As I’ve written here many times before, small companies and especially new companies are what create nearly all of the net new jobs in America, yet a new study released last week by the Hudson Institute suggests the rate of job formation by new firms is down dramatically in recent years, from an average of 11 new startup jobs per 1000 workers at a peak in 2006 down to 7.8 new startup jobs per 1000 workers in 2011 — a 29 percent decline. So is the startup economy losing its oomph and should we be worried? No the startup economy isn’t losing its oomph but yes, it’s time to worry.
The Hudson Institute study was written by the think tank’s chief economist Tim Kane, who is not only a friend to this column he is a friend to all of you since he is a frequent reader and commenter right here. Tim notes with concern this downward trend in startup job formation but his study doesn’t attempt to explain it, leaving that for the future. He’s not above, however, mentioning the likely negative impact of increased regulation, especially from the impending Affordable Care Act, AKA Obamacare.
There’s a lot to think about here and a lot of good research yet to be done, but I know more startup founders than the average Joe and I don’t think many of the founders I know were factoring Obamacare, with its 2014 inception date, into their 2011 business decisions.
There are, I think, two much more significant effects being felt here. One is the nature of job formation has been evolving over time and labor statistics haven’t yet evolved to keep pace. The other effect is the simple unavailability of credit despite low interest rates.
“One might expect entrepreneurship to be rising in the United States, especially with lower fixed costs for modern service-based startups, as well as other advantages, such as higher levels of human capital, higher incomes, and the rising availability of funding through bank and venture capital.”
These words are from the short preface to Tim’s paper. Let’s consider each of his points in turn:
- Lower fixed costs for modern service-based startups — this is true and is one of the significant effects I mentioned above. If your new startup is built entirely in, say, Amazon’s cloud, there’s a lot less to be done in terms of logistics and infrastructure, so you probably save a job or two, which could account for most of the effect noted in the study.
- Higher levels of human capital — I think this means more qualified people looking for work which is again true despite the H1B lobbyists claiming otherwise.
- Higher incomes — Whose? Is your income higher so you’ve decided to start a new company? Certainly there are parts of the population that are doing better than ever. It would be interesting to learn whether those people are the ones starting new companies.
- The rising availability of funding through bank and venture capital — Say what? This is simply not the case. Venture capital represents a relatively small proportion of the funding base for new company formation. Most new company founders in America have never met a venture capitalist. And while it is true the banks are stuffed to the rafters with cash to loan thanks to easy terms from the Federal Reserve, they simply aren’t lending money to entrepreneurs, who tend to be people with big dreams and small credit ratings.
What’s at work here to stifle company formation is lack of credit combined with some increases in efficiency that allow companies to do more with less.
Part of the issue here has to do with the definition of startup, which to our crowd means new technology companies but to the Bureau of Labor Statistics also means new Arby’s franchises. The current credit crunch makes this a particularly bad time to be getting into the roast beef sandwich game.
It’s this lack of credit that should worry us because the Obama Administration has shown no ability whatsoever to fix this problem, though the JOBS Act may finally help when it kicks-in next year.
Tim is my friend, his report is interesting as far as it goes and it should spark a lot more inquiry from economists, but I think what it mainly represents is a love letter to Presidential nominee Mitt Romney, trying to give some economic ammunition to a candidate on the ropes.
I’m curious if the primary reason then isn’t tight credit. The folks trying to open an Arby’s aren’t using Amazon’s cloud services.
No, the real reason this is happening is due to the H-1B Massacre of American Engineers. You see most startups were created by people who reached the zenith in their profession and then would contract. This gave them enough extra money to start companies. But since America rapes it’s own citizens and has imported now FOUR MILLION H-1Bs for the 4.4 million existing technology jobs, it’s bloodshed and chaos out there. Not only are jobs hard to get, the prices have fallen in real terms to 25% of what they were ten years ago. Corporate America has succeeded in utterly wrecking the tech industry in their quest for rape and cheap workers. Yes a few startups still push on and venture companies still exist. But now, rather than come from a background as ubermensch engineers, many are marketing pods from Facebook and Google. So we get an endless stream of “social” startups and less real engineering. And more crap.
– Sarah Giavelli, The Giavelli Report, 23 Years of Silicon Valley Sludging
It looks as though the trend started before Obama took office, so I don’t think it has much to do with Obamacare.
Obamacare is simply another cost – it used to be that if you had fewer than 50 employees you could defer the cost of providing insurance to them and let them just handle it on their own.
