The US economy and domestic job creation have been in deep shit lately and neither seem to be improving anytime soon.
Intel co-founder Andy Grove recently wrote a profound article on BusinessWeek “How America Can Create Jobs” that I personally thoroughly enjoyed and spoke to the current market conditions for job growth and overall economic strength. Duke University’s Professor Vivek Wadhwa, a well known blogger and a former entrepreneur turned academician, further pointed out in the TechCrunch article “Startups or Behemoths: Which Are We Going to Bet On?” that the best bet for job creation is not in big companies but rather startups.
In his article, Vivek discusses that The Kaufman Foundation released a recent report “which provides details about the age and employment of businesses started in the U.S. since 1977. What this showed was that startups aren’t just an important contributor to job growth: they’re the only thing.” The report continues that “without startups, there would be no net job growth in the U.S. economy. From 1977 to 2005, existing companies were net job destroyers, losing 1 million net jobs per year. In contrast, new businesses in their first year added an average of 3 million jobs annually.”
I urge you to go back and re-read that quote – “Without startups, there would be no net job growth in the U.S. economy.”
Startups, be proud!
I’m sure your startup has a dream to change the world. However, no matter if your startup is able to fully realize that dream or not, your startup is already changing the world by being part of the engine that creates jobs.
Furthermore, what is sad is that the government is not helping small businesses, despite the desperate need to stir job creation. Small businesses are being squeezed at both ends.
Startups are being squeezed at both ends of the equation. On one end, the lack of policy support from government and the sad truth of being the collateral damage as government fights to deal with the continued Wall Street collapse and other corporate scandals. Startups, by definition, do not have the political clout as more established and larger corporate giants and thus are often sacrificed. On the other end, operational costs are soaring.
For instance, let’s look at some examples of how government is making it even more difficult for startups to succeed:
- Sarbanes Oxley: A direct result of the government reacting to Enron and WorldCom is introducing more governance for publicly traded big companies. Sabanes Oxley creates a significant amount of extra costs for companies. While it is warranted for public companies in order to prevent similar problems as Enron and WorldCom, these Enron/WorldCom problems that Sabanes Oxley is intended to prevent are not relevant to small private companies because small businesses are typically governed by a small number of shareholders who tend to have direct information access. This extra cost due to Sabanes Oxley on a startup can range from tens of thousands of dollars to millions of dollars per year. From a startup point of view, this cost is significant and is simply wasted to solve a problem that does not exist.
- Software Patents: The patent system is disgustingly broken. It is even more disgusting from a startup perspective. Brad Feld has several insightful articles covering the issue, including: “Abolish Software Patents”, “Software Patent Absurdity” and “Innovating Against Software Patents”. Vivek Wadhama also wrote a great piece, again on TechCrunch, “Why We Need to Abolish Software Patents”. Will change happen? No current politician would champion such an initiative, but that doesn’t mean change is needed.
- The proposed venture capital tax hike: In response to the recent Wall Street problem, a bill titled “the American Jobs and Closing Tax Loopholes Act of 2010” is proposed to regulate taxes paid by investment fund managers on carried interest. However, the side effect is that venture capitalists just become the collateral damage here. See http://www.readwriteweb.com/start/2010/05/thousands-petition-senate-against-proposed-vc-tax-hikes.php.
On the other end startups are facing rising operational costs including business operations, healthcare, banking, credit, hiring, etc. Some examples I’ve experienced include:
- Healthcare: Among the high tech startups I know, we have to pay a significantly higher premium per employee than larger companies. Our provider options are limited and qualified plans tend to be not that attractive – to both the employees and the startup.
- Banking: Some larger banks won’t even approve banking requests from small businesses or if they are interested have a system of fees for various charges that don’t get applied to larger corporate clients.
- Credit Card: Ever try getting a corporate credit card for a startup? If not, good luck. Startups either can’t get one or are required to put down a large cash collateral – either way, the startup gets screwed.
- Hiring: We all know that success at a startup requires a unique type of person. Someone that is highly entrepreneurial, nimble/flexible, brilliant yet humble and driven to succeed – it’s a hard mix to find. Luckily the good news is that entrepreneurship courses through the blood of this country. The bad news is that science, engineering and technology are getting less appealing to younger generations.
Despite all of these challenges, entrepreneurship and the startup revolution is alive and well. From San Francisco to Boston and every city along the way, companies are starting up every single day. Tremendous ideas are being formed, incredible people are teaming together, dreams are being chased and a better economy is being built.
Now and then during this startup revolution, you have to ask yourself – what is the role of government and where should their priority be? Should they be helping create jobs and drive economic recovery or should they be creating laws that limit that growth?
Startups, be proud!
Coach Wei is the CEO of Yottaa and Founder & Chariman of Nexaweb. You can find this post as well as additional content on Yottaa's blog located here. You can also follow Coach (@dijitalife) on Twitter by clicking here.