Category Archives: entrepreneurs

21/5/19: ‘Popping up everywhere’ or not? Entrepreneurship and start ups

Much has been written, taught and said about the New Age of Entrepreneurship and the new generations of entrepreneurs, allegedly springing up across the modern economies. The problem is, for all the marketing hype and academic programs enthusiasm, entrepreneurship (new business formation) is actually running pretty low.

Here is the U.S. data on new business formation:

While other data, e.g. Kauffman Foundation, shows relatively stable and even higher rates of entrepreneurship over recent years, much of this data aggregates both incorporated and non-incorporated businesses, including sole traders and self-employed. This is reflected in the fact that entrepreneurship rates in recent years have been sustained solely by a massive increase in entrepreneurship uptake by individuals with less than high school education and of older age cohorts:


Over the same time, cohorts with higher education have seen a decrease in their entrepreneurship rates, driven in part by their rising share of population, their rising numbers, and, well, yes, lower incentives to undertake entrepreneurial risks.

Now, as to the age of entrepreneurs we have.

In  summary, the above table shows that the rates of entrepreneurship amongst the Millennials have declined, the rates for GenX-ers (35-44 cohort) have risen, but are quite volatile, with significant increases (2009-2010) associated with greater involuntary entrepreneurship (high unemployment), while overall increases in entrepreneurship have ben sustained by entrepreneurs of ages 45 and older.

So, to that often repeated popular and academist 'truism' of the New Age of Entrepreneurship and the great entrepreneurial spirit of the younger generations... errr, not quite.

Note: caveats notwithstanding, good data on the subject is available here:

8/4/18: U.S. economy: entrepreneurship is not ‘the new thing’ outside Academia

These days, every business school on every university campus is sporting a burgeoning post-graduate program in Entrepreneurship. And this trend is driven by the perceived - and often hyped up by the media and by business futurists - rise in entrepreneurship in the modern society. Apparently, allegedly, an increasing proportion of today's business students want to start their own businesses (despite the fact the vast majority have never worked in a start-up and have no expertise to run one). The new dynamism of the economy, the college-to-start up model of business education, the 'can do' attitude (or aspirations) are all part and parcel of the mythological creature that is the New Economy.

In reality, of course, brutally put, there is no evidence of rising demand for entrepreneurship. And, worse, in fact, there has been a dramatic decline in entrepreneurial rates in the U.S. economy:


Now, consider the two data series above, together: firm entry (new firms creation) and firm exist rates. As the blue line trended down, rapidly, without a pause, the green line remained relatively flat. Which means that the ratio of entries to exits has fallen over the time, pretty dramatically. In the 1970s and 1980s, firms entries had, on average been more frequent and less likely to be associated with higher firm exits. In the 1990s,  both relationship deteriorated. In the 2000s, both literally went down the drain.

So as the rate of new businesses additions went down, the rate of old businesses exiting did not change that much. So much for dynamism and for 'entrepreneurial spirits' of the young. The start ups mythology is strong. But the reality of the U.S. economy is that of concentration, market power, monopolization and decline of entrepreneurship. Funny thing, how Silicon Valley propaganda works, right?

How do we know the bit about monopolization? Why, look at profit share of output:

Still want to build up that 'entrepreneurship program' in the University? Because students want to learn about starting their own businesses? Should you really think twice?

20/5/16: Business Owners: Not Great With Counterfactuals

A recent paper, based on a “survey of participants in a large-scale business plan competition experiment, [in Nigeria] in which winners received an average of US$50,000 each, is used to elicit beliefs about what the outcomes would have been in the alternative treatment status.”

So what exactly was done? Business owners were basically asked what would have happened to their business had an alternative business investment process taken place, as opposed to the one that took place under the competition outcome. “Winners in the treatment group are asked subjective expectations questions about what would have happened to their business should they have lost, and non‐winners in the control group asked similar questions about what would have happened should they have won.”

“Ex ante one can think of several possibilities as to the likely accuracy of the counterfactuals”:

  1. “…business owners are not systematically wrong about the impact of the program, so that the average treatment impact estimated using the counterfactuals should be similar to the experimental treatment effect. One potential reason to think this is that in applying for the competition the business owners had spent four days learning how to develop a business plan… outlining how they would use the grant to develop their business. The control group [competition losers] have therefore all had to previously make projections and plans for business growth based on what would happen if they won, so that we are asking about a counterfactual they have spent time thinking about.”
  2. ”…behavioral factors lead to systematic biases in how individuals think of these counterfactuals. For example, the treatment group may wish to attribute their success to their own hard work and talent rather than to winning the program, in which case they would underestimate the program effect. Conversely they may fail to take account of the progress they would have made anyway, attributing all their growth to the program and overstating the effect. The control group might want to make themselves feel better about missing out on the program by understating its impact (...not winning does not matter that much). Conversely they may want to make themselves feel better about their current level of business success by overstating the impact of the program (saying to themselves I may be small today, but it is only because I did not win and if I had that grant I would be very successful).”

The actual results show that business owners “do not provide accurate counterfactuals” even in this case where competition awards (and thus intervention or shock) was very large.

  • The authors found that “both the control and treatment groups systematically overestimate how important winning the program would be for firm growth… 
  • “…the control group thinks they would grow more had they won than the treatment group actually grew”
  • “…the treatment group thinks they would grow less had they lost than the control group actually grew” 

Or in other words: losers overestimate benefits of winning, winners overestimate the adverse impact from losing... and no one is capable of correctly analysing own counterfactuals.

Full paper is available here: McKenzie, David J., Can Business Owners Form Accurate Counterfactuals? Eliciting Treatment and Control Beliefs About Their Outcomes in the Alternative Treatment Status (May 10, 2016, World Bank Policy Research Working Paper No. 7668: