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7 things that are killing your startup

Since reaching a peak in 2001, the number of high-tech startups in the U.S. has seen a steady decline. Here are the seven main culprits.

7 things that are killing your startup
[Photo: Simone Hutsch/Unsplash]

“Time for a poll,” I say, standing at the front of the classroom. “How many of you think you’ll go to work in corporate America?” More than a dozen hands shoot up. And then, I ask, “Entrepreneurs? Who is going to start their own business?”

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One day a week, I step away from a consulting practice working with startups and companies in transition to lead a class in the business school at what U.S. News & World Report has named a Top 25 Innovation University. Despite its relatively small size, Stevens Institute of Technology ranks No. 14 on the list of patents granted to alumni. Its students—electrical and computer engineers, majors in quantitative finance—are, you know, smart.

And so in the classroom this day, in answer to my second question, only three or four confident hands rise. Despite the constant stream of blogs lauding Silicon Valley and celebrating young billionaires and glorifying what’s been called “startup porn” (something that curiously features very few women—more on that later), America’s best and brightest are, it seems, loathe to jump into entrepreneurship.

In fact, American entrepreneurialism, as tracked by the Census Bureau and other indexes, is in steep decline. That’s alarming, given how much our economy depends on the small and midsized businesses (SMBs) that startups become when they go from crawling to walking to running. SMBs are where the U.S.’s world-leading spirit of innovation develops, and it is where job creation happens. In fact, as legacy companies periodically shed businesses and employees (hello, GE; hiya, GM), startups may be the most dependable source of net, quality job creation.

In class or on the job, almost every day I bump up against seven things blocking entrepreneurship. Seven things that, sadly, we are responsible for—in our failure to ignore economic imbalance, our pursuit not just of returns but ever bigger returns, our belief in a business philosophy based in gender and other biases. Of course, given that responsibility, it’s fixable, if we’re so inclined.

Student debt

For gen-Z, like those in my classroom, or those just out of school, the spiraling cost of a college education limits possibility. As I said, these kids are smart, and being smart, they can calculate how hard it’s going to be to pay off the average student loan debt of $37,000 and continue to eat and purchase pants just by rewriting code, business plans, and pitch decks with former classmates in a shared apartment while hoping they can create the next Snapchat.

Millennials

A lightning rod for all ills, most imagined, but in this case, statistics prove that 22- to 35-year-olds are becoming entrepreneurs at a lesser rate than any prior generation, with about one-quarter the number of self-starters as compared to gen-X or baby boomers. But then how much risk tolerance should we expect from a generation that grew up being told life came with certain guarantees? That the right internship or right school or right GPA, or just simply hard work, was all they needed to succeed in the world? In reality, the only certain thing about startups is a failure rate of 90% (and more like 98% if you’re in health tech). So it’s not surprising that a group unaccustomed to failure would be the near opposite of those who grew up in more precarious times—like my father-in-law’s father, a Depression child “only-in-America” character, who worked as a press agent, produced a TV game show, owned a forerunner to schools like Apex Tech, and even, briefly, an international airline. The risk of failure wasn’t a deterrent for him.

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Gender bias

Why is an entrepreneurial boot camp class I teach to high schoolers 80% male? Why, in the last hackathon I judged, was only one of the 20-plus participants a woman? Because we still treat startups like boot camp—before women could serve as soldiers. We may tsk-tsk bro culture, but we still embrace startup machismo as a necessary esprit de corps. We glorify the work-life imbalance of someone like Elon Musk as if he were a World War I soldier in the trenches. And the way VCs fund male-founded ventures is reminiscent of the Pentagon on a spending spree. To be sure, we have begun to address this issue with STEM education and women-founder-focused investment funds and, of course, #MeToo, but until female founders receive more than just 2% of the $85 billion VCs put into startups last year and we have as many female Mark Zuckerbergs and Jeff Bezoses as we do male ones, we’re in your father’s army.

