In his recent remarks on the October Jobs Report, President Obama said…
“I am open to any idea, any proposal, any way we can get the economy growing faster…”
Thank you for asking Mr. President, here is my list:
First and foremost, focus on the sectors that are proven job creators.
Research from the Kauffman Foundation shows that newly created and young companies are the primary drivers of job creation in the United States. Added to this, data from the Edward Lowe Foundation and their research on Second Stage Companies that shows that establishments with 10 – 100 employees and $1 million to $100 million in revenue have created the vast majority of the net new jobs over time. (Take a look at the data at www.youreconomy.org)
So if you are looking for job growth, focus on providing early stage and second stage companies what they need – and the American people will get what they need – more jobs.
These businesses need access to capital to grow and to create jobs.
The fuel that drives job growth in these growth sectors is capital. When there is a steady supply of capital, there is a steady supply of new jobs. It is capital that funds innovation, that purchases resources for manufacturing and supplies the catalyst for future growth.
Where does the money come from?
The capital that fuels growth in early stage and second stage businesses comes from the following areas – the life savings of the business owner (including IRA’s and 401K’s with penalties), credit cards of the business owner (personal or business issue), F&F (Friends and Family), Angel Investors, Private Equity/Venture Capital, SBA Loans, Traditional Lending, Public Equity Markets and most important of all CUSTOMERS.
In addition, the capital for growth often comes from operational cut backs and efficiencies inside the business, and more often than many would think, a business owner that is forgoing a paycheck while working 60 – 70 hours a week to keep things growing until the cash flow problem gets fixed.
So if we need capital to grow these businesses and create jobs here are some suggestions:
Life Savings and 401K’s
Forgive penalties on withdrawals from IRA’s, 401K’s, and the like made by business owners for the business or to feed their families while they personally went without wages to keep the business alive AND allow them to put the money back in when things get better again.
Extend the protections in the CONSUMER CREDIT PROTECTION ACT to include credit cards and charge cards that are issued to a business IF the card is personally guaranteed by the individual card holder. These “business cards” are actively marketed to small business owners yet do not carry the same protections as those issued to “consumers”.
Friends, Family, and Angels
After the business owner, the most common form of early stage capital infusion comes from friends, family and Angel investors. Interestingly these are the same people that will be adversely affected if the Bush Tax cuts are not renewed AND these are often the same people that are paying the lion’s share of taxes already. It is critically important the that Bush Tax Cuts be made permanent. The goal should not be to have a few people pay more – the goal needs to be stimulate job growth so that more people can pay something!
Private Equity and Venture Capital
Private Equity and Venture Capital have played major roles in the growth spurts of high growth and high potential companies. These American businesses and private investors invest in American businesses and can be a supercharger on our growth engine. Lynn Tilton, chairman and founder of Patriarch Partners, traveled to Washington with a plan to help companies and spur job growth based on a proven model that she uses in her own companies. This process is so unique that the US Patent Office issued a patent for it. (Click to view Lynn Tilton’s patent.)
Administrator Karen Mills and her team at the SBA are making real progress with the expansion of the SBIC program but wouldn’t it be great to have more leaders and investors involved in this effort to create a lasting solution? Perhaps it time to take another look at her proposed SME Rescue Loan Plan or perhaps give her a call.
Tax breaks for small businesses
Mr. President, you often speak of your support of tax breaks for small business. Any tax break that allows businesses of any size to reinvest in the business and create more jobs is a good thing. BUT, it is important to remember the tax breaks only benefit companies that are making profits to pay taxes on. Many of the companies that will grow and create jobs now and in the future are investing ahead of the curve and are not yet profitable. For these companies, a tax break is an empty promise.
Instead perhaps a good idea would be tax breaks, tax credits, or other incentives for private equity and angel investors to motivate more of them to get out of the “parking lot” they are currently in and put their money to work in businesses that are creating jobs. The American people have invested in Wall Street Bailouts, Cash for Clunkers, and credits for energy efficient appliances. Perhaps its time we invested in American investors who are putting their hard earned money into American businesses.
Innovation is my personal passion. My definition of innovation is simple. Innovation is doing something in a new way that makes life better. Just as we as business owners, investors and innovators need to focus on changes that make things better – we need you to do the same in Washington. This includes:
- Reversing the provision in the Healthcare Bill that will require all businesses to file a 1099 for EVERY supplier over $600. At a time when you need us to run faster, you are tying our ankles together with red tape. I know that Congress is the team that needs to fix this problem – but could you whisper in their ear?
- Cut down on the red tape in general. From an ever growing list of regulations on how we get things done to a multitude of forms in triplicate or worse when we do business with government agencies, it is getting harder to do business when we need it to get easier.
- Work with Congress to fully support the SBIR program on an ongoing basis instead of continually placing Band-Aid on it to keep it going. According to the NSBA, “small R&D companies employ 38 percent of all scientists and engineers in America. This is more than all U.S. universities and more than all large businesses. Furthermore, these small companies produce five times as many patents per dollar as large companies and 20 times as many as universities—and more small-business innovations are commercialized. Yet small companies receive only 4.3 percent of the federal government’s R&D dollars. The SBIR program provides more than half of this amount.” Here’s a suggested innovation – set a permanent requirement to allocate government innovation contacts and SBIR awards to small business based on the proportionate share of innovators they employ. If we generate results like these at just over 4%, just imagine what would happen if we had almost 40^% to work with.
- Create a fast track program for new technologies and innovations moving from Phase I to Phase II contracts with government agencies. With today’s backlog, some very promising companies and the technologies they have created could disappear due to delays that in some cases have been more than a year.
- Drive innovation within the US Patent Office to take the costs out of what we need to do to protect American innovation. Many small businesses can not afford the cost, time and expense as it is. And for many of them, a patent is a of little value since most small businesses can not afford the cost to defend it. (Small business patents are being violated on a regular basis and the response from big business is “sue me” when they well know that the small business could never afford to go the distance or carry the burden hundreds of thousands if not millions of dollars in legal fees.)
So Mr. President, you asked for suggestions. These are mine. I don’t know if you will ever see them, but I truly hope that someone on your team is listening. We’re all in this together after all.
About the author:
Joan Koerber-Walker, MBA is a small business owner and an angel investor who makes her home in Phoenix, Arizona. As a blogger she has personally interviewed Lynn Tilton on several occasions and has personally worked with Patriarch Partners and its portfolio companies and seen the results of what the Patriarch process can do first hand. In addition she is a past CEO of the Arizona Small Business Association and a past member of the board of trustees for the National Small Business Association. During that time she met with and shared ideas with hundreds of small businesses and second stage companies on key issues including health care, workforce development, regulation, taxation, and access to capital. She currently serves the small business community as a volunteer ambassador for SCORE in Phoenix, Arizona, as chairman of the Opportunity Through Entrepreneurship Foundation and as co-chair of the Arizona Entrepreneurship Conferences (AZEC10) which will gather together over 300 entrepreneurs, small business owners and investors together to share ideas, connect, and hit the “reset” button on their businesses on November 17, 2010 in Phoenix, Arizona.
To contact Joan Koerber-Walker, click here.