Difference in Stagnant Market Could be Startups

The jobs report from January 2016 revealed gains in some industries and declines in others, with the net result putting the unemployment rate at 4.9 percent, roughly the same as the month before. 

Areas on the rise included retail, food and beverage, health care and manufacturing; declines were seen in private educational services, transportation, warehousing and mining. Perhaps the best hope of sustained growth in the U.S. job market rests in the potential of startups. 

[CLICK HERE to read the new release, “The Employment Situation — January 2016,” from The U.S. Bureau of Labor Statistics, Feb. 5, 2016.] 

The most net job creation in the U.S. economy comes from brand new companies during their first few years of existence. By contrast, established companies may look to increase their profit margin by decreasing jobs. 

According to one report, the United States is enjoying a “veritable entrepreneurial revolution.” 

[CLICK HERE to read the article, “‘The Looming Entrepreneurial Boom’: Kauffman Weighs In,” from The Atlantic, Feb. 22, 2016.] 

[CLICK HERE to read the report, “The Looming Entrepreneurial Boom: How Policymakers Can Renew Startup Growth,” from Ewing Marion Kauffman Foundation, 2016.] 

As a local independent financial professional, we applaud and embody the spirit of entrepreneurship. We feel it is important to live, work, worship and play in the communities where our clients reside. We understand the day-to-day issues you face, whether in our schools, our workforce, our local government, at the gas pump or in the grocery store. Our guidance is personal, as are our client relationships. 

So it’s heartening to see that a greater proportion of our national economy is supported by smaller, specialized, entrepreneurial firms. Larger companies have even started recognizing that the key to their own growth is to invest in the smaller players. 

Instead of competing against the little guys, many are funding them. A smaller, innovative startup is more nimble and can incubate ideas more quickly than within the vast infrastructure of a larger corporation. As an example, Campbell Soup Company has invested $125 million in a venture fund to help finance food startups. 

The combination of ready capital and established manufacturing facilities and distribution channels with new, innovative ideas appears to be the next wave of opportunity in the U.S. Consider that between 2012 and 2015, the grocery store food and beverage category grew by only 2.3 percent a year, but the largest 25 food and beverage companies contributed only 0.1 percent to that growth. The rest was generated by 20,000 small companies outside of the top 100.

It’s true that the vast majority of startups fail. But the one thing they have in common, which larger companies typically do not share, is the opportunity for rapid growth. Just like children grow faster each year than fully grown adults, studies show that surviving young firms grow at much faster rates than firms that have been around for decades. As a result, their net employment growth rate is about 15 percent, compared to 4 percent for the oldest companies. 

[CLICK HERE to read the article, “Big Companies Should Collaborate with Startups,” from Harvard Business Review, Feb. 25, 2016.] 

[CLICK HERE to read the article, “Start-Ups That Last,” from Harvard Business Review, March 2016.] 

[CLICK HERE to read the article, “Job Creation by Startups and Young Companies,” from CGA Office of Legislative Research, Jan. 26, 2016.] 

While an increase in startups should give the job market a boost, the rise in automation and robot technology may work against it. The World Economic Forum recently released a report purporting that the increased functionality of robots will create a loss of more than 5 million jobs in 15 major developed and emerging economies by 2020. 

[CLICK HERE to read the article, “Where will robots take over the most jobs?” from The World Economic Forum, Feb. 16, 2016.] 

However, other experts claim that it is simply the nature of work that will change. People will continue to work, but they may not have “jobs” in the traditional sense. We’ve seen new, flexible work options crop up over the past 10 years, enabling companies to scale their workforce based on their needs, and workers to become more independent. 

This trend also means that each of us may have to be more responsible for our own financial future, such as health insurance and retirement income planning through the use of insurance products, which were once the domain of employers. These are our areas of experience, and we’re here to help you along the way whenever necessary. 

We are an independent firm helping individuals create retirement strategies using a variety of insurance products to custom suit their needs and objectives.

The information contained in this material is provided by third parties and has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions.

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