Six years after the Great Recession ended, the nation’s economic recovery remains tenuous. The hiring rate has weakened; the manufacturing sector continues its rapid decline; and the labor force has shrunk to its lowest level since the 1970s. Nobody has felt this sluggishness more than millennials, who are facing lower incomes and higher unemployment than their parents did at their age. That’s a big problem: Projected to be 75 percent of the global workforce by 2025, millennials are the key to a sustainable economic recovery. But the leaders orchestrating our economy’s turnaround keep overlooking them and failing to cultivate their full economic potential.
Millennials have made clear how they want to help rebuild our economy. Survey after survey has shown that the nation’s youngest workers have a hungry entrepreneurial spirit, driven by the opportunity for independence and creativity. A recent study by Bentley University found that most young adults dream of starting their own businesses: “Millennials view career success differently than their parents do. Rather than striving for the CEO spot, 66 percent of millennials would like to start their own business.” We conducted a study that found that, in terms of setting professional entrepreneurial goals and having formed an idea about the type of company they want to start, millennials outpace older Americans by approximately 10 percentage points. But despite their dreams of becoming business owners, few millennials actually do: Just 3.6 percent of households headed by young adults own stakes in private companies, compared with 10.6 percent in 1989, according to a recent Wall Street Journal analysis. The future of our economy depends on finding a way to shrink that chasm between having an idea and having a business.
Cultivating entrepreneurs is great for the economy because the new firms they create are a prominent source of job growth. Washington understands that. This summer, the Obama administration will hold the first White House Demo Day, billed as an effort to make entrepreneurship more accessible to people from diverse backgrounds and geographies. This broad, inclusive goal is positive. But the White House has made it clear that its focus is actually much narrower. When it comes to celebrating entrepreneurship, our society, led by Washington and Wall Street, has become fixated on the technology industry, funneling money and support primarily into tech start-ups. That myopic focus is misguided. In contrast, most aspiring entrepreneurs dream about starting Main Street companies – restaurants, barbershops, boutiques and other everyday retail and services.
The timing is perfect to capture the economic promise of millennial entrepreneurship. The oldest members of the generation are reaching what has historically been the prime entrepreneurial age, at a time that coincides with improving economic conditions and renewed optimism. The climate for Main Street start-ups is looking brighter, with consumers spending more and interest rates having remained low.
Of course, the entrepreneurial process is complicated and fraught with risk: Hopeful business owners must turn their visions into solid business plans, assess the market, determine how much capital they need and find backers before they can even launch. After that, it gets even harder. Data from the Bureau of Labor Statistics show that approximately half of start-up companies fail to last more than five years. These are among the hurdles that have prevented many young people from becoming their own bosses. For this generation — already saddled with debt and struggling to get the private-sector experience that helps one launch a business — the risk can be especially intimidating. Although as a group, Main Street companies can be less risky than technology start-ups, they are often underfunded and poorly planned. In the absence of funding and planning, they are driven by passion, and that’s not sustainable.
That’s why government and other institutions need to step up. For one, we need to demystify the start-up process for aspiring entrepreneurs. Colleges and universities are the best place to start encouraging Main Street entrepreneurs to plan and fund their companies in a way that reduces risk. Babson College is an excellent example of an existing program that could be expanded, requiring students to gain start-up experience on a small scale as part of their course work. The University of Houston is another great example of how education can include hands-on experience along with traditional classroom learning. The University of Texas at Austin, in addition to offering formal entrepreneurship-related courses, offers a variety of entrepreneurship programs for students, including Texas Venture Labs, Longhorn Startup, Longhorn Entrepreneur Agency and the Technology Entrepreneurship Society. These types of programs should be expanded to reach young people who seek to start businesses after their formal education is over, too.
We also need to enhance connections between millennials and more experienced entrepreneurs as partners and mentors. Mentorship programs have been promoted at New Orleans Entrepreneur Week and South by Southwest, but we need more. These mentorships and targeted events help increase young people’s awareness of existing financing options and start-up support programs to launch their ideas. Too often, nascent entrepreneurs take easier – but riskier routes – to financing their ideas, like credit cards and relatives. Though those options are more expedient for the passion-driven entrepreneur, other funding routes, like SBA loans and bank loans, require the business-planning process that reduces the financial risk and stress that can cripple a start-up. Great business ideas shouldn’t stall simply because they don’t yet have the acumen to engage angel investors or venture capitalist partners.
New programs and opportunities for entrepreneurs shouldn’t just benefit aspiring business owners in their 20s and 30s. Generation X and baby boomers also have substantial interest in entrepreneurship and can benefit from more experience. When members of different generations work together – whether in a mentorship or as business partners — synergies can develop between their unique strengths and perspectives: Millennials are more confident about setting goals, more optimistic about future economic conditions and are driven by a desire to make a difference in society. In contrast, Generation X and baby boomers are marginally more likely to value persistence in recovering from setbacks and focus on the concrete benefits of employment: job security, reliable health insurance and retirement savings.
If we continue to undervalue the potential of young entrepreneurship, the consequences will trickle throughout our economy. Inaction promises a less robust and less diversified economic recovery, and one in which fewer Americans pursue their entrepreneurial dreams. Such inaction is akin to inadequate planning for retirement. At this point in our tenuous recovery, now is exactly the best time to invest in a diversified and inclusive portfolio of entrepreneurs.
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