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Friday, April 10, 2009

How Can Government Promote More Small Business Innovation??

First ask yourself this question .... are US small businesses really innovators? Than ask a much larger question .... is the US staying competitive with other nations?

My personal opinion is the answer to both is ... NO. You may disagree and that's OK. I encourage you to leave a comment.

For my 1st question .....

"Small business innovation" is a myth. Truly innovative businesses are those that grow large very quickly.

Between 1980 and 2005, 7,454 American companies went public. Of these, 2,019 have gone out of business, 5,048 have not reached $1 billion annual revenue threshold, and 387 have reached $1 billion annual revenue threshold and as of 2005, accounted for 56% of employment and 64% of market value in the group. Translation: 5% of all companies in the group created 56% of all employment and 64% of the market value created by the group.

So the answer appears rather obvious. The policymakers need to realize that "small business innovation" is a phantom goal. There are many good things that can be said about small business (and there are many good reasons to support small business), but innovation simply isn't one of them. If you want to support small business, you need to do something about the cost of environmental compliance (which tends to be much heavier on the small business) and the cost of health insurance (which many small businesses can't afford to provide even to owners, not to mention rank-and-file employees).

One problem has been the general reallocation of resources away from investment, accentuated by dramatic reduction of American investment into research and development. This below average innovation and loss of competitiveness has diminished America’s international standing.

To address these losses policymakers could do a couple things. Reducing taxes on or providing grants for R&D/investment at a small business level. This could be an effective avenue to immediately generate growth at a local level.

The reduction of available money (credit) for small US businesses was hampering many and I am glad to see the new administration addressing this.

Now I’m not talking about big sums, millions, for “bigger” small businesses. I propose smaller sums, tens of thousands, for the little small business the mom and pop general store, the construction worker turned contractor, etc…

Those that can afford to invest into their own businesses themselves should be rewarded with tax savings and incentives to do so. Those without the capital should be given direct access to R&D/investment funds or grants.

I know that some programs are out there for the small guy, but we need to overhaul/simplify accessing these and increase public awareness and use of the programs to improve innovation and competition at a local level. This will radiate out and improve the United States standing worldwide.

For my second question .....

I think a major part of the problem is the lack of education at the secondary school level on such things as personal finance and the social skills required for effective marketing.

At one time children could learn frugality and the skills to be frugal from parents or grandparents, but today with instant gratification through easy credit, credit cards, enabling parents and a sophisticated marketing techniques that seduce children into their social purpose as consumers, those skills are being lost.

The reliance on technology to make the kind of calculations to manage and account for money, have produced a generation which has difficulty making change change in simple transaction.

I realize the second point might seem out of place in the world of MySpace and FaceBook, but electronic social skills are very different from face to face interpersonal skills. Marketing and sales require a long range perspective and not just the short range sales cycle perspective.

I have met too many "salespersons" who attempt to sell their product before they have taken the time to sell themselves as trustworthy persons representing a trust worthy company with a trustworthy product. They usually fail more times than they succeed. Yet this is the model most innovators have of the sales process, which is why they fail to move their idea forward to commercialization.

Basic training in interpersonal skills is critical, especially for innovators and entrepreneurs who really have only themselves to sell to an Angel or VC investor. Communication skills (both sending and receiving information) are another part of this. Learning to listen is as much a business skill as pitching a line.

The point here is that we need to start at an earlier age preparing the next generation be become more entrepreneurial and innovative. We can do this by giving them the skills needed to transform an idea into a concept and concept into a business.

It is not just a matter of changing the environment for financing or regulation, it is training those who will depend upon and be subject to them to be better prepared at managing this part of their small business that is important.

At the Federal level, the best I think we can expect is promote attitudinal change on a generational scale which begins with at the secondary school level.

Another equally important point affecting competitiveness is ..... I can tell you requiring US companies to operate under restrictive rules and regs and then encouraging big companies to go to third world companies is crazy. Personally, I think NAFTA and CAFTA were stupid - there have been hundreds of thousands, if not millions, of good paying jobs go to Mexico and Central America. If we want to maintain a standard of living that is the class of the world we can't cut our own throat and let jobs go to Vietnam, China, and Cambodia because of cheap labor that the government ought to raid if it was in this country for labor violations.

Now here's my personal rant (errr editorial comment) .......

Government should abolish most of the business related legislation written after the year 1929. Then go away.

The Feds must stop choking American business for God's sake. Stop the insane taxation, stop moronic regulation, stop telling people how to run their business. I mean, put down your portfolio and step away from the voting button, Mr./Ms. Policymaker!

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