Do we need the government’s intervention
ENTREPRENEURSHIP
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…
93%
7%
Existing Companies
Startups
Higher wage
More efficient
More benefits
Lower wage
Less efficient
Fewer 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
CONCLUSION
STOP 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?