companies who can outbid you for talent. Got cash and talent? Awesome. Large companies have more than you and pay less vig for it. If you're lucky your business is likely to be acquired as it hits critical mass. If you're unlucky as the eye of Sauron notices you - all that easy big company money will crush you. Oversimplified? Sure. There are exceptions, success stories and counter-examples. But understand that small business and small business job creation is not a priority in the US. https://fred.stlouisfed.org/graph/?g=cAYh https://fred.stlouisfed.org/graph/?g=cAYh https://fred.stlouisfed.org/series/LNS12027714 https://fred.stlouisfed.org/series/LNS12027714 In agriculture the USGOV is literally paying farmers NOT to farm in some areas. The priority is wealth preservation and predictable returns for baby boomers and special interests who vote, and who control votes. You know who wants to change this? Who wants to repatriate 2-4 trillion in liquidity back in the US where its very likely to benefit small business growth? The only high profile person I've heard championing this issue is Trump. He appears to be fighting hard for it in upcoming tax reform legislation. Opinions about this guy aside, if he gets his way on dollar repatriation there's going to be a lot of money available for investment.
- TAForObvReasons 9y ago
  > Who wants to repatriate 2-4 trillion in liquidity back in the US where its very likely to benefit small business growth? The last time there was a tax holiday, the money was basically paid back to investors in the form of dividends and share buybacks. Unfortunately the WSJ link is 404'ing, but https://web.archive.org/web/20140117143531/https://online.wsj.com/news/articles/SB10001424052970203633104576623771022129888 https://web.archive.org/web/20140117143531/https://online.ws... you can see the first paragraph: > The 15 companies that benefited the most from a 2004 tax break for the return of their overseas profits cut more than 20,000 net jobs and decreased the pace of their research spending
sblank 9y ago
A common problem with governments and government data, there is no adequate startup taxonomy. See https://steveblank.com/2011/09/01/why-governments-don’t-get-startups/ https://steveblank.com/2011/09/01/why-governments-don’t-get-...
polskibus 9y ago
Does an IT contractor count as small business or startup in the USA? If so, could it be skewing the stats significantly?
dmix 9y ago
One issue with studying the effects on economic policies (licensing, wage floors, etc) is that it's difficult to meaningfully measure companies that never get created, beyond maybe hypotheticals via polling.
sparrish 9y ago
My gut says it's because a larger portion of the younger workforce don't feel the urge to start a business - or even work. I know too many undergrads who live in their parents basements playing video games all day. Parents pay for their housing, food, and gadgets. Their "happy" and don't sense a need to work or be productive or even hold up their end of the table. Bring a little financial adversity into their lives and my guess is you'll see some hustle.
- mattmanser 9y ago
  Yeah! Those pot smoking hippies. Whoops, I'm from the wrong wrong era, I mean game playing wasters. We pay those lazy bastards too much, let's keep all the money in our generation because we obviously earnt it, not being given anything at all by the previous one because we're so god damn hard working. Never took a day sick before I was 165.
- petra 9y ago
  Maybe related:Internet Porn.some psychologists say this has a big effects on drive and motivation. Maybe it shows in people choosing a job over a business ?
- bsder 9y ago
  > Bring a little financial adversity into their lives and my guess is you'll see some hustle. That would be awesome, except that research shows over and over that the laziest rich kid does as well or better in life than the most motivated poor kid. Bring some consequences and financial adversity to the rich and maybe we'd see some hustle, eh?
  - sparrish 9y ago
    Depends on your definition of "as well or better in life". If you mean they make as much money... maybe. If you mean they produce more than they consume, I doubt it. I would like to see that research though. Can you provide links?
    - bsder 9y ago
Chiba-City 9y ago
DC has funny issues likely shared with some other locales. The traffic is so bad people do not want to show up. People move 30 miles away for square foot dreams appropriate to where they grew up and then hate getting to work. Then many dimmer lights here enjoy well paid, easy and even secure event planning or influence peddling jobs. DC political giveaway and pecking order jobs are attractive temptations for entrepreneurs comparing notes and dating. Then add limelight fears vs. friends working well behind walls. I tried to explain during onboarding that we were not providing public school teacher security and summers off with "tech industry" upside. It did not matter. Expectations were driven by friends and family narratives. Everyone borrowed like consumers, even dabbled in tech day trading and panicked at every industry downturn. Entrepreneurs must have the operative networks to "front run and flip businesses" or be money savers with real wills to endure as an operational team. Sony failed first making ironing board covers. The