Post-Obamacare, because your new employees are required to have insurance, you HAVE to either provide the insurance, or provide an increased salary so they can purchase (or pay the penalty) in order to stay competitive with a larger company that already has an insurance plan.
So yeah, getting into the small company business is indeed more expensive than it used to be.
That being said, my personal opinion is that I’m better off knowing the techie on the subway next to me has actually been to the doctor some time in his lifetime than thinking he’s intentionally avoiding keeping track of his health because his employer won’t help pay for it.
For businesses with less than 25 people, you get a 50% subsidy*.
*as long as the average wage is less than $50k/yr. I imagine that most Silicon Valley startups would not qualify.
Considering the salary structure nowadays for IT, that 50k limit is easily gotten under.
“it used to be that if you had fewer than 50 employees you could defer the cost of providing insurance to them and let them just handle it on their own.”
Your caring attitude brings a tear to my eye /s
Considering that the best place to start a business is Canada, I hope that the “exchange” portion of Obamacare can be a stepping stone to a non-employer-based system.
But it really comes down to the high-risk-high-reward nature of tech startups. If nobody is willing to take a risk — and the insane IPO rewards are also gone — it makes startups less attractive.
I would like to see something like the German system where they give money (and health insurance of course) to anyone who can write a business plan. This would reduce the risk side — probably enough to match the reduced IPO rewards.
Indeed, just look at the data. From Bush’s 2006 high point, it falls off a cliff, and is just now bottoming out.
Bryan,
He specifically said the decline does NOT have to do with Obama care. The study suggested it does, Cringley says no.
You are absolutely right, Bryan. The chart clearly shows the collapse started well before Obama was in office; if anything, the collapse he inherited because of the greed and shortsightedness of unregulated bankers is leveling off.
And since the collapse started years ago, it clearly wasn’t created by the affordable care act. Many of the 1% will do / say / rationalize anything to try to grab more absolute and relative wealth, but making sure people can have health insurance is a *good* thing for potential start-ups — you aren’t locked into a big company for your health insurance any longer.
These ropes?:
“47% who believe that they are entitled to health care, to food, to housing, to you name it.”
Mitt Romney’s Mom Says his Dad (a job creator) was on welfare …
Last night , John Steweart poked fun at the love letters Fox news has been sending to Mitt Romney…
https://www.newser.com/story/154413/stewart-47-gaffe-turns-fox-into-bullst-mountain.html
Let them eat cake?
Mitt Romney’s Dad was not always President of American Motors or Governor of Michigan. He had pretty humble beginnings.
Luckily, he was a welfare queen, and thus could escape those humble beginnings.
Good thing he got help, then.
You never hear that information out of Mitt, but then again, that kind of blows his narrative out of the water.
There simply is no “likely negative impact of increased regulation, especially from the impending Affordable Care Act, AKA Obamacare.” It’s nothing more than a convenient excuse (‘uncertainty’) used by Republicans to justify their opposition to the Affordable Care Act, and avoid hiring people at real, living-wage, middle-class jobs.
If they’re looking for uncertainty, there’s plenty of it in everyday life, and yet it doesn’t stop anyone from going to work, shopping, walking, driving their car, etc. Government regulation? There’s all sorts of uncertainty over that all the time due to constant changes in Congress, and even that doesn’t stop businesses or individuals from going on with their daily lives and business plans.
So this alleged ‘uncertainty’ over the effects of the Affordable Care Act regulations is nothing but a sham: a self-fulfilling prophecy.
I don’t know about ObamaCare causing uncertainity, but the uncertainity around taxes means that even though we’d like to replace one of our vehicles which is 11 years old, we will be hanging on to it.
Even though we have employer-provided health insurance, we are still paying off our share of an emergency surgery from 3 years ago.
Does the insurance company really pay the invoiced costs that your co-pay is based off of?
I expect to learn someday that there’s a volume discount arrangement similar to what the car dealerships do with the automakers. In this case it could be even worse given the power relationship the insurance companies have over the hospitals.
Capital is on strike, period. Why?
The uncertainty of the new regulations and their impacts on business makes it very hard to plan. In addition finding and satisfying a market, organizing a business, dealing with taxes, finding patient-enough capital, entrepreneurs are now trying to deal with arbitrary regulations, rules, and interpretations of those rules written people who are unaccountable to the public.
The ready example is the EPA suddenly discovering that CO2 is a “pollutant”. Look inside Dodd-Frank and Obamacare — new rules and regulatory burdens aren’t even decided yet because they haven’t been handed down yet. Who on earth would start a business when some bureaucrat’s fiat could wipe it out in an instant?
