Is the startup as we’ve come to know it slowly dying?
Cohort Day is usually a happy time at MassChallenge, and Wednesday was no exception. The startup accelerator welcomed a new class to its flagship Boston program, accepting just 9 percent of applicants for the four-month mentorship and competition beginning in June. Not as tough as getting into MIT or Harvard, but close.
On the surface, the stiff competition for these 104 spots at MassChallenge Boston points to a healthy environment for startups. But the truth isn’t so clear-cut.
In fact, MassChallenge’s new chief executive, Siobhan Dullea, worries that the startup as we’ve come to know it could be slowly dying. When she took charge at the nonprofit in February, this became one of her biggest concerns: addressing disturbing national trends that indicate the growth of startups is petering out.
In particular, she points to a Brookings Institution report from last year that highlighted a significant drop in employment over time at younger companies. In 1987, 33 percent of US jobs were at companies less than 10 years old. By 2015, that had dropped to 19 percent.
To Dullea, the trend seems counterintuitive, what with all the pop culture hype these days about startup successes. She has her own theories. Maybe it reflects a slowdown in population growth, or the rise in “gig economy” jobs, when people choose to shuttle Uber customers and Amazon packages around town instead of go into business for themselves.
MassChallenge has plenty of smart people at its home base in the Innovation and Design Building (formerly the Boston Design Center). But Dullea knows they can’t solve this dilemma on their own. She hopes to convene government, academic, and business leaders soon to assess the problem and identify solutions.
Among the experts who should expect a call from Dullea is Josh Lerner, an entrepreneurship expert at Harvard Business School.
There’s no denying the long-term trend: Lerner says it dates back to the 1960s. But Lerner says researchers are divided about the economic impact. Some say the decline affects startups across the board.
Others, meanwhile, divide startups into “low-impact” businesses, essentially local retailers such as barbershops and pizzerias, and “high-quality” firms that have a technology or other product with wide geographic potential.
The decline is clear among the locally focused businesses, he says, but less so among the more ambitious ones.
Donna Kelley, an entrepreneurship professor at Babson College, doesn’t seem too worried yet. Her research, through the Global Entrepreneurship Monitor project, paints a different picture.
Kelley looked at the percentage of adults who said they had started or were running a business less than 3½ years old. That “total entrepreneurial activity” rate bottomed out at 8 percent nationwide during the Great Recession. It rose steadily after that, to 16 percent in 2018.
At MassChallenge, the number of applicants for its high-profile Boston accelerator did decline this year, to about 1,200-plus from roughly 1,400 a year ago. (The number of slots was ratcheted down, as well.) MassChallenge executives say 2019 was one of their most competitive years — the acceptance rate was roughly the same as last year — and don’t seem ready to call the decline in applicants a downward trend.
But Dullea worries about the broader implications.
Dullea wants to help diversify the next generation of startups. (To that end, half of the firms in the new MassChallenge Boston cohort have at least one female founder, and one in five has at least one founder of color.)
She wants to show big companies that fledgling firms can be partners, rather than threats.
And she wants to reassure founders that they don’t necessarily need to shoot for unicorn status, that fabled place where they clear $1 billion in total valuation.
Yes, Boston is booming. Startups are about as common as Dunkin’ cups around here. Dullea knows just how crucial all this activity is to Boston’s success as a high-tech hub. She just wants to help make sure it stays that way.