team kept going together. I learned enough working for Bill Wynn and Mark Pincus. People not so lucky must read some business case history and biographies. Those are not long or hard reads. Otherwise people are infected with the wrong expectations. Student debt is a giant depressing obstacle. I am considering registering a religion so "friars" can defer their student loans operating small scale operations together, rotating roles, cost accounting, scheduling, writing contracts for fulfillment and finding sound counsel advisors. Business formation must put process refinement, team building and network growing front and center. It has to be functional, information rich and mostly fun all by itself. No waves of pens solve these problems deep within motivational structures and widely disparate comparisons between possible futures.
watertom 9y ago
Cost of healthcare is in IMHO, the reason. It's hard to start a business and get talented people if you can't afford to provide healthcare. It's really hard to change jobs when you have a family with ANY health issue, this is also causing people to stay in jobs longer than we've seen since the 50's. The F'd up healthcare system we have is now dragging down the economy. I've seen a lot of debates about basic income, I think that is stupid. If we give out basic income people will need to use that money to pay for healthcare. How about healthcare for everyone, then we can figure out basic income.
- foota 9y ago
  Was healthcare formerly more affordable? Or did people not use it in the past?
  - ams6110 9y ago
    Both. It was more affordable, but it was also a lot simpler. Because it was less likely a doctor could actually help you, many people didn't bother at least for minor ailments. When I was a kid, if I had a sore throat or fever I just endured it, maybe with the help of some aspirin. Parents didn't rush panic-stricken to the doctor for every bump and sneeze.
  - TuringNYC 9y ago
    In the US, I can say anecdotally healthcare was never quite affordable but it has been getting increasing un-affordable each year for at least the past 17 years at least. I know because I see the larger and larger premiums deducted from my salary every year of my professional life, even when not accounting for family-hood. It is the constant talk in October/November when most professionals have to sign up for health plans and get sticker shock.
  - prostoalex 9y ago
    The price was lower, but the overall regulatory environment was much worse. Insurance companies could deny coverage based on a variety of pre-existing conditions, even minor ones. Insurance companies could deny coverage based on the lack of previous coverage, i.e. not having a valid insurance policy for a few months while you were switching employers, etc. The policies had no hard limits on out-of-pocket maximum, which meant that for some prolonged treatments (cancers, complicated surgeries) you could easily get into the debt that would lead to an eventual bankruptcy. The forms that you had to fill in during the application process asked for a quite detailed family history, so for a couple with kids that would include parents, grandmas and grandpas on both sides, and then you add siblings. If you omitted any symptoms or complications, perhaps by mistake, or perhaps grandma's arthritis wasn't really a dinner conversation topic, the insurance companies could claim that you've intentionally falsified your medical history, and deny coverage retroactively.
IamNotAtWork 9y ago
I think the rising cost of health care, child care, etc just mean that your business better provide a real service or fill a niche that is badly needed. If the barrier to entry is super low then everyone with a half baked idea would start a business, watch it fail and default on their debt. It's probably not a bad thing to be at least somewhat hard to start a business. That said, most serial entrepreneurs bring their own money and manage to build something as they have the capital. Then after a few years, sell their mediocre company for 20x what they put in. Rinse and repeat. Life is pretty good when you are already rich.
- lkrubner 9y ago
  Whether starting a business is good or bad is irrelevant, the question is why it is happening less now than in 1980. Also, where does this trend end? The rate of business formation has been declining for almost 40 years, and the rate of decline has accelerated since 2000. So we should ask, how far does this trend go? How large do the monopolies grow? Will there ever be an era when the USA returns to creating new businesses at a rate that would have been normal for most of the 20th century?
Animats 9y ago
Most US small businesses are small retailers and service businesses, not innovative startups. Starting a small retail shop today is not a good idea - you probably get clobbered by Amazon and WalMart before you even start. Malls are dying. The US is "over-stored." Starting a service business still has potential, but it may mean being a slave to a franchise system like Servicemaster or Roto-Rooter. It's more like a contract employee. There's consolidation in services. Think Uber. Starting a restaurant is a classic way to lose money. Don't go there. There just aren't that many places where there's potential profit for new entrants in classic small retail and service businesses.

119 points by lkrubner 9y ago

Not noted in the article, but I feel like a lot of the reasons that the rate of people starting their own business is declining is that the costs of essential services like housing, education, healthcare and childcare have been increasing at a rate much greater than inflation [0]. It was comparably easier to pay for essential services 30 years ago than it is today, and it is difficult to take the risk of starting your own business when you need to pay higher costs for basic life necessities. [0] http://www.zerohedge.com/sites/default/files/images/user230519/imageroot/2016/08/18/College%20Inflation.png http://www.zerohedge.com/sites/default/files/images/user2305...

cheez 9y ago
Interestingly enough, the industries that show the highest growth according to that chart have significant government involvement (here there is subsidized daycare, not sure about the US).
- jayd16 9y ago
  Are you not just projecting your own bias? Governments regulate cars, TVs, toy safety, cell phones, etc.
  - cheez 9y ago
    The government doesn't subsidize those things though.
    - spamizbad 9y ago
      The government absolutely subsidizes at least two the those industries: Cell phones/service and automobiles. https://en.wikipedia.org/wiki/General_Motors_Chapter_11_reorganization https://en.wikipedia.org/wiki/General_Motors_Chapter_11_reor... https://www.fcc.gov/general/lifeline-program-low-income-consumers https://www.fcc.gov/general/lifeline-program-low-income-cons... https://www.nap.edu/read/4816/chapter/5 https://www.nap.edu/read/4816/chapter/5 https://en.wikipedia.org/wiki/C-DOT https://en.wikipedia.org/wiki/C-DOT the list goes on... (I don't know much about those other industries but I'm sure there's billions behind them as well)
      - cheez 9y ago
        Can you find programs? Sure. They are not as high a fraction of the tax dollar as the others.
    - stevenwoo 9y ago
      Correct me if I'm wrong, but I recall reading the US government gives some sort of tax benefit to the employer for providing parking spaces for employees. Some people say this subsidizes suburban sprawl. https://books.google.com/books?id=ZIqIN2j2LOUC&pg=PA82#v=onepage&q&f=false https://books.google.com/books?id=ZIqIN2j2LOUC&pg=PA82#v=one...
      - zaroth 9y ago
        This was on HN a few days ago. My own comment in response is here. [1] To save you the click, IMO it's an utter BS claim. [1] - https://news.ycombinator.com/item?id=15258878 https://news.ycombinator.com/item?id=15258878
    - humanrebar 9y ago
      Regulations are subsidies for incumbents with procedures and specialists for handling all the regulation. See also: https://en.wikipedia.org/wiki/Regulatory_capture https://en.wikipedia.org/wiki/Regulatory_capture
kylehotchkiss 9y ago
Can't forget these massive massive student loans people have to pay off.
eighthnate 9y ago
Costs are a problem for sure. But the biggest factor is the FED. They have slowly increased rates the past 1.5 years and have stated that they are going to increase interest rates further and pop the economic bubble. Not only that, Yellen has said the FED is going to shrink their balance sheet. Credit is drying up and becoming more expensive and will be for some time. All business activity will slow ( new or established ). And we'll get a recession soon. It's only after the recession, when the FED decreases rates and loosens credit controls that business activity will start to increase again.
- lovich 9y ago
  Should the rates be kept at 0 or near it forever? What happens when there's a recession despite the low rates, is the government supposed to pay banks to take their money? Some of your points can be argued for and I'd agree with them, but to put it out like the big bad government is just looking to turn off the economy is pretty disingenuous
  - eighthnate 9y ago
    > Should the rates be kept at 0 or near it forever? Of course not. > but to put it out like the big bad government is just looking to turn off the economy is pretty disingenuous Where did I say this? Also, the FED isn't "the big bad government". They are a private corporation. Why do so many people on hackernews read into things and get defensive? Recessions are a necessary part of an economy. All I said was that the FED exists to pop bubbles via their interest rates. I didn't say it was good or bad. I was just pointing out why recessions happen.
    - lovich 9y ago
      Forgive me if I read into your comment incorrectly. To me it read as if you are stating that the fed increasing the interest rate at all is what is going to lead to a recession and that businesses won't be started until they lower the rate again, even though that rate is historically low. Also the Fed is not a corporation like all the others in the US. They are indepentish because they aren't answering on day to day basis to the political side of the government but they still ultimately work for the government

arcanus 9y ago

This was the key insight to me: 'Many economists say the answer could lie in the rising power of the biggest corporations, which they argue is stifling entrepreneurship by making it easier for incumbent businesses to swat away challengers — or else to swallow them before they become a serious threat.' How many start ups are founded with an explicit target at being acquired by a megacorp? Increasingly a few massive monopolies in tech are siphoning up more and more markets, often without even extracting profit (its for data and customer acquisition). While it is good for the consumer, it certainly is not helping maintain a dynamic economy.

HillaryBriss 9y ago
yes. good for the consumer. and, as you suggest, probably not so good for entrepreneurs. their upside is limited. fewer small companies can hope to grow large, remain independent. fewer founders can grow into full fledged, mid or large company CEOs.
jliptzin 9y ago
how are large behemoth corporations better for the consumer than an array of small businesses competing for the same dollars?
- jonknee 9y ago
  It’s easier. I like the convenience of just going to Amazon and ordering what I need without having to think about it. When I’m in a new city for a night I could research and pick out a boutique / bed and breakfast, or I can just open the Hilton app and get a consistent room without any work.
  - jliptzin 9y ago
    Right now it's great. Come back to this question after competitors are driven out of business and you don't have much of an option should Amazon decide to capriciously raise prices. I tend to think decentralization is a good thing even if it's not more convenient at every level.

EternalData 9y ago

This feels like a conversation meant to get a veiled point through, perhaps pushed by the same minds behind reevaluating anti-trust around large technology companies: http://www.politico.com/agenda/story/2017/09/17/open-markets-google-antitrust-barry-lynn-000523 http://www.politico.com/agenda/story/2017/09/17/open-markets... It'd be interesting to get a split beyond just pure volume of startup businesses to dive a little deeper -- small businesses divided by industry, and also revenue/profit per small business might be interesting to look at. Anecdotally, it doesn't feel like small businesses have slowed, though I live in the eye of the Silicon Valley storm. I'd love to dive deeper into the stats to try to reconcile what I'm anecdotally experiencing and the systematic truths that might be out there.

vonnik 9y ago

It would be useful, at least on HN, to distinguish small businesses like a new pizzeria from what most of us call a startup; i.e. a tech company that's probably building software to solve a problem and scale. That aside, I would point out that startups and small businesses are no match for the incumbents when it comes to lobbying and regulation. The principle of "concentrated benefit, diffuse harm" applies, especially when the power is already concentrated in a corporation looking to weaken future rivals. Few politicians and policy people on either side of the aisle understand tech, startups, their financing or incentives, and vast swaths of the tech sector are remarkably disengaged from educating those decision-makers even as Washington and the state capitols pass laws that affect their interests. Immigration restrictions, for example, will have an enormous and damaging effect on US tech. How many people do you know have actually spoken with their senator about it?