Speaking of pollutants, that reminds me of a cleaner I tried to purchase through Amazon. The listing says ” *** Not for sale or use in the state of California *** “: https://www.amazon.com/exec/obidos/ASIN/B001E6I3H6 .
Such BS. Your juvenile Ayn Rand fantasy notwithstanding, capital is not “on strike”.
The issue is a lack of demand, not the pouting of some pissy CEOs:
http://krugman.blogs.nytimes.com/2012/09/02/mishmash-not/
Capital may not have decided collectively to move to a hidden valley somewhere in Colorado, but the uncertainty over Taxmageddon, the present and future regulatory environment and the general overwhelmingly pro-labor, anti-enterprise mentality within the current administartion and the Democratic leadership of both houses of Congress combine to persuade those with Capital to keep it in the bank, and not in this country if they can help it.
krugman, too? drinking alot of that blue kool aid.
With all due respect, Krugman is an idiot.
Are you kidding me? You mean to say that a person with a dream will say “I’m just going to lay low because I might have to charge a buck more for a pizza?”
Entrepreneurs are more skittish than I thought.
I’m confused how startups would be more difficult when the founders have a greater likelihood of having health insurance while doing so… Yeah, it’s great to rely on your parents or your spouse, but running barefoot has a lot of risks even to the young and strong. Or, are the only people startups want to hire under 26 and living at home?
This fellow, who operates Taco Bells and KFCs in Atlanta, has a solution: rather than pay for Obamacare, which would halve his profits, pay the fine, lay people off, and limit hours.
http://goo.gl/zbwSy
Not a glamorous start-up, and you know this fatcat is loafing, having only 23 stores, and obviously a 1-percenter. Small business needs to be made to heel.
Ah, there, see it’s not the UNcertainty, it’s the certainty. He must be certain that a price increase of 1.5% is going to drive his customers to his competitors, who will just take a 50% cut in their profits standing still.
I’d bet that most of his customers are also potential benificiaries of the Affordable Care Act, and he’d get more traction from bragging about the improved condition of his employees than he’d lose from raising the price of everything by 2 cents.
That’s quite a selling-point for fast food:
‘None of our employees waste time seeing doctors’.
Well, it’s his loss, since he’ll take more complaints about poorer service and will lose customers.
People around town know where the “good” fast food places are, and which ones suck. If a fast food joint gets a rep for being slow and having bad service, their lunch crowd will dry up.
How about the simple reason being that start-ups are funded by Home Equity loans and there are less of them available today?
Bob,
Speaking of startups needing a leg up, what ever happened to the second phase of the Cringely Startup Tour that was going to provide all that help?
Let’s look at the other side. Start up jobs usually suck. My 401k has been destroyed, twice, since 2000. The first was purely a result of the tech bubble. I was living in San Francisco at the time, LA now, and have seen the Before and After. I notice the word “bubble” doesn’t appear in this column. Call it “redistribution,” call it “socialism,” I don’t care–I’m in favor of easing the cyclical pain and adopting a more stable version of capitalism going forward. We don’t need more Zuckerbergs.
At last we have evidence that the introduction and market penetration of the iPhone in January 2007 has hurt startups in the US. Clearly entrepreneurs are playing with their phones instead of being productive. 😉
Working a new startup, I can tell you that I am using as many sub-contractors as I can to avoid having to hire people. It is just too much paperwork, too much in taxes and way too little capital to help out. What should have taken a few months to get up and running has taken years to build.
I am not in the 1% by any stretch but I do have a dream and I am building it slowly, with or without credit, regulations or no. This will get done.
If I could wave a magic want and do one thing to make my life easier it would be cut regulations by 50%. That in itself would help me greatly.
You know, I keep hearing about “cut regulations”, but no matter who is in charge at the local, state, or federal level, none of that “cutting” ever seems to happen. I live in an area that has had –locally– Republican rule for a century. And I still hear people gripe about regulations all the time.
Which regs are they? Local? State? Federal? What are they designed to do? Who are they designed to protect? That’s what I want to know, because I only hear the “welfare queen” equivalent about regulations without any more data.
While reading this post everything was interesting up until the point I learned that Tim Kane mentions the likely impact of regulation, I stop reading any further. As a the founder of a startup and as are many of my friends regulation is a non-factor in hiring. The claim of negative impact of regulation on hiring taints the study and I’m not interested in trying to filter truth from fiction.
It most certainly is when you get to those magical 25- and 50-employee thresholds that the State of California as well as other states and the Federal Government use to activate their regulations. If you can stay small and under the thresholds then you can avoid almost all but the OSHA/CalOSHA work safety and AQMD/EPA environmental regulations.
