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Archive for July, 2014

prohibit new yorkEntrepreneurship is wonderful, but where you practice it may have a lot to do with your success.

What city, state, and even country in which you choose to ply your trade may be an increasing determinant of your chances for success.  I think it is crucial for all owners to keep a clear focus on the macro-economic picture as well as on the quotidian rigor, passion, and creativity we pour into our firms.

I was caught by several headlines over the last month.  First of all, the good news.  Manufacturing is increasingly returning to the shores of America.  Outsourcing has proven less than utopia for many companies and they are coming home.  This is abetted by the increasingly rosy picture for cheap energy in our country, as well as the steady rise in the cost of labor overseas.

Now the bad news.  Business is indeed returning—but only to certain states.  Business is not and will not return to states like my beloved New York.  Or to California.  Or to New Jersey.  Or to Illinois.  Or to any of their benighted business-loathing, bureaucracy loving, blue state colleagues.  These states will continue to bleed jobs and tax base.

Why is that?  Look no further than recent headlines.  Note the WSJ on May 2, 2014.  Headline—“Toyota Escapes to Texas.”  WSJ and the NY Times (April 29, 2014) report that Toyota plans to move 3,000 high-level (now revised up to 5,000), well-paid jobs from California to Dallas.  Yup, that’s right podnuh.  Yippee-o-ki-yay.   Toyota is merely following the lead of its rival Nissan, which moved its headquarters to Nashville, Tennessee seven years ago for the same reasons.  Additionally, Toyota’s CEO, Jim Lenz stressed that this move was not because of any incentives, but simply because Texas likes business.  It welcomes it.  Texas is truly business friendly, in addition to having affordable housing and zero income tax.  The state-local tax burden is over 50% higher in CA.  Electricity is also 50% higher.  Just since 2011 over 25 companies—big companies—have moved to Texas.

prohibit californiaGov. Jerry Brown of CA, promoting his re-election, seems unconcerned.  He says, “We’ve got a few problems, we have lots of little burdens and regulations and taxes, but people figure out how to make it.”  Yes, they do, Jerry.  They figure out how to make it elsewhere.

You may say that in NYC and Silicon Valley technology companies are booming.  True enough.  But how long can you disincentivize entrepreneurs till they move to Austin, Houston, San Antonio, Dallas, Nashville, Charleston, and Miami?  Not forever, that’s for sure.

Note this headline in the NY Post from May 25, 2014–“Business Not Loving New York.”  It documents why outsourced jobs won’t come back to NYC.  The post quotes Neal Asbury, CEO  of Legacy Companies, as saying,  “If you are a businessman thinking of bringing jobs back to the 50 states, NY is at the bottom of that list….You have a governor telling you he doesn’t want conservative businessmen in his state and a NYC mayor obsesses with raising taxes to pay for even more entitlements.  That’s not sending a great message.”  Entrepreneur Art Shectman of Elephant Ventures, a 25-person midtown Manhattan digital strategy and consulting firm, says,  “You pay $150,000 a year here for someone who will do the same job in the mid-west for $90,000.”  That’s why CEO Magazine ranks NY 49th in business climate and and Texas #1.

In addition to California and New York, Forbes lists Massechusetts, NJ, Connecticutt, and Illinois among the top states people are fleeing in droves.  And I would posit they are leaving these states as much because of their top heavy, inefficient bureaucracies as their excessive taxation.  These states seem to go quite out of their way to throw up regulatory barriers in front of creative, disruptive job creators.  Stupid.

prohibit new jerseyFurthermore, on the international scene, four weeks ago Pfizer proposed a corporate marriage with British rival AstraZeneca simply to move their operations overseas (to Britain), away from the stifling US medical bureaucracy.  And on June 16, Medtronic bought Covidien, an Irish company, to basically reincorporate as an Irish company themselves.  (Note WSJ, 6/17/14, p. A12)

For several years the state of Michigan ran millions of dollars of TV ads featuring the charming actor Jeff Daniels as spokesman.  But Michigan did not start to recover it’s mojo till it became a right-to-work  state and reigned in its bloated bureaucracy last year.  New York also has a massive new PR campaign with the slogan,  “New York is open for business.”  But NY is not open for business.  Saying it over and over with millions of dollars in ads does not make it true.  As in Michigan, I doubt PR will slow the NY exodus.  Entrepreneurs are not fools.  The fact is that only by really coming to culturally love business will there be a stop to the bleeding in these business unfriendly states.  Like in Tennessee.  Like in Texas.  Like in North Dakota.  Like in Florida.  Like in Wisconsin.  Like in Indiana.  And now like in Michigan.

