Start-Ups Aren’t Cool Anymore

At happy hours and class breaks, at the part-time MBA program I attend through the University of Texas at Austin, the conversation often drifts toward new business ideas. A mobile app to schedule text messages in the future. (Use case: Compose your best friend’s happy birthday text the day before.) A social network that doesn’t sell your personal information or display any ads. (Business model innovation: monthly subscription fee.) A winery in a surprisingly temperate, beautiful, and affordable region of Central Oklahoma. A friend of mine was once so inspired by his own start-up concept that he pulled out his phone, checked the availability of his preferred URL, and registered the domain name on the spot.

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Similar scenes play out at lots of business schools. The majority of MBA students range in age from the mid-20s to the 30s; with all the discussion of start-ups and new businesses, it would seem that they’re living the millennial dream of entrepreneurship. But it seems more often than not these days, the start-up ideas fail to take off. When I check on my peers’ start-up proposals after a few weeks, I often find that their ideas have been abandoned, and that my classmates are focused on their steady corporate jobs.

Research suggests entrepreneurial activity has declined among millennials. The share of people under 30 who own a business has fallen to almost a quarter-century low, according to a 2015 Wall Street Journal analysis of Federal Reserve data. A survey of 1,200 millennials conducted in 2016 by the Economic Innovation Group found that more millennials believed they could have a successful career by staying at one company and attempting to climb the ladder than by founding a new one. Two years ago, EIG’s president and co-founder, John Lettieri, testified before the U.S. Senate, “Millennials are on track to be the least entrepreneurial generation in recent history.”

Some of the reasons have been well-documented. The romantic view of entrepreneurship involves angel investors and venture capital funds, but in fact, the ordinary entrepreneur is more likely to fund a start-up using personal savings—something underemployed millennials simply could not build as they entered the workforce during or in the immediate wake of the Great Recession. Funding from friends and family is the next most common source, but this personal network could not help much during the most recent economic downturn, when so much home equity was underwater. Student debt worsened the underlying economic problems. According to a report by the Federal Reserve Bank of New York, between 2004 and 2014, the number of student borrowers rose by 89 percent.

[Read: Why does Sweden have so many start-ups?]

Lately, though, it seems that even those who might typically have access to other forms of funding, like venture capital, are having a hard time getting investors’ attention. As Matt Krisiloff, a former director at the Y Combinator start-up accelerator in Silicon Valley, tweeted, “Start-ups are a lot less cool than they used to be.” Michael Sadler, an economist at the University of Texas at Austin, is concerned about the rising concentration of start-up investment in just a few super-performing regions such as Austin, New York, and Silicon Valley. As with American politics, it appears the geography of U.S. venture capital and economic growth has become increasingly polarized.

There’s more competition from abroad, too. Chinese venture capital and private-equity firms—and the entrepreneurs they invest in—are challenging America’s historic tech dominance. In the past, this kind of investing tended to involve American funders and American companies. But last year, Asian investors put nearly the same amount into tech start-ups as their U.S. counterparts, according to the Wall Street Journal, with most Chinese-led investments going into the country’s own firms. Of the top five global VC deals in 2017, three were Chinese companies: Didi (a ride-sharing app), Meituan-Dianping (an ecommerce platform), and Toutiao (a news feed reader).

Meanwhile, in the United States, products and services are increasingly being created on top of existing platforms like Apple’s iOS or Google’s Android platform. While a mobile app can make for a decent side hustle to a regular corporate job, it won’t turn into the next Apple or Google, and American investors know that. The more attractive investments are in industries like health care, where there is still opportunity to build a profitable platform. One of the biggest tech deals in the U.S. last year was Outcome Health, which installs video screens in doctors’ offices and charges pharmaceutical companies to display ads to patients. In a thread attached to his tweet about start-ups, Krisiloff, the former Y Combinator executive, added that the opportunities “to start compelling start-ups,” for college students without industry-specific knowledge, “has vastly shrunk.”

[Read: The secret start-up that saved the worst website in America]

While the Austrian American economist Joseph Schumpeter is best known for his 1942 paper describing his theory of “creative destruction,” the process of disrupting existing industries through business innovation or technological change, few people know about another prediction he made: He believed that innovation would gradually become an embedded process within large corporations. In many ways, Schumpeter predicted the internal innovation hubs of corporate giants like Amazon and SAP. With incumbents making innovation part of their established routines, he theorized, they would gradually squeeze out the traditional entrepreneur.

Some of the people who are innovating from within companies like Apple—which in August became the first publicly traded company to surpass a market value of a trillion dollars—might be glad about this development, Sadler said. “They think, ‘I don’t have to start up my own company in the garage, or worry about whether I’m ever going to survive. It’s all there for me now.’” But there is plenty of cause for concern. An economy dominated by older incumbent firms may be less likely to achieve consistently strong rates of growth, according to a 2014 paper from the Brookings Institution. Lettieri also questions whether big companies—in a world with less pressure from start-ups—“have any reason to innovate due to competition.”

When my classmates tell me about their start-up ideas, we sometimes also talk about what’s holding them back. Whether it’s student-loan payments, or the feeling of playing an impossible game of catch-up since the Great Recession, we often understand each other’s problems. Some entrepreneurs might argue that these shared generational experiences and the accompanying sense of solidarity will inspire millennials to support one another’s business ventures. It’s a nice idea, but it’s not necessarily certain. Research into the personality traits of entrepreneurs shows that, as a lot, they trend toward optimism bias.

Post Author: martin

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Martin is an enthusiastic programmer, a webdeveloper and a young entrepreneur. He is intereted into computers for a long time. In the age of 10 he has programmed his first website and since then he has been working on web technologies until now. He is the Founder and Editor-in-Chief of BriefNews.eu and PCHealthBoost.info Online Magazines. His colleagues appreciate him as a passionate workhorse, a fan of new technologies, an eternal optimist and a dreamer, but especially the soul of the team for whom he can do anything in the world.

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