Guest Post: Start Ups-An endangered species in the corporate jungle.
By Rick Cobb
Every month we publish the Challenger Layoff report. Most writers and producers of business information are familiar with our releases, and come to us regularly for comment on issues of employment. Invariably we’re asked the question: “Where are the jobs…who’s hiring?” We respond with the “hot” sectors and geographies, but we seldom get to address a core issue.
In our current economy, the Fortune 1000 doesn’t create much in the way of net jobs. Big companies drive efficiency, productivity and economies of scale. Their goal is to do more with less, better and faster. Fewer people doing as much as possible translates into profit. Ford, Apple and Google all started out small. Now they are among the alpha predators of the jungle. The future “kings of the jungle” though start out as cubs and pups. Our current business environment is almost hostile to these “small fry”.
Real job growth in an economy comes from the start up and growth of new business. The prevailing environment in the US is simply not conducive to new companies, entrepreneurs and small businesses. Starbucks, Home Depot and Safeway are seeking as much business, from as many customers as possible. Their large appetite almost insures that the smaller “animals” will go hungry.
This environment is exacerbated by the current conservative nature of the financial sector. Post 2008 lenders and banks are more conservative than ever. The mortgage business was a great “play” because the rules for banking were skewed towards “everyone who wanted one, getting a home”. When the bubble burst, neither the financial sector, nor government oversight maintained the will to embrace the risk inherent in helping a small business start or grow. As proof of this, even the loan system in place for small businesses is hedging its risk by loaning to the larger companies.
One of my favorite sites to visit is fivethirtyeight.com. A recent piece by these very bright and statistically inclined people points out that the number of Start-ups is trending down and the number of
Start-ups failing is trending up.
As the dominant economy and currency allow for the upper hand in global expansion, the larger companies are taking advantage of their scale and reach to shore up their stock price, market share and return. This is not, by its nature, a job creating process. As the same time that the US is becoming more risk averse and conservative, the talent that might correct this trend has less access to funding and less experience with the concept of leadership.
So there’s less money for Start-ups; less tolerance for the risk of Start-ups; and fewer people with the drive and desire to lead.
One more factor may be at play here: the best ideas for a Start-up are identified and purchased before they can become an independent company. Perhaps the rising failure rate in Start-ups is also due the fact that the best ideas get bought and the less desirable ideas are all that is left. Why would the financial industry want to fund the mediocre?
Our challenge is to build and support safe environments for the Start-up with the funding and leadership to grow. It’s unlikely that the government will be able to agree on a strategy except perhaps for improving the ability to fund them. Our best hope may be in mature companies who have the money to invest and whose current products are soon to be obsolete. If we don’t find a way to support new ideas and companies the jobless recovery may be followed by the decline of the biggest economy in the world. People cannot buy without money.