Ayn Rand understood this all too well.  In Atlas Shrugged, her hero, John Galt, understood that prosperity and jobs do not come by government decree but from risk-takers willing to compete and create.  At a pivotal point in Atlas Shrugged, John Galt faces a national TV audience and is asked what is to be done.  His answer?  “Get the hell out of my way.”  I think that’s primarily what most of  entrepreneurs want from government at any level.  Thank you, John Galt.

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It’s hard to believe, but entrepreneurship may be slowly dying.

It’s hard to believe because it’s never been cooler to be an entrepreneur.  There seem to be new young entrepreneurs under every rock.  Their passion, optimism, and faith is palpable and unbounded.  It seems like every serious young business person I meet eventually wants to be one.  Americans view entrepreneurship as the road to wealth and success—the path to individual freedom and prosperity.  Entrepreneurship is where it is at, baby.

brookingslogoThen why does the Brookings Institute report that American businesses are disappearing much faster than they are being created?  (Wonkblog – 5/5/14)  Overall, new business creation declined over 50% since 1978 and the trend is picking up steam in the last five years.  And that is in the midst of a putative, albeit sickly, recovery.  The observation of this ominous trend is confirmed by a series of recent Kauffman Foundation studies which report, “In 1980 ‘young firms’—those less that five years old—accounted for half of all going concerns.  By 2010, their share of the total had collapsed to less than 35%.”  The Kauffman Foundation concludes that new business formation in America continues to fall dramatically.

Some of my entrepreneurial friends think this is because of higher taxes.  I don’t agree.  It is mostly because of the mindless expansion of bureaucracy and overweening governmentalism.  This threatens to make a desert of the fecund loam that has traditionally nurtured small business and entrepreneurship.

Rule of Nobody 1.16 TK FK 0121.inddPhilip K. Howard has recently written a book titled The Rule of Nobody:  Saving America From Dead Laws and Broken Government.  (W.W. Norton & Co., April, 2014)  It is about the increasingly heedless phalanx of petty, needless harassment of the small business community that is increasingly baked into our governmental bureaucratic cake.  Howard states, “Legal rigidity trumps everything now.  Law has crowded out the ability to be practical and fair….[It has become] a government run by clerks and jerks.”  Welcome to the brave new dystopia of the unaccountable and faceless governmental functionary.

Here are some examples:

  • A lifeguard is fired for saving a drowning man outside his defined beach zone.
  • A county health inspector in California threatens to shut a twenty year old farmers’ market because the nearest restroom is 220 feet away, rather than 200 feet.
  • A soup kitchen is shut down because it served pre-cooked meals and had no kitchen to be inspected, per law.
  • A bridge blocking New York’s harbor from the newest Supertankers can’t be elevated without 47 different permits from 19 government agencies, each subject to separate litigation.

Furthermore, though I’ve always tried to be a good environmentalist, the Sierra Club and the Environmental Defense Fund seem determined to return us to hunter-gatherer status by using endless litigation to stop any new energy, agricultural, or mining development.  Michael Barone refers to this new environmental credo as BANANA (Build Absolutely Nothing Anywhere Near Anything)  (NY Post, July 3, 2014)

Let’s not even talk about the bureaucratic horrors of the Affordable Care Act for small business.  (Except this one egregious example:  To be paid by the government, as of 1215, doctors have to report 18 different clinical measurements on their patients and certify these patients have been counseled on each.  The regulators estimate this single report could take as long as 108 minutes per patient and consume an extra 5.4 million hours a year.)

9780441788385_custom-62cb9d3474cddd2ad196d65f26568393bd4373d5-s6-c30So could this possibly be the end for disruptive, innovative business?  I see neither Republicans nor Democrats tackling this creeping small business conundrum.  For decades both parties have been in a pell-mell scramble to increase government power.  The small business community needs to take notice.  We are like a slowly boiling frog that never realizes he is being cooked till he is dead.

So how do you sunset impractical and inefficient law and arbitrary bureaucratic fiat?  Got me.  But we better figure it out.  Steve Wynn, Bernie Marcus, and numerous other successful entrepreneurs have said publicly they could never have created their companies in the present environment.

As Robert Heinlein puts it in Stranger In A Strange Land, “Government!  Three fourths parasitic and the other fourth stupid fumbling.”  Indeed.  Thank you, Robert.