I founded a startup a little over a year ago and although it is Canadian I think the experience has some universally similar points where I have observed or taken part in startups, whether Canada, US, Japan, or UK.
Specific regulations (say in medical) do have some effect and indeed often trigger start ups. But I would maintain that general business regulation has little or no effect, indeed the enthusiasm of a the smaller startup probably has them beginning with less knowledge than they should have of these.
The regular costs of people however are however a huge part of the question, and plans that use less of these costs are probably the first to be funded. The confident prediction of experienced funders includes “you will need more people and they will cost more than you expect”
You refer here to the availability of credit as a problem of the banks not lending. In reality the commercial banks did not historically lend into startups without solid external collateral. Their profile is to make short term working capital loans that revolve with activity, not investment loans that do not have a current revenue or earnings stream. They did take some of that risk in the more recent past, but got their heads handed to them and have now (correctly) retreated to their original position.
For those companies who are funding risk enterprises there is a possibility that the market expectations have become out of line, and the last ten years has skewed people’s expectations for return in both size and time. This has come about because the internet has allowed entrepreneurs to access worldwide customer bases almost instantly, giving phenomenal revenue growth opportunities.Maybe the activity boom of internet businesses is reaching a kind of diminishing opportunity space. But this manic net activity leaves non-internet businesses looking pedestrian as they build production assets, manage a distant sales force, fund distribution to limited markets and wrestle with inventory, multinational collection and payments. As a result these very necessary startups are seen as riskier long term investments (and they usually are!).
So we may just be taking a breather while funders dial down their expectations.Furthermore, funders are very aware of the pressures on their exit routes. More cautious trade buyers and very high costs for IPOs as well as the high profile pain of running a public company, make the exit plan longer term and less attractive
There were the same types of doomsday scenarios in Canada when universal health care insurance into effect. They didn’t happen. The vast majority of Canadians, now, are downright smug about comparing our system to the current American model. There probably are many reasons for the decline in start-ups in America. Uncertainty, including uncertainty about health care costs can be one of them.
Blaming the decline in America’s business sector on attempting to bring affordable heath care to the citizens of your country. Points to a much more fundament problem in your society.
Maybe many have forgotten how to motivate employees… having become accustomed to using their big thumbs ( i.e. health insurance issues, debt, H1-B ).
I suppose that’s why we hear so many stories of your countrymen legging it south of the border to receive medical care…
Haven’t you heard the news? Same goes for U.S. citizens.
“Patients Beyond Borders CEO, estimates that in 2012, about 600,000 Americans will travel for healthcare outside the United States.”
“Millions of Americans are uninsured or underinsured, and the aging baby boomer population is facing a slew of costly critical and quality of life healthcare expenses including cardiac and orthopedic surgeries,” Woodman said. “We are seeing middle-aged, pre-Medicare Americans between 45-65 seeking treatment for standard aging issues such as orthopedic surgeries, and destructive lifestyle such as bariatric weight loss surgery.”
https://www.cmn.com/2012/05/south-of-the-border-surgery-medical-tourism-market-grows-for-cost-conscious-americans/
To Mr. Windows, who observed
> I suppose that’s why we hear so many stories of your countrymen legging
> it south of the border to receive medical care…
I assume the implication is that there is something wrong with the Canadian medicare system if some people are going to the U.S.A. for medical care.
Few Canadians would say that that their system is perfect. It is not. In particular, at the “high end” (some experimental treatments; the “we’ll keep treating you as long as you are willing to pay” scenarios) and for the impatient who “need”/want to jump the queue, the U.S.A. does provide some benefit.
But, for the vast majority of Canadians, paying for U.S. medical care is out of the (financial) question. Instead, we get very solid medical care for the majority of the population. And, most of us sleep well at night since we don’t have to worry about how losing our job is going to affect our medical care and our retirement. (We worry about other things…)
P.S. I know there is a commercial out with Canadian Shona Holmes claiming that she is alive only because she paid for medical care in the U.S.A. I have no doubt she believes this. But, a quick Google news search will show articles that paint a picture with more shading.
You perhaps won’t be surprised to know that we seem to be facing the same problems in the UK. My feeling is that banks aren’t investing the money they’ve been given (largely by the tax payers) in small businesses because they think they can get better returns at less risk elsewhere.
Banks are being told to improve their balance sheets and asked to lend more money. They can’t do both, and they’re going for the former (improving their capital vs loan ratio).
