Businesses are dying in central Ohio and around the United States faster than new ones are being created, according to a new study by the Brookings Institution.
“Overall, the message here is clear,” the authors of the study wrote. “Business dynamism and entrepreneurship are experiencing a troubling (long-term) decline in the United States.”
The study, which tracked business creation and closings from 1978 through 2011, shows that the final three years were a reversal of the way the economy grew during the previous three decades. The final three years were the only ones studied in which business closings outpaced business creation.
The authors of the study found that the change in new businesses at the state and metro levels generally mirrored the national trends.
For example, the national decline in business creation of
47.2 percent was very close to Ohio’s 47.9 percent drop and Columbus’ 42.9 percent drop.
One outlier, with a much-smaller decline in the drop in new companies, was New York, which had an 18 percent decline. At the other end, Alaska had the largest drop in new businesses, 61 percent.
The numbers indicate a serious problem, especially when applied to the formation of small businesses, said Bill LaFayette, owner of the Columbus economic-consulting firm Regionomics. “I think it is the problem facing the central Ohio economy — the lack of small-business formation.”
The study shows “just how competitive the business environment is in this era,” said Kenny McDonald, Columbus 2020’s chief economic officer. “It reinforces why economic developers and policymakers have to consistently talk with entrepreneurs, startup companies and our larger enterprises about the disruptive forces that are creating opportunities or challenges for their businesses.”
LaFayette said the study seems to mirror the results of a study released last year that was written by Community Research Partners with funding from the Columbus Foundation and the Columbus Partnership.
Using the Columbus study, LaFayette looked at small-business statistics and found that, of the top 100 metropolitan areas, Columbus ranked in the 80s in terms of the number of people starting businesses.
“And all of Ohio’s six largest metros are right with us,” LaFayette said. “Dayton ranks 100 out of 100.”
Trying to make sense of that number, LaFayette sought to find correlations between the lack of business startups and other statistics — demographics, for example.
“And I found nothing,” LaFayette said. “That’s really consistent with the Brookings observation that there wasn’t really any pattern.”
Although the Brookings study doesn’t explain why these trends are occurring or what can be done about them, “It is clear that these trends fit into a larger narrative of business consolidation occurring in the U.S. economy,” the authors wrote.
“Whatever the reason, older and larger businesses are doing better relative to younger and smaller ones. Firms and individuals appear to be more risk-averse, too — businesses are hanging on to cash, fewer people are launching firms, and workers are less likely to switch jobs or move.”
The relatively better performance by medium-size, midmarket companies is something that also bears further study, McDonald said.
“How have the midmarket companies been able to endure and adapt to changing conditions and thrive while others come and go?” McDonald said. “What could younger companies learn from them?”
To answer the problem in Ohio, “We need to change attitudes,” LaFayette said.
“We need to develop strong mentorship by more-seasoned entrepreneurship. We need to call attention to substantial resources that are available. We need to make sure all our resources are being deployed efficiently, that there’s not a whole lot of overlap.”
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