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If you're avid reader of blogs like this one, chances are you can't go a day without hearing of a new startup that is seeking to revolutionize an industry, that just raised a round of funding, or that was acquired by a major company.

The global economic outlook may be uncertain, but startups are thriving. Or at least so it appears.

According to the Ewing Marion Kauffman Foundation, however, the startup may be on the decline. In looking at data from the US Census Bureau, it found that in 2010, startups -- those businesses formed within the past five years -- accounted for just 8% of all companies, the lowest figure since statistics on this started being kept. Contrast that to the 1980s, itself home an economic crisis or two or three, when startups accounted for approximately 12% of all companies.

Obviously, the technology startup ecosystem that we have today didn't exist in the 1980s, and if you're looking to start a business that can go from nothing to $1bn in a short period of time, you'd be hard-pressed to find a better path than to start a technology company (and perhaps enroll at Stanford University beforehand).

But the Kauffman Foundation's report provides some useful context for the Silicon Valley startup boom of recent years. If the Census Bureau numbers are to be believed, fewer individuals overall are opting to start businesses. While the Kauffman Foundation doesn't really speculate on the reasons, they're not too hard to identify. From the tough macroeconomic situation to the tough regulatory environment, there are plenty of barriers to starting a business today and anyone with the capital to fund themselves would have good reason to think twice.

It may be a bit easier for entreprenerus in Silicon Valley, where venture capitalists and angel investors flush with cash are currently willing to lavish inexperienced twenty-somethings with millions of dollars in the belief that they've got the 'right stuff.'

But if would-be entrepreneurs in general (read: the type who are more likely to be older and of independent means) are starting businesses at a noticeably slower pace than they have historically, it might be worth taking that as a red flag that the startup ecosystem we're seeing today, which has wannabe entrepreneurs flocking to Silicon Valley as wannabe actors flock to Hollywood, is not built to last.

Patricio Robles

Published 3 May, 2012 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

2341 more posts from this author

Comments (4)

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Neale Gilhooley

So by those calculations the 5 year attrition rate is 92% (which is lower than the NPD failure rate of 98%).

The only way some of these doomed start ups are getting funding is that there are few other funding options with sizeable returns on offer, yet once again the Funders don’t understand the technology nor the market needs. Sound familiar?

almost 4 years ago

Dean Marsden

Dean Marsden, Digital Marketing Executive at Koozai Ltd

I agree with Neale to a degree, Funding does become quite ridiculous and the success of a product is becoming more and more demanding; a burden. This may be putting a lot of people off creating a start-up.

I think there are also other factors such as: less demand- a lot of niches have been filled and these have already created a name for themselves making it harder for new competition. Also there are a lot of previously successful start-ups purchased by the big companies who tend to just let them die- think Yahoo & delicious. This is likely to put off passionate start-ups who want to see their product grow forever.

almost 4 years ago

Dean Marsden

Dean Marsden, Digital Marketing Executive at Koozai Ltd

I agree with Neale to a degree, Funding does become quite ridiculous and the success of a product is becoming more and more demanding; a burden. This may be putting a lot of people off creating a start-up.

I think there are also other factors such as: less demand- a lot of niches have been filled and these have already created a name for themselves making it harder for new competition. Also there are a lot of previously successful start-ups purchased by the big companies who tend to just let them die- think Yahoo & delicious. This is likely to put off passionate start-ups who want to see their product grow forever.

almost 4 years ago

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Dave

It's interesting to see the actual figures here. We were a startup and are now thankfully thriving, however the risks of starting your own business are large and it may be that people simply don't want to take that risk. There is a great deal of talk about funding but that should never be an obsticle to starting a business.

How about selling something?

almost 4 years ago

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