If you are “told” to do one thing under threat of sanction and “asked” to do another thing with no penalty for not doing what is “asked”, which would you do?
It’s this lack of credit that should worry us because the Obama Administration has shown no ability whatsoever to fix this problem.
I’m sorry, but anyone who lays this at Obama’s feet without pointing out the Republicans’ relentless attempts to crush the windpipe of the economy to block Obama’s reelection is a complete tool.
The Senate Majority Leader, Harry Reid, owns most of the blame. He won’t bring measures to the floor of the Senate for a vote, not even the Federal Budget. He is not interested in any compromise at all. The Republicans are ready and willing to make a deal, but when they are completely shut down in committee meetings and never get a chance to vote on a bill, they can’t be blamed.
You could not be more full of shit. The Republicans have turned the filibuster into a inevitable part of “modern” legislating. In any other era, their behavior would be viewed as nothing short of treason.
Selective memory. Democrats were the first to use the filibuster on judicial nominees (2001 on Miguel Estrada) thereby escalating and expanding the use of the filibuster.
I agree mostly with Bob’s analysis. I’m involved in the angel investing community in Connecticut so I too, know quite a few company founders. None pays attention to tax rates or even health care regulations in the go/no-go decision. Not to mention that the part of the health care bill that HAS gone into effect has for 2 years given a tax CREDIT to small companies to cover the cost of providing health care. So that cost has actually gone down.
However it is true that you can start a company with fewer hires because of the changes in technology. Even non-tech companies rely on technology for things that used to more require humans (like marketing, PR, accounting). So I think this may be a big factor in fewer jobs per startup.
I look at the banking bit slightly differently. Banks have never been a big direct lenders to startups, but they often make loans on mortgages and even (for wealthier people) on personal wealth and these loans go toward the starting of companies. It could very well be that a company that can’t get these loans can still get the money to start but won’t hire as fast because cash is tight.
“However it is true that you can start a company with fewer hires because of the changes in technology.”
Which makes me wonder, is the decrease in startup jobs due to fewer businesses starting up, or due to fewer jobs per startup ?
Let’s face it, most true startups are capitalized on credit cards and family loans, not banks, angels or vulture capitalists. Who the hell has equity in their home these days?
The Hudson Institute is a knee-jerk conservative bastion. It has no credibility. If it said the sky was blue, I’d demand a scientific study from 10 other institutes to confirm it. If we had national health insurance like in Canada, UK and every other civilized country where it’s paid for by taxes, then Obamacare’s supposed costs wouldn’t be an issue for start-ups, but the Hudson Institute and other conservative blowhards did everything they could to stop it. As Bob would say: Puhleazee…
Lower fixed costs – certainly some costs are lower, mostly the technical back office costs but the regulatory costs in most case are much higher. This is something that the Republicans (correctly) keep mentioning although they fail to point out the the reason for rising regulatory costs is often the greed and criminality of modern business.
Human capital – yes, lots of people looking for work and jobs … that mostly don’t exist. These people need to move to China – and in fact this is exactly what HP are encouraging – many people fired by HP in recent years are now working for Foxcon – designing and making servers for HP – but they are doing it in China, not the USA.
Higher incomes – not if you are starting a company – unless it’s Bain Capital I guess. My income dropped 50% the day I started my own company.
Availability of funding – You called this absolutely right. The only way the bank or anyone else will lend or invest is if you pledge your first born and their first born too … unless you are a big company and can bribe^H^H^H^H^H take the bankers out for golf.
And as you pointed out recently – most of the jobs in the USA are created by small companies – we used to employ 5 people but we’re down to 2 now. We’re still profitable and while I’d love to hire more people right now, I’ve no confidence that the politicians aren’t going to wreak the economy next year whoever wins the election.
Finally – the job killer in the USA is the Health Insurance Industry. We pay more for healthcare in the USA than anywhere else in the world and we get worse care. The inability of the US government to establish a baseline measure of healthcare for its citizens is effectively a millstone around every American business and American citizen – why the politicians would rather spend trillions of dollars fighting wars in foreign countries instead of looking after the basic needs of Americans at home is simply a tragedy.
http://answers.google.com/answers/threadview/id/386870.html
Heard a stat back at the beginning of the Obamacare debate that the health care insurance industry accounts for one third of the total costs of the health care industry. Efficient it ain’t.
I can tell you that in the last six years my primary care physician’s group has changed hands once and changed their internal software three times. All of that adds up to extra costs, extra training, and lowered productivity.
