Technology At City University of Seattle

The small to medium sized business has been romanticized[1] in popular concepts of the single person or the small team developing something, or doing something that no one else has done, and succeeding beyond their wildest dreams. We lionize[2] people like Bill Gates, Sergey Brin, Lockheed, Boeing and other brand names that started off as small group or single person or small team endeavors to become internationally recognized brands around products we use every day. This romanticizing of being your own boss, doing your own thing, and having the freedom to run your own company is one of the defining aspects of a class of people called the “entrepreneurial class[3]”.

While we as a culture celebrate entrepreneurs and entreprenuralship, the idea of leveraging or using entrepreneurship as a way to help the country recover from economic dislocations has gained popularity amongst state and federal agencies. The idea of helping people with small loans, micro loans, or other support (including education and training) is proving to be successful in keeping people employed with their own companies, as well as keeping people off the state unemployment rolls. Adding to this mix are community support mechanisms[4] and vetting systems for ideas/companies the chances of having a startup with many of the social aspects of a large company is well within reach of the average person who is willing to take the risk of starting their own company.

With the Small Business Administration opening up new lines of credit for small business[5] along with state efforts[6] to promote entreprenuralship and entrepreneurialism the idea of leveraging the creativity and innovation of individuals to stimulate the economy has caught on in popular imagination[7]. There is a large body of free and accessible information online on how to start a company, and how to get people excited or at least interested in the idea for your company[8]. While running a startup is not for everyone, because there are risks, and there are pitfalls, and you may not have a viable idea, for many people who want to move away from the uncertainty of working for a big company, a startup is a logical next choice of something for them to do. With some companies giving out very good severance packages to people who are fired, a startup becomes even more appealing for people who have an idea, and want to explore what the idea means in the market. For people who do not get a liberal severance package, there is still state and government resources that can be used that will help the would be entrepreneur start their company, obtain funding, as well as local community support that provides the social and in some cases references to additional resources that a small company needs.

States and governmental systems are willing to experiment[9] to work out a formula that will help states, and state/federal tax bases by implication, reduce local unemployment and provide a way for people to survive beyond the confines of state or federal driven unemployment aid. As a distinct economic class, the entrepreneurial class in the longer run is just one of the many ways that states and the federal government are looking to lower unemployment and provide a stable employment/tax base in what is has become a cyclical economic system.

From experiments in micro loans[10], micro businesses[11], the trending data has shown that people who participate in entrepreneurialism[12] and start their own companies often get off public assistance quicker[13] than those that wait for an “economic recovery”. Entrepreneurs also help states reduce the local unemployment rate, as entrepreneurs are self-employed, with possibly more than one employee, and is successfully running their own company well enough that the company will survive the economic downturn intact enough to be bought out in the next M&A/IPO cycle. The additional benefit of being your own boss, or being an entrepreneur is the idealized freedom that is perceived in what the entrepreneur is doing, or finding satisfaction in what they are creating or building[14]. This is important to the entrepreneurs self esteem and willingness to take the risk of starting their own company[15]. Starting your own company is risky, but with the addition of support groups like Startup Weekend, Lunch 2.0 programs, mailing lists, meetups, tweetups, and the low price of starting a company entrepreneurs are finding that not only are they not going it alone, but that they have a support group that often rivals the support groups that are baked into larger businesses.

What is becoming more apparent is that states are willing to help people gain entrepreneurial skills to start their own companies. The belief at the state level is that success and growth are going to come from smaller companies than larger companies. The state of Washington through various groups and departments is helping and training people to be their own bosses and start their own businesses. This works well if the person is a native sales person with valuable skills, but for new entrants into a business field or job seekers just starting out without any kind of history in the field this can complicate their ability to find jobs until the new entrepreneurial class starts to grow and foster growth and tax revenues to fill rapidly depleting state coffers.

Washington State in particular has a fully funded entrepreneur support system that was developed and funded before the economic recession in 2009 influenced budget decisions. This has provided a base of funding, support, education, training, and information for new startups with no cost or a subsidized cost from the state and local colleges or training centers. Access to the information that is at the college level can help round out people who are starting their own companies, and in the longer run also support education and support services for small companies. These processes creates an open and malleable ecosystem of money, support, people, and education that should help dedicated entrepreneurs overcome some of the difficulties in getting their companies get off the ground. While there have been mentorship programs since the 1950’s, the unique aspects of social networking, lunch 2.0’s, morning coffee, and the ability to get out of the office and meet with like-minded people proves a complete eco-support system for would be small business owners. This support structure can not be understated, groups like Startup Weekend that help people get their ideas built, and then the support structure of the Lunch 2.0 program[16], along with community support with systems like FriendFeed[17], provides a unique base of open information that used to be locked into previous versions of mentorship programs.

