We need more start-ups. A lot more of them. New companies mean new ideas, new approaches, new products and services, and new jobs. What's more, in the wake of the Wall Street meltdown and the catastrophic oil spill in the Gulf of Mexico, a wave of start-ups could spark a new sense of optimism about what businesses can actually accomplish -- something else this country sorely needs.
We are not just talking about the fast-growing "gazelle" companies that expand at double-digit rates -- though we could certainly use more of them. Nor is this solely about sparking, say, a green business boom or the creation of more tech companies or a bunch of cool new iPhone apps -- though we like all of those, too. Instead, what we are seeking is a kind of rebooting of the entrepreneurial ideal -- the notion that starting a company is a viable option for all Americans, regardless of where they come from. This country has long been a haven for entrepreneurs. Ten years into the 21st century, it's time to rethink exactly what that means.
Given our anemic and largely jobless economic recovery, this is more important than ever. Young companies -- those younger than six years old -- provide the bulk of new jobs; in 2007, they accounted for 64 percent of them, according to a 2009 survey by the Kauffman Foundation that looked at start-up formation since the 1970s. John Haltiwanger, an economist at the University of Maryland, came to a similar conclusion in a more recent study: His research found that start-ups account for only 3 percent of total U.S. employment but almost 20 percent of gross job creation.
Unfortunately, creating new companies is easier said than done. The rate of business creation has remained stubbornly constant over the years. Since the early 1990s, the number of start-ups has hovered at about 500,000 a year, according to a survey by the Kauffman Foundation. This has been the case during booms and busts, whether taxes were rising or falling, and whether venture capitalists were irrationally exuberant or largely recalcitrant. Clearly, some new thinking is required.
That's what Inc. aims to provide in the pages that follow. We spent months talking to economists, entrepreneurs, academics, politicians, and policymakers about what can be done to spark a renaissance of American entrepreneurship. What we ended up with was a game plan to help revitalize the American economy.
This is not just a matter for elected officials. Sure, issues such as immigration and tax policy need to be addressed. But we also need action by schools, corporations, nonprofits, investors, and entrepreneurs themselves. The good news is that you don't have to look too hard to find approaches that work. Indeed, we discovered an entire infrastructure of programs, policies, and ideas designed to stimulate business formation. These programs need to be studied, emulated, fine-tuned, and scaled. And their leaders need to be acknowledged and brought into the national conversation about the economy.
Step 1: Take Entrepreneurship Out of the Business Schools
Arts and humanities and science students need entrepreneurship education every bit as much as b-schoolers. Universities as diverse as MIT and the University of Miami have created model programs for training students in the fundamentals of business formation. More programs like these should be created. Read more
Step 2: Tap the Best and the Brightest Wherever They May Be
Entrepreneurs from all over the world want to start companies in the United States. Our immigration policy should reflect that, by offering short-term visas to would-be entrepreneurs who are in the country on H-1B or student visas. If those visa holders create companies that create jobs, then we should offer them green cards. Read more
Step 3: Our Education System Should Foster Entrepreneurship Among the Young
Putting ideas into action may be the biggest challenge for entrepreneurs. Teaching youngster--especially middle-school students--how to start businesses is one of the best investments we can make. Programs such as the National Foundation for Teaching Entrepreneurship offer a good model; educators should also take small steps such as adding the biographies of great entrepreneurs to the standard curriculum. Read more
Step 4: Speed the Start-up Process
Most start-ups don't need much money to get started. But that doesn't mean they don't need help. That's where incubators and seed accelerators such as Y Combinator in San Francisco and TechStars in Boulder, Colorado, come into play. Investors, entrepreneurs, and city officials across the country should jump on the bandwagon. Read more
Step 5: Give Manufacturers the Tools They Need to Get Started
Plenty of Americans have the desire to make actual stuff, not just software. What they often lack are the tools to get their ideas off the ground. Shared manufacturing spaces such as TechShop in Menlo Park, California, can provide aspiring manufacturers with access to sophisticated prototyping equipment. We need more of these facilities. Read more
Step 6: Cut College Graduates Some Slack
