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For Entrepreneurs, a Harder World

By David E. Gumpert Is America's entrepreneurial spirit eroding? Over the years, the question has been raised at conferences of would-be entrepreneurs, in B-school entrepreneurship classes, and by the business media. It came up for me again a few weeks ago when a Cypriot newspaper interviewed me about the future of entrepreneurship in Europe. "Is there still potential for new products and market segments to be exploited?" the reporter inquired. "It seems that markets are saturated with products nowadays."

Initially, I felt inclined to give my usual response: "As saturated as markets might seem, there is always opportunity for entrepreneurs with vision and innovative ideas." And indeed, that has always been the case.

A WORLD OF CHANGE. But this time I hesitated before responding. I hadn't heard the question in a few years and, as I thought about it, I realized that perhaps my stock answer wasn't applicable.

My hesitation stemmed most immediately from the January report issued by Global Entrepreneurship Monitor, a project sponsored by Babson College and the London School of Economics that assesses entrepreneurial activity around the world ( The report said that entrepreneurial activity in the U.S. declined slightly (on the order of 5%) from 2003 to 2004.

More striking, though, are indications that entrepreneurial activity in the U.S. remains off by about one-third from its peak in 2000, lagging behind such countries as Mexico, Venezuela, South Korea, and Thailand.

It's easy to attribute the falloff to the economic slowdown that followed the Internet crash and September 11, but I wonder if that is too pat an explanation. In reality, several global trends have emerged to suggest that, quite possibly, the climate for entrepreneurs has turned negative in important ways.

BROKEN RULES. To start off, there is the "China factor." The country's economic juggernaut has particularly affected American entrepreneurs. Virtually no market has remained untouched by China.

For example, the Chinese now rank as the world's leading producer of apples, many of which wind up in apple juice and applesauce in the U.S. The press in the Northwest have run a plethora of stories on the subject, and it's certainly not a comforting picture if you own a small apple orchard or hope to attain a life of independence and clean living by starting your own fruit farm.

Of equal or greater concern is the Chinese failure to respect and protect intellectual property. America's forefathers wisely provided for protection of copyrights and patents, in part to encourage entrepreneurial activity.

CORPORATE INVASION. One way to make innovators and inventors think twice about taking the risks associated with producing new software, medical devices, and entertainment content is to sanction the copycats who leech off entrepreneurs (see BW, 02/28/05, "A Sharper Focus On Fakery").

A second trend that made me hesitate: the growing willingness of major corporations to invade ever smaller and narrower markets. At one time, entrepreneurs could reasonably expect that large corporations wouldn't bother with certain specialized markets.

But the penetration of major retailers like Home Depot (HD), Costco (COST), and Wal-Mart (WMT) into such traditional small-business areas as kitchen design, Web-site development, garden plantings, and jewelry (Wal-Mart is now the nation's largest jewelry retailer) demonstrates the willingness of corporations to venture ever further afield, into traditionally small-business areas.

REASONABLE QUESTION. Even if the corporations recruit small businesses to handle the work, the little guys will see their revenues increasingly squeezed as time goes on. Some 400,000 eBay (EBAY) entrepreneurs -- who make a living by selling on the site -- recently learned the hard way when the company announced an increase in the fees it charges them to sell their products. (After an outcry from sellers, eBay announced it was rolling back at least some of the fees.) "There's not an area of entrepreneurship I would be surprised to see major corporations get into," says Les Charm, a professor of entrepreneurship at Babson College.

It's too early to suggest that America's entrepreneurial spirit is waning. American entrepreneurs tend to pleasantly surprise us. But, as I told that Cypriot reporter, questions about saturated markets are no longer unreasonable to ask. There are definitely disquieting signs on the horizon. David E. Gumpert wrote Burn Your Business Plan! What Investors Really Want from Entrepreneurs and How to Really Start Your Own Business

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