Why Young People Aren’t Starting Small Businesses

Emily Kate Pope

Emily Pope is the Managing Editor at Fundera. She specializes in all things small business finance, from lending to accounting. Questions for Emily? Comment below!

Millennials, a term for those born from 1981 to 1997, are a unique generation with ample potential as entrepreneurs.

Still, despite millennials being the most educated generation to date, factors like slowing asset accumulation, rising student debt, and coming of age during the Great Recession have made starting a small business a relatively rare thing for this demographic.

Shrinking Net Worth and Increasing Student Loans

According to a 2015 report by the Kauffman Foundation, those under 35 experienced the greatest negative % change—over -40%—in median net worth, based on data from 1996 to 2013. From 2007 to 2014, the average outstanding loan per recipient increased from $18,233 in 2007 to $27,689 in 2014. Factors like these, among others, touch the surface of why young people aren’t starting small businesses.

Although millennials with connections may be able to secure funding, these connections can often trace to the help of family, friends, and some luck.

Realistically, it’s difficult to establish seasoned connections in an industry right out of the gate if job opportunities are minimal and you have a lot of debt upon graduating college, as is the case for many millennials.

The Great Recession’s Impact on College Graduates

Most millennials graduated college or high school in the midst of the Great Recession, which brought high unemployment, low consumer confidence, and an uptick in personal bankruptcies.

One result was a variety of struggling small businesses, which could not offer as many jobs, while larger businesses were exclusively seeking employees with more experience. For recent graduates during this time, they had little choice but to work at part-time jobs—and some of those jobs had nothing to do with their skills or major.

A lack of workplace experience immediately after college, combined with the mounting student debt from graduating college, left many millennials in a difficult place. They had debt, though they were without a source of income to steadily pay it off.

Thirty percent of millennials still live at home, and the lack of job and experience opportunities, combined with mounting debt, are big culprits.

It’s difficult to establish a business, or even put much of a business plan together, when you lack experience and at least the bare minimum in funds to get things going. The prospect of taking on more debt, which many new businesses do initially, can also seem very daunting to someone who struggles to pay off their student loans.

Despite being more educated and at least equally motivated as prior generations, millennials simply lack the options, funding, and experience in many cases to make starting a small business practical.

Government Regulation and Uncertainty

Although business plans will be familiar to graduates of business school, the many millennials in liberal arts fields could be fully capable of running a successful small business with their skills and passion, though they lack knowledge regarding actually starting the business.

Millennials tend to be lacking in financial business knowledge, largely because many millennials are simply focused on paying their student debt and living paycheck to paycheck, which is understandable considering the Great Recession’s impact. If you don’t have seed money to invest, it’s unlikely you’ll extensively research how to do so.

Additionally, with topics like health care and the tax code constantly in flux, millennials looking at starting a business are unsure of how much to budget and what governmental regulations they must abide by. This ambiguity, on top of financial uncertainty, can make starting a new business feel understandably too risky for millennial entrepreneurs.

Millennials are savvy enough to utilize the many, easily available financial calculators online. Unfortunately, though, uncertainty regarding government regulations and tax codes from year to year can make initial planning tricky.

The Reign of Oligopolies and Monopolies

Everywhere from the cable industry to seeds and pesticides, oligopolies and monopolies dominate the climate of American business. These are businesses with long-standing ties to politicians, with handsomely paid lobbyists who fight for big businesses’ rights. They have no reason to let “the little guy” win, as they seek to maintain their deep pockets and grip on the industry. Industries such as craft beer have successfully shifted into being more small business-centric while many others are dominated by larger companies.

The perception of well-funded, well-connected competition can effectively turn off hopeful millennial entrepreneurs seeking to become movers and shakers within an industry, especially since these big businesses play a large role in shaping anti-small business legislative policy.

A Rent-Forward Ideology

The difficulties with funding also contribute to a rent-forward ideology of millennials, who are likely renting an apartment if they’re not living at home. Many market barriers exist for millennials seeking to purchase their first home, including recent rises in home prices and interest rates. The result is a feeling of temporary placement as these millennials jump from place to place and job to job. The seemingly perpetual state of “moving” can lead to discouragement regarding a lofty business plan, as millennials might seek to pay off their student loans or buy a home first, which can take a long time.

Millennials face harsh circumstances for starting a small business, where everything from the country’s economic state to the suffocating presence of oligopolies and monopolies makes starting a business an unrealistic thought for many millennials.

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

Emily Kate Pope

Emily Pope is the Managing Editor at Fundera. She specializes in all things small business finance, from lending to accounting. Questions for Emily? Comment below!

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