Highflying entrepreneurs landing with thud

By Jim Hopkins, USA TODAY

As the economy sputters and dot-coms are deep-sixed, the USA is struggling to keep pace with its recent record of extraordinary entrepreneurship.

Signs of slippage:

  • Declining respect: 76% of adults surveyed recently say they respect entrepreneurs. That's down from 91% two years ago, according to a report out today by researchers at Babson College and the Kauffman Center for Entrepreneurial Leadership. The researchers polled 2,000 adults in June and July.
  • That was after the technology-rich Nasdaq had lost more than a third of its value from its March high. And researchers attribute much of the public's changed attitude to the failure of many highflying Internet companies and their young founders.

    "I think it's a hangover from the dot-com boom and bust," says Andrew Zacharakis, a professor of entrepreneurship at Babson in Wellesley, Mass.

    And now it's payback time. "The public never fully accepted the arrogant 25-year-old Internet whizzes who bragged, with great callousness, of blowing away national and international institutions," agrees Tom Stemberg, founder and CEO of Staples, the office supply retailer. "Many people have enjoyed their comeuppance."

  • Waning optimism: Only 52% of people surveyed see good opportunities to start a business in the next 6 months. That is down from 57% two years ago. Researchers say it's another sign of the dot-com fallout.
  • Less available capital: Venture capitalists invested $19.6 billion in U.S. start-ups during the fourth quarter of last year. That was down 23% from a year ago, the National Venture Capital Association says.

Harder to succeed

Little of this surprises Craig Nabat. He founded Ambitious Ideas in West Bloomfield, Mich., in 1993 to market an electronic gadget that helps people find TV remote controls, car keys and other easily lost items.

Last year, the public seemed so entranced with all things entrepreneurial that Entrepreneur's Start-Ups magazine found a new angle, naming Nabat one of the USA's 11 sexiest entrepreneurs and plastering him on the cover. But Nabat, 30, who's poured $700,000 into his company so far, now worries that banks are tightening credit requirements and that the number of start-ups will fall in the new conservative climate. "I think it's going to get harder and harder," he says.

The "Global Entrepreneurship Monitor" report is an update of the original 1999 study. Both examined the relationship between entrepreneurship and economic activity worldwide. The studies were undertaken during a period of rapid economic expansion, with much of the credit given to start-ups — especially tech-related start-ups.

Despite signs of slowing, U.S. start-up activity remains strong, the report says. The nation ranks second in the world, behind Brazil, in the percentage of adults starting businesses in the 21 nations studied.

Brazil's economy is highly dependent on agriculture. More than 28% of adult males work in the agricultural sector, which is significantly higher than in the other countries studied. The report notes that such agriculturally dependent economies create big entrepreneurial sectors.

True risk-takers to continue

Experts have mixed opinions about the depth of the public's changed view and its impact.

Kauffman Vice President Michael Camp says he thinks marginal start-ups — those without solid business plans — will suffer first and the most. Students who formerly might have bypassed graduate business school for a dot-com, he adds, probably will now stay in school.

But the public's more realistic view of entrepreneurship won't scare off teenagers — the next generation of entrepreneurs — from starting a business, says UCLA Professor Marilyn Kourilsky. They'll move on to other fields, such as biotech, says Kourilsky, who co-wrote the book The E-Generation from Kendall/Hunt Publishing. It examines the role of education in preparing kids for self-employment.

What's more, traditional start-ups in such businesses as carpet installation and food service will continue to flourish. "It's still a dream of many," says Stephen Bloom, head of the Atlanta chapter of SCORE, an affiliate of the national non-profit that counsels start-ups.

Indeed, experts say any decline in public respect for entrepreneurship is part of the natural life cycle of high-profile businesses and the people driving them.

Beginning in the 1970s and into the 1980s, the news media began to focus more on business. That led to a new generation of corporate superstars, such as Lee Iacocca, the former Chrysler CEO, and Donald Trump, the real estate and casino mogul.

In the public's eye, the corporate chieftains who succeeded and earned respect were those nimble enough to change with the times, says Irving Rein, a professor of communication at Northwestern University. "In the case of dot-com people, their venue eroded," Rein says.

And with that erosion went the stock prices of their start-ups — reminding the public, investors and would-be entrepreneurs that "the fundamentals do work, after all," says Camp, of the Kauffman center in Kansas City, Mo.

Dot-com woes aside, entrepreneur Nabat is plowing ahead with the next generation of his Find It device, a gizmo that attaches to, say, car keys. When you clap your hands, the device beeps, guiding you to misplaced keys. Nabat sells Find It directly by mail. He promotes it through TV infomercials now running in 15 markets and on his company's Web site.

Commercial lenders, which traditionally don't bankroll start-ups, haven't given him a rosy reception. So far, Nabat has financed his venture mostly with loans from his parents.

Despite an appearance on home shopping cable channel QVC, and the cover of Start-Ups magazine, Nabat never saw glory days as an entrepreneur. "You have to be tough in order to survive," he says. "It takes a long, long time to build a company, and the chances of failure are enormously high."

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