I meant to post on this last week when Friedman’s op-ed in the NYT hit, Start Up the Risk-Takers. Friedman, not surprisingly, beats up on the US autos among others, and says that instead of giving them more money, we should instead turn to venture capital. He proposes giving the top VC’s (top 20%) a slug of money to invest in new technologies and then collect a share of the profits (80%) in exchange for this seed capital.

Fred Wilson, one of the most well respected VC’s in the business, responded on his blog: No thanks. Basically, he asserts that the problem isn’t a lack of money but that too much dumb money came in. Now we’re getting the crap washed out of the system, and the strongest investors still have money that they are putting to work.

While this little dialogue was interesting, I was troubled that this was even being talked about. It’s like the obvious was invisible to everyone discussing the topic. While money is important (and may or may not be the issue depending on who you believe), the bigger problem is complexity and bureaucracy.

The government should be making it far easier for people to start companies. Bottom line.

What if the Obama administration proposed a dramatic set of new rules intended to jumpstart new business creations?:

1) Minimize the complexity for forming a company. Today there seem to be about 8 different types of business types that you form (LLC, Inc, partnership, etc) and in any one of the states all with rather bizarre differences. How about a single, simple filing type which gets a company off the ground and “formalized.” It gives you the flexibility to finalize the specific type of business you want to be after your business gets traction. Why worry about tax treatments, etc upfront? Let people start the thing, and sort out the details later. Put the form online so that anyone can fill out the one page web form and in a matter of hours, their business is formally created. We need to cut the red tape.

2) Eliminate the complexity within a business at the start. Everything from hiring more employees to expanding office space is supported through the SBA or another body. Let’s make it as easy as using TurboTax to figure out how to add new employees, etc. I can picture an online form that asks simple questions and gives you the advice you need, makes changes to your corporate structure as a result, and recommends who to use if you need to use a vendor.

3) Health Care. One of the major (non-monetary) costs of our current health care system is that it is tied to employers and stifles innovation. Health care plans & costs for small companies is often prohibitively expensive. I’ve long argued that the reason we needed to see massive health care reform is not on moral grounds, but because it was such an impediment to the creation of small-businesses and entreprenuership.

The new economy that is going to have to be built to sustainably drive the world forward from here will, in my opinion, have to be driven by entrepreneurs and small companies. Technology has set us up for a world where david can regularly take on and beat goliath. This is awesome. As a country, we need every last drop of creativity and entrepreneurial drive we can wring out of our citizens. To tap into that we need to make it turnkey easy for anyone to start a new business. From there, the government can help create a transparent marketplace for these companies. The private sector will take it from there, and investors such as Fred Wilson, Reid Hoffman, Paul Graham, Andreessen and the slew of other great minds in the space will provide money and the advice needed to build great companies.

It’s disappointed that everyone’s answer to everything has become MORE MONEY. The black hole that is our financial system will continue to destroy more than its share of money for some time to come, so let’s think broader (and more intelligently). Let’s create more efficient and effective government that does it’s part, gets the hell out of the way, and allows individuals to unleash what’s best with themselves.

4 Responses

  1. I am also concerned about so much money being touted as the answer to this crisis. While stimulating consumer spending and job creation are certainly the best way to turn the crisis around, the problem is that a combination of virtually zero consumer savings combined with the highest consumer credit debt over the last 10 years means that throwing billions at loosening credit does nothing to stop consumers attitude to increasing debt and still saving nothing. The infrastructure projects in the plan makes sense – the U.S. infrastructure is suffering and it will create jobs. I also agree that money spent on education and health care are worthwhile.

    I don't agree with bailouts to banks or the auto industry. I also have a problem with the mortgage refinancing program. While there may be a benefit in stopping a bank from foreclosing on a property that is not in default – but being foreclosed due to plummeting value – I'm not sure that is happening a lot. If I buy a home for say $300,000 and I am still working and paying my mortgage, who cares if the property value drops to $150,000? If I could pay my monthly mortgage then, I can still pay now, and I still have my house. If I could not afford it then, I should not have bought it. Interest rates are at an all time low – so it is not the same as 1984, where interest rates soared and people could not afford to pay. If people have lost jobs and can't afford to pay their mortgage – then the issue is more about job creation.

    The parts of the bailout that reward irresponsible credit debt and discourage savings are wrong. At best they are short term solutions that will in the long term just mean higher consumer credit debt and still no savings to protect people when things get bad. Why are we bailing out GM and making it easier for people to buy a new GM car on credit, when the average American is struggling to pay their mortgage, bills and consumer credit card balance? What happened to saving some money to buy a used car with cash?

    I DO like your ideas about making it easier for people to start businesses. That makes a lot of sense.

    1. Thanks for the comment, Douglas! Very insightful and it's hard todisagree with any of it. Clearly the past years were consumerism runamuck with Americans buying literally 2X more than they should have.It's clear, as you say, that we have to get back to the basics ofsaving and a more simple lifestyle. The question it seems is how doyou do a "soft landing" of the plane. Meaning, how can we get thingsto where they need to be without moving so quickly that it destroyseverything else. There's a fear that if property values drop too far,too fast, with so much household wealth tied up in it that couldtrigger a total collapse in confidence and money. I think what they'retrying to do is stabilize the housing markets so this variable can beremoved. Will it work? Most experts seem to think not a chance inhell. As far as US autos, it would seem that during a "normal"recession/time, it might be OK for them to go under, but withstaggering job losses already and deflation throughout the economy,endangering the million jobs that exist in the US auto supply chainmight be playing with too much fire. It seems that everyone agreesthat doing either of these two things is absolutely terrible and adamn shame. The pertinent question is how much worse off would theeconomy be without any action. I, for one, don't know. But I'm sadthat it's come to this and, at this point, am just hoping for the best.

  2. I hear you, and like the analogy of trying to do a 'soft landing'. Unfortunately a soft landing is only possible if you have not run out of fuel at 30,000 feet. The best result may a few strong survivors. (I couldn't resist šŸ™‚ ) I too hope for the best and believe or not am really an optimist even though my posts don't always show it. (And why does it seem like planes are falling out of the sky the past few months???)

  3. LOSTies shouldn't engage in debates šŸ™‚ They always turn into LOST discussions. ha ha. I only hope that we're not at 30,000 feet running out of fuel. Though with every passing day the facts would support your analogy. I definitely believe you're an optimist, douglas! if you're not, I don't know any. I think your last few posts show that you're a mood-balancer (as am I). You're making points that you're afraid I'm missing. That's why I love that you read this blog and contribute!

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