Young, small businesses are the heart of entrepreneurialism

By now everyone is done grumbling over Boeing’s decision to move part of the 787 assembly to South Carolina. Former Gov. Gary Locke’s organized effort to keep Boeing in Washington called for a systemic approach in workforce development and public infrastructure. But that seems life a lifetime ago now and the $3.2 billion package for the company (much of which they didn’t actually get I hear) looks different today. Large companies are important to jobs, of course, and we all recognize their value. We make speeches, write articles, attend seminars and talk constantly about what state government can do to ‘save jobs.’ We almost always mean manufacturing jobs.

Still, we all know intellectually that small businesses create jobs. Every conference says so and every article talks about their vital role. But is this actually true?

And, if so, in the end what does state government actually do to support job creation among small businesses?

It’s a serious question because I don’t think we do much at all for the largest generator of jobs.

One of the problems, it seems to me, is that we’re under the mistaken idea that small businesses generate the most jobs (I’ve said it myself) when in fact it’s YOUNG companies that create jobs. There’s an important nuance and subtly to this issue that can’t get lost.

Here’s the real deal according to popular economist Robert Samuelson in today’s Washington Post (please read this entire article, it’s very insightful):

“Consider this: All net job creation from 1980 to 2005 came from firms that were five years old or less, according to a study by economists John Haltiwanger of the University of Maryland and Ron Jarmin and Javier Miranda of the Census Bureau. In any one year, that may not be true; but over time, mature firms lose more jobs than they create. “It’s not small firms but young firms that count,” says economist Robert Litan of the Kauffman Foundation, which sponsored the study.

If Americans don’t continue to create firms — not just high-tech start-ups such as Facebook but construction companies, florists, restaurants, dry cleaners, engineering firms — the economy may languish. Beginning a business is a risky, exhausting, chaotic process. Every year, there are roughly 500,000 to 600,000 company “births” and almost as many “deaths.” Half of new firms don’t make it to year five, says Litan.

Some harbingers of growth look unpromising. In 2009, disbursements by “venture capital” firms — investors in start-ups — to first-time recipients hit an all-time low since statistics were begun in 1995. True, VCs support only a tiny fraction of new firms, mostly high-tech start-ups. But “angel investors” — friends and family of entrepreneurs who support many more — have also suffered huge losses in stocks and homes. They, too, have less to invest.

There’s a warning here for the Obama administration: Complex regulations or high taxes may discourage start-ups and job creation. As for broader questions, the answers may remain murky for years. Has the mix of economic trauma and aging made us prudent — or merely fearful? Has economic resilience survived — or given way to a stand-pat society?”

(End of Washington Post article)

Washington State has a high rate of new company creations, and a high failure rate, which touches on our entrepreneurial spirit.

Running a business is really, really, really hard.

Everyday when I’m wearing my legislative hat I think about how hard it is to run a small business. I do it myself as a business development consultant, and in my career I’ve seen the ceiling at 3 a.m. worrying about making payroll. Until you have felt that anxiety, you don’t know real humility.

Those who make blanket statements that “business” has excess money for taxes and shouldn’t mind regulatory controls fail to understand that jobs come from small, young companies struggling to get off the ground. When we equate “business” with Boeing, Microsoft, Weyerhauser, Amazon, Paccar and other large firms we fail to understand the richness of the entrepreneurial spirit that is innovation and job growth. This is one of the biggest problems with having a legislature where so few people have backgrounds in small business.

The disconnect between the rhetoric of government supporting small business and the reality of many of our public policies is stark.

This year we will most likely raise some business taxes, close some loopholes, reform some regulations and take other steps that impact business. The challenge is to understand the true ripple effect on young, small businesses so we–and they–don’t get crushed by the the law of unintended consequences.

In Olympia during the legislative session, I will meet with lobbyists representing almost every large company, union and interest group in the state. But my small business friends who struggle day and night to stay afloat at the Queen Anne Dispatch or Cafe Fiore or Ballard Brothers Seafood and Burgers or Mercer Street Books or Synapse don’t have well paid lobbyists to follow bills and make appointments to advocate for their interests.

In my office they didn’t need one.

Buy local.

Your partner in service,

Reuven.