dang 9y ago
Ok, we replaced 'startup' with 'new business' in the title above.
TheAdamAndChe 9y ago
> It would be useful, at least on HN, to distinguish small businesses like a new pizzeria from what most of us call a startup A new, small business _is_ a startup though[1]. Just that our current trade policy dictates most small businesses are service-oriented doesn't mean other small businesses are somehow different in purpose. > That aside, I would point out that startups and small businesses are no match for the incumbents when it comes to lobbying and regulation. > Immigration restrictions, for example, will have an enormous and damaging effect on US tech. Legislation finds a balance between business development and quality of life for its people. For decades, legislation has been skewed in big business's favor, leading to an incredible spike in income and wealth inequality. While immigration reform isn't what's best for business, it is in reaction to a growing need to help our middle class again. Lobbying can only work so much when widespread dissatisfaction in our government and economy leads to populist uprisings. [1] http://www.investopedia.com/terms/s/startup.asp http://www.investopedia.com/terms/s/startup.asp
- 9y ago

Clubber 9y ago

I wonder how much the amassment of frivolous patents by large companies coupled with fear of litigation contributes to this trend. Even if you are right and it's a frivolous patent, you can't afford to defend yourself. Once you get big enough to survive on your own and establish a small foothold, the big boys will be looking to steal all your IP through the court system.

bsder 9y ago
Patent shakedowns are nothing new. See IBM and Sun from the 1980's. https://www.forbes.com/asap/2002/0624/044.html https://www.forbes.com/asap/2002/0624/044.html
- Clubber 9y ago
  No, but the amount is new. Back then it wasn't it's own industry.

petra 9y ago

Before the Internet, small businesses had a few key competitive advantages going for them: being local. Process Knowledge. knowing your customers. Customers had hard time to compare. Etc. Now they're gone. After the the Internet and the recession, scalable businesses, had few advantages going for them: everything became scalable. A lot of VC funding. Technology is better(and the advantages come first to those with capital). Many things can be turned into a network. Everything became global. So those forces should decrease the number of small businesses. By a lot. On the other hand, small businesses still got some advantages, and the main among them: many new niche markets became accessible, mostly via targeted marketing, scalability and opening of larger markets. That was the new hope. Did could it be that this hope has failed us ? and if so, Why ? What can be done to enable more niche businesses ? or is it the wrong answer ?

TheAdamAndChe 9y ago
> Did could it be that this hope has failed us ? and if so, Why ? What can be done to enable more niche businesses ? or is it the wrong answer ? Small businesses can't compete with global mega-corps who exploit cheap labor and lobby(bribe) the government in their favor. Young people can't afford to start their own businesses when the smartest among them have massive amounts of student loans, rising housing costs, and are under the threat of bankruptcy if they get sick. If we want to stimulate small business growth while also increasing economic development in rural areas, we need to do something about globalization. People need to feel economically secure to have the leverage to start a business, which necessitates a rising quality of life for all the classes, not just the upper class.
- bsder 9y ago
  > Young people can't afford to start their own businesses when the smartest among them have massive amounts of student loans, rising housing costs, and are under the threat of bankruptcy if they get sick. You think that 35-year-old with a wife, 2 kids, and a mortgage has those problems any less? Not having universal health care is an economic drag. We have study after study on this. Rising housing costs are a drag by preventing labor liquidity. People can't just move from one area to another when so much of their wealth is tied up in an illiquid asset. Neither of these is inherently tied to globalization.

