My recent A&Q on entrepreneurship in the U.S. questioned several common ideas for increasing the number of startups, such as cutting taxes, building a safety net to reduce the risk of leaving a company to start one’s own business, and investing in regional clusters. The following reader proposes another solution, followed by my reply:
Most startups fail. The success rate for venture capital funded companies is about 10 percent. And those are the ones that got funded. For each of those, there are about 100 proposals. For more ordinary businesses, the typical lifespan of a new restaurant is under three years. So it's not clear that more startups help much.
Why do we need startups if most startups fail? Well, suppose this were a question about species and longevity. Why must species adapt if most of them go extinct? The answer is that evolution serves an excellent purpose for later generations of life, because the surviving species tend to be stronger, healthier, and more resilient than their ancestors.