Grist: Trampling on Our Icons
All hail the garage. It's the dream factory of the American entrepreneur, where visions are both born and tinkered with, where $538 and a used Sears-Roebuck drill press got Bill Hewlett and Dave Packard started.
I can't think of any segment of American life that occupies the special place that the entrepreneur does. Gauzy plaudits come from liberals and conservatives, from free marketers and Keynesians, celebrating small business as the innovative growth engine of the American economy. And we've all seen the compelling stats that credit job creation to small businesses, not the Dow members.
Yet why is it that, despite their iconic status, entrepreneurs face so many hurdles every day, whether they're starting their business or attempting to expand it? There is a chilling discontinuity between what we preach and what we force these pioneers to practice. It starts with one of the basic needs they have: access to capital. While banks are fond of bragging about their focus on small business, the first thing a dewy-eyed entrepreneur needs to reckon with is the dread request for a personal guaranty. It's understandable--why should a bank take a risk if the entrepreneur isn't willing to? But if we really valued the economic and societal role that entrepreneurship plays, there would be a better solution than putting one's home and college fund on the line.
Beyond banks, entrepreneurs can't really turn to VC firms. They are simply too big and rich for most start-ups. If you want a paltry million or two, you'll never get inside their lobby. Again, it's understandable. They're simply not structured to help someone looking for small change.
Dr. Jana Matthews, who help start the Kauffman Center for Entrepreneurial Leadership, now part of the Kauffman Foundation, suggests that we need new instruments to help entrepreneurs grow. She mentions the "bands of angels" approach that the foundation is working on. Traditionally, angel investors have existed but have been fragmented and hard to identify. By organizing them, Dr. Matthews thinks the missing equity piece can be filled in. Sounds great.
Another area where the system is stacked against the entrepreneur is health care. While noble efforts are being made to aggregate small businesses, costs remain prohibitive for small companies. And if one employee gets sick, rates zoom. Larger companies have math working in their favor.
The regulatory side is a grief saga on its own. On the national level, the paperwork crisis that swamps small businesses continues despite publicized efforts to reduce the burden. Back in 1980, with the amusingly named Regulatory Flexibility Act, Congress "recognized that small entities may be less able to manage the burdens imposed by federal regulation...than large entities." What happened? More than two decades later, Congress got around to passing the Small Business Paperwork Relief Act of 2002. And what did this act say? That we need an interagency task force to study and recommend ways to "reduce the burden on small businesses." The next round of recommendations is due in June. Meanwhile, small trucking companies still must deal with more than 40 information requirements from 11 federal entities.
If anybody should be encouraging small business it's Washington, but the bureaucracy is so clotted--and the process of getting paid is so painful--that many entrepreneurs have simply opted out, experts say.
It's often even worse on the local level. William B. Gartner, professor of clinical entrepreneurship at the Marshall School of Business at USC, told me that we need a "local business regulatory code." There are permitting and licensing hurdles so horrendous as to make it all but impossible for many small businesses to get started and succeed. Local governments "just don't get it," he gripes.
Finally, if you hurdle these obstacles and build something successful, the tax code punishes the passage of that business down to the next generation. The experts I talked to told me horror stories about businesses having to be sold to pay the estate taxes. We need a system that recognizes the difference between a small, family-run restaurant and the Rockefeller fortune. And that's the problem in a nutshell. Our systems aren't built to meet the unique needs of the entrepreneur. Until that changes, the hypocritical gap between policies and palaver isn't likely to change.
Contributor Adam Hanft is president of Hanft Raboy & Partners, a Manhattan-based advertising and marketing firm.