Entrepreneurial participation among recent grads plummets.
While skilled and mature workers represent the backbone of the economy, youth are the promise that capitalism will continue to thrive and prosper. Young people are often risk takers, individuals willing to start and build a new business, sometimes from scratch.
However, 2013 Federal Reserve data as analyzed by the Wall Street Journal reveals a disturbing trend. That trend shows that the percentage of people under age 30 who own a business has fallen and has reached a 24-year low. Today, only 3.6 percent of people under 30 retain ownership in private companies compared to 10.6 percent in 1989.
Reasons for the decline are not easy to determinate, however the following theories may be among the most compelling reasons:
1. Tighter lending standards are at play. Banks and other lenders tightened lending during the last recession and have kept those standards high ever since. Consequently, only more established businesses are receiving loans, while potential upstarts must do without.
2. Regulation hurdles have been raised. For many small businesses, hurdles to starting a business have never been higher. Not only does it take cash to launch a new enterprise, but licensing, regulations and accounting costs mean meeting elevated government requirements even before a business can be started. As a result, potential entrepreneurs see a daunting barrier in the way.
3. The fear of failure is a strong one. Most businesses fail within five years. That prospect alone has enough people giving pause to starting a new enterprise. Fixating on US Small Business Administration data may halt potential entrepreneurs from pursuing a dream or a passion.
4. Other financial burdens loom large. Consider the average student loan debt for college graduates and you are looking at $29,400 in education loans that must be paid back, according to CNN Money. Repayment of that debt on top of business start up costs can keep anyone from moving forward. Perhaps if student debt was not so high, more young people would be willing participants.
5. Venture capitalists favor health and technology companies. Unless you have a certain type of business model in mind, particularly a health-related and technology enterprise, few investors will be interested in funding your start up. If you run a seasonal business, participate in a mature or declining industry or have a “slow growth” business model, the people with deep pockets will likely stay away. Accordingly, your planned enterprise may never get off the ground notes Laurie Petersen writing for Fast Company.
If you still want to start a business, there may be other ways for you to receive financial backing. Young entrepreneurs may find family members and friends willing to support their business for a stake in same. Indeed, your parents may be the best people to turn to when starting out.
You may also find that likely customers love your business model and would back your plans. Create a business plan to show how you will operate your enterprise for the first 12 months, with a longer plan drafted showing where you will be after five or 10 years. Also consider vendor financing, purchase order financing and strategic investments from partners, even competitors, to help you get started.
To sum up, starting any business is a challenge, including one that is sought after and handsomely backed by investors. Certainly, your business might fail but its success potential will remain in place for as long as you keep your hand to the plow.
See Also — 7 Challenges of the Entrepreneur