Entrepreneurship and the American Jobs Act

It's a really slow news day (meaning that nothing's gone ka-BOOM in Europe yet), so I thought I'd share what I think is one of the more interesting proposals within Obama's recently revealed jobs plan. Surprise! It involves entrepreneurship, which I'm always talking about here.

For what it's worth, in general I don't think the new jobs plan is a particularly good one--it seems to be mostly window-dressing to save Obama's job next year, and it does little to solve the significant structural problems in our current job market--but this specific recommendation seems to be a step in the right direction. (This guy takes a comically long time to get to the point, so skip down a bit if you're impatient like I am. Seriously, this guy is killing me...it's like reading Dickens. Skip ahead.)

It’s no big secret that young Americans are hurting. Youth unemployment is double the national average, college debt loads and defaults are the highest in history, and only 25% of young people had traditional jobs lined up upon graduation this year.

Thankfully, alongside these chronic epidemics, another trend has emerged: the growth of entrepreneurship as a viable career path for young people.

However, the vast majority of recent college graduates and twenty-somethings face significant hurdles when it comes to starting a business, especially when it comes to obtaining startup capital. Mind you, I’m not talking about hundreds of thousands or millions of dollars — or in most cases even tens of thousands. It takes just the few thousand dollars to start the most basic service-based businesses. But banks require collateral and credit history, a rare combination for eager upstarts. Micro-loan programs (that work as intended) are few and far between. And, in many instances, “friends and family” have their own financial woes to deal with. Bottom line: None of these sources is a reliable or scalable solutions for the vast majority of young Americans looking to join the entrepreneurial ranks.

But it seems the president’s American Jobs Act may have just the solution young people need to transition from unemployed to self-employed...

The provision I’m talking about is reform to federal unemployment insurance. (Yes, I’m serious. Hold the skepticism, please.)

Traditionally, unemployment insurance has only been made available to unemployed individuals who were actively seeking a traditional job. These funds could only be accessed for personal use; all other uses — such as starting a business — were strictly prohibited, and only job seekers qualified for these funds. Individuals with a desire to seek self-employment opportunities were ineligible for any unemployment money.

Now, imagine if aspiring entrepreneurs — individuals whose main priority is to hire themselves, build revenues and hire others to grow — had access to this sort of guaranteed startup capital. Well, under the American Jobs Act, they will.

According to Obama’s plan, all 50 states would be able to establish Self-Employment Assistance (SEA) programs, enabling aspiring entrepreneurs to utilize unemployment insurance money to fund their businesses for up to 26 weeks —providing roughly $10,000 to $13,000 in assistance, or what I would refer to as “seed funding.” Not a bad deal when you consider that the cost of most startups, especially most service-based businesses and tech ventures, have relatively low startup and operating costs. In essence, the president’s plan will create a guaranteed source of startup capital for businesses without any of the traditional credit and collateral requirements as barriers — or the need to give away equity to investors. Someone pinch me...

SEA has a proven track record of success in states that are both red and blue. According to a Department of Labor study of state self-employment assistance programs, SEA participants were 19 times more likely than eligible non-participants to be self-employed. In a handful of states where SEA programs are active, such as Arizona and Maryland, hundreds of businesses and new jobs have been created as a result. In Oregon, nearly half of the successful SEA entrepreneurs have each created an average of 2.63 new jobs.

Though this program is geared toward people of all ages who wish to start their own businesses, I would argue that young people are the best suited to maximize its advantages. Members of older generations tend to have families and other financial obligations, making it more difficult for them to transition into the roles of entrepreneurs. Young people who have fewer commitments, and therefore more flexibility, can more easily adapt to less expensive lifestyles.

You guys still with me here? No, our guy put you to sleep? Okay, sorry about that. But I really am excited about the fact that the federal government finally seems to be appreciating the need for entrepreneurship and innovation to get us out of our now decade-long economic malaise.

Now if they could just double or triple the size of this program, and cut back on all of the thousands of programs that are basically just handouts to large corporations, that'd be great. Good talk.

[Time]

Now that's what I'm talking about...

Engadget has a nice summary of last week's New York Design Week, and it's chock full of the kind of innovation, entrepreneurship, and creativity that I've been begging for forever--and that you're probably tired of hearing about from me. As a sports fan, I was particularly intrigued by this paragraph, which has me thinking of all sorts of new possibilities over the next several decades.