Unicorn bias

To a certain kind of person, shooting clay pigeons isn’t as much fun as hunting big game. Such people have issues. As do investors who, because of ego, or the insatiable appetite for moremoremore, or the need to promise bigger and bigger returns to those who subscribe to their funds, too often ignore perfectly viable smaller ideas while tracking the billion-dollar babies. Github, Mailchimp, Shopify, and GoFundMe were all bootstrapped for want of VC dollars. They were lucky, of course. Lack of capital is a top five reason for new businesses to fail, and it results in a lot of unnecessary carcasses.

Unicorns themselves

Don’t let the rainbows and fluff fool you, unicorns aren’t all that nice. Those horns are weapons! Though oligopolies are equipped with scale to change the game, if desired, they are as protectionist as Larry Kudlow. They use that horn to defend against innovators who would disrupt their ability to disrupt. Monopolizing talent and suppliers, using their audience size as a moat against further innovation (which is why the graphics on your set-top cable box is no better than Frogger on an Atari 2600), buying out startups before they can scale consumers (and employees), and they readily copy and out-distribute upstart competitors, crushing them.

Patents

I have a consulting client who had a handshake deal with a retailer for 1 million units of his product. On his way out of the meeting, my guy passed a competitor who saw what he was selling. That competitor we later found out dropped an intellectual property (IP) bomb: “He doesn’t have the rights to that product,” the competitor told the retailer, “I do.” That was a lie told to defend shelf space—but it prevented the handshake from ever becoming ink on paper. While I’m all for protecting one’s intellectual property, small startups don’t have the war chest to fight patent battles we’ve seen between Apple, and well, everybody. They likely don’t even have a change purse, and so suffer from terror by patent. As a patent holder and creator myself, I’m all for protecting IP—if you’re using that IP. If you’re not using it, though, if you’re warehousing it, you’re just stifling innovation. How different would the business landscape look if the U.S. Patent and Trademark Office applied some measure of active use to patents as they do trademarks in order for them to remain enforceable?

Immigration

Who crosses what border, and why, and what is the impact of these migrations? All are questions with a complexity that defies answer in any one individual’s tweets. But here’s what I know: We’ve seen a 12% decline in immigration, a substantial drop in HB1 visas, and foreign students choosing countries other than the U.S. for university, if not leaving programs early. Unfortunately for us, and despite the conventional narrative, immigrants are founders and job creators, like my father-in-law’s father was, and more significantly, as were Andy Grove, Jerry Yang, Sergei Brin, the founders of YouTube, Colgate, Kohl’s and AT&T, not to mention the couturier to First Ladies Oscar de la Renta, among many, many others. In fact, 50% of the Fortune 500 were started by immigrants or the child of an immigrant.

Which brings us back to my classroom. ZW was one of the students who raised her hand for entrepreneurship. She was a smart woman, curious, culturally nimble, and willing to do the work it takes to be successful, such as teaching herself perfect English only by watching TV. ZW was in the U.S. from China. She is, in many respects, exactly the kind of person who with the right partners could start a business here. As she began to apply to graduate school, she asked me to write a letter of recommendation. I did, and a couple copies went to American universities, but more will be read in Shanghai and Beijing. “I would like to be here,” she tells me in an email, “but I don’t think it’s very likely I’ll get to stay, so I should probably go to school at home.”

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There’s a way to fix ZW’s problem, which is our problem, just as there is a way to fix the other issues on this list. We need to decide to dump the status quo. To disrupt. Sort of like entrepreneurs. Which, of course, we need to be, unless we’re comfortable having only four or five megacompanies serve us, charge us, traffic in our data, give us what they want instead of what we need.


Scott Omelianuk lectures in entrepreneurship at the Stevens Institute of Technology and is an entrepreneur in residence at the Stevens Venture Center. He is a founding partner in MediaScience.io, consultants to startups and challenged businesses.

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