First some wonky background: Technically, the U.S. economy is in “recovery”. However, most economists agree growth is anemic and vulnerable. 2014’s first quarter GDP was a mortifying 0.1%, surprising most everyone. Forbes called the growth “glacial”. Now we are informed that this was actually too optimistic! Revisions this week now show the economy contracted to -1.0%. Point of reference: the economy needs 3.0% to 3.5% just to maintain current employment levels – 40-45x current GDP!
Why’s the number so low? 3 factors are having a profound impact on the economy:
• Less than six years from the greatest financial crisis of our time, many are concerned about the potential of another crippling event. Banks aren’t lending, small businesses aren’t spending. Fear is based on, but not limited to: Political instability (home and overseas); U.S. debt (over $17.5 Trillion); possible contagion from troubled countries (a slowing China); Massive federally backed student loans, etc. Susceptibility can be triggered by a single event, collapsing a fragile house of cards.
• The Federal Reserve has the economy addicted to the drug of our time: cheap money – the catalyst for the bullish markets. Many suggest the ‘bubble’ will pop when the Fed discontinues Quantitative Easing. (Q.E. in short form= Fed prints money, buys bonds from banks hoping money ‘trickles down’ into economy). When Chairwoman Janet Yellen speaks the markets pause. Q.E. is an unprecedented experiment with no clear exit or endgame. A stock market crash would impact consumer confidence, stopping spending likely causing a recession.
• Increased regulatory and tax policies. Federal and state governments have created blockades to small business, entrepreneurs and start-ups impacting the number of new businesses formed. According to the House Committee on Ways and Means, there are over 80 million hours of rules and regulations that American businesses and families have to comply with.
The 3rd point is the subject of much debate, contention and (if you spend time on social media) outright hostility. This is where politics, the economy and entrepreneurship are conjoined and the reason for this article.
Massive new regulations have and continue to be implemented by the government requiring small businesses comply under penalty of fees. This requires businesses to invest time and capital – capital that would otherwise be used for hiring, product development, and expansion. The U.S. Small Business Administration estimated that federal-government regulations costs small businesses $1.75 TRILLION a year.
For example: The uncertainty over the seemingly weekly changes in the Affordable Care Act (Obamacare) has confused business owners who are now unable to forecast budgets.
This impacts potential business owners psychology and risk aversion, reducing the number of start ups.
The U.S. now ranks 20th in the world in ease of starting a business according to a World Bank report. In 2007, the U.S. ranked 3rd.
A recent stunning report by the left-leaning Brookings Institution confirmed what many small business advocates have been saying:
“The U.S. economy has become less entrepreneurial over time.” (May, 2014 Brookings Inst.)
The research reported fewer businesses are being formed than are failing. “Business dynamism” is slowing down. “This decline has been documented across a broad range of sectors in the U.S. economy, even in high-tech”.
If this trend is not reversed, America as we know it will fundamentally change.
Americans have always embraced Entrepreneurship. In free markets anyone can start a business from a kitchen table, garage, and become a multi-million dollar enterprise.
Entrepreneurs find a need and fill it, leading to economic activity and jobs.
Unfortunately, as Brookings report shows, philosophical views are changing. In today’s dialogue, the terms “free enterprise”, ‘free markets”, and “capitalism” are derided. Self-serving politicians and activists forward a narrative that business owners are selfish, greedy, or not giving workers a “fair-share”. The class-warfare arguments are political manipulations by people unaware of the tremendous sacrifice Entrepreneurs make providing for their families and employees. Many business owners become indignant being lectured to by those who have never made a payroll.
Schools are spending less time discussing entrepreneurship. Students do not hear small business is the lifeblood of the economy or that most people are employed by small-medium business (SMBs).
So the odds are increasingly stacked against business owners. However, even in this complex environment of over-regulation, restricted lending, and controversial social policy, Entrepreneurs can still succeed if they follow some basic steps.
1. GET A MENTOR ‘STAT’! You cannot figure it out alone. Business books are fun to read, but nothing beats being personally assisted by those who have done it. Find an experienced professor, relative, friend or an organization (ie: Score.org – it’s free!)
2. WRITE A BUSINESS PLAN. Download a business plan template and complete it. This will be your roadmap. Don’t fear changing it as business changes. What is your mission and how will it be achieved?
3. LISTEN! What are your clients, customers, vendors telling you? If they say “no” think of it as an opportunity. Be open to change. Inflexible business owners do not succeed. Adapt or die.
4. MARKETING, MARKETING, MARKETING! Without customers/clients you do not have a business. You can hire accountants and attorneys, but (at first) YOU must know how to market and sell your product/service.
5. BE CONSISE! We are a short attention span society. Learn to explain your product/service in 15 seconds. Don’t try to impress people with your ego driven ‘inside baseball’ talk. Keep It Simple.
6. BOOTSTRAP! Run lean. Know the burn rate of your capital and make sales ASAP. Most businesses fail because they run out of money before they build their business. Don’t buy anything your business can survive without.
7. TENACITY! ‘Never giving up’ is the keynote to success. Maintain your vision of success and focus on your work. Endure the roller coaster ride.
For America to rekindle the spirit of Entrepreneurship, policy makers must be reminded that a business friendly environment is one with fewer regulations and reduced taxes. An entrepreneurial atmosphere is necessary to create more small businesses which improve the economy and employ millions.
This is not theory. The 2014 Best & Worst States for Business shows business friendly states have lower taxes and fewer regulations. Conversely, the worst states for business are those with the highest taxes and most regulations.
The Economist reports that “it takes two years to open a new restaurant in the Golden State compared to six to eight weeks in Texas”. Toyota announced they will join the exodus from California to Texas, effecting thousands of CA jobs. Just today Sony announced they will be moving their Imageworks Studio to Vancouver, BC, stating taxes and regulations as a primary reason.
Entrepreneurs and business owners: You do have a voice. Turn the tide by voting for candidates with business experience. Former business owners will consider the implications of policy on SMB’s, unlike career politicians.
Entrepreneurs deserve better… Politicians take heed.