Energy-generating architecture got some buzz this week with the unveiling of a piezoelectric energy-generating sports stadium that just broke ground in India, a floating solar-powered stadium for Miami, and an algae-powered office building that just won Metropolis Magazine's Next Gen competition. Photovoltaic technology was a hot topic as well as MU researchers developed a new breed of nano-cells capable of capturing 95 percent of solar energy and Diffus unveiled a chic solar-powered bag that flaunts its solar panels instead of hiding them.

With all of this creativity and innovation coming down the pike, it's really too bad that we've already spent billions of taxpayer dollars in the U.S. replacing nearly every ballpark and football stadium over the last two decades, all without any of the cool new technology that we really could have used (and that could have saved us big money).

With cities and states around the country facing budget crises as a result of underfunded pensions and plummeting tax receipts, it's unlikely that we'll see any of these stadiums replaced any time soon, and that's a shame. Large stadiums and arenas represent fertile ground for technological experimentation, and with the traditional use of taxpayer dollars to fund the projects, there's no excuse for not employing state-of-the-art technology and energy efficiency. Hopefully future projects will indeed employ these new efficiency-gaining technologies, and the taxpayer will benefit (or maybe won't even be needed at all, but that's probably a pipe dream). As always, time will tell.

[Engadget]

A trend that needs to change

I've been pretty vocal here before about the need for entrepreneurship and innovation (I mean real innovation, not consumption vehicles like iPads or new "innovative" financial products) to bring us out of our "jobless recovery" into a real recovery, because we can't rely on our big corporations to do so. So far, not so good...

The recession caused a sharp decline in new business start-ups, intensifying job market losses and potentially putting future economic growth at risk.

The Census Bureau on Wednesday said that 403,765 new firms were started in the 12 months ended March 2009, down 17.3% from a year earlier and the fewest on records that begin in 1977.

New businesses are an important source of new jobs — without them, there would be no job growth at all. Indeed, the new Census data show that one of the reasons that the job market declines were so severe in the recession was the dearth of start-ups. Firms less than a year old employed 2.3 million people in March 2009 whereas as a year earlier start-ups employed 3 million people.

In past recessions, start-ups didn’t take nearly as large a hit as they did in the downturn that began at the end of 2007, notes John Haltiwanger, a University of Maryland economist who has worked extensively with the Census start-up data. Even in the deep recession that ended in late 1982, start-up activity held up fairly well. “Start-ups weren’t immune, but the guys in the garages were going to try to do what they were going to do no matter what,” said Mr. Haltiwanger.

Unfortunately, things seem to be going in exactly the wrong direction. The Journal article attributes a significant amount of the dropoff in startups to a lack of financing from venture capital firms, banks, etc., but I think that's overly simplistic.

I think that this generation (my generation), in large part because of an excess of student loan debt, is extremely risk-averse and afraid to put their careers on the line for something that might not pan out. They tend to take the safe play, which increasingly isn't actually as safe (or as fulfilling) as it might appear. But sooner or later, I don't think they're going to have a choice. The big companies aren't going to start hiring any time soon, and more people are graduating from college (and high school) every day.

Some of the young and unemployed will eventually have no choice but to band together and start new ventures, and our country will be the better for it. It just isn't happening yet. I'm keeping my fingers crossed.

[Wall Street Journal]

JFK, 50 years later

Fifty years ago today, President John F. Kennedy stood up and delivered his famous inaugural address, the takeaway line from which was, of course, "ask not what your country can do for you; ask what you can do for your country".

As Kennedy spoke to his nation at the height of the Cold War--just months before the construction of the Berlin Wall--there was significant uncertainty as to the future viability of capitalism and the U.S. way of life. Today, we find ourselves at a remarkably similar inflection point, beset by doubt and anxiety, with China threatening to play the role of a 21st-century Soviet Union.

Once again, we find ourselves wondering (and arguing) about the role of the state vs. the role of the individual, and what we as individuals must do to ensure the next generation of American prosperity. Kennedy's famous call to arms would be equally viable and important today, living as we do in an unprecedented era of entitlement.

Since Kennedy took the podium a half-century ago, federal government spending has certainly increased (albeit not linearly), but more importantly, our debt ratio has skyrocketed as government revenues have consistently failed to keep pace with spending increases.

Though Kennedy (and Johnson finishing out his term) succeeded at driving down levels of spending and debt, their gains were short-lived. In recent years, the trends toward increased spending and debt have been extended to troubling degrees. Simply put, no American generation since Kennedy's inauguration has asked for more from its government while providing less.

