Birch says that 40 years ago small companies were much less of a force in the economy because they simply couldn't cope with the cost and effort of doing business far from home. Trans-Atlantic travel or even phone calls, let alone barriers relating to trade and culture, were simply too complex and expensive for small companies to deal with in the '50s. Those impediments are disappearing all the time. Birch notes that the computing power that cost $1 million 40 years ago today costs $15,000. Observing that 87% of all U.S. exporters are small companies (with fewer than 500 employees), he says, "People assume that small firms are competing for a zero-sum pie. We represent 5% of the world's population, but a much larger percentage of its technology. I see the United States as home base for a large number of firms able to flourish in wide-open territory."
A recent survey by the market-research firm of Phoenix-Hecht, based in Research Triangle Park, N.C., found that of 163 millionaires surveyed, 74% owned their own businesses, and 60% of them said they were still working. The average annual income of the millionaire in the survey was substantial but not huge, $137,500. The real money was tied up in their companies.
But in starting a small company in today's economy, there is another consideration: creating a company should not be confused with building equity. While it may be increasingly easier to do the former, it seems increasingly harder to do the latter. The man who currently sits atop the Forbes 400, of course, contradicts that notion. A college dropout and very motivated maverick, Bill Gates today holds nearly $6.3 billion of Microsoft stock.
That hefty chunk of capital is somewhat of a red herring, argue some, such as Jeff Tarter of Soft Letter. "The typical software entrepreneur is not terribly motivated by visions of enormous wealth," says Tarter. "The goal is often independence." From that, he adds, often evolve highly profitable small companies -- companies that can produce pretax returns of 30%.
Tarter's point touches on a fundamental flaw with young companies in an era when information is so fluid and the cost of manipulating it continues to drop. A focus on building equity -- often considered a worthy "long-term" goal -- may preclude a more important pursuit, generating a steady stream of income.
"It's easy to start a company. It's hard to get to the point where you can create liquidity," echoes Dick Shaffer, a principal in Technologic Partners, a New York Citybased high-technology consulting firm. He says that from 400 to 500 computer-related companies get venture capital each year, but no more than 10% will ever go public. Says Shaffer: "Most small businesses are proprietorships. They reflect the personality of the owner. Once the owner gets bored or dies, that's the end of the company." Equity should not be held out as the Holy Grail if you start a company. Steady income and a way of life are what matter. Bruce Kirchhoff argues: "Most small-business people are not interested in creating a store of value. To them annual cash flow is what's important." Kirchhoff notes the wide discrepancy between the current market prices for private and public companies. "A private company might fetch only between 2 and 5 times earnings, while investors pay multiples of 10, 20, and 30 for public companies."
Kirchhoff says one way to get rich is to forget about starting a company. Buy a private company. "They're tremendously undervalued. You can often pay back the purchase price out of earnings in two years."
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Fortune's address to the class of 1953 ultimately urges the second, less traveled path upon its audience. It evolves into a paean to the company starter, citing such positive entrepreneurial traits as "self-confidence," "the common touch," "a mechanical bent," and "optimistic visualization."
But that piece ended with the usual caveat. The last paragraph reads in part as follows: "If you have and use all these traits, you will find that you never quite know when your working lets off and your personal life begins. Your business will pervade practically all waking hours and, if the psychologists are right, your sleeping hours too."
Dick Shaffer says that today the energy required to start and sustain a company -- especially one that will truly make you rich -- is enormous. "If you want to live a balanced life, starting a company is probably not a good idea. It requires focus, drive, and a willingness to endanger your mortgage, the money you've set aside to educate your kids, and your marriage."
Then again, the same stresses can be felt inside today's large corporation. "Downsizing tends to create higher levels of frustration among ambitious people," says Jon Bayless. "It means fewer resources and fewer paths to the top." He sees a lot of middle-aged people spinning out of corporations to start their own companies.
The answer to this dilemma rests with you. Some people are more social than others. Some people take strength from structure. Others hate it. They crave independence like oxygen.
No matter the choice, the risks can never be banished -- nor will the opportunities ever disappear. Big companies are not going away. To the contrary, many will be more vibrant organizations going forward faster than they were in the past. No matter the hurdles, the number of small companies being created will likely not diminish.
Venture capitalist Jon Bayless, an acknowledged partisan in this debate, says, "My intuitive sense is that starting your own company has always been the best way to create wealth." And then he speaks to a larger truth. "And even if you don't get rich doing it, you'll still have more fun."
If fun in your work is primarily what you're after, then you have also likely taken the first step toward making money -- which someday might even mean getting rich in America.