Washington State has gone so far as to propose funding startups directly via the state tax system much like a VC company or an Angel fund[18]. Without a personal direct tax and few taxes on corporations directly, Washington State has ranked 5th in the nation as one of the most entrepreneurial friendly states in the country[19]. This is one of the drivers that will in some ways lead to small groups of tightly knit and well known people to form lose collations around a project or product. In many ways, groups like Startup Weekend[20], The Northwest Entrepreneurs Network, Seattle 2.0, STS and other groups in the Seattle or Western Washington region perform many of the news, social, and support possibilities that one will find in the traditional office. With companies not hiring new people, these small groups of related people instead are relying on each other and supporting each other through the processes of starting up a company.

Europe is not far behind what is happening in the United States when it comes to helping people find the right mix of idea and support for a startup. The UK has run numerous studies that show that there is a reduction in unemployment when there is a rise in supporting small business and entrepreneurs[21]. There have also been multiple studies done in the United States (but are behind a pay wall or otherwise have restricted access) that also agree with the UK study findings. There is controversy where research shows no change in unemployment, the overall research trends are that starting your own company and being an entrepreneur does provide benefit to people, the state, and an eventual economic recovery. The drivers of entrepreneurialism within an economy are to help offset the costs of social support systems like unemployment insurance, and helping people be more self-sufficient. Reports vary on the failure rate of startups, Jason Calcanis (who has started many new companies) believes that the failure rate is on the order of 62%[22], while the 10 year survival rate is around 29%[23]. The reality though goes beyond the survival rate, but the additional correlation between survival and the need for public assistance[24].

Not all companies survive, and the recent shutdown of a local popular Seattle startup called Sampa[25] shows that even four year old startups can also fail to engage a fully paying audience. Even with a shut down there were people who worked at Sampa who stayed employed in a small company for the time that the company continued to exist. This clears the unemployment rolls, and Sampa paid all the hiring, use and business taxes on that company during the time it was in operation. Essentially, they supported a small group of people who were employed even if for a short duration, keeping the unemployment rate down.

Larger and smaller companies are reducing staff[26] it is much easier for a slow economy to absorb 15 or 50 people being laid off and not the thousands laid off at large companies like Microsoft or Boeing. The numbers of laid off in a startup are smaller, easier to be absorbed into the unemployment rolls. An additional good outcome of this is that there is now a group of people who have learned how to work in or run a startup because they already have practical startup experience. These employees are very likely to use what they learned at Sampa, Vulcan or Wetpaint to start their own companies. The inbuilt support mechanisms, and the drive to be an entrepreneur are not unique to Seattle, many of the high tech hubs like Boston, Silicon Valley, Austin Texas, and others also have the same kind of similar support groups, if not the same or similar training programs and state funding or state support for an entrepreneurial class. Smaller companies can be formed in a weekend (Startup Weekend is a prime example of this), with participants across the local area voting on the startup to see if it is survivable or not. Using social networking, peering, and support from non-compensated resources, along with a low barrier to entry[27], it is easier for a person to take an idea, socialize it, build it, and start selling it than at any other time in history[28].

This process brings us firmly into the construct of Globalization 3.0[29] where a small group of people or an individual has the same access to resources, services, support, and in some cases money (VC and Angel Funds) that larger companies have via more traditional routes. While not all ideas can survive in the market place, a simple idea like Twitter shows that sometimes the seemingly useless idea will have an amazing potential and will carve their own niche in the world. It is hard to imagine how we got breaking news or people on the street information before twitter. We would have defaulted to e-mail, getting a story rather than a running commentary like we have seen with Iran[30]. Small groups of people who can flash mob an issue, or tackle a project for the duration of the project where everyone gets paid for the effort and time they have put into it. Two people can do the work of a department if they are complimentary to each other and believe in what they are doing.

We are in “world tiny” as Friedman would put it, I can raise funds for my friend in England who is doing a fund raiser to help cure breast cancer, and I can ask my friend in China to make a donation. We have seen direct examples of this kind of worldwide fundraising for good causes, or to support a particular project. You do not have to be Microsoft to access contractors or even contract programmers, all you need to know is how to access systems like ODesk and Project for Hire. You do your alpha and beta on contractor code while you are signing up paying customers, or doing what you can do for site sponsorships, or even advertising (before the market tanked, advertising was the revenue stream for many startups, and will be again in the future).

While we cycle through 7-year boom and bust economic cycles (1992, 1999/2001, 2008) and if they remain predictable going into the future (look for the next one in 2014/2015) and with the survivability statistics of companies[31], it is almost like spring-cleaning within the entrepreneurial class. Not that this lessens the impact of jobs, job growth, and keeping states with a growing source of revenue, what it does do is clear out the projects and companies that would not survive in any economic environment.

Using the idea of startups and entrepreneurialism to cut down on the unemployment rolls, help people who can not otherwise find jobs[32] has been shown to be somewhat effective in both empowering people, and keeping state outlays for unemployment down[33] during challenging economic times. However, these small businesses need to be able to ride out the economic down turn in such a way that they can retain many of the employees that they have. Teaching business, and how to run a business is going to be the critical component to making this work.[34] This trend is becoming more important and more obvious across multiple states[35] and multiple systems[36]. What will be the next big time to check this theory will be in the next potential economic cycle, which should peak between 2012/2013 with a resulting down cycle in 2014/2015. What entrepreneurs, states, and government does to support the ability to absorb suddenly unemployed people in the next cycle will be evident as a method to increase small businesses as an employment platform, and a broader base of companies beyond the mega corporations to support continued employment. The movement away from supporting mega companies to supporting more nimble and agile smaller companies in the end might prove to be better for an economy that has a cyclical nature than anything else that can be done to stabilize employment.

[1] http://allantyoung.com/2008/12/07/the-startup-myth/
[2] http://www.inc.com/articles/2006/08/schools.html
[3] http://www.businessweek.com/bschools/content/jun2009/bs20090618_346720.htm?chan=bschools_bschool+index+page_the+mba+life
[4] http://www.seattle20.com/
[5] http://www.webcpa.com/news/SBA-Introduces-New-Small-Business-Loans-50791-1.html
[6] www.nga.org/cda/files/0402govguideentrepreneur.pdf
[7] http://www.articlesbase.com/ask-an-expert-articles/start-a-business-several-things-to-consider-to-make-your-business-a-success-1041354.html
[8]
[9] http://www.drjeffcornwall.com/2008/10/
[10] Kiva.com
[11] http://www.entrepreneur.com/startingabusiness/selfassessment/whattypeofbusinessshouldyoustart/article64676-3.html
[12] http://www.entrepreneur.com/magazine/entrepreneur/2009/may/201228.html
[13] http://www.lansingstatejournal.com/article/99999999/INTERACTIVE01/901180628/-1/special
[14] http://www.xconomy.com/boston/2008/07/23/stever-robbins-on-how-to-be-a-happy-entrepreneur-one-tip-never-trust-a-vc/
[15] http://www.youngmoneytalks.com/blog/index.php?tag=entrepreneur
[16] http://www.seattlelunch20.com/
[17] http://friendfeed.com
[18] http://housedemocrats.wa.gov/members/chase/20090130_psbj_startups.asp
[19] http://www.sbsc.org/home/index.cfm
[20] http://startupweekend.com
[21] Enterprise Skills for the Economy, Galloway, Anderson, Brown and Wilson, 2005.
[22] http://regulargeek.com/2008/09/28/calcanis-makes-not-so-shocking-statement-about-startup-failure/
[23] http://smallbiztrends.com/2008/04/startup-failure-rates.html
[24] http://www.entrepreneur.com/tradejournals/article/194323612.html
[25] http://www.techflash.com/Sampa_pulls_the_plug_51040077.html
[26] http://www.google.com/search?q=seattle+startups+start+laying+off&ie=utf-8&oe=utf-8&aq=t&rls=org.mozilla:en-US:official&client=firefox-a
[27] http://www.time.com/time/magazine/article/0,9171,1890387,00.html
[28] http://www.paulgraham.com/badeconomy.html
[29] http://yaleglobal.yale.edu/display.article?id=3653
[30] http://www.washingtontimes.com/news/2009/jun/16/irans-twitter-revolution/
[31] http://www.smallbusinessnotes.com/aboutsb/sbfacts/sbopenclose.html
[32] http://www.xconomy.com/boston/2009/02/10/as-unemployment-rises-service-networking-startups-find-niche-matching-workers-with-odd-jobs/
[33] http://vaperforms.virginia.gov/indicators/economy/businessStartups.php
[34] http://www.smallbusinessnotes.com/operating/controlling/econdown.html
[35] http://www.state.ny.us/governor/press/press_0708093.html
[36] http://www.flgov.com/release/10438

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