Note that the last two points on each chart represent projections based on an assumption of fairly robust economic growth over the next two years--if growth is slower than projected, the first chart will not experience the dip that is currently projected, and the second chart may go parabolic.

Our nation's response to the economic crisis of 2007-2008 was essentially the antithesis of Kennedy's plea--at every opportunity, we looked first to Washington to see what our politicians could do to ease our pain. We spent and spent and spent, but we sacrificed nothing in the way of increased taxes to support those new spending programs. Say what you will about the success or failure of the many programs enacted over the past few years--either way, the message from the American people was clear. Government must be the solution to our problems, because we are helpless to solve them ourselves.

If the 21st century is indeed to be another American century, this newfound relationship with government cannot continue. We must heed President Kennedy's words, and ask hard questions of ourselves--what can we do to help each other, to ensure the next generation of economic prosperity? A state, after all, is nothing but a collection of individuals--this is what Kennedy understood so well.

I have mentioned here before my firm belief that the economic prosperity of our nation depends on our own ingenuity and a return to the entrepreneurial roots that once made this country great--and can once again. The confidence, self-reliance, and individualism that defined our nation's frontier era must never be forgotten. As one last call to arms, I'll turn to Kennedy's own words, from that same speech fifty years ago today.

I do not believe that any of us would exchange places with any other people or any other generation. The energy, the faith, the devotion which we bring to this endeavor will light our country and all who serve it. And the glow from that fire can truly light the world.

Well said.

Why would you ever work for this company?

At the risk of sounding like an entrepreneurial zealot in the wake of yesterday's post, this article from the Daily Mail infuriated/baffled me, and I just had to rant about it (emphasis mine).

Staff at one of the world’s top investment banks have been issued with a 43-page dress code specifying in minute detail what they can and can’t wear – and it’s bad news for fans of tight skirts or lacy black bras.

The guidance from Swiss firm UBS warns women to wear flesh-­coloured underwear, and avoid flashy jewellery and coloured artificial nails. Men are told choose ties with patterns that ‘match the bone structure of the face’.

Under the rules for women, it states: 'You should not wear flashy jewellery or skirts that are too tight behind.

It adds: 'Women should not wear shoes that are too tight-fitting as there is nothing worse than a strained smile... (WTF?!?!??!)

For men it states: 'You should wear a straight-cut two button jacket and trousers that make up part of a classic professional suit.

'Wear only ties that match the bone structure of the face and do not wear socks with cartoon motifs. (NOOOOO DON'T TAKE AWAY MY SCOOBY DOO SOCKS!!)

'Three days of stubble is not permitted and a visit to the barber is recommended once every four weeks.'...

The move is part of a bid to improve the image of UBS, which suffered after it accepted a £37billion bailout – Europe’s biggest – in the 2008 financial crisis...

A UBS spokesman said clients and staff had reacted well to the rules, which are being applied at five offices in Switzerland.

It said in a statement: 'The reputation of UBS makes up our most precious asset.

'So adopting irreproachable behaviour implies having an impeccable presentation.'

As I was reading the article, some of the lines were so ridiculous that I had to assume it was a joke. It is a joke, right? It has to be, right??? It's not.

First of all, why would you ever work for a company that feels the need to issue a 43 PAGE DRESS CODE?? I don't care what you think the value of "image" is, image doesn't make a strong company. Strong products and services do. Dressing incompetent people in nicer clothes DOESN'T ACTUALLY MAKE THEM MORE COMPETENT. If you want to project an image of professionalism and attention to detail, hire professional people who have solid attention to detail--don't hire ignorant slobs and try to dress them in different clothing.

I understand the value of "looking nice", and I appreciate that many places have dress codes (and I abide by them when it is asked of me). Similarly, I think it's too bad that so many people these days seem to think that a t-shirt and jeans is acceptable attire for all situations. While I don't think we should all be wearing sweatshirts to the office, there's a certain point at which things get ridiculous. "Ties that match the bone structure of the face"? What does that even mean?

If UBS and other similar companies started worrying a little less about image and P.R. and a little more about actually running a solid business, maybe we might have a more robust global economy. Why are people so readily willing to sacrifice personal freedoms for a paycheck? I really don't understand it. Please, somebody tell me that this dress code is a joke and that I've been had. Please.


[Daily Mail]

Hooray!

