Are Startups Stagnating?

April 27, 2018 | Jessica Ogilvie

In the world of small business, we often assume that startup companies are everywhere, in every industry. They’re taking over, they’re the wave of the future, anyone with any shred of common sense is aligning themselves with a young, new company or launching one of their own.

But a recent article in The New York Times suggests that in fact, the very opposite is true. In “Where Are the Start-Ups? Loss of Dynamism Is Impeding Growth”, business reporter Eduardo Porter writes that despite a strong economy, oligopolies are preventing would-be American entrepreneurs from entering and disrupting the market, thereby causing overall startup stagnation.

“Belying breathless headlines about the fabulous opportunities that technology is about to bestow on society, new statistics suggest that many rich market democracies have lost much of their dynamism,” Porter writes. “Productivity growth has slumped.”

Porter’s concerns stem from his observations about the market in general, and also from a new study released by the Brookings Institute that points to an overall decline in dynamism, encompassing the decline in workers’ likelihood to “explore new patterns of economic activity: starting new, fast-growing businesses; switching jobs; and moving across the country.”

In his article, Porter notes that some of this can be attributed to an aging labor force: A couple in their 60s is probably less likely to move to a new city for a job than a couple in their 30s. But more than that, he writes, “the economy’s ability to generate and support new businesses — agents of creative destruction that bring new products and methods into the marketplace — appears to be faltering.”

He devotes the end of the article to making it clear that no one — not him, not the Brookings Institute, not any other expert — really knows why dynamism is suffering the way it is. But along the way, Porter examines the dangers of our current age of mega-mergers, like AT&T and Time Warner or Whole Foods and Amazon. Let’s take a look at some of his most salient points:

“Fewer startups mean fewer new ideas and fewer young, productive businesses to replace older, less productive ones.”

Let’s just get this one out of the way: Of all Porter’s points, this is perhaps the most frightening. At a time when technology really does offer us a wealth of possibilities and new avenues to explore, and when the gig economy is allowing us more flexibility in our schedules, something about the market is still holding back younger generations’ best and brightest entrepreneurial minds from making a go of it on their own. That means that even in this moment of shattering the status quo with movements like #MeToo, we are still left with the same old guard in charge of our country’s largest companies.

“The dearth of new businesses is also cutting off one of the main paths to workers’ advancement: the outside job offer.”

As freelancers, we often forget that one of the best things about setting ourselves apart in a crowded industry is that we may become quite valuable, and thus get snatched up by another company that wants to make us rich (or… like, middle class, let’s say). That may not be our goal — it may not even have crossed our minds — but it is a legitimate byproduct of being an innovator in any field. It’s also a path to higher wages and more fulfilling positions.

Porter notes, though, that the trend of individuals missing opportunities for career advancement of this sort isn’t new: “labor market fluidity — job switching, creation, and destruction — has been declining since the 1980s,” he writes.

“My best guess is that this is all about the decline of competition.”

Again, Porter admits that no expert that he’s aware of really knows why dynamism is slowing to such an alarming degree. His theory, though, is that it has very much to do with mergers like those we mentioned: Whole Foods and Amazon, AT&T and Time Warner, and so forth.

“By allowing an ecosystem of gargantuan companies to develop,” he writes, “all but dominating the markets they served, the American economy shut out disruption. And thus it shut out change.”

Of course, the takeaway here doesn’t all have to be doom and gloom (although we will grant you that it does sound that way). A lot of the points that Porter makes in the article can serve as inspiration to continue on your path of innovation. You certainly want to create and develop new ways of delivering goods or services, and want to advance either with your own company or another established brand as quickly as possible (right?!)

So, don’t let the trends dictate your path; and if anything, let them serve as a reminder of why you’re doing what you’re doing as a small-business owner or freelancer. Swimming against this particular tide can only serve you well in the long run.