in_cahoots 9y ago

500,000 businesses a year means we’re not talking about high-tech startups alone. This entire article seems to be using a single statistic (100,000 fewer businesses are started per year now as compared to before the recession) to push an agenda. It talks about how useful these businesses are in employing the less-educated and as an entry point to the middle class, and then talks about YouTube and Instagram without acknowledging those are two very different types of business. I would be interested in seeing a breakdown by sector. My guess is that the number of new restaurants, laundromats, and nail salons has decreased the most, and that’s what’s driving the overall decline. And, rather than being the result of pressure from the Googles and Facebooks, it’s a natural result of the recession. Fewer people have the nest eggs to start a capital-intensive business, and fewer people have homes to use as collateral. Credit is harder to come by. And potential customers have less disposable income to shop with. All of these trends are well-established and seem to have a broader impact than the main points of the article.

lkrubner 9y ago
Remember the trend is almost 40 years old, starting in 1980: Yields on 10-year U.S. Treasuries hit an all-time low yesterday. Before you spin a story using recent events: remember long rates have been trending down for thirty odd years. And that’s true in most advanced economies. So think bigger than jobs day or Brexit or liftoff. And while I’ve got you thinking in decades not data releases … also consider that the share high-growth young firms, aggregate productivity growth, and general satisfaction have all been trending down since early 2000s. And again not unique to the United States. No single factor has a chance at explaining all these trends … Still I think a common thread of population aging and reduced risk taking is worth exploring. The idea that aging can change individual behavior is nothing new but sometimes the gradual and the familiar are easy to discount. Also, and a bit more provocatively, I want to argue that effects of population aging go well beyond the behavior and views of older individuals. ..As we age, we are less willing to take risks. In numerous studies, including my job market paper, older individuals are less willing to take risks than younger ones. In fact, I was able to see how much risk tolerance changed with age (and other factors) in decade-long panel study of older adults. Aging by a decade led to a 17 percent decline in risk tolerance. For comparison, women were 14 percent less risk tolerant than men, on average, even after taking into account several other observables including age. My main takeaway from this work was that persistent differences across individuals create more variation in the willingness to take risks than the changes within person over time. However, of the factors that seem to cause risk preferences to change, aging was by far the most robust in my data and shows up in other studies, including those with younger adults. http://www.smashcompany.com/business/the-decline-of-entrepreneurialism-in-the-usa http://www.smashcompany.com/business/the-decline-of-entrepre... Also: "Where are all the startups? U.S. entrepreneurship near 40-year low" http://money.cnn.com/2016/09/08/news/economy/us-startups-near-40-year-low/index.html http://money.cnn.com/2016/09/08/news/economy/us-startups-nea...

rrggrr 9y ago

Over 80% of small business loan applications are rejected. SBA loans in the US take 6 months - 1 year to get and still require cash down. Leasing companies hate start-up businesses. Landlords want financials and personal guarantees. In short, there's very little liquidity available for most start-up businesses in the general economy. Got cash? Great. Most high growth areas are short STEM graduates, short trades-people, but long on large companies who can outbid you for talent. Got cash and talent? Awesome. Large companies have more than you and pay less vig for it. If you're lucky your business is likely to be acquired as it hits critical mass. If you're unlucky as the eye of Sauron notices you - all that easy big company money will crush you. Oversimplified? Sure. There are exceptions, success stories and counter-examples. But understand that small business and small business job creation is not a priority in the US. https://fred.stlouisfed.org/graph/?g=cAYh https://fred.stlouisfed.org/graph/?g=cAYh https://fred.stlouisfed.org/series/LNS12027714 https://fred.stlouisfed.org/series/LNS12027714 In agriculture the USGOV is literally paying farmers NOT to farm in some areas. The priority is wealth preservation and predictable returns for baby boomers and special interests who vote, and who control votes. You know who wants to change this? Who wants to repatriate 2-4 trillion in liquidity back in the US where its very likely to benefit small business growth? The only high profile person I've heard championing this issue is Trump. He appears to be fighting hard for it in upcoming tax reform legislation. Opinions about this guy aside, if he gets his way on dollar repatriation there's going to be a lot of money available for investment.