I've been very outspoken here about my belief that the only way out of our current economic morass is by encouraging the entrepreneurial spirit that has historically made America great (and not by propping up our largest corporations and hoping that they start hiring again). In my mind, it's no coincidence that Mark Zuckerberg was named Time's Person of the Year for 2010; if we are to bounce back as an economy, we are going to need many more people with Zuckerberg's entrepreneurial spirit (if not his ethics).

So I cheered this article in the New York Times, which indicated that an increasing number of recent college graduates are turning to entrepreneurial ventures rather than traditional "real job" paths, which have largely been closed off for years now.

Five years ago, after graduating from New York University with a film degree and thousands of dollars in student loans, Scott Gerber moved back in with his parents on Staten Island. He then took out more loans to start a new-media and technology company, but he didn’t have a clear market in mind; the company went belly up in 2006...

Still in debt, Mr. Gerber considered his career options. His mother kept encouraging him to get a “real” job, the kind that comes with an office and a boss. But, using the last $700 in his bank account, he decided to start another company instead.

With the new company, called Sizzle It, Mr. Gerber vowed to find a niche, reduce overhead and generally be more frugal. The company, which specializes in short promotional videos, was profitable the first year, he says.

Mr. Gerber, now 27, isn’t a millionaire, but he’s paid off his loans and doesn’t have to live with his parents (he rents an apartment in Hoboken, N.J.). And he thinks his experience can help other young people who face a daunting unemployment rate.

In October, Mr. Gerber started the Young Entrepreneur Council “to create a shift from a résumé-driven society to one where people create their own jobs,” he says. “The jobs are going to come from the entrepreneurial level.”

The council consists of 80-plus business owners across the country, ages 17 to 33. Members include Scott Becker, 23, co-founder of Invite Media, an advertising technology firm recently acquired by a Google unit; Lauren Berger, 26, founder of the Intern Queen, a site that connects college students with internships; Aaron Patzer, the 30-year-old who sold Mint.com to Intuit for $170 million; and Josh Weinstein, 24, who started CollegeOnly.com, a social networking site that is backed by a PayPal founder.

The council, which has applied for nonprofit status, serves as a help desk and mentoring hotline for individual entrepreneurs. People can also submit questions on subjects like marketing, publicity and technology, and each month a group of council members will answer 30 to 40 of them in business publications like The Wall Street Journal and American Express Open Forum, and on dozens of small business Web sites.

Good. Too many people (myself included at one point) are daunted by the prospect of starting one's own business, overestimating the risks involved and underestimating their own abilities. A vibrant entrepreneurial community is a vital ingredient to making self-employment seem viable as a career choice. Too often, people pass up the opportunity to start their own company in search of a "safe", "real" job.

But all jobs are real (whether you're paid by a company or directly by your customers), and no jobs are safe, as the massive spate of layoffs from 2007-2009 should have taught us. I hope this trend toward entrepreneurship keeps up, because in my mind the companies that will lead us into and through the 21st century are not the names we already know, but the names we haven't yet heard of. That's capitalism at its very best.


[New York Times]

Great satire from Scott Adams

Scott Adams, creator of Dilbert, penned a fantastic satire piece for the Wall Street Journal today. At least I think it's satire. Actually, you know what, I'm pretty sure it's not satire. It's actually the sanest, most level-headed piece of macroeconomic analysis I've read all year. Jesus, we're screwed.

Imagine a parallel universe where employees enjoy going to work. They feel empowered and fulfilled—so much so that they don't care about the size of their paychecks and never want to leave their jobs. That's exactly the sort of nightmare scenario that would destroy the economy. The last thing this world needs is a bunch of dopey-happy workers who can't stop humming and grinning. Our system requires a continuous supply of highly capable people who are so disgruntled with their jobs that they are willing to chew off their own arms to escape their bosses. The economy needs hamster-brained sociopaths in management to drive down the opportunity cost of entrepreneurship. Luckily, we're blessed with an ample supply.

To put it in plainer terms: The primary purpose of management is to kill any hope that staying in your current job will work out for you. That sort of hope is like gravel in the engine of progress. The economy needs workers who are fed up, desperate and willing to quit their jobs for something better. Remember, only quitters can be winners, because you can't do something great until first you quit doing something that isn't.

"Only quitters can be winners, because you can't do something great until first you quit doing something that isn't". I'm gonna just go ahead and make that an honorary "Quote of the Week" recipient. Well done, Scott Adams. Well done.


[Wall Street Journal]