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Entrepreneurship suffering in post-recession economy
Working 40 to 50 hours per week as the president, CEO and head of engineering at his startup company, York College student Kyle Musco is taking a risk many others his age are avoiding.
Musco, who operates his tech company Moena with a fellow rising senior, said he always knew he wanted to run his own business. Nearly two years into the venture, he's hopeful the company will be able to sustain him financially after graduating.
"We're generating enough to pay the bills," the 22-year-old said, "but I'm not going to be buying a fur coat anytime soon."
Recent statistics suggest Musco, an entrepreneur growing his business in a mid-sized county, represents a dying breed.
New business activity is rapidly being confined to the most populous areas of the country and, possibly for the first time in American history, business deaths now outnumber business births, according to U.S. Census Bureau data.
Big getting bigger: The Economic Innovation Group recently posted a report based on census data from America's past three recessions and five-year recovery periods. Among the more intriguing trends the nonpartisan group discovered was a noticeable shift by entrepreneurs to more populated counties.
Between 2010 and 2014, half of the country's new businesses were generated by 20 counties, including America's 10 most populous areas. That 50 percent figure was generated by 64 counties between 2002 and 2006, and 125 counties between 1992 and 1996.
The 20 counties comprised five each in California and Texas, four in Florida, three in New York and one each in Arizona, Illinois and Nevada.
Jeff Vermeulen, executive director of York College's J.D. Brown Center for Entrepreneurship, said the reasons for the shift are mostly financial.
"You can be at a coffee shop in Palo Alto (California), close your eyes, throw a dart and hit somebody with the ability to invest a significant amount of money in your business," he said. "That is very enticing."
Gary Keith, a local economist for M&T Bank, added that the larger cities, including Boston and Chicago, tend to be places people enjoy living.
"It is a bit discouraging that economic opportunities are becoming more focused in certain industries and markets," Keith said.
The rise of new businesses in larger counties is coming at the expense of small and mid-size counties across the country.
Counties with populations between 100,000 and 500,000, which includes York County, accounted for 39 percent of the U.S. net business creation between 1992 and 1996, according to EIG's report. Between 2010 and 2014, counties of those size accounted for just 19 percent of the country's business creation, while counties with populations greater than 1 million jumped from 13 percent in 1992-96 to 58 percent in 2010-14.
Counties with populations below 100,000, meanwhile, fell from accounting for 32 percent of the country's business growth in 1992-96 to actually producing a negative net change in 2010-14.
Keith said he wouldn't be surprised to see this trend trail off as the cost of living in larger cities continues to climb.
"Mid-size areas need to start planting their flags to attract investment," he said. "It starts with cost and livability. Economic development is a living, breathing thing, and there's still more change ahead of us."
York County saw a negative net change — losing 31 business establishments — between 2010 and 2014, according to census data, but Keith said the area still has potential to take advantage if entrepreneurs start moving away from larger counties.
Central Pennsylvania has natural location and transportation advantages, Keith said, but the region needs to alter its educational curriculum to promote more specialized skills.
Musco said his original plan was to move his company to a big city after graduation, but after speaking with several friends who had done that, he failed to see the benefit.
"There's nothing you can do there that you can't do here," he said. "It's just a fad."
Musco works out of the J.D. Brown Center after winning the school's elevator pitch competition and said Vermeulen has introduced him to numerous investors.
Vermeulen said he's currently working with a company that will be "hatching" from his center's incubator into a venture fund that will seek to invest in local companies, but he couldn't provide specifics yet.
Aeman Bashir, project manager for York County Economic Alliance's Entrepreneurial Support Alliance, said entrepreneurial trends ebb and flow, and the next generation might not care about living in a city atmosphere.
Entrepreneurial decline: Entrepreneurship is currently in a discouraging period of ebb in America, and experts don't necessarily see a flow coming soon.
The U.S. ranks 12th among developed nations in terms of business startup activity, behind the likes of Hungary, New Zealand and Israel, according to Jim Clifton, CEO of Gallup.
Business deaths first outpaced business births in America in 2008, according to census data, and that trend has continued through 2013, the most recent year the census has published such data.
"I don't want to sound like a doomsayer, but when small- and medium-sized businesses are dying faster than they're being born, so is free enterprise," Clifton wrote in a Business Journal article on Gallup.com. "And when free enterprise dies, America dies with it."
Each of the previous five-year recovery periods produced more than 400,000 new businesses, according to EIG's report. In 2010-14, approximately 165,000 new businesses were created.
"It owes to the nature of the recession," said John Lettieri, co-founder of the group. "The repercussions of this trend are profound and will be felt for the next five to 15 years."
Each expert pointed to numerous factors contributing to the decline in entrepreneurship: Lettieri mentioned the decline in small banks and rise of student debt; Bashir said recent federal policies on overtime rules and minimum wage hurt small business owners; Keith talked about a sharp fall in consumer spending; and Vermeulen simply argued that the business environment is more competitive than in the past.
Clifton wrote that American leadership has incorrectly focused on improving the economy solely by encouraging innovation, and Vermeulen agrees.
"It’s one thing to innovate," Vermeulen said. "It’s an entirely different thing to turn that innovation into a good or service to generate revenue and create a job."
Vermeulen and Bashir said there's no lack of entrepreneurial spirit in York County, and increasing small business creation is just about connecting interested parties with available resources.
Musco has seen the benefit of those resources, and that's why he's sticking around as long as his company remains viable.
"If it doesn't pan out, I'll just go into the (tech) industry," he said. "But I definitely want to run my own company."