But the thing is, they still get people to show up day in and day out because they’re doctors, and people have to go to a doc from time to time. There’s no incentive to improve efficiency. At all.
The last paragraph is a real eye-roller.
romzburg
Bob, I’m confused by your statement that banks “simply aren’t lending money to entrepreneurs”. If the risks of lending are high, surely the banks could compensate for those risks by raising interest rates on the loans in question. So either the risks are incalculable, the entrepreneurs are unwilling to borrow at higher rates, or there’s some regulation preventing the banks from raising rates. Which is it?
The dirty little secret is that banks don’t do retail lending any more. The money is in their trading operations. Why the hell would they want to sit through your tiresome dreams of opening a stupid pizza shop when they can make more aggregating that capital and ramming it through automated trading systems and sexy derivatives.
Jimmy Stewart drowned in that river, and Mr. Potter’s grandson owns your ass.
If it weren’t for Social Security, Medicare, and food stamps, we’d be in a depression.
https://www.mybudget360.com/how-much-taxes-americans-pay-income-tax-us-consequence-smaller-middle-class/
There is NO national health insurance scheme in Canada. Health care is a PROVINCIAL responsibility and every province administers its own plan. The federal government does provide equalization payments so that in theory every province has the same amount per capita for health care. In this manner, the federal government can impose regulations on what the provinces provide and how they provide it. If the province is prepared to forgo federal money, it is free to implement (or not) any form of health care it pleases. A federal plan like Obamacare is simply not possible in Canada. And yes, the federal government is responsible for health care in The Yukon and other territories.
>A federal plan like Obamacare is simply not possible in Canada.
Obama’s federal plan for financially inducing states has been challenged by the Supreme Court.
Obamacare is indeed possible in Canada – but mandated private insurance (like auto insurance) is very inefficient and wasteful – Instead of resources going to hospitals , they go into overhead and administration and paperwork.
Yes, the American way is much more efficient; we just put the money directly into the CEOs bank accounts.
If they use direct deposit, they can beat the line at the ATM.
EXACTLY right. That is why it’s OK for MassCare (which the Democrats try to label as RomneyCare) because the state set it up. If more states want to do the same (Hawaii…) then by all means go ahead. Because the successive Congresses have failed to allow for insurance companies to offer plans on a nation-wide basis, our system is mired in regulatory duct tape in every state. THAT’s why ObamaCare will fail. We don’t have a single national system, we have 50+ (including the territories). Each jurisdiction has their own minimum requirements and rules. You can’t compare ObamaCare to the Canadian system, you have to compare it to the UK’s NHS.
You actually think anybody believes you? That three companies would compete harder than a hundred?
Insurers don’t want a national playing field to compete harder; a national playing field just means there are fewer politicians to grease.
The insurers’ problem with 50 state insurance commissioners is that at least one of them is going to be an honest man.
What a pain in the ass that would be for our delightful insurance CEOs!
Well, yes and no Rolf. Health is a provincial responsibility, but the federal Canada Health Act does set certain minimums and standards the provinces must adhere to to get federal transfer funds. For example, the provinces aren’t allowed to charge patients user fees of any kind or the feds will penalize them financially.
That said, I just moved from Quebec to Ontario, and the differences between healthcare delivery in the two provinces is like night and day. Quebec’s system is functional but clearly overstressed and not well managed. Ontario’s, from my initial experience of it, is very good, with happier and more efficient frontline staff.
All of which is to say that the Canadian healthcare system is neither heaven nor hell. It’s stronger in some places and weaker in others, but consider this: Quebec, even with its somewhat overtaxed system, has some of the lowest infant mortality rates and the highest premature infant survival rates in the world. And though I’m sure the Mayo Clinic is wonderful if you have the resources to pay for it, if I was sick, I’d far sooner be in my country than in theirs.
By the way, this may come as a shock to those of you south of the border, but we DO still have private health insurance in Canada.
Just as in the U.S., it’s offered as an employment-related fringe benefit and covers those services not covered by provincial health plans: Dental, eye exams, glasses, massage therapy, podiatry, psychology, homeopathy and naturopathy, private hospital rooms, private nursing care and (in some provinces) pharmaceuticals. Quebec covers pharmaceuticals for those without private insurance, but you’re required to switch to the private plan if you’ve got one.
Is it possible that startups are doing more with less? Utilizing technology to reduce the amount of jobs needed? I think so…
I believe that James Saft said most of what there is to say about “uncertainty” and “too much regulation” a couple of years ago:
[Dallas Federal Reserve President Richard] Fisher, who in the past has talked a great deal of sense about banking regulation and who is a fearsome and principled hawk and defender of the Fed’s independence, says a regular survey of business contacts he makes before Fed meetings reveals that they are “distressed” about the lack of direction from Washington and are hunkering down, doubtless as a prelude to taking their ball and going home.
Well, I periodically take a poll of fifth graders and they report, emphatically, that homework is interfering with their education and that they want lemonade to come out of the water fountains.
I mean seriously, when did business leaders ever welcome new regulation or heap praise upon Washington?
http://blogs.reuters.com/great-debate/2010/08/03/problem-is-low-demand-not-uncertainty/
Trying to attribute this whole situation to just a few main points is waste of time – it’s more along the lines of the “Perfect Storm” concept. Being part of several different small (actually, ‘tiny’ is a better description) startups, it’s a myriad of items.
1) Financing. If you have any warts at all (and how many small startups don’t have any financial blemishes to deal with), the odds are severely, completely stacked against you. So financing is either through family or on personal credit, which these days is in extremely short supply.
2) Regulatory paperwork. Complexity is a virtue to those people. And for a really tiny shop, the paperwork tends to fall on the lead person. May only be 30 minutes to a hour each time, but that’s quarterly, and if there’s 3 of 4 (or more) different tasks/forms/reports/etc. to be done each quarter, that’s time not spent on customers/potential customers. Understand the government wants their tax money, but do they have to go out of their way to torment us to get it?
Btw, everybody thinks about this in terms of taxes or EPA, but for a lot of us, it’s all the the stuff. It’s stuff like ‘Amazon laws’ on sales taxes, or when Amazon dropped affiliates to avoid certain states, or new local government restrictions and inspections, or anti-piracy jihadists like the RIAA/MPAA/US DOJ. You get hit with even one of these things, and it’s like ‘Game Over’. So you try and plan for it, and take spend precious time taking steps (and spend more scarce money) to avoid each of these traps.
3) Staffing. With all the headaches involved in getting staff, I swear that for my next business entity everybody is going to be Contract. No full time or part time staff – just contract.
4) Getting business. Demand sucks right now, and it’s getting worse daily. We are heading back down, if the Main Street markets I see are any indication. It might be all good-to-go on Wall Street and in DeeCee, but those are not my world.
Just as a btw, have a good friend in business who had a tiny company (9 full time & part time employees) back in 2010. They screwed up on their state & federal taxes (their fault) for 2009, but were current after 2009.
So, they went and worked out an installment deal with our taxing entities. The original amount was about $50k, but with everything the state and feds larded on top of these poor folks, they got the total up to around $70k. But, the company had made a mistake and started to pay down the debt.
By January, 2011, this little company had to cut back to 7 full time and part time people.
By July, 2011, the two owners were taking no money out of the company.
But the taxing authorities were still getting their money.
By January, 2012, this little company had cut back to 5 full time and part time people.
But the taxing authorities were still getting their money.
By March 1, 2012, the company has one employee (1 of the owners) who is still getting no money, and one contract person.
But the taxing authorities are still getting their money.
What would you ever say to this person (who is a risk taker, btw) to encourage this person to do another startup….
Are you kidding me? Your only problem is you have no demand. The rest is bullshit.
Guess what destroyed the demand? That’s right, the crash of the Republican bubble, which was just a scam to suck money into Wall Street.
Demand is never zero. It depends on price. So there is no demand at the price required to support the business, including all the government mandated programs, taxes, fees, legal, and accounting requirements.
Sounds like they got finance through Bain…
https://www.rollingstone.com/politics/news/greed-and-debt-the-true-story-of-mitt-romney-and-bain-capital-20120829
The Democrats took over the House of Representatives beginning in 2007. The Democrats took over the Senate and Obama took over as President in 2009. Up until those events, the number of startup jobs had remained pretty steady for more than 18 years. After those events, the number of startup jobs began to decline precipitously. This is only one reason why it would be better to have a seasoned, experienced successful businessman in charge instead of an income redistributing Marxist.
So the collapse of the Bush bubble had nothing to do with it?
You do remember Bush, don’t you? That guy who ignored the warnings about 9/11? Two unfinanced wars? Unbelievable looting? Slashing taxes on billionaires, while misdirecting with talk about welfare queens?
That guy.
