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Increasing Entrepreneurship

Posted by David Foster on August 2nd, 2010 (All posts by David Foster)

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Inc Magazine asserts that a dramatic increase in the number of start-ups is key to economic recovery, and proposes a 16-point plan to accomplish exactly that. I agree with the premise–start-ups are indeed key to the economy–but find quite a few flaws and omissions in the plan, along with some good ideas.

Read the article first, then come back, read my commentary, and join the discussion if you feel so inclined.

Here are my comments of several of Inc’s 16 proposals:

Step 1: Take Entrepreneurship Out of the Business Schools. The writer argues that science students, arts and humanities students, indeed students in all majors–not only those pursuing a business degree–should have the opportunity to take entrepreneurship courses. I agree with this, with the caveat that it is very easy to construct such courses in such a way that they consist mostly of useless fluff. This obviously needs to be avoided.

Step 2: Tap the Best and the Brightest Wherever They May Be. The writer supports a proposals such as the Kerry/Lugar bill “to create a new visa for those who intend to form U.S.-based start-ups…Under the proposal, a foreign-born entrepreneur who has secured at least $250,000 in funding from qualified U.S. investors would be permitted to stay for two years. At the end of that period, if the business has generated at least five full-time jobs, attracted $1 million in additional capital, or hit $1 million in revenue, the founder would be granted a green card.” I’m on the fence on this one, but leaning against. People who are going to be successsful entrepreneurs don’t have a big “E” branded on their foreheads. When Andy Grove (Intel) came to the U.S., he was not a well-funded entrepreneur, rather just another Hungarian refugee.

Step 5: Give Manufacturers the Tools They Need to Get Started. The article praises manufacturing-oriented incubator–shared spaces which provide aspiring manufacturers with access to machine tools, 3-D printers, CAD systems, etc. Agree. Also, it would be worthwhile to give high school and college students an opportunity to learn about manufacturing technologies, and to work hands-on with machine tools, without the necessity of their being on a vocational track.

Step 6: Cut College Graduates Some Slack. Observes that heavy student-debt overhangs are making it difficult for recent graduates to pursue careers that don’t have guaranteed salaries attached, and proposes a repayment break for those who start businesses–as is now done for those who pursue careers in “public service.”

I’m inclined to vote “no” on this one. I don’t like the “public service” exception, and don’t see further expanding the exceptions as the solution to the student debt problem. I’d rather get the governmental thumb off the career-choice scales, and focus on the solving the problem of excessive growth in higher-education costs.

Step 7: Give Angel Investors a Tax Break. Some states are already doing this. Possibly a good idea.

Step 9: Cut the Incorporation Red Tape. Yeah, this would be a good thing, but it kind of misses the point. The main governmentally-inflicted delays that plague new and growing businesses do not stem from the incorporation process per se, but from various forms of regulation. This is especially true for businesses that want to produce a tangible product.

Step 10: Pass an Energy Bill, Already. Argues that clearly-defined standards for “renewable energy” will create opportunities for entrepreneurs to invest in this field. Completely misses the point that businesses use energy, and that standards which drive up energy costs will make many types of U.S. enterprises, especially in manufacturing, much less competitive with those in other countries.

Step 15: Stop Enforcing Noncompetes. I think this one is questionable. For one thing, noncompetes are often used by venture-backed start-ups, not just by large companies as the article implies. I think it might well be a good idea to establish limits on the term and scope of noncompete agreements, but not to ban them altogether.

Step 16: Bank the Unbankable With Microfinancing. It’s certainly true that banks aren’t doing what needs to be done in financing of new and growing businesses, and new institutions are needed for this purpose. I tend to agree with Joe Weisenthal, though, that most small-business financing should take the form of equity rather than debt.

Overall, there are some useful ideas in the article, but it misses a very key point, which is that the greatest single inhibitor to start-ups and to small-business growth is excessive and badly-designed regulation, with the dreadful Consumer Product Safety Improvement Act serving as Exhibit One. There are also issues of tax policy, with asset-intensive businesses such as manufacturing and transportation being discriminated against relative to asset-light businesses. Overall, the article is too focused on things that the government should do the encourage entrepreneurs and not focused enough on things that the government should stop doing in order to avoid discouraging and inhibiting them.

Your thoughts?

 

This entry was posted on Monday, August 2nd, 2010 at 8:28 am and is filed under Business, Economics & Finance, Entrepreneurship, Politics. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.

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