Sunday, July 3, 2011

Small Business Development - Part 1

Small businesses have historically accounted for well over 60% of all jobs created in the United States; while we sit here watching the stock market return to its winning ways, while we are informed that economists have determined that the recession is officially over, then you hear talk about a "jobless recovery" you can pretty much assume that the issue with our economy is that small businesses are struggling. 

There are regular announcements from state governments about tax incentives given to create jobs;  most of these announcements involve millions of dollars in future tax incentives for hundreds of jobs over a period of time.  Basically, they seem to average around $40,000 to $50,000 in tax credit per job created and most are based upon allowing the company to pocket the state and or local portion of an employee income tax collected; thus they cost nothing now but rather involve refunding of future tax revenues.  Which just might explain why so many states and local municipalities are finding themselves in dire financial straits; they "bought" jobs by enticing companies to relocate to their locale through rebates of future taxes. 

There are also 900 Small Business Development Centers in the United States and in 2009 and again in 2010 they assisted small businesses and or new start ups acquire 3.8 billion dollars in financing (debt, equity, and grant money)  which works out to an average of 4.2 million dollars in investment in small businesses annually; and obviously, as we are in a jobless recovery, that was not sufficient to have any meaningful impact on employment.  I note, upon a review of our local SBDC, that most financing was debt via local banks with an average loan value of $200,000; which basically tells me that banks are demanding 100% collateral as that amount would basically be what a second mortgage could secure.

Some SBDC's are doing interesting things:  America's 10 most helpful SBDC's

Then on the other hand we have venture capital and angel investors, who have been very active lately as on a daily basis it seems that some innovative idea someplace is attracting tens of millions of dollars; but they all seem to be jumping at the same thing.

So, how do we create an environment where jobs are "created" rather that "bought?"  Where does the funds come for small businesses who need more than what a second mortgage can secure ($200,000) and what would be attractive to venture capital and angel investers ($20,000,000)?  How do local municipalities make meaningful and self sustaining investments in jobs that create future revenue streams rather than deplete the tax base? 

Someplace in the economic matrix between a a citizen opening up a cupcake shop or a lawncare service with the funds derived personally, to states enticing major corporations to relocate, to the next Groupon, Facebook or Google, there is a HUGE opportunity that no one seems to be able to capitalize on and benefit from.

Part II   - Small Business Collaboration
Part III  - Small Business Dynamics Rather Than Incubation 

No comments: