small business

(From question in wsj.com Small Business Forum)

Let me count the ways!

Small companies have many advantages in attracting top people. Here are a few. (I work with owner-run firms from 5 to 100 employees.)

— Shorter commute. One 50-person client just hired a COO for $120k who’d received a $150k offer from a corporation in the city. He opted for a local 10-minute bike commute over the hour+ daily grind each way. He figured the extra two hours a day added to his life was worth $30 grand a year.

— More opportunity. Another client hired a GM away from a much larger competitor. The guy saw that he’d reached the top where he was, and in the new job, he’d get to lead a major growth push. Big fish in a smaller pond.

— Less travel. Many professionals in their 40s and 50s switch to smaller, local firms because they’re tired of constant travel they’ve had in their corporate jobs.

— Flexibility. “Yes, we can bend your schedule around your kids’ soccer games.”

— More diverse opportunity. They see they’ll get to take on a much greater variety of projects and responsibilities.

— Get to work directly with the principals. Small companies may be headed by much more innovative and leading-edge people, and it’s a great opportunity to work with them.

— Less corporate bureaucracy and politics.

— Un-retired. Here’s a big growing trend: Senior people retire from the corporation, then go to work for smaller companies. They trade less money for lower stress and flexible hours. The oldest guy working with us is in his mid 70s.

Attracting top people is a marketing job. You must look at your company through their eyes, see what you offer that will attract them, and how you can make yourself more attractive. It’s about much more than just offering more money.

However, many small business owners discover that the people they’ve lured away from large organizations aren’t a good fit. These people may be accustomed to narrower duties, superiors telling them what to do (thus uncomfortable taking initiative), having a lot of support staff (thus not resourceful at getting things done). But by far the worst quality is exhibiting “employee mentality” rather than the “entrepreneur mentality” needed in a small, dynamic firm. And I’m talking about top-level managers!

So it’s essential to make sure that the “corporate escapees” you hire are comfortable in your small business culture.

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Our political leaders—from President Obama and Speaker Pelosi on down through Congressman Waxman to all the state governments—say wonderful things about small business:
— Small business is the engine of job creation
— It’s the embodiment of our entrepreneurial spirit
— It’s a major source of innovation
— It’s the way up for immigrants
— It’s the new chance for people laid off by declining industries
— It’s the way to keep work at home that would otherwise go to India or China
— It provides the local products and services we all cherish over the big-box mega-chains
— It provides flexible, part-time, low-skilled, and entry-level jobs for people who often have trouble finding a niche in the workforce.
— It perpetuates a class of responsible, involved, financially aware citizens who pass these values along to the next generation.

But contrast what our leaders say with what they do. Governments at all levels view small business (I’m talking about owner-run businesses) as the piggybank from which to shake a few coins every time more revenue is needed. We are the designated “tax paying class.”

It’s not just Waxman’s income tax surcharge, nor this penalty on those who don’t offer healthcare insurance. But overall, the cost of taxes and fees, mandates, and compliance is ten times higher as a proportion of revenue for small businesses than for large corporations. Not only the dollar amounts, but also the time that the owner or a key employee must devote to these requirements.

And we face a continuing barrage of increases in these from local, state, and federal levels.

So the message from our leaders is: “You are really important to economic dynamism, but even so, we’re erecting numerous hurdles to your success.”

At my four-person company, if our tax/compliance costs were lower, there’s no doubt that I would add a couple of employees that we cannot now afford. There are millions of companies my size in the U.S. Suppose a million of these would add a single employee if their government burden were lightened. Would a million new jobs created have a positive impact on the economy? All these new employees would then be paying taxes and spending more on goods and services. My company—and all the others—would grow, get more profitable, pay more taxes—and provide more products and services valued by our communities. What’s the chance that the economic boost this created would actually generate more tax revenue than trying to squeeze more from already-hurting small companies?

For some reason I cannot grasp, this dynamic is impenetrable to our government leaders.

A few comments on small business healthcare:

• Note that the small business penalty described in this bill does not go toward the healthcare costs of our employees. It just goes to the government; it does not benefit the employees at all.

• Most small businesses want to provide healthcare coverage for their employees. It gives them a competitive advantage in attracting better people. Owners also care for their employees—sometimes almost like family.  Owners hate to cut these employee benefits. They agonize over it. But sometimes it’s the only option to big layoffs or closing the doors.

• Companies with a handful of employees don’t have the ability to offer a menu of healthcare options, as do large corporations. This means our 25- and 55-year-old employees must be crammed into the same program, even though they have very different desires and needs. So nobody is happy.

• If companies were removed from the role of health insurance middleman, and more varied and competitive healthcare plans were available on the market, then people could choose exactly what they wanted, from high-deductible catastrophic to gold plated coverage. The tax benefit would be transferred from the employer (to pass on via non-taxed  insurance premium payments) to the individual, who would retain the same benefit, but based on personal choice. And they would have complete portability!

As I look at top government leaders, I seek in vain for any who have ever run a small company, who’ve had to short their own pay to make payroll. In the abstract, they want us to succeed, but they have no gut feel for how to boost small business to catalyze economic dynamism.

I welcome your comments.

* Written in response to “What U.S. Small Businesses Need in Healthcare” by Anita Campbell

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