The lost entrepreneurial generation?

• Author: Connolly, Matt

MILLENNIALS ARE STARTING FEWER BUSINESSES THAN PREVIOUS GENERATIONS. HERE'S WHAT MIGHT BE HOLDING THEM BACK.

There may not be a generation in American history with more entrepreneurial potential than Millennials. They tend to be more highly educated, independent, and open to change than their older counterparts. They report strong interest in starting businesses, have the most access to entrepreneurship training, and came of age at a time when successful entrepreneurs were ubiquitous in news and popular culture. In an economy in need of a jumpstart, it's a match made in heaven.

There may not be a generation in American history with worse entrepreneurial prospects than Millennials. They entered the workforce amid a recession that left many without the resources necessary to start their own business. They hold a record amount of debt paired with next to no savings. A market dominated by big businesses has less room for small ones owned by young people. As far as entrepreneurship goes, the situation is a disaster.

Of these two interpretations, it's the latter that's been borne out by statistics. Millennials "have created fewer and fewer businesses since they entered the workforce in the early 2000s," says a report from the Kauffman Foundation. Americans ages twenty to thirty-four are starting businesses at a slower rate than previous generations were when they were in the same age group. Business creation by Americans of all ages peaked at more than 550,000 startups in 2006, according to Kauffman, before dropping 31 percent to a low in 2010. That number only crept back up past 400,000 in 2012.

Before delving into potential underlying reasons behind the gap between Millennial interest in start-ups and their actual entrepreneurship rates, it's important to understand why new businesses matter so much to the economy. While established companies tend to add jobs overseas, American start-ups are much more likely to create domestic jobs. The most efficient path to job creation is a start-up that hits it big--which is also the path to major technological innovation, according to Robert Litan, nonresident senior fellow in the Economic Studies Program at the Brookings Institution. "Cars, airplanes, computers, air conditioning," Litan says. "All were commercialized by entrepreneurs, not established companies." Very few start-ups will grow big enough to hire lots of people (and even fewer will produce products with the technological impact of the car or...