
A slump in new businesses is a drag on the economy - lkrubner
https://www.nytimes.com/2017/09/20/business/economy/startup-business.html
======
tmh79
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/user2305...](http://www.zerohedge.com/sites/default/files/images/user230519/imageroot/2016/08/18/College%20Inflation.png)

~~~
eighthnate
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
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
> 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
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

------
rrggrr
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
> 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.ws...](https://web.archive.org/web/20140117143531/https://online.wsj.com/news/articles/SB10001424052970203633104576623771022129888)
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

~~~
chibg10
And do you think investors just flushed that dividend/share buyback money down
the toilet?

No, they invest it somewhere else, and for most wealthy investors the best
returns can often be found in tech start-ups. So it still makes it easier for
start-ups to obtain capital.

~~~
mdorazio
Is it actually difficult for tech startups to obtain capital? My impression is
that it's not. Non-tech small businesses are the ones that seem to have more
difficulty getting off the ground with loans, and it's not clear to me that
shareholders/corporate executives getting fat bonuses from dollar repatriation
would put that cash into small businesses.

------
vonnik
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?

~~~
tlb
Every one of those companies is someone's dream. Don't dismiss them for not
being tech. Domino's Pizza ($2.5B revenue) was once one of those new pizzerias
that you wouldn't call a startup (read the History section of
[https://en.wikipedia.org/wiki/Domino%27s_Pizza](https://en.wikipedia.org/wiki/Domino%27s_Pizza)).

~~~
WalterSear
I disagree.

The same mentality is why universities graduate more students in the visual
and performing arts than computer science, math, and chemical engineering
combined(1).

It's not enough to let people follow their dreams, if their dreams lead most
of them off a cliff. You have to either catch them when they fall, or help
them find better dreams.

(1) [http://www.chronicle.com/article/Tuning-In-to-Dropping-
Out/1...](http://www.chronicle.com/article/Tuning-In-to-Dropping-Out/130967)

~~~
KGIII
Not everyone has the desire or ability to do STEM. I'm not sure why you'd not
encourage them. You do appreciate having someone cook your food and create the
art and media you consume, right?

~~~
WalterSear
The best part is paying minimum wage for it, because there are so many of
them. :)

Except not. These aren't people going on to be visual artists. These are
people frittering away their college opportunity, and then going on to careers
were the degree doesn't help.

> _" There is nothing wrong with the arts, psychology, and journalism, but
> graduates in these fields have lower wages and are less likely to find work
> in their fields than graduates in science and math. Moreover, more than half
> of all humanities graduates end up in jobs that don't require college
> degrees, and those graduates don't get a big income boost from having gone
> to college."_

These aren't people successfully chasing their dreams - these are people
avoiding adulting for four more years. It's not appropriate to encourage kids
to go to college "for the love of something," unless they already have the
means, or at least a plan, to pay for the rest of their life.

------
arcanus
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.

~~~
jliptzin
how are large behemoth corporations better for the consumer than an array of
small businesses competing for the same dollars?

~~~
jonknee
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
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.

------
watertom
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
Was healthcare formerly more affordable? Or did people not use it in the past?

~~~
prostoalex
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.

------
in_cahoots
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
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-
entrepre...](http://www.smashcompany.com/business/the-decline-of-
entrepreneurialism-in-the-usa)

Also:

"Where are all the startups? U.S. entrepreneurship near 40-year low"

[http://money.cnn.com/2016/09/08/news/economy/us-startups-
nea...](http://money.cnn.com/2016/09/08/news/economy/us-startups-near-40-year-
low/index.html)

------
sblank
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-...](https://steveblank.com/2011/09/01/why-governments-don’t-get-
startups/)

------
EternalData
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...](http://www.politico.com/agenda/story/2017/09/17/open-markets-
google-antitrust-barry-lynn-000523)

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.

------
petra
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
> 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
> 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.

------
Chiba-City
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.

------
sparrish
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.

~~~
bsder
> 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
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
[https://www.washingtonpost.com/news/wonk/wp/2014/10/18/poor-...](https://www.washingtonpost.com/news/wonk/wp/2014/10/18/poor-
kids-who-do-everything-right-dont-do-better-than-rich-kids-who-do-everything-
wrong/)

[http://www.dailymail.co.uk/news/article-1298425/Michael-
Gove...](http://www.dailymail.co.uk/news/article-1298425/Michael-Gove-says-
rich-kids-better-poor-clever-children.html)

------
Clubber
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
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
No, but the amount is new. Back then it wasn't it's own industry.

------
Animats
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.

------
IamNotAtWork
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
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?

------
dmix
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.

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

