Why Did Entrepreneurship Become So Difficult?

From Vox Day: The Decline of Entrepreneurship in America

I think the decline of entrepreneurship has more to do with:

-Borrowing costs are too high. Due to perpetually low interest rates, large companies can borrow at very little; small companies pay much more. This allows large companies to take advantage of cheap borrowing to expand and crowd-out smaller companies.

-Everything is too saturated; too much competition. The growth rate of the amount of ‘stuff’ to consume, both content and merchandise, vastly exceeds the growth rate of eyeballs and wallets. The amount of ‘stuff’ produced is doubling every year, but the US population and wages is growing at only 5-10%.

-People have become skeptical/blind to advertising. I read somewhere that TV and newspapers ads are not profitable, but instead only used to build ‘awareness’. This does not surprise me.

-Everything is too expensive. The costs of common expenses such as insurance and advertising have far outpaced inflation.

-Hard to get funding. VC funding is still well-below the 2000 peak:

Since 2008, banks have considerably tightened their lending standards, too. Also, unlike the 90s, it has never been easy to raise money, so this belief that companies are being showered with cash indiscriminately is wrong. Ycombinator is inundated with applications, for a modest amount of money at a fairly large chunk of equity, suggesting a market that has much more supply than demand. Many start-ups get much less than a million dollars. What we’re instead seeing is a flight to quality, as part of the ‘winner take all‘ economy: the cream of the crop (Uber, Snapchat, Air BNB) is showered with cash but everything else is fighting for scraps.

-Entrepreneurship has a poor ROI; there are better alternatives for getting wealthy. As shown in Getting Rich in the Smartist Era, people are getting rich from surging Bay Area real estate, buying the dips in the S&P 500, and from investments like Bitcoin. No need to risk your capital and time on entrepreneurship, which has a 90-95% chance of failure, when you can put the money in a Bay Area home or in the S&P 500 and be almost guaranteed a good returns for the next decade. Including dividends, the S&P 500 is up 80% since 2005 (yes, that includes the financial crisis too). Home prices in the Bay Area have doubled since 2011. A couple of simple asset allocation systems I have developed have returns of 20-40% per annum since 2008. Unless your’re smart and lucky enough to make the next Snapchat, Tesla, Uber, or Facebook, you may as well stick with the S&P 500 as a way to build wealth.

-Stagnant real wages are often cited; however, total consumer spending keeps growing, so evidently people are still buying stuff.

-Too much risk, poor labor market. In the past, when good-paying jobs were abundant, people may have been less risk adverse, knowing they could always fallback on a good job or a comfortable retirement if their business failed.

Vox writes:

The dumbing-down of the populace. Thanks to post-1965 immigration, Americans are 4-6 IQ points less intelligent than they were back in 1980. Less intelligent people are less inclined to start jobs.

But less intelligent people are more inclined to buy stuff and are more receptive to advertising. As US consumers become more discriminating and have more choices, multinationals like Coca-Cola, McDonald’s, Nike, and Disney can readily expand to these fast-growing, impressionable foreign markets.

-Small companies cannot scale as well as larger ones; have higher input costs and thus smaller profit margins.

From Our Less Particpatory Times

…going back further, to the 50′s all the way to the 80s, you had four decades of post-WW2 prosperity and a consumer spending spree – tens of millions of impressionable Americans that were willing to buy anything you put in front of them, on TV, in the newspaper, or radio. This was a ripe time for entrepreneurs, who captured this growth spurt. While consumer spending has continued to boom, they have far more choices, with successful, large companies having already established their dominance.

Amazon is consuming the world right now. Johnson and Johnson pumping the world with baby formula and powder. Disney and Netflix keeping the masses entertained. Starbucks keeping everyone caffeinated.

In short, everything has become too damn hard, for both average people (due to debt such as student loans and credit cards, out of control healthcare costs, and bad job prospects) and for entrepreneurs (reasons given above). Unless you’re in web 2.0, can get a blank check from a VC, or are just lucky or exceptionally skilled, entrepreneurship sucks (or at least it’s damn hard).

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