In this blog, I work hard to stay away from politics, or anything that can be perceived to be political, but I’m going to risk deviating slightly. Below is my open letter to President Barack Obama and anyone else in government. This letter expresses my opinions about accelerating growth (and therefore hiring) in small and mid-sized businesses. It is not meant to be a Republican or Democrat opinion – instead it is meant to be a Fast Growth Opinion:
Dear President Obama:
I read a summary of your speech today about creating jobs. While I admit I haven’t seen any details, I’m concerned about the approach you are taking and would like to encourage a different one.
If you want to increase jobs and utilize small and mid-sized enterprises (SMEs) as the means for that goal, it’s not a particularly difficult or complex thing to do. The more complicated you make it – the less likely it is that it will work.
Here are three keys to stimulating job growth through SMEs:
- We need capital. At the risk of offending many, I don’t think a reduction in the capital gains tax is going to do anything to stimulate hiring, nor will a tax credit for hiring (though that will have more impact). A hiatus from payroll taxes is not the difference between hiring someone or not (and the failure to make such a contribution just puts the entire system even further at risk). Hiring people is risky and the cost impact of hiring is far greater than just the salary being paid. The only way an SME can hire people that stick is to grow revenues. What companies need is growth capital. Take the money that you’ll save from cutting “small business taxes” and create funds that provide capital to SMEs that show viable plans for growth – of revenue and staff.
- Target investments that will grow employment. Your announcement earlier this year that the government would increase its funding for SBA was nice, but did little to improve the hiring picture. The problem with most traditional bank lending is that it is all based upon collateral. While this type of support is great if you want to buy a building or other capital expenditures, it does not directly connect to hiring. I’m not against supporting this need, I just don’t want you to confuse it with job stimulus. This is also the problem with cutting taxes alone. Frankly (and I’m being honest here), a business owner is more likely to pocket the tax savings than they are to spend/invest such a cut in their business to increase hiring.In uncertain economic times, the most logical thing for a business owner to do, actually, is to pocket the savings. With increased market risk, business owners are prudent to retain whatever sources of cash they have. They’re also encouraged to take funding to buy other companies – which further reduce jobs. So, if you want to impact jobs make sure the funding you create actually impacts them - directly.
- Change the accounting rules to accurately report the value of tomorrow’s growth businesses. America is becoming an intellectual property (IP) economy. All types of IP are driving America’s growth businesses. Everything from the design of Apples next notebook computer, to the methodology my accounting firm uses to advice its clients, to the communities and “tribes” companies are creating and leading. However, there is nowhere to list such IP as an asset or to capitalize the expenses. These assets are actually the most valuable assets a business can have; yet they show up nowhere on formal financial statements. The crazy thing is that as IP drives SMEs, it becomes even more important for these same SMEs to employ people to help spread the word and manage the process. It is here, more than any other area, that traditional funding mechanisms let us down. Lending money to a company that is buying a building to support a declining business appears to make more sense than providing capital to a company that is leading a movement to create new ways to solve old problems – even though it’s the new approach that offers the best opportunity for jobs today and growth tomorrow.This does not mean that you should blindly throw money at any company that claims to have a new idea or a new way. The problem is that there is no mechanism that allows those companies that are really doing it to gain the funding necessary to support those efforts. Updating accounting rules to properly value IP is critical to supporting tomorrow success stories.
If you made it easier for growing SMEs to access growth capital at reasonable costs, without the risk of losing one's home, SMEs would be lining up to hire people. Now, certainly some of these efforts would fail, but most would not. Next, you'd materially increase employment (thus increasing the tax base with which to pay for such measures), and the cost of the failures would certainly be lower than what you are currently outlining.
While there is much detail that needs to be worked out in these three ideas, I think you’ll find that, as approaches, they’ll support the creation of far more job and far more growth than the traditional methods you are currently pursuing will.
So, what do you think? Do these ideas make sense? Do you have better ones? Let me know in the comments section.