How risk led millennials to launch a global startup boom

How risk led millennials to launch a global startup boom
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Global economic risks have created an environment in which, paradoxically, millennials are greater risk takers, prompting a global startup renaissance.

The Great Recession and the years of fitful international growth in the years thereafter, came at a time when an entire generation was coming of age and leaving school. Millennials have witnessed years of lacklustre growth, with cautious companies refusing to hire, technological change eliminating jobs, and the rise of unpaid internships marking the death of quality, entry-level positions in many sectors.

For millennials an understanding of political risk is more important than ever, as international trends have had a major impact during their short-time in the labour market. Youth employment is hit hardest by economic fluctuation, as is funding for youth centric policies and education as austerity governments seek to balance budgets.

Startups as a generational aspiration

Millennials entered the workforce in a baptism of fire with regards to global economic risks. Interestingly, these risks have created an environment which has fostered greater risk taking, rather than risk aversion among millennials. The result of this has been a global startup renaissance, and not just in North America.

Recent survey data on millennial attitudes has demonstrated an increasing lack of interest in entering the types of jobs (if they still exist) that their parents were satisfied with. Despite this, there does not exist a generational reluctance to work, quiet the opposite: around half of millennials would like to start a business, with one in five planning on quitting their day job and starting a business in the coming year.

Furthermore, 32% of self-employed millennials are running startups, versus just 9% of boomers. Perhaps most tellingly, is that 28% say that their technology-powered business could not have been possible twenty years ago.

Millennials fuel startups across the world

Millennials are entering a highly interconnected and international labour market. Political risks such as slowing growth in China (and the sociopolitical risks for Beijing that follow) has tempered the country’s economic recovery, but has also created a feedback loop. Specifically, as growth slows in China, youth unemployment rises causing political and security concerns for Beijing.

This leads more youth to consider startups as a viable career alternative, especially given the high usage rates of digital services among Chinese millennials. China is seeking to transition its economy towards a consumption and service based one, and millennial driven startups are a key factor behind this diversification, as China looks to the success of young Western companies such as Uber and AirBnB.

Beijing has noticed this and on February 18th, the State Council announced plans to create more incubation zones or ‘makerspaces’ for startups. The Chinese government has also implemented preferential tax (cutting $46 billion in taxes), financial, and investment policies to set up platforms for public innovation.

The government’s call for “mass entrepreneurship” seeks to galvanize the public and its tone is reminiscent of Great Leap Forward slogans encouraging everyone to set up steel furnaces in their back yards. This comparison is not invoked to denigrate Chinese efforts, but rather highlight the degree of focus and energy Beijing is pumping into the initiative.

Similarly, India has mobilized the government in response to, and in order to, encourage entrepreneurship among millennials. PM Modi’s ‘Startup India’ initiative is a response to India’s massive demographic shift: over 65% of India’s population is under 35. India cannot hope to employ all these young people – and thereby avoid unrest – with its current economic paradigm.

Startup India is both a response (72% of Indian startup founders are under 35) and a means to urge greater youth participation in the labour market. To this end India will create 75 startup support hubs at Indian Institutes of Technology (IIT), enable same day approval via mobile applications, and exempt startups from income, capital gains, and profit taxes for the first three years.

Capitalizing on millennials

Both China and India need to promote startups to maintain sufficient levels of economic growth for their colossal populations, but countries in general need to capitalize on this opportunity. Developed nations also have much to gain from millennial startups. With global commodity and energy prices at record lows, smaller developed countries like Australia and Canada need to diversify away from over-dependence on extractive sectors.

Instead they need to harness their young and growing populations (a serious competitive advantage over ageing Europe and East Asia). Millennials now outnumber boomers in the United States and elsewhere, and millennial entrepreneurs in places such as Canada are being proactive, responding to opportunities created by global trends.

To gain insights on the issue, GRI talked to Tomas van Stee, a millennial entrepreneur working in Waterloo, Canada. Van Stee, a graduate of the Richard Ivey School of Business, left a well-paying job at Boston Consulting Group (BCG), to found EnPowered, a startup that helps consumers group together to get lower rates for their electricity and natural gas in Canada and abroad.

GRI: Were there any international events or trends that inspired your business model?

Van Stee:  I read an article last year that quoted Peter Thiel as saying “we wanted flying cars, instead we got 140 characters.” This echoed my impression that Silicon Valley repeatedly promises to change the world through innovation, yet continues to repeatedly deliver simple social apps. So when I was looking for a company to join or start, I was looking for one that would hopefully be able to deliver something with more impact.

At roughly the same time there was a lot of change in the world of energy: oil and natural gas prices plummeted, the Tesla Powerwall came out, and Ontario’s electricity prices jumped another 6%. That was when I realized I wanted to get involved in the energy industry.

I think that in the wake of recent rapid technological change, many millennials – perhaps a little optimistically – think that they can, or should change the world in some small way. But many find it difficult to see how to do this from within a large legacy corporation and so they are looking at startups.

GRI: As a young entrepreneur how are you finding the support and response from government?

Van Stee: Unfortunately, there has definitely been some mixed signals being sent by governments. I operate out of Waterloo, Canada which has done an incredible job of supporting the entrepreneurial community. They’ve helped to create an incredible ecosystem in Waterloo, and provide services and even financial assistance to startups. Toronto, Ottawa, and other cities are all looking at Waterloo to try to create similar ecosystems in their cities. This support has been invaluable to myself and to many other entrepreneurs.

The provincial government in Ontario is sending some very mixed signals to entrepreneurs and small business, since on the one hand they have invested heavily in infrastructure and green-energy efforts, but they have also continued to drive up utility costs for small-businesses across the province. A recent report by the Ontario Chamber of Commerce reported that 5% of Ontario businesses expect to shut down in the next 5 years due to rising costs.

Lastly, at the federal level, the new Trudeau government has made tech and entrepreneurship a focus, which has been great. But here too they are sending mixed signals. While on one hand they have dropped small business taxes from 11% to 9%, on the other they have greatly increased the taxes on stock-options.

This was touted as a means to punish rich executives, but it also wipes out a major tool for startups to recruit top-talent away from higher paying U.S. startups.

Categories: Economics, International

About Author

Jeremy Luedi

Jeremy is a widely referenced political risk expert and weekly columnist for Global Risk Insights (GRI). Jeremy's writing has been featured in Business Insider, Huffington Post, Nasdaq.com, The Japan Times, MSN Money, and Yahoo Finance. His work also has been quoted and recommended by Time Magazine, Politico, Transparency International, and Greenpeace, among others.