New Hampshire economy hindered by its aging businesses
Number of startups has fallen by 50% since 1988
New Hampshire’s aging population isn’t just creating workforce problems. The state’s businesses are on average older too, and that means they are less likely to create jobs or pep up the economy, according to Dover-based economist Brian Gottlob’s gloomy reading of census and labor data.
“This has major ramifications,” Gottlob, principal of PolEcon Research, told NH Business Review. “Any economy is at risk if there are not enough entrepreneurs.”
In his Trendline blog post – provocatively titled, “Business is aging faster than the population“ – Gottlob details a steady decline in the number of new firms with payrolls that are under a year old.
In 2014 – the most recent statistics available – there were about 2,000 of such firms, half the number in 1988, which many say was the heyday of the state’s entrepreneurial economy. Business exits (closures or moves) have also declined, though not by as much, so the gap between them has narrowed.
Because of this, new businesses only accounted for 7 percent of all businesses in 2014, compared to 15 percent in 1988. Or to look at it another way, the percentage of older firms – those over 15 years old – has also climbed steadily, to just over half, in 2015, compared to 40 percent back in 2003.
New Hampshire figures reflect the same trend throughout the nation, Gottlob said. Nationwide, both mom-and-pop stores and tech startups are on the decline, though he hasn’t yet examined statewide data by category yet.
Do these statistics reflect what is happening on the ground?
Yes and no, said Rich Grogan, director for the NH Small Business Development Center, which helps startups and other small businesses.
The number of startups helped by SBDC has been rising since 2013, from 22 to 58. But it was a rocky climb, peaking at 77 in 2014, reflecting the problems of a small sample. It’s also unclear whether that’s because there are more small businesses out there or that the SBDC has simply improved its outreach.
But New Hampshire businesses do seem to be aging. Some 65 percent of the firms SBDC works with are not startups, as opposed to 59 percent five years ago. Indeed, Grogan said the agency is devoting more time to older business owners seeking to turn over their firm to a family member or to sell it as a going concern. This indicates the aging of businesses may have continued beyond 2014.
The most obvious ramification in this is jobs. The maxim that small firms create jobs at a faster rate should be also true about new firms (though not as many in the aggregate). But thanks to the relative lack of entrepreneurs, that job contribution is slipping in New Hampshire.
One-year-old firms accounted for only 3 percent of jobs created in 2014, compared to 8 percent in 1984. Or in raw numbers, an average of 18,000 people were workings for New Hampshire startups between 2012 and 2014. That’s little more than half the 30,000 doing so in the mid-1980s.
But Gottlob also blames the lack of entrepreneurial firms for the sluggish job growth during the recession. He puts it on a par with the shortage of workers as a current drag on the state’s economy.
Why is this happening?
Gottlob doesn’t know for sure. The recession had something to do with it, but the long-term trend points to a less cyclical answer.
Instead, Gottlob emphasized the graying of the population as a larger contributing factor to the aging of its businesses.
“Starting a business involves a certain amount of risk,” he said. “And a young person is more likely to take that risk than person in his 50s.”
That might be true in general, agreed Grogan, but there are also many entrepreneurs who retire or leave their job to engage in a “second act” – as a consultant in the same field or to try something totally different.
Musts to avoid
There might be some hope for Millennials, Gottlob speculated, but many of this generation are changing jobs at a lower rate, “suggesting a tendency to prefer security over opportunity and risk,” Gottlob wrote in the blog. It is a generation burned by the recession and burdened by higher debt.
Student debt also is a large barrier to entrepreneurship, Grogan seconded. He pointed to federal legislation – backed by U.S. Sen. Maggie Hassan – that might address the issue by postponing debt payments for those starting a business.
Gottlob said he wants to avoid ideological solutions. Conservative proscriptions, of cutting taxes and regulations, might help. So would government programs supporting startups. But he does warn about two things that should not be done:
• Don’t discourage immigrants, who – by leaving their homeland – are by nature risk-takers: “Immigrants are twice as likely to start a new business as native-born,” he said. “When you restrict immigration, you are cutting back on entrepreneurial businesses.”
• Rethink economic development: Most economic development programs favor legacy industries or attracting large companies from somewhere else, he said. For instance, “We are trying to protect steel and coal, rather than figure out what we do for the next generation.”
The same could be said for protecting the existing taxi industry over Uber or siding with Comcast rather than entrepreneurs who need to use more bandwidth, he said.
“The textile mills are not coming back. It doesn’t make sense to have one foot in the past and another foot in the future.”
But, he emphasized, he didn’t have anything against established businesses.
“I don’t want to get rid of all the grandparents,” he said.