Just Read: Illusions of Entrepreneurship – Part I

Illusions

Research from Prof. Scott Shane of Case Western University reveals unexpected truths about start-ups. Common rhetoric is that public policy should aim to incubate new businesses, and nurture small ones, all in the belief that most jobs come from this sector. But closer examination shows that basically most start-ups offer a poor return on investment for the country, the community and the entrepreneur herself.

Caution for Policy-Makers

Data from the US, ironically one of the most enthusiastic supporters of the entrepreneur, shows that high-profile, successful start-ups that attract venture capital or list publicly are a tiny sliver of new ventures. Less than 5% of businesses will reach such colossal levels of success. The typical start-up will create few, if any jobs, and generate little in sales. Over time, they are net job-destroyers.

Overall, older firms are more productive, innovative. They contribute more meaningfully to new employment that drives economic growth. For this reason, policy-makers are better served to n focus on growing high-quality, high-growth companies led by experienced, skilled entrepreneurs rather than encouraging start-ups.

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