TAForObvReasons 9y ago
> Who wants to repatriate 2-4 trillion in liquidity back in the US where its very likely to benefit small business growth? The last time there was a tax holiday, the money was basically paid back to investors in the form of dividends and share buybacks. Unfortunately the WSJ link is 404'ing, but https://web.archive.org/web/20140117143531/https://online.wsj.com/news/articles/SB10001424052970203633104576623771022129888 https://web.archive.org/web/20140117143531/https://online.ws... you can see the first paragraph: > The 15 companies that benefited the most from a 2004 tax break for the return of their overseas profits cut more than 20,000 net jobs and decreased the pace of their research spending

sblank 9y ago

A common problem with governments and government data, there is no adequate startup taxonomy. See https://steveblank.com/2011/09/01/why-governments-don’t-get-startups/ https://steveblank.com/2011/09/01/why-governments-don’t-get-...

polskibus 9y ago

Does an IT contractor count as small business or startup in the USA? If so, could it be skewing the stats significantly?

dmix 9y ago

One issue with studying the effects on economic policies (licensing, wage floors, etc) is that it's difficult to meaningfully measure companies that never get created, beyond maybe hypotheticals via polling.

sparrish 9y ago

My gut says it's because a larger portion of the younger workforce don't feel the urge to start a business - or even work. I know too many undergrads who live in their parents basements playing video games all day. Parents pay for their housing, food, and gadgets. Their "happy" and don't sense a need to work or be productive or even hold up their end of the table. Bring a little financial adversity into their lives and my guess is you'll see some hustle.

mattmanser 9y ago
Yeah! Those pot smoking hippies. Whoops, I'm from the wrong wrong era, I mean game playing wasters. We pay those lazy bastards too much, let's keep all the money in our generation because we obviously earnt it, not being given anything at all by the previous one because we're so god damn hard working. Never took a day sick before I was 165.
petra 9y ago
Maybe related:Internet Porn.some psychologists say this has a big effects on drive and motivation. Maybe it shows in people choosing a job over a business ?
bsder 9y ago
> Bring a little financial adversity into their lives and my guess is you'll see some hustle. That would be awesome, except that research shows over and over that the laziest rich kid does as well or better in life than the most motivated poor kid. Bring some consequences and financial adversity to the rich and maybe we'd see some hustle, eh?
- sparrish 9y ago
  Depends on your definition of "as well or better in life". If you mean they make as much money... maybe. If you mean they produce more than they consume, I doubt it. I would like to see that research though. Can you provide links?
  - bsder 9y ago

Chiba-City 9y ago

DC has funny issues likely shared with some other locales. The traffic is so bad people do not want to show up. People move 30 miles away for square foot dreams appropriate to where they grew up and then hate getting to work. Then many dimmer lights here enjoy well paid, easy and even secure event planning or influence peddling jobs. DC political giveaway and pecking order jobs are attractive temptations for entrepreneurs comparing notes and dating. Then add limelight fears vs. friends working well behind walls. I tried to explain during onboarding that we were not providing public school teacher security and summers off with "tech industry" upside. It did not matter. Expectations were driven by friends and family narratives. Everyone borrowed like consumers, even dabbled in tech day trading and panicked at every industry downturn. Entrepreneurs must have the operative networks to "front run and flip businesses" or be money savers with real wills to endure as an operational team. Sony failed first making ironing board covers. The team kept going together. I learned enough working for Bill Wynn and Mark Pincus. People not so lucky must read some business case history and biographies. Those are not long or hard reads. Otherwise people are infected with the wrong expectations. Student debt is a giant depressing obstacle. I am considering registering a religion so "friars" can defer their student loans operating small scale operations together, rotating roles, cost accounting, scheduling, writing contracts for fulfillment and finding sound counsel advisors. Business formation must put process refinement, team building and network growing front and center. It has to be functional, information rich and mostly fun all by itself. No waves of pens solve these problems deep within motivational structures and widely disparate comparisons between possible futures.

