Why Is It So Hard to Start a Business?

If you or someone you love has attempted to start a business, you know just how difficult the entrepreneurial journey is. You’ll face challenge after challenge; even if you have a great idea, it’s almost impossible to get off the ground.

Why is it so hard to start a business in this country? And does it really need to be this hard?

The Importance of Entrepreneurship

First, we need to establish that chasing the entrepreneurial dream isn’t just a passion project, nor is it just about promoting the idea of a meritocracy. Fostering higher rates of entrepreneurship leads to better outcomes and a better quality of life for everyone, including non-business owners.

New business creation is associated with a host of benefits for local economies, including higher rates of job creation, higher wages, more diverse purchasing options, and an overall higher quality of life.

On a macro scale, higher rates of entrepreneurship lead to higher rates of innovation, higher rates of productivity, higher GDP, and other secondary benefits.

Supporting entrepreneurship, and by extension, entrepreneurs is a way of investing in our future.

Key Challenges in Starting a Business

What are the key things stopping people from starting businesses?

  • Generating an idea. One problem we may never be able to eliminate is the process of generating a genuinely new idea. Inventing things is extremely difficult, especially in an environment with extensive competition. Still, you don’t necessarily need a groundbreaking, novel idea to start a business; you just need to take an existing business model and do things a little bit better.
  • Funding. Getting the capital necessary to start a business can also be a challenge. Alternative investments like private equity are attractive to investors looking for high growth opportunities, so it’s common for entrepreneurs to seek help from venture capitalists, angel investors, and these days, equity crowdfunding; however, these methods aren’t always reliable, as most equity investors sensibly choose only the most profitable or scalable projects to back. Taking out a loan is also a possibility, but depending on the type of loan you choose, you might be on the hook for whatever you borrow, even if the business fails.
  • Restrictions, regulations, and paperwork. One of the biggest and most oppressive hurdles to starting a business is following all the necessary restrictions and regulations, while filling out all the necessary paperwork. Depending on the business you want to start, you might be subject to so many laws and regulations that you have to hire a lawyer and work for months to sort out all the details. You might need specific licenses that are prohibitively expensive, or you might be barred from starting certain types of businesses altogether. The government, on both federal and more local levels, imposes countless regulatory challenges that seem insurmountable to average people, effectively relegating entrepreneurship to only established, wealthy, experienced people.
  • Competition. Some business owners struggle because of the sheer volume of competition in the market. It’s possible to avoid some of this by creating an entirely new niche or sufficiently differentiating yourself. But even then, you’re probably going to have to contend with the entrenched giant businesses that have used government-originated restrictions to entrench themselves. For example, corporate juggernaut Amazon has been the recipient of more than $4.7 billion in government subsidies – and it continues to benefit from a host of laws and regulations that make it harder for small- to mid-sized businesses to compete.
  • Early logistics. The early days of starting a business are usually the hardest, as your expenses will be high and your revenue will be limited. Many entrepreneurs simply can’t get over this hump.

Improving Our Entrepreneurial Ecosystem

So, what can we do to improve our entrepreneurial ecosystem and incentivize more people to start businesses?

  • Education and training. One problem is that people aren’t educated or trained to start businesses; high schools and colleges across the country are more focused on preparing people for specific career paths or arming them with basic, generic information. People are never given the knowledge and resources necessary to start a business unless they deliberately seek it out.
  • Mentality and passion. We also have a nation of people who generally aren’t interested in starting a business. They aren’t self-motivated, self-disciplined, or ambitious enough to follow this path. We need to encourage more entrepreneurial passion and drive.
  • Deregulation and simplification. Deregulation is highly correlated with economic growth, and it’s not difficult to see why. When you take down the artificial barriers that stand in the way of starting and managing a business, it becomes easier to start and manage a business. Many laws and regulations supposedly exist to keep consumers safe or prevent exploitation of people and resources – but these rarely work as intended. We could accomplish the same goals with a more open system of voluntary collaboration.
  • Culture and support. Finally, we need to foster an environment of entrepreneurial support. Let’s do more to support local business owners and encourage people to follow their entrepreneurial dreams.

We can’t change our entrepreneurial ecosystem overnight, nor is a completely deregulated business environment a feasible dream for our generation. However, we can work on a local community level to support independent business owners when we can and keep extolling the virtues of entrepreneurship as a whole.