State of Entrepreneurship Report

This spring the nation's company builders might not describe their own situations as never better. They haven't yet forgotten the late 1990s. But those I have asked about the future, to a man and to a woman, exhibit that congenital optimism. They reply that the economy has turned. They believe that, yes indeed, the next several years will be off-the-charts great. Even the scholars who study these companies share this sunny outlook. "I'm hugely optimistic!" exclaims William B. Gartner, professor of entrepreneurship at the University of Southern California's Marshall School of Business. "There will be more and more opportunities to make things happen."

But is all this optimism justified? For a contrarian view--and a sobering one at that--you need look no further than what the business press is telling us about the U.S. economy right now, recovery or no recovery. Among the recurrent themes:

Consolidation: Bank of America buys FleetBoston. Hewlett-Packard ingests Compaq Computer. Consolidation--the big getting humongous--is the name of today's game in financial services, computers, entertainment, and a dozen other more or less mature industries, as well as in some that are far from mature. In the rapidly growing (and fast-consolidating) business of pharmacy benefits management, for instance, the three largest players own more than 70% of the market.

Globalization, Round II: Remember when America's large corporations first found themselves threatened by overseas competition? They began downsizing and outsourcing, thereby creating huge market opportunities for entrepreneurial companies. Large corporations today continue to farm out their work, but not necessarily to U.S. suppliers. Outsourcing "remains an opportunity," says one expert, "but primarily for entrepreneurs in India and China."

No New New Thing: The major inventions of the recent past have passed their explosive-growth phase. Right now would not be the best time to launch a PC manufacturing company, say, or an Internet bookstore. Trouble is, no other technology on the near horizon is likely to create vast new markets. Biotech proceeds in fits and starts, as it has for the past two decades. Nanotechnology, says BusinessWeek , "might blossom in 20 years, not two."

These factors alone might provoke questions about the prospects for growth companies. But there's one more sizable negative, which might be dubbed The Empire Strikes Back. Remember when big corporations--we liked to call them dinosaurs--were bumbling and inept, saddled with high costs and slow to capitalize on new technologies? Some of them still merit the reptilian description. But more and more have turned into nimble, aggressive competitors. It's no accident that Wal-Mart and Starbucks, to pick two, have shoved so many smaller competitors out of business. Both are world-class operators, with a level of technological and managerial savvy to rival anybody's. Even older-line companies have caught up; Dow Chemical, for instance, reports that 15% of its transactions are now conducted online. "It used to be that there were new economy and old economy firms," says Roger Alcaly, author of a recent book, The New Economy . "Today everyone is going to be a user of the technologies and best practices of the new economy."

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