ENTREPRENEURSHIPDo we need the government’s intervention

Dr. Jerry Burch

“The entrepreneur is the single most important player in a modern economy”

Edward Lazear

“Small businesses are vital for our workers… That’s why it makes sense to have the small business as the cornerstone of a pro-growth economic policy…The Small Business Administration is working hard to make it easier for people to start up companies… So we have doubled the number of small business loans since I came to office”

U.S. President _____

YOU PICK THE WINNER…

Rules I will give you $30,000 to start You decide how much to give each of the

following firms as start up cash You get 10% of the profits if you pick 1 company You get 5% of the profits if you pick 2 companies You get 3.33% of the profits if you pick all 3

Winner is determined by who makes the most revenue after year 1.

COMPANY 1

Founder is a Granbury native She has experience as a restaurant

cook and waitress She wants to open a new Chinese food

restaurant on the square

COMPANY 2

Founder is moving in from out of state He has extensive experience running a

hardware store He wants to open a small hardware

store that specializes in home improvement products in Granbury

COMPANY 3

Founder has an MBA and extensive experience in manufacturing.

She was the co-founder of a tool manufacturing facility in New England

She has decided to relocate to Texas for lower taxes

She wants to open a specialized tool manufacturing businesses focused on increasing production efficiencies.

The facility will be located between Granbury and Tolar.

SUMMARY

Where do you put my $30,000? Company 1 – Chinese 2 Go Company 2 – Hardware Mogul Company 3 – Tolar Tool

CHANGE SCENARIO

What if the $30,000 came out of your pocket? Company 1 – Chinese 2 Go Company 2 – Hardware Mogul Company 3 – Tolar Tool

CHANGE SCENARIO

What if the $30,000 came out of your pocket? Company 1 – Chinese 2 Go Company 2 – Hardware Mogul Company 3 – Tolar Tool

Let me make the decision easier…

CHANGE SCENARIO

You are at the race track with $30,000 Which horse do you bet on if you want

to win?

CHANGE SCENARIO

You are at the race track with $30,000 Which horse do you bet on if you want

to win?

Company 1

Company 2

Company 3

TYPICAL STARTUP

$25,000 start up costs Financed by founder’s savings Operates in retail or personal services Most likely home-based Owner aspires to generate around $100,000 in

5 years

Vast majority aren’t entrepreneurs in the sense of building companies that grow They are wage substitution businesses

TO GENERATE ECONOMIC GROWTH … Startups need to be more productive

than existing companies.

RESULT – They are not. Average new firm makes worse use of

resources than average existing firm. Average new job wage is 72% of state

average in first year… still below state average at year 4.

SO HOW MANY JOBS ARE CREATED … New firms create around 2.2 million

jobs each year. This is 7% of all new jobs created

annually.U.S. Bureau of Labor

Statistics

TAKING A DEEPER LOOK AT JOB GROWTH…

Existing Companies

Startups

93%

7%

Higher wageMore efficientMore benefits

Lower wageLess efficientFewer benefits

BUT IT WAS THEIR FIRST YEAR…

A study of U.S. firms started in 1998 798,066 people in first year 670,111 in 2002

Conclusion – New firms have net job destruction after their first year.

WHY DO WE HAVE THIS PROBLEM?…

Government intervention Encourages the creation of any new business Stimulates growth in competitive industries

with lower barriers and higher rates of failure

Typical entrepreneur Picks the wrong business/industry Fails within 5 years Is not the best entrepreneur May already be unemployed and has less to

lose

STOP THE PRESSES…

Enough bad news!We get it!!!

What is the solution????

SOLUTION… PICK WINNERS

Encourage high quality, high growth companies

to be founded

WORK THE SOIL…

Every horse runs slower if the track is muddy

THIN THE HERD…

Stop subsidizing the formation of the typical startup Just say “NO”

Focus on the subset of businesses with growth potential

BREED FASTER HORSES…

Help companies become more efficient Don’t just focus on start ups Provide expert help on implementation of

capital Provide expert help on process

improvement We compete on a global scale

DEVELOP NEW BREEDS…

Help companies generate innovative solutions Discourage typical start up ideas Provide expert facilitation to help

companies develop innovative products, services, & solutions

CONCLUSIONSTOP SPREADING THE PEANUT BUTTER SO THIN…

Entrepreneurs are not created equal There are limited resources Place your money on the entrepreneurs

that can deliver results Innovative ideas High efficiency Growth industries High success rate industries

QUESTIONS?