The rising level of student-loan debt among recent college graduates may well inhibit them from starting businesses, driving grads into stable corporate jobs that will allow them to pay down their loans. The government should find a way to let college graduates who start businesses postpone loan payments for a few years while they get their ventures off the ground. Read more
Step 7: Give Angel Investors a Tax Break
A number of states including Wisconsin, Minnesota, and Ohio, offer angel investors a tax credit for backing early-stage ventures. More states should follow their lead, and so should the federal government. As Stephen Spinelli, co-founder of Jiiffy Lube, observes: "If I get an immediate tax credit, I get an immediate return. I know I would increase my investing if there was a tax credit." Read more
Step 8: Reward Innovation Through Business-Plan Competitions
A revved-up contest economy will harness the competitive spirit to launch a wave of businesses. Programs such as New York City's NYCApps and the nonprofit X prize should be expanded and encouraged. Read more
Step 9: Cut the Incorporation Red Tape
In New Zealand, an entrepreneur can register a business with one filing and be legal and legit in one day; in the U.S., it takes about six steps and six days. We need to make it easier for founders to register their start-ups. Hawaii's approach, which involves an online step-by-step guide to registering a new business, should be adopted across the country. Read more
Step 10: Pass an Energy Bill, Already
Markets--and investors and entrepreneurs--abhor uncertainty. So let's get serious about the emerging energy economy by creating an actual energy policy. Only then will companies be able to make informed investment decisions. Read more
Step 11: Revamp the SBIR
The Small Business Innovaton Research Program is a good idea that unfortunately supports a small number of companies that seem to excel only at getting SBIR grant money. The government should revamp the agency's mission so that it provides seed capital and contracting opportunities to younger companies, and not just small companies. While we're at it, let's rename it the New Business Innovation Research Program. Read more
Step 12: Grow Local Investment Communities at the State Level
It's foolish to try to duplicate Silicon Valley, but smart governments can do a lot to lure investors to their states. Since 1993, for example, New Mexico has committed funds to venture-capital firms with the requirement that they open an office in New Mexico and pledge that investments equaling the amount provided by the state were made in state. The results have been encouraging, and suggest that other states should nurture local VCs. Read more
Step 13: Bring Government into the 21st Century
Government entities have more resources--generally in the form of data--than officials realize. They need to follow San Francisco mayor Gavin Newsom's lead and hand that raw material over to entrepreneurs. Read more
Step 14: Fund Big Science
As a percentage of gross domestic product, funding for scientific research has dropped from 2003 levels. What's more, the federal contribution to R&D is now below 1 percent of GDP, a commonly accepted minimum goal for economically developed countries. Meanwhile, our global economic competitors are seizing the opportunity. We should reverse course, and fast. Read more
Step 15: Stop Enforcing Noncompetes
Midcareer executives are a rich source of entrepreneurial talent. But studies indicate that in states and in industries where noncompete agreements are commonly enforced, workers are forced to make career detours, finding their next positions outside the industry in which they had expertise. Noncompetes make it hard for people to start companies, and hard for start-ups to attract seasoned talent. Let's follow California's lead and stop enforcing noncompetes nationwide. Read more
Step 16: Bank the Unbankable With Microfinancing
Over the past few years, many mainstream banks have beefed up loan requirements or significantly cut back on small-business lending. Nonprofit microfinance lenders have come to play an ever more important role in bridging the funding gap. Cities and states should embrace these kinds of programs. Businesses that seem unbankable are often anything but--if you know what to look for. Read more
It's difficult, if not impossible, to say how many new companies Inc.'s 16-point plan would help create. We went over our proposals and performed some back-of-the-envelope calculations and estimate that implementing these ideas would spur the formation of at least 300,000 additional start-ups over the next decade or so. The number, we admit, is speculative. But blue-sky thinking is fine with us. The point is that the old models are no longer working. We need bold thinking about how a new wave of entrepreneurship can transform the American economy, spark innovation, and provide new jobs, new vibrancy, and new opportunities.
That's where you come in. What do you think of our plan? Is there anything missing? What do you think needs to happen to make this country more start-up friendly? We want to hear from you. Please post a comment below.