Do Startups Stand a Chance Against Big Business?
The latest indications from Silicon Valley are a bit disheartening for entrepreneurs looking to disrupt the status quo. It appears that many of the startups that have sprung up over the last few years — many of which are aiming at disrupting already-established industries — are startlingly ineffective at disrupting anything. In fact, with a few notable exceptions, corporate America is looking as strong as ever, at least according to new insight from FiveThirtyEight.
As an example of disruptive startups, Uber and Lyft have built their businesses by throwing a wrench in the taxi and transportation system, and it’s worked to some degree. Airbnb is disrupting the hotel and hospitality world. Another example — albeit possibly the most successful instance — is that of Netflix, which turned the home entertainment industry on its head.
While those companies have tasted success, most others are still struggling to take away marketshare from incumbents, and for right now, those incumbents are standing strong. While FiveThirtyEight reports that entrepreneurship and startups are an important piece to the overall economic health of the country, the rising rates of startup failures and failed ventures have economists worried. In 2011, 27 percent of new companies went out of business within their first year, whereas 20 years ago, that figure was at 20 percent. Also of note: During the 1970s, 15 percent of all businesses in the United States were startups. Now, that number has been cut nearly in half, to 8 percent.
So what exactly is going on? A number of things appear to be at work.
One possibility is that following the recession, which hit a lot of lower- and middle-class people incredibly hard, people are not willing to take the risk of either starting their own company or working for a small one. The security and safety of working for large corporations does have its benefits, as they are less susceptible to going under when economic conditions sour.
This is only one advantage that big companies enjoy over smaller, less-established businesses. And it plays right into declining rates of business dynamism being seen across the country.