Last year, John Lettieri of the Economic Innovation Group testified before the U.S. Senate that millennials were on track to be the “least entrepreneurial generation” in the past century. The Small Business Administration reported that in 2014, less than 2 percent of millennials described themselves as being unemployed, compared to 7.6 percent of generation X and 8.3 percent of baby boomers.
These statistics took a snapshot of each generation as they currently are, which means this could be an indication of entrepreneurship distribution by age more than by generation, but even accounting for ages by measuring entrepreneurial growth rates, millennials are lagging behind previous generations.
So what’s happening here? Why are there so few millennial entrepreneurs compared to previous generations?
What’s Causing It?
The problem of entrepreneurship in the millennial generation is an interesting one, because millennials are clearly interested in becoming entrepreneurs; in fact, 60 percent of surveyed millennials consider themselves to be entrepreneurs already, with 90 percent seeing entrepreneurship as a mentality.
Unfortunately, that mentality alone can’t lead to the creation of new businesses or other forms of innovation. So why aren’t more millennials actually starting new companies?
These are just a few of the potential reasons:
· College costs and unemployment. College costs have been on the rise for years, and they still keep rising — the average class of 2016 graduate left school with $37,172 in debt, marking a rise of 6 percent over the previous year. On top of that, millennials are facing more cultural pressure than any other generation to go to college and get a degree immediately after high school, no matter what. The combination has led to market saturation of college degree holders, as well as disproportionate millennial unemployment. Millennials tend to have more education than average, but are more likely to be jobless and managing an ever-increasing load of student debt. That doesn’t free up much time or money to invest in an entrepreneurial endeavor, even if it’s possible to start a business with almost no money these days.
· Risk aversion. Millennials are also afraid of failure, at least to an extent. Back in 2001, a survey found that 24 percent of Americans then-aged 25-to-34 claimed fear of failure was keeping them from starting a business. In 2014, 40 percent of the same demographic reported that fear, marking a rise of 16 percent between generations. Startups are inherently risky, and if you’re not prepared to take that risk, you’re not going to waste your time or money — especially when you’re managing those looming student debt payments. Since it seems to be a mental issue, it’s a hard motivating factor to correct.
· Oligopolies. There’s also a problem with barriers to entry; the modern market is dominated by oligopolies, or businesses that control an enormous share of the market. Today, nearly half of all firms in the United States are a decade old or older, and collectively, they employ more than 80 percent of employees. Even in the tech industry, which is driven by innovation, oligopolies are forming; Facebook, for example, controls more than 2 billion users, and also owns popular platforms like WhatsApp and Instagram. If you’re a millennial entrepreneur with limited cash and an aversion to risk, there aren’t many opportunities for you to gain market share quickly.
Of course, there are exceptions to every rule. The millennial generation has featured some of the most gifted and innovative entrepreneurial minds of our era. Tech entrepreneurs, like Facebook’s Mark Zuckerberg and Tumblr’s David Karp, are both millennials who revolutionized the way we use the internet, and media-focused entrepreneurs like Peter Cashmore of Mashable and Daniel Ek of Spotify have made it easier for us to produce, find, and distribute content.
It’s no surprise that the majority of these millennial influencers found success in new spaces — primarily in the tech sector — where startup costs are reasonably low, and were oligopolies weren’t currently lurking. Plenty of new opportunities still remain.
Why Does It Matter?
Why am I taking the time to write this article, and what good can come from learning about the habits of one generation? The Kauffman Foundation’s research shows just how impactful startups and new small businesses are in terms of overall economic development; in fact, new businesses are responsible for almost 100 percent of all net new job growth in the United States. If the millennial generation represents a void in the emergence of new businesses, the economy’s growth could slow to a crawl, and all businesses and individuals could feel the hit.
So what can we do to encourage more millennials to become entrepreneurs? Most of the root causes are tied to national-level issues with no easy solutions, such as controlling the costs of a college education, and breaking up major oligopolies that discourage competition. However, we can encourage entrepreneurship in our own communities by working closer with existing entrepreneurs, becoming patrons of local and small businesses, and supporting friends and family members who talk about wanting to start their own initiatives.
The risk aversion of millennials is easily the most controllable factor in their lack of entrepreneurship, so we owe it to this generation (and future generations) to address it.