Why The Internet Is Driving Entrepreneurship—And What It Means For You

What does the online movement really mean for the future landscape of business?
October 24, 2011

Online tools revolutionized social interaction and have set the tone for the way businesses interact with consumers. To stay competitive, traditional companies have sprinted online, rushing to assemble virtual communities and tune in to their dialogue. Wiki-innovation seems to be the wave of the future, but what does the online movement really mean for the future landscape of business? One possible trend is the rise in entrepreneurship rates, despite a stubbornly sad economy. Another may be a shift in the old power profile, as young minds take a new and leading role in the economy.

The hour of the entrepreneur 

When the Internet ‘revolution’ took off in the 1990s, widespread access to information made the world a little smaller. With the rise of blogs, self-expression took flight and the explosive range of public opinion brought about a so-called 'democratization' of influence. Today, BLS statistics and media attention suggest that we’ve entered a new phase—a democratization of entrepreneurship. Sudden access to new audiences, new ideas and low overhead costs has made it easy and attractive to start a business online, and entrepreneurs are flocking to the challenge.

According to the Kauffman Index of Entrepreneurial Activity (1996-2010), “The entrepreneurship rate is higher than before the recession started.” Interestingly, this upward trend contrasts with a recent downward trend in employer business creation. There seems to be a unique enthusiasm for the entrepreneurial space, despite decreased risk-taking in other industries. According to the Harvard Business School admissions office, there has also been a small but consistent rise in the percentage of graduates starting their own companies—from 4.5 percent of the class in 2009 to 6 percent in 2011. “The time for entrepreneurship is now,” says Dylan Reid and Victoria Schramm from the Huffington Post. “Increasingly, our national attention is focused on entrepreneurs, with university and government programs supporting R&D and offering low-interest loans for new ventures to start and scale.”

Why now?

We can surmise some of the factors behind this trend: a shifting economy with less traditional job stability, the spirit of individuality and “entitlement” associated with the Millennial Generation, and startup-friendly stimulus and policies. But perhaps most compelling (if not so surprising) is the impact of the Internet. 

With massive communities online, there are abundant opportunities to identify and meet the needs of a wide and engaged consumer base. Beyond the easy buy-in of starting an Internet business, social sharing and networking sites have created an utterly unique data. People are declaring what they want, who they are, what they like, and hey, what their friends like too. And then there’s crazy fodder for dreaming up new ideas and platforms, (think of the almost sci-fi introduction of Second Life or Chat Roulette).

Many of the top innovators in this space are young—which makes sense given the tone and pulse of these social communities, first initiated by sites like Friendster and Facebook. Of Inc. Magazine’s “Top 30 Under 30” Entrepreneurs, two-thirds are operating companies in the online space. Over half of those businesses are built on a community-based model—ranging from a members-only shopping site to crowd-sourced design services, a restaurant guide based on social sharing, and a crowd-based Q&A site.

A new breed of business owners?

The momentum of online business may have another  potentially radical impact on the profile of new entrepreneurs. Not only are the business recruits younger, but many seem to come from backgrounds not traditionally associated with business. There have always been unconventional founders with interdisciplinary experience, but it looks like that net is widening today. Since businesses from all sectors benefit from a digital presence, entrepreneurs are breaking out from all sectors.

In addition, as a result of the local and artisanal movements, “Many more artists and craftsman are now interested in the online space,” says Claire Harlam, a recent graduate of New York University’s dual degree MBA/MFA program in film production. As an undergraduate, she studied Art Semiotics and simply wanted to make films, but as she learned more about the challenges facing her industry, she got interested in distribution and the potential of audience-building online. As a Fellow for the Cinema Research Institute, she’s now looking at best practices in community building with the ultimate goal of “developing an app, a website or a social media tool” that will help filmmakers create a sustainable career not based on I got picked up by this studio, but based on I got picked up by this community. “There’s the potential for real artistic as well as commercial value there,” she says. The new possibilities for authentic exchange are what attracted her to the otherwise unfamiliar world of Technology.

Nicholas Chirls, another young entrepreneur, came to the Tech world through an interest in building and the desire to “create something”. (He likens his work with software development to building structures out of Legos.) It’s almost ironic that Technology, which has taken so much of our lives out of the physical realm, should also attract based on an age-old interest in constructing—but that’s the core of online start-ups. Chirls leads Business Development at HappyFunCorp, a Web and mobile development business and incubator based in Brooklyn. His company builds online product for a wide range of clients, from true startups dealing with first version software, to Fortune 500 companies looking to scale their technology. “We're also beginning to incubate and build our own products,” Chirls says, “which, fingers crossed, will become our own standalone businesses over time. It's all incredibly fun.” Their playful name and impish website point to the age and ethos of the company.

Although Chirls has an MBA, he questions the future prestige of the degree. “In the past, it’s been argued that an MBA is worth it because you were able to build a network. But today, you can build a network in a myriad of ways. Everyone is now connected through social networks, both online and offline, and we have access to senior leadership in ways we never had before.” A recent OPEN Forum Infographic shows that while 95 percent of successful entrepreneurs have completed a Bachelors degree, only 14% of those founders had gone to business school.

Will Internet business have a lasting effect on higher education and the nature of an MBA degree? Will an increasing diversity in the profile of new business owners alter the industry? Time will tell, but the primary question people are now asking is about the bottom line.

The economic impact

The American economy has long thrived on the innovation of entrepreneurs. But can they help pull us out of a recession? In her research study The Economic Future Just Happened (2009), Diane Steigner looks at the effect of recessions on new firm formation. Analyzing U.S. Census data and America’s fastest-growing companies, she finds that “recessions and bear markets do not appear to have a significantly negative impact on the formation and survival of new businesses…[In addition,] well-over half of the companies on the 2009 Fortune 500 list, and just under half of the 2008 Incmagazine list, began during a recession or bear market.” Moreover, “Job creation from startups is much less volatile and sensitive to downturns than job creation in the entire economy.”

People aren't waiting passively for an economic cure, but creating jobs for themselves and others, says the Kauffman Foundation. As the speed of social change accelerates, creating new needs, the pace of invention and business will keep in step—driving those changes as much as responding to them. “Every generation of startups is, often invisibly, both a renewal and restructuring of the economy,” Steigner writes. The face of that future might be younger, quirkier and less pedigreed than you’d think.