Last Friday, at the Inc. 500 conference, Carl Schramm took a gratuitous but useful swipe at the Small Business Administration. Useful, because thanks to him we now know where Republican John McCain stands on the SBA. So far this campaign, we've heard little about the candidates' views of the agency -- though at one point, Obama, while supporting its mission, called the SBA "sleepy". And surprisingly, McCain's position isn't wholly hostile.
Schramm, president of the Kauffman Foundation, was moderating a discussion with the top economic advisers from the two campaigns, which was a bit one-sided since Obama's representative canceled at the last minute. So he turned to Douglas Holtz-Eakin, McCain's senior policy adviser, and began his question by invoking "the dreaded words" the SBA. "It always strikes me that the SBA is geared to an economy that is in our history, okay? It has not caught up with the entrepreneurial capitalism that is our present economy and our future economy," Schramm said. "If Senator McCain becomes the president, what can we expect in terms of the specific agencies that deal with business firm formation?"
Holtz-Eakin, to his credit, did not take the bait. True, his criticism of the SBA's Small Business Investment Company program, which lends money to venture capital funds investing in start-ups, was merciless. "The key thing venture capitalists do is provide constructive and often ruthless management advice. And what they really know how to do is stop," Holtz-Eakin said. "Governments don't say 'stop,' ever. And so if you ever see a government program try to pretend it's a venture capitalist, you've got the recipe for a disaster. And we have those. And those are things we should not be doing as a government."
But he was much more equivocal about the SBA's main effort, loan guarantees to small firms. "Mixed record there," he allowed. "Governments aren't really great at bypassing capital markets -- we'd have to think about it if there was a right way to structure that or not." And he was positively effusive about another important aspect of the SBA's work, counseling and training for small business owners. "There I think there's actually the potential to do a great deal of good," he said. He spoke about reforming education generally, but added, "there are success stories in outreach programs that teach entrepreneurial skills, give people sort of, you know -- people have a great idea, people have natural people management skills, don't know how to do their books. There are ways you can help that -- I think that's a good thing." (Holtz-Eakin didn't address the SBA mission to help small firms compete for government contracts.)
That McCain's adviser wasn't willing to go on record promising to kill the SBA outright must have been a disappointment to Schramm. But, frankly, the presumption underlying the question was the sort of sentiment that gives entrepreneurs a bad name. "The SBA is handy and useful to some group of small business, but probably not to these entrepreneurs," was how he prefaced his question, referring to the assembled. "These folks generally have to jump over the SBA." Schramm seemed to argue for zero-sum government: if the program doesn't benefit these entrepreneurs, then it shouldn't exist at all. Who cares about those entrepreneurs?
And, in truth, Schramm didn't really know his audience as well as he thought he did. Those entrepreneurs were, in fact, present in the hall. Though I hardly introduced myself to a preponderance of the attendees, it didn't take me long to find someone who saw the value in the SBA. It was Amy Nichols, founder of Dogtopia, whom we met in Monday's post. It turns out that Nichols can credit the SBA for her success. For one thing, many of her franchisees are single women who got SBA-backed loans. "Try being a single woman and try getting a loan," she said.
Or try being a married woman, like Nichols. She, too, needed the SBA's help just to get started. "I had to go to seven banks before I got approved for a loan," she continued. "There's no way I would've gotten a regular, conventional loan -- until I opened for two years and got successful." Now, of course, she has access to the credit she needs. But at the outset, "the bank wouldn't have done it. They wouldn't have done if it wasn't 80 percent covered by another entity."
For the record, Dogtopia is 2,952 on the Inc. 5000 list. Nichols started the firm in 2002 and within two years racked up $1.1 million in sales. Last year, revenues reached $2.5 million, and she now employs 30 people. When Carl Schramm talks about entrepreneurs, isn't he talking about Amy Nichols?