A recent set of studies show entrepreneurship on the decline. Most of the analyses of these studies attribute the decline to a risk-adverse generation. A few attribute the decline to a reclassification of employment from entrepreneur or small business start-up to independent contractor.
In my business I talk to other businesses day in and day out. There is no question that the business environment is tough and that even normally aggressive business people have pulled in their horns. Its also clear that many small businesses have folded. I’m not seeing new businesses replacing them as quickly as 5 years ago. And its not clear what that means.
To understand, what that means we first have to understand why people start businesses. Many of the entrepreneurs that I’ve spoken to and worked with over the years started a business to solve a problem. Some of them needed flexibility that a ‘regular’ job wouldn’t offer. Others saw business ownership as a way around a variety of institutional disadvantages to them.
For instance, a professional woman may choose to consult because a corporate job would penalize her for her last few years on the Mommy track, or an older professional might see more flexibility if they work for themselves. And of course many entrepreneurs have a vision for a product or service that a larger company just doesn’t ‘get’ or support.
Stated simply, people start businesses because they believe in themselves, their skills and their ideas more than others would. They also judge their chances as better on their own than within a company struggling within a maze of cubicles.
So clearly people are less tolerant of risk. Many their spouse’s job isn’t as secure that they can chance the family finances. At the same time, the hurdles that normally exist to starting a business seem higher: more regulation, less reward, more risk.
The decline seems real, so what does that mean to the rest of us? It means we have a competitive advantage. If the barrier is higher to the new guy to compete against us, then we have a rare opportunity to enhance our competitive advantages. So your goal should be to gain market share.
It also suggests that much of the competition is risk adverse. Which suggests that you can take some chances and innovate. Innovate in your processes and materials to reduce cost and increase your throughput if you are a manufacturer. Innovate in your service and options if you are a service provider.
It suggests that some reevaluation of your pricing may be valuable. Differentiate your product pricing to gain market share. Offer different packages that may appeal to customers.
If you are starting a new business, now is a difficult time. Financing is harder. It may be difficult to find supporters–or maybe not. Your competitors may be so risk adverse that they don’t innovate. So startups should be careful to find new ways to deliver and new ways to use technology to improve production.
The old saying is that in Chaos is Opportunity. As businesses fold, customers turn to new sources. Don’t believe me? Watch the restaurants in your neighborhood, some will go out of business and others thrive. The trick is to see around the corner to the opportunities beyond.