Yes, we remember Bush. He was replaced with the guy who:
– skips nearly all the daily security briefings
– skips talking to national leaders in order to appear on The View
– hasn’t put forth a budget since 2009
– passed his signature legislation on a strict party line vote while his party has control of both houses
– plays class warfare politics like a Chicago Mob thug
– embellishes nearly every event of his life to being something its not (to an extreme)
– ignores Congress and does what he wants via Executive Orders
– added to the federal deficit in less than 4 years more than twice what Bush added in 8 years
– keeps blaming Bush for his own leadership failures
Again going by the Bian track record… enough said
As banks and other financial institutions continue to consolidate, growing into behemoth size institutions to big to fail, they lose any incentive to deal with smaller businesses. A small business needing a million or less has nowhere to go for money except friends and relatives. I once called upon a local venture capitalist to inquire about an equity investment of a couple hundred thousand and they didn’t want to talk to me – not because I didn’t have a great business plan or good credit, because the amount was too small. He actually tried to convince me to try to borrow several million! I told him I didn’t know what to do with that much and he said he wasn’t interested. The business plan I was proposing would have employed 25 people. C’est la vie.
B.J.
blanejackson.com
good definition of startup by paulgraham
https://www.paulgraham.com/growth.html
I think the biggest trend affecting start ups is income inequality. Where do most start ups come from the middle class and the middle class has no extra wealth to spend on business ventures!
Problem: All of the above.
Solution: Outsource everyone and everything. Then we can just sit here and reap the rewards. This seems like an airtight argument, right?
The Administration, whichever one it is, doesn’t create laws, it executes them. Congress creates laws. I wonder where they are these days.
One thing that is prompting me to leave the U.S. is that I need medical care and because I can pay for it but do not have insurance, I cannot get the care.
Unlike, for example, in the Cuban system, which according to impartial studies has been ranked just behind the U.S. medical system or just ahead of it. Over and over.
If Nicaragua can figure things out, what about us? Chile? Ecuador? All the rest?
For those who consider medical care a perquisite for the few who are deserving of it, remember that everything you put into your mouth is prepared, packaged, and handled by dozens or hundreds of others along the way, and most of them are, like me, not considered human, and able to get only minimal access to the medical system.
One of the differences with me is that I’ve had a lot of education and know enough to wash my hands after I take a dump, and before I approach you. I don’t know about the others.
“…know enough to wash my hands after I take a dump, and before I approach you. I don’t know about the others.” That reminds me of a comment made by Craig Ferguson after the Supreme Court decided (by a narrow margin) that Obamacare was not illegal: “Now I’m going to start smoking deep fried cigarettes.”
[…] Is the U.S. Startup Economy Failing? ~ I, Cringely – yes. […]
So how much is income/payroll tax – and how much does that effect small businesses? I saw on Facebook that Obama’s proposed tax plan is to hike that tax up – 52.2%.
FYI – if you’re interested: http://techland.time.com/2012/09/19/nasa-actually-working-on-faster-than-light-warp-drive/?iid=obnetwork
Well…I’m working on a start-up, more in spite of Obama than anything else. Actually – my current full-time job doesn’t look like it will be around too much longer and I’m tired of some of the politics that are making that happen.
That said…
I’d rather not take a loan to finance the start-up, and don’t have the spare cash to cover health care or expenses. So I have to keep another job while I work at it until it can (and it will eventually) be big enough to cover at least myself if not more people. So it’ll be a long road ahead…
…and no, ObamaCare doesn’t help anything in that either. Only reason I want to keep health care is my wife’s asthma; otherwise I’d go without all the insurace stuff until the company could pay for it.
Hey Bob,
One other thing you didn’t even touch on is FATCA. The financial reform act designed to go after American tax dodgers, that leaves a bloody trail of death and destruction in its wake. This whole business of stringent compliance is driving away foreign exports and hurting startups and established companies alike. Meanwhile, it’s not going to stop tax dodgers. Not really. Anyone who can go to those lengths to avoid taxes is going to be way ahead of the system when 2014 regulations kick it. As for the rest of us? We’re all in trouble if this doesn’t get repealed. America is not an Island. We depend on foreign investment in every facet of industry. Killing it intentionally like this is asinine.
CBC News reported recently that there’s been a significant increase in startups in Canada, and the trend is expected to continue.
[…] in the past. Empirically, this has been the case for several years now, for an example of this, see Cringely’s column on the slowdown in startups. But I think there also may be some realization within the industry that startups are basically […]
Why does everyone say regulations kill jobs? I’ve always found just the opposite; companies need to hire people and do projects to get in step with the regulations, and regularly audit and occasionally do more projects to keep in step. And at many companies, the opportunity is used to improve process and product.
The cost to the potential employer of the regulation has to be factored in to the profitability of the company. One way to cut costs and increase profitability is to get by with fewer employees.