Do 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 _____

 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.

 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

 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

 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.

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

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

 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…

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

 You are at the race track with $30,000  Which horse do you bet on if you want to win? Company 1 Company 2Company 3

 $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

 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.

 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

Existing Companies Startups 93% 7% Higher wage More efficient More benefits Lower wage Less efficient Fewer benefits

 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.

 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

Enough bad news! We get it!!! What is the solution????

 Encourage high quality, high growth companies to be founded

 Every horse runs slower if the track is muddy

 Stop subsidizing the formation of the typical startup  Just say “NO”  Focus on the subset of businesses with growth potential

 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

 Help companies generate innovative solutions  Discourage typical start up ideas  Provide expert facilitation to help companies develop innovative products, services, & solutions

 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