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Cristiano-Ronaldo-Newcastle-United-Manchester_1954179Been watching the World Cup?  I haven’t.  (I find soccer a crashing bore.)  But I do watch highlights and sports commentary.  And the phenomenon of “flopping” or “diving” fascinates and, I must admit, unsettles me a bit.

Flopping is an intentional fall by a player after little or no contact by an opposing player in order to draw a personal foul from an official against the opponent.  I first started noticing this phenomenon in the NBA Finals last month, when the Miami Heat seemed to be frequently over-emoting on fouls, to vociferous complaints from San Antonio, a more stoic team.  But flopping seems to be a major tactical ploy at the World Cup, where it is prominently covered in the sports press.

A favored team for the World Cup is Brazil.  Brazilians are champion floppers to go with their other skills.  A June 15, 2014 article in the NY Times by Sam Borden, titled “Where Dishonesty Is Best Policy, US Soccer Falls Short,” caught my eye.  Apparently the US team is simply too honest.  Borden states, “For better or worse, gamesmanship and embellishment—or, depending on your sensibilities, cheating—are part of high-level soccer.  Players exaggerate contact.  They amplify the mundane.  They turn niggling knocks into something closer to grim death.”

Assistant US coach Tab Ramos says American players tend to be culturally very straight, forthright people.  That is not the way the international soccer world generally thinks.  Ramos says, “I don’t know if you call it a problem or a weakness, but it’s clear that the American nature is to try and make everything fair to the game.  That”s just how Americans are.”

pic 11 (2)All this gets me to thinking about myself and “winning” at small business.  Karmically speaking, I believe that being straight is the selfish way to be.  It seems to work for me, though admittedly, my business life is as much incentivized by making my personal life whole as by making money.  My motto continues to be “Good Is Greed.”  I have always tried to follow the admonition of Peter Drucker to “make your life your [business] endgame.”  Am I a foolish naif, as some are saying the US soccer team is?

Well, perhaps.  I am certainly expected to be a salesman, a prime job for every business owner.  Salesmen are often portrayed as liars, thieves, scoundrels, scofflaws,  I don’t think lying to people works, but it does seem to work as a base assumption of sports “floppers.”  So must I become at least a partial flopper to win?  Coach Red Sanders of UCLA famously said, “Winning isn’t everything; it’s the only thing.”

And what exactly is business flopping (lying, exaggeration)?  Look at Larry Ellison, founder of Oracle.  He was notorious for informing investors and clients that a new product was soon to be available even though it was barely a gleam in the eye of one of his engineers, if that.  Or how ’bout ur-entrepreneur Steve Jobs who was mesmerizing as he wove his hypothetical dreams and visions into his listeners as a compelling reality?  Admittedly both these men made good on their existential exaggerations.  So were they liars or visionaries?  Most of us would surely say the latter.  And yet…

I suppose you come down to an “ends justifying the means” conundrum.  If we are fiercely committed entrepreneurs, does that mean kicking, biting, lying, and cheating our way to success, even if we have a great product or service? And if we opt for this, is it OK “if everyone is doing it”?

All of us lie fairly harmlessly in our everyday lives.  We do it so as not to hurt people’s feelings, to be polite, to smooth our quotidian life process.  As a salesman and chief voice of my own firm, Corporate Rain, it is my job to present the most glowing, piquant image possible for customers.  But am I flopping to Gomorrah when I create an eloquent, perhaps exaggerated metaphor for my company’s work?

huxleyAs an act of faith and formal strategy, I choose (try?) to walk a fulgently moral path.  My faith is that I will win that way.  Good Is Greed. Yet, as in this post, my questions about myself and everybody else never cease.  Or am I a simply asking a revised version of the ridiculous medieval question, “How many angels can flop on the head of a pin?”

Well, I shall leave off this excessive moral navel-gazing for today.  Perhaps we are all floppers to one extent or another.

I like what Aldous Huxley said:  “The end cannot justify the means, for the simple and obvious reason that the means employed determine the nature of the ends produced.”  Thank you, Aldous.

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A couple of months ago I wrote about my recent personal experience of divorce from the perspective of a small business owner.  (“Divorce and Entrepreneurship“, May 13)  It got the most (and most impassioned) comments Making Rain has ever received.  Inc. Magazine (June) just came out with a more encyclopedic riff on the same subject that is beautifully researched and written by journalist Jess Bruder.  It has already been shared widely on social media, but, since there was such an ardent response to my previous post, I thought the community might enjoy Ms. Bruder’s thoughtful piece.  Enjoy. (Click on the picture below)

Inc. Pic

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