For Startups to Thrive Everywhere, Here is What Policymakers Need to Understand About Entrepreneurship
A healthy economy relies on a balanced mix of established firms and startups, yet, a longstanding national decline in new business formation threatens this balance.
America’s cultural and economic identity has long been tied to innovation and entrepreneurship. A healthy economy relies on a balanced mix of established firms and startups. However, a longstanding national decline in new business formation threatens this balance in all but a few super-performing cities. While we believe that the entrepreneurial spirit exists in every city in America, some communities simply lack the access to opportunities to start and grow new businesses. That’s why we were proud to join the latest Rise of the Rest tour with Revolution chairman and CEO and AOL cofounder Steve Case.
The mission of Rise of the Rest is to strengthen emerging startup ecosystems, and these days that is critical. From 1977 to 2013, startups as a share of all U.S. firms fell by more than half, from 16.5 to 8 percent, according to our company’s findings. More troubling, startup formation has not only slowed, but it has become geographically clustered. We found that half of the rise in new business creation from 2010 to 2014 occurred in just 20 of America's 3,000-plus counties. The job growth, tax revenue, and local economic stimulus that accompany successful startups has concentrated within a few elite hubs.
From Omaha to Provo to Phoenix, entrepreneurs require access to the same resources and mentorship as those in more established startup communities. Yet, currently, 78 percent of all venture capital goes to only three states: California, New York and Massachusetts. The inspiring and diverse innovators we met at each stop of the Rise of the Rest tour affirm the need to empower entrepreneurs across the country.
Here are some steps that policymakers can take to scale the number of successful startup ecosystems:
Make it easier for entrepreneurs everywhere to access capital.
Businesses must have capital to grow. Cities like San Francisco, New York and Boston have well-financed ecosystems that allow startups to thrive. Nationwide, startup investment and small-business lending remains depressed even as lending to big business climbs to new highs. One policy proposal we love that would give startups an assist is the bipartisan “Investing in Opportunity Act." This bill would incentivize private investments into economically distressed communities throughout the country, providing a lifeline for new enterprises in areas that desperately need them.
Level the playing field for new businesses.
New businesses face a myriad of challenges each day: establishing their brand, hiring and training staff and executing a business plan. Adding excessive and anti-competitive licensing requirements and regulatory complexity only increases their vulnerability.
Established companies have the resources and institutional knowledge required to comply with complicated regulations. New businesses often lack these tools, and navigating obstacles -- like unnecessary occupational licensing rules -- are often speed bumps for local economic growth. Policymakers all across the country must do more to reduce the regulatory complexity and compliance burdens that hinder entrepreneurs and slow new business growth.
Build relationships with the startup community.
Entrepreneurs have ideas and insights that can be invaluable in fostering startup ecosystems, but they may not have the relationships with policymakers to ensure their voices are heard. Policymakers should regularly convene entrepreneurs to better understand the problems they face. Listening is the first step in designing the right policies and programs to support unique needs of their community’s entrepreneurs.
Sometimes the ecosystem itself needs a catalyst. In corners of the country where startup communities are nascent and mentorship networks thin, the public sector can bring investors, universities, service providers, and anchor companies together with entrepreneurs in an effort to jumpstart a self-sustaining innovation community.
These policies need champions in every community in the U.S. That is why EIG believes deeply in the mission of Rise of the Rest. If we want to revitalize our economy so that it works for more Americans, we need to do a better job breaking down the silos between the amazing entrepreneurs in the middle of America and the investors who are looking for the next big thing.