As of 2018, there were 30.2 million small businesses operating in the U.S. And on average Americans start around 400,000 businesses every year. But there is one group which is not doing well when it comes to starting a business, young entrepreneurs.
The number has gone down so much, The Wall Street Journal labeled them an “endangered species.” This is a serious problem because older entrepreneurs are also retiring or shutting their business down. With small businesses responsible for the employment of almost half or 47.5% of the workforce, the long-term impact is concerning.
A new infographic by Lance Surety Bond Associates, titled, “7 Reasons Young Entrepreneurs are an ‘Endangered Species’” looks at some of the reasons.
The report starts with a sobering statistic about the decline of young entrepreneurs. Between 1989 and 2017, the number of young adults with stakes in private companies declined from 10.1% to 4%. This is the reason The Wall Street Journal attached the ‘endangered species’ label.
Why Are There Fewer Young Entrepreneurs?
The report lists seven reasons for fewer young entrepreneurs today than 25+ years ago. And the number one reason probably affects all age groups, fear of failure. But for 25 to 34-year old’s, almost half or 41% are held back by fear of failing.
As SBT reported in 2018, overall 33% of Americans say the fear of failure holds them back from starting a business. This is eight percentage points lower than younger Americans.
The next reason is somewhat perplexing but it is higher education. According to the report, higher education reduces the entrepreneurial spirit. When it comes to small businesses, the majority of owners don’t have a college degree.
In certain segments this is becoming the norm as young Americans don’t see the value of a college education. Driven by non-degree certificates, digital technology, and online commerce people have more options to start a business without a degree.
Financing rounds up the top three reasons, and it is one of the most difficult hurdles a young entrepreneur has to overcome. Because they don’t have strong credit history or savings it is that much harder to get approved for financing. So, even if they have a strong desire to start a business, they might have to wait.
Some of the other reasons are fierce competition; no succession planning for young entrepreneurs; not enough skill sets and experience; lack of network and support infrastructure.
How to get More Young Entrepreneurs to Start a Business
According to the report, getting more young people to start a business will require a multi-pronged approach. Public and private entities must come together to encourage young people who are excited about starting a business and provide them with the necessary resources.
It all starts by instilling the entrepreneurial spirit with educational programs designed to provide the skills they need. As mentioned previously, having a college degree doesn’t necessarily translate to being an entrepreneur. Moreover, if they decide to start a company it doesn’t mean they will be a good business person.
Along the same line, businesses incubators and accelerators can also give young entrepreneurs the knowledge they need. By providing skills, experience, and a growing network, they can start a business knowing they have resources they can access. And one of the resources they need most is financing.
By providing local, state and federal incentives and programs, governments can provide easy access to financing for young entrepreneurs. The Small Business Administration is a great resource for all things small business, whether you are young or older.
The infographic ends by giving young entrepreneurs solid advice. “You don’t need the most original or disruptive idea. What matters is cultivating your skills, motivation and perseverance.” Vic Lance, founder, and president of Lance Surety Bond Associates.
Take a look at the Lance Surety Bond Associates infographic below.
Images: Lance Surety Bond Associates