watertom 9y ago

Cost of healthcare is in IMHO, the reason. It's hard to start a business and get talented people if you can't afford to provide healthcare. It's really hard to change jobs when you have a family with ANY health issue, this is also causing people to stay in jobs longer than we've seen since the 50's. The F'd up healthcare system we have is now dragging down the economy. I've seen a lot of debates about basic income, I think that is stupid. If we give out basic income people will need to use that money to pay for healthcare. How about healthcare for everyone, then we can figure out basic income.

foota 9y ago
Was healthcare formerly more affordable? Or did people not use it in the past?
- ams6110 9y ago
  Both. It was more affordable, but it was also a lot simpler. Because it was less likely a doctor could actually help you, many people didn't bother at least for minor ailments. When I was a kid, if I had a sore throat or fever I just endured it, maybe with the help of some aspirin. Parents didn't rush panic-stricken to the doctor for every bump and sneeze.
- TuringNYC 9y ago
  In the US, I can say anecdotally healthcare was never quite affordable but it has been getting increasing un-affordable each year for at least the past 17 years at least. I know because I see the larger and larger premiums deducted from my salary every year of my professional life, even when not accounting for family-hood. It is the constant talk in October/November when most professionals have to sign up for health plans and get sticker shock.
- prostoalex 9y ago
  The price was lower, but the overall regulatory environment was much worse. Insurance companies could deny coverage based on a variety of pre-existing conditions, even minor ones. Insurance companies could deny coverage based on the lack of previous coverage, i.e. not having a valid insurance policy for a few months while you were switching employers, etc. The policies had no hard limits on out-of-pocket maximum, which meant that for some prolonged treatments (cancers, complicated surgeries) you could easily get into the debt that would lead to an eventual bankruptcy. The forms that you had to fill in during the application process asked for a quite detailed family history, so for a couple with kids that would include parents, grandmas and grandpas on both sides, and then you add siblings. If you omitted any symptoms or complications, perhaps by mistake, or perhaps grandma's arthritis wasn't really a dinner conversation topic, the insurance companies could claim that you've intentionally falsified your medical history, and deny coverage retroactively.

IamNotAtWork 9y ago

I think the rising cost of health care, child care, etc just mean that your business better provide a real service or fill a niche that is badly needed. If the barrier to entry is super low then everyone with a half baked idea would start a business, watch it fail and default on their debt. It's probably not a bad thing to be at least somewhat hard to start a business. That said, most serial entrepreneurs bring their own money and manage to build something as they have the capital. Then after a few years, sell their mediocre company for 20x what they put in. Rinse and repeat. Life is pretty good when you are already rich.

lkrubner 9y ago
Whether starting a business is good or bad is irrelevant, the question is why it is happening less now than in 1980. Also, where does this trend end? The rate of business formation has been declining for almost 40 years, and the rate of decline has accelerated since 2000. So we should ask, how far does this trend go? How large do the monopolies grow? Will there ever be an era when the USA returns to creating new businesses at a rate that would have been normal for most of the 20th century?

Animats 9y ago

Most US small businesses are small retailers and service businesses, not innovative startups. Starting a small retail shop today is not a good idea - you probably get clobbered by Amazon and WalMart before you even start. Malls are dying. The US is "over-stored." Starting a service business still has potential, but it may mean being a slave to a franchise system like Servicemaster or Roto-Rooter. It's more like a contract employee. There's consolidation in services. Think Uber. Starting a restaurant is a classic way to lose money. Don't go there. There just aren't that many places where there's potential profit for new entrants in classic small retail and service businesses.