When the financial crisis started in 2008, some people thought that the startups were going to be the saving grace that would bring the economy back. However, things got a lot worse for some unexpected reasons. I recently came across an article where the author discusses what some of the factors are that have hurt American entrepreneurship, and a lot of the points he makes are very compelling.
Most Main Street startups are initially funded with access to the personal credit and home equity of the founders. The author said that this was going to set the stage for troubles ahead, as millions of credit-card holders woke up in February of 2008 to find that their card issuers had withdrawn any available credit from the day before. Over the next year, the real estate/mortgage bubble burst, leading to significant reduction of the home equity of millions of US households. However, there were some other factors that the author didn’t foresee. Generations X and Y, the youngest (and largest) of marketplace participant groups, aren’t as entrepreneurial as the previous baby boomer generation. According to the Kauffman Foundation, startup activity for those two demographics has been declining since 2009. The government hasn’t helped the situation, and prospective founders of new businesses have been subject to a high level of anti-business rhetoric and policies from the federal government.
Although the recession ended in June 2009, its impact can still be felt. The US recovery, now in its sixth year, has been stuck in a sort of circular reference, and expansion-creating startups aren’t happening due to the factors listed above that are restricting entrepreneurship. The author says that real economic expansion will come with returning to the favorable entrepreneurial conditions that have shifted since 2008.