Technology start-ups, it all about quality over quantity
The number of technology companies aged five years or younger in the United States is declining. According to the Kauffman report there are only 80,000 tech companies, down from a high of 113,000 in 2001. So is entrepreneurship dying?
The first point to note is that this is a worrying trend for the US economy and the biggest concern for economists is that the decline in new businesses will lead to a decline in job growth. In addition to this new business growth drives innovation and a growth in productivity.
So what is the cause of this decline?
A point that is highlighted in much of the commentary is that many start-ups are being acquired quickly by larger more established companies. Facebook, Yahoo, and Google have all been acquiring companies over the years as soon as they show any potential. This trend is one that is only gaining momentum. In an interesting move this week Yahoo acquired Blink, a mobile messaging company and announced they will be shutting the App down, indicating that the acquisition was purely about acquiring talent over IP.
While this is interesting there is no way that Facebook and friends have been the single cause of the decline in new business growth. There are other factors that also need to be considered.
The days of the social start-up that demonstrates it worth through user growth may be over and entrepreneurs are now according to Martin Carstens solving boring problems that have a solid business model. If entrepreneurs as a result need to be more focused on revenue growth over user growth and the number of social start-ups are limited by the fact that the market can support in most cases only one social brand trying to connect with the same users then it does not look like an attractive place for entrepreneurs to play.
While you cannot argue that this will play a role in limiting the number of new businesses that enter the market it is still not enough to account for the 27% decline.
Other factors that have been a discussed include the limited visas for skilled workers as well as the soaring student debt, which can discourage would-be entrepreneurs from striking out on their own.
However you look at it the signs are worrying if you are an economists but if you take look at it from a technology point of view it is not about the quantity of start-ups but the quality of their ideas. So as long as the ideas keep flowing then entrepreneurship should be ok.