Millennials are the most entrepreneurial generation ever.
Actually, that is a myth.
While we celebrate the phenomenal successes of millennial-created companies such as Facebook and YouTube, business ownership as a percentage of the population younger than 30 in the United States, according to Federal Reserve data, has decreased by 65 percent since the 1980s. The question is why.
Prior to the Great Recession, economic downturns generally were followed by an uptick in new-business formation. The logic of this phenomenon is that when certain workers were laid off from their employer and had a difficult time finding similar work, they would invest their time, talent and economic resources in creating their own companies. You don’t have to look very hard in Northern Colorado to find companies that were born out of this type of economic necessity.
However, the new-business formation bounce did not occur after the severe economic recession which began in 2008. In fact, beginning in 2008, more firms began exiting business than firms entering business, which has led to a quarter-century low in small-business ownership in the United States. This deficit is having a critical impact on the economy as small-business formation traditionally has played an important role in better labor utilization and wage growth.
So why aren’t millennials filling the gap in small-business ownership that is being vacated by baby boomers? A key to that answer may have to do with the economic circumstances with which millennials have had to contend. As the most educated generation in U.S. history, the rising participation in college has pushed up the cost curve of that education, which, in turn, has required many Gen Y’ers to take on significant debt to pay for those costs. Laden with that college debt and entering the workforce at a time when excessive risk-taking caused the worst economic crisis since the Great Depression, millennials may lack the desire or capacity to take on the risk of forming a small business.
“Access to capital certainly plays a part in it,” speculates Leah Johnson, Loveland’s 33-year-old city councilwoman and small-business creator, when asked why millennials have been less likely to start businesses. “I had an entrepreneurial spirit inside of me, which I inherited from my Dad, and believed I had to create my own opportunities. I was also passionate about serving my community and was able to fulfill that passion through my small business.”
Johnson created and ran a consulting company that helped local organizations in fundraising and community development before she was elected to the City Council.
Another Loveland small-business owner, John Metcalf, points out that each generation is influenced by the economic adversity they witnessed in their parents’ generation. Metcalf, a Gen-X’er, started Perfect Square, a graphic design firm at the beginning of the Great Recession.
“For me it was just time to go out on my own,” he explains. “It was a mutual decision with my former employer as they wanted to be more efficient and I wanted creative control of my work. But, just as my generation was averse to making a long-term commitment to a company because we witnessed 30-year employees getting laid off in my parents’ generation, perhaps millennials prefer the perceived safety net of working for someone else as a result of what they experienced.”
It also is possible that the trend will reverse as millennials work their way free of college debt and gain more confidence in the future of the economy. As a generation, they bear a lot of the traits that are necessary for an entrepreneur. Culturally taught to think out of the box and rewarded for innovation, millennials could yet turn into a great entrepreneurial generation. Given the pure size of the generation, that reversal in trend could significantly and positively impact growth and prosperity in the United States. However, without improvements in small-business formation, growth will probably continue at a more anemic pace than we have historically experienced.
Andy Montgomery is president and chief executive of the Northern Colorado Economic Alliance.