Analysis: Proportion Of Young Colorado Businesses Dropped 14 Percent Since 1990

Apr 18, 2018

As he walked through the front door of his new 14,000 square foot lab in Wellington, Emek Blair couldn’t help but remember the Craigslist chair.

In 2015, he and the staff of his nutritional supplement company, Valimenta, were moving into the business’ first office space in Fort Collins. The group was dealing with the onslaught of challenges most startups undergo: Money was tight, space was limited and they needed office supplies.

So Blair got on Craigslist and found one chair for $40. But he wasn’t sure if he could afford it.

“I was like, ‘Is $40 too much? Can we get it for 25?’” he said, letting out a big laugh.

Blair ultimately found all the chairs he needed. Now, his company has bigger concerns.

He has 8 full-time employees and contracts several more part time. Valimenta also ships its lipid-infused gels, sprays and liquids to customers on every continent, except Antarctica.

New business growth like Valimenta’s is the backbone of a healthy economy. Businesses that are five years or younger have higher job creation rates than older businesses – a critical driver of employment growth statewide. They also drive innovation and creativity within their respective industries.

States with greater proportions of young businesses have higher rates of job growth, according to data from the U.S. Census Bureau.
Credit 2018 Colorado Business Economic Outlook.

Colorado boasts a number of communities with startup friendly conferences, communities and economic incentives available year-round.

Yet a KUNC analysis of the U.S. Census Bureau’s Business Dynamics Statistics between 1990 and 2015 found a significant decline in Colorado’s proportion of businesses five years or younger.

In 1990, “young” companies made up 47.9 percent of all businesses in the state. In 2015, the most recent statewide information available, the number was 34.4 percent.

Colorado’s trend mirrors an even-steeper decline around the country. Nationally, the percentage is down from 44.7 percent in 1990 to 34.4 percent in 2015.

Causes and effects

The University of Colorado’s Leeds School of Business briefly discussed the decline in its 2018 Economic Outlook out last December, labeling the state’s 13.5 percent dip over the past few decades as cause for “more moderate” economic growth.

“Despite Colorado’s high proportion of young businesses, the proportion has been declining,” the outlook reads. “… The significance of new business formation to job growth is apparent, so the decline in the proportion of young businesses has likely promoted more moderate economic growth in recent years at both the state and national level.”

KUNC’s analysis of BDS data between 1990 and 2014, the most recent local data available, showed significant dips in the proportion of young businesses in seven metropolitan areas in Colorado: Boulder, Colorado Springs, Denver-Aurora-Broomfield, Fort Collins-Loveland, Grand Junction, Greeley and Pueblo.

Boulder saw the greatest drop – more than 16 percent – since 1990.

Pueblo’s proportion dropped from 38.66 percent in 1990 to 23.03 percent in 2014 – an overall 15 percent drop.

Greeley’s proportion dipped about 6 percent, the least decline of all areas where data was collected.

Brian Lewandowski, the associate director of the Leeds School’s Research Division said he wasn’t quite sure why the decline is happening.

“Is it that older firms are lasting longer? Or is it that we’re actually creating fewer new businesses every year?” Lewandowski said. “Are there more barriers to starting a new business? These are all kinda questions that need to be explored if they haven’t been already.”

Reasons the data shows a shrinking proportion of young businesses are manifold, he said. One cause, Lewandowski believes, could be a lagging effect from the Great Recession in 2008.

“We did see a decrease (in new business formation) because of the recession,” he said. “We are seeing a rebound in the absolute number of business births, but as a percentage of overall establishments, we’re still at a lower level than we were twenty-five years ago.”

Another factor, said Lewandowski, is that Colorado’s population is aging. According to the Conversation on Aging report released in January 2018, nearly one out of every five Coloradans will be 65 years or older by 2030.

“With that aging of our state comes different challenges, different needs of our population,” he said. “That’s why I would keep an eye on the young firms – relating it to the population age.”

The financial burden of student loan debt also continues to rise, forcing more college graduates to take jobs with established companies to chip away at payments.

“More and more students, as they’re graduating, would rather take a six-figure Mackenzie job or engineering job than take the chance to languish away at their own startup and not make any money and have the loans to pay back,” said Scott Shrake, director of Colorado State University’s Institute for Entrepreneurship.

Shrake was also careful to acknowledge that Colorado does have in place a thriving support system for young companies in many communities across the state, such as Fort Collins, Boulder and Denver.

“I would say the entrepreneurial initiative and vibe is definitely still there,” he said.

Mike O’Connell, director of the Larimer County Small Business Development Center, which helps younger and older companies grow their businesses, echoed Shrake’s concerns about student debt as possible inhibitor to business starts.

“It’s the same megafactor that’s keeping people from being able to buy a house,” he said. “It factors into: Can you get investments to start a business? Can you get a bank loan to start a business?”

From his own experience, entrepreneur Emek Blair points to factors such as the rising price of real estate in northern Colorado as a barrier for some entrepreneurs.

“All of a sudden it’s more difficult for younger companies to start up,” he said. “So, naturally the age of the companies here grows.”

Blair said that starting a business in any city at any point is never an easy task – the to-do lists are relentless.

“It never ends,” he said. “I think the key is just to stay calm about (things) and be like, ‘Hey there’s always going to be a tomorrow. The world isn’t going to end. Just keep moving forward.’”

Looking forward

Lewandowski said he believes the data loses some relevance because it lags by a few years.

“It certainly doesn’t provide you with an early warning system for some sort of problem within the economy,” he said. “If we see it flip when we’re taking a look in the next ten or twenty years, we’ll probably be reflecting on it.”

While the census data lags, the Colorado Secretary of State’s office releases its Business Filings Data Analysis Summary every quarter.

In April, the summary showed a 9.9 percent year-over-year increase in the number of new corporations, LLCs and nonprofits registering with the state, which could be an early indication of an upswing in young business proportions across the state.

The estimated number of all businesses in good standing with the Colorado of Secretary of State’s office reached 677,537 in Q1 2018 – a record for Colorado. That’s more than double what it was in 1990, according to U.S. Census Bureau Data.

The next census data release is planned for this year, according to the bureau. The new information should provide more up-to-date information on young businesses in Colorado’s economy.