Posts Tagged ‘Entrepreneurs’

What happened to American business start-ups?

January 28, 2015

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We Americans pride ourselves on our entrepreneurial spirit, but the number of new business start-ups is going steadily down.

The U.S. business death rate exceeds the business birth rate.  According to Gallup, the United States ranks 12th in the rate of new business start-ups, behind such nations as Denmark, Finland, Hungary, Israel, Italy, New Zealand and Sweden.

Why?  I can think of several possible reasons.

  • Businesses are often started by employees of large corporations who see a market niche that their employers are unwilling to try to fill.  The increase in non-compete agreements makes it increasingly harder for employees to do this.
  • The stagnation of the U.S. economy is self-perpetuating.  Nobody will start a business unless they think people will buy its products or services.  The lack of good jobs at good wages means there is less of a demand for new products.
  • Because of the uncertain economy, individuals are less willing to risk their savings by investing in startups.
  • The lack of a good social safety net makes entrepreneurialism more risky.  In Sweden, even if your business failed, you still would not have to worry about lack of medical care or your family going hungry.

This is important.  New and small businesses are local.  They employ Americans.  They don’t usually have the option to outsource to India or China.

Big businesses are not immortal.  In the ecology of business, the dying giants are replaced, if they are replaced, by growing small businesses.   Without a stream of new businesses, the economy becomes dependent on old and declining businesses, such as General Motors and Chrysler, while have to be bailed out and propped up.

I don’t think small-business subsidies and set-asides are the key to having start-ups.  The best things for business startups are a high-wage, full-employment economy, an end to abusive non-compete agreements and a breakup of big-business monopolies.

LINKS

How Wall Street Killed Entrepreneurs by Yves Smith for naked capitalism.

American Entrepreneurship: Dead or Alive? by Jim Clifton, chairman and CEO of the Gallup.

Has American Business Lost Its Mojo? by Thomas B. Edsall for the New York Times.  [Added 4/7/20154]

Slow Business Start-ups and the Job Recovery by Liz Laderman and Sylvain Leduc for the Federal Reserve Bank of San Francisco. [Added 4/7/2015]

How Special Interests Undermine Innovation by James Bessen for Foreign Affairs.  [Added 4/7/2015]

Do mean people tend to fail as entrepreneurs?

January 4, 2015

Paul Graham, a computer programmer, venture capitalist and wise essayist, wrote recently that mean people almost never succeed in starting successful businesses.

There is some evidence that some types of business, such as financial speculation, attract psychopaths, but the types of business Graham had in mind are those that create something new and valuable.

Graham-cover3The reasons why, in his experience, mean people rarely succeed are (1) a focus on crushing the enemy keeps you from focusing on the long view, (2) talented people don’t want to work for mean bosses and (3) creative entrepreneurs often have a vision of doing something that benefits humanity.

Successful creative entrepreneurs, in Graham’s experience, are more like great artists, writers and scientists than they are like great warriors, and, in a post-scarcity society, their qualities are more important than the warrior qualities.

I think there is some truth in what he wrote, and I would like to believe in it more than I do.  But I can think of examples of successful and creative entrepreneurs who were nasty human beings.

One example is the late Steve Jobs, the founder and CEO of Apple Computer, probably the premiere creative entrepreneur of our time.  Jobs had the perfectionist artistic temperament that Graham wrote about, and yet he was a bully, a liar, a manipulator, an exploiter of Asian sweatshop labor, a deadbeat dad, and an ungrateful son to his adoptive parents.  He was a great man, but he was not a good man.

Another example is Jeff Bezos, the founder and CEO of Amazon.  His brilliant innovation has revolutionized the retail industry to the benefit of many, and yet he is using the power of his innovation to squeeze book publishers, authors and suppliers in the same way as Wal-mart does.  He also is a terrible employer.

Al Neuharth, the former CEO of Gannett Inc., entitled his autobiography, Confessions of an SOB, which I think was accurate.  Yet it was his vision that created USA Today, a successful innovation in journalism, at a time when printed newspapers were starting to fail.

I think Paul Graham may suffer from selection bias.   As a decent human being himself, he is predisposed to invest in businesses started by other decent human beings.  And many decent human beings do succeed in business.  But so do bullies and SOBs, just as they sometimes do in the arts and sciences and other endeavors..

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Entrepreneurs under socialism

January 31, 2011

One of Americans’ great strengths is our entrepreneurial spirit.  Polls show that a higher percentage of Americans than of any other advanced country dream of owning their own businesses.  But a survey by the U.S. Small Business Administration shows that the percentage of Americans who actually start new businesses is less than for Canadians, Danes, Norwegians and Swiss.

U.S. government policy for the past 30 years has been aimed at encouraging business growth by cutting the marginal tax rate, which is the top tax rate, the tax rate on the next dollar earned.  The idea is that the less a business owner has to pay in taxes on additional profits, the more incentive the owner has to start and grow the business.

Along with this is the shrinking of the social safety net.  Owners of financial assets are supposed to be more productive because they have a greater incentive of gain.  Wage earners are supposed to be more productive because they have a greater incentive of fear.

But what if it doesn’t work that way?  What if, as the RSA Animate video suggests, other things were more important?

When I reported on business for the Rochester (NY) Democrat and Chronicle, the successful entrepreneurs I interviewed didn’t fit that pattern.  The typical story was somebody working for a large corporation had a good idea, couldn’t get anybody in the corporation to pursue it, and so decided to pursue it on their own.  These entrepreneurs wanted to get rich, of course.  Who doesn’t?  But the main thing was to achieve their goal.

Inc. magazine this month ran an excellent article about business start-ups in Norway. It began with a profile of Wiggo Dalmo, a high school graduate and mining equipment machanic, who got tired of working for a large company and started a successful business of his own, Momek, which now has 150 employees and $144 million in annual revenue.  He is taxed more heavily than he would be in the United States, but, according to Inc., he doesn’t mind.

“The tax system is good—it’s fair … What we’re doing when we are paying taxes is buying a product. So the question isn’t how you pay for the product; it’s the quality of the product.” Dalmo likes the government’s services, and he believes that he is paying a fair price.

Modern capitalism is possible because entrepreneurs and investors are cushioned from the worst consequences of failure. With bankruptcy laws, entrepreneurs can only lose what they have.  With limited liability corporations, investors can only lose what they put in.  Without these cushions, anybody who started a business, or even invested in a business, would be in jeopardy, when the business failed, of a debt burden they could never pay off in their lifetimes.  The consequences of failure are spread over society.  Arguably this is unfair, but by reducing fear of failure, it makes possible a dynamic, growing society.

In a welfare state such as Norway, there is more cushioning of risk.  Entrepreneurs have even less reason to fear failure than in the United States.  No matter what happens, they and their families will have access to medical care, their children will have access to a good education and their retirement income will be above the poverty level.

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