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Killing Small Business

If America is going to dominate the world again, we have to fix the spirit of free enterprise. Small business startups are in serious decline. Below are 60 quick facts leaders need to know.

  1. One of the most important discoveries Gallup has ever made: The whole world wants a good job.
  2. The great American dream used to be about peace, freedom and family. But in the new millennium, it changed. Having a great life requires having a great job.
  3. Democracy doesn't work without good middle-class jobs.
  4. The world works better when the American economy booms.
  5. The American economy is running out of gas -- and when the economy runs out of gas, so do full-time jobs with middle-class wages.
  6. GDP is stalled. The driving force -- free enterprise -- is in systematic decline because Americans are starting fewer businesses.
  7. Few leaders or economists know where new economic energy comes from.
  8. Economic energy originates when a new business starts or a small business shoots up. Startups and "shootups" determine America's economic fate.
  9. According to the Small Business Administration, a whopping 65% of all new jobs are created by small businesses.
  10. Big business is incredibly important in the economic food chain. But the source of new energy for jobs and GDP is small business, not big business.
  11. GDP growth is the most important metric to watch for rebuilding the middle class. GDP is the sum of all sales and production of everything we buy and sell and make. If America were a company, our sales (GDP) would be $17 trillion, with right at 100 million full-time employees.
  12. Worldwide GDP is $78 trillion. America's share of the world's economy has been about 25%, which has made it the dominant leader of the world. That leadership is in decline.
  13. America's GDP has to grow at a minimum of 2.5% or we go broke.
  14. We have been running at an average rate of 2.0% since the financial collapse of 2008. So it is failing.
  15. The right average GDP growth over several years is 3.75%. That's when the economy booms.
  16. There is a very fine line between big economic success and big economic failure. The difference between 3.75% growth and 2.0% growth over several years -- although seemingly small -- is the difference between whether America dominates or goes broke.
  17. Periods of 4% to 6% growth are windfalls for good jobs, household wealth and society in general, and typically follow recessions.
  18. Prediction: If America's average GDP growth continues over the next 10 to 20 years at 2.0%, there will be significant, irreversible instability here and around the world.
  19. Following the recession of 1981-1982, U.S. GDP grew for six years at 4.5% -- one of our greatest economic eras in history. But following the recession of 2008-2009, the U.S. economy never experienced the normal historical bounce -- thus the collapse of good jobs and the hollowing of the middle class.
  20. America is looking for solutions in the wrong places.
  21. The government has borrowed trillions of dollars from foreign countries, attempted to jump-start the economy by keeping interest rates at 0% and created a variety of stimulus programs. None have worked.
  22. The problem is declining business startups and small business shootups -- which is where all new GDP growth and good jobs come from.
  23. The U.S. Bureau of Labor Statistics (BLS) defines employment at a full-time job as 35+ hours per week for a paycheck. According to the BLS, the percentage of the total adult population that has a full-time job has been hovering around 48% since 2010 -- the lowest full-time employment level since 1983.
  24. The White House and Wall Street won't tell you this, because it's in their interest to convince you things are better than they are. They will tell you that jobs and the economy are "recovering." Both are untrue. Both are in decline.
  25. A real turnaround would require 10 million new good jobs. The percentage of full-time job holders in the U.S. population needs to move from 48% to 52%. Five million new good jobs would be a good start. Ten million -- the turnaround we need.
  26. A middle-class job is one with full-time hours with an employer of any size and a regular paycheck. A middle-class household is one with income roughly between $55,000 and $85,000. Middle-class jobs and households are the heart and soul of America and are now in decline as a percentage of the total adult population.
  27. This blog has previously referred to the official reported monthly unemployment rate as a "Big Lie." If you, a family member or anyone is unemployed and has subsequently given up on finding a job -- if you are so hopelessly out of work that you've stopped looking over the past four weeks -- you're not counted as unemployed.
  28. While you are as unemployed as one can possibly be, and tragically may never find work again, you are not counted in the understated figure we relentlessly see in the news.
  29. There's another reason why the official rate is misleading or seems to be a "big lie." Say you're an out-of-work engineer or healthcare worker or construction worker or retail manager. If you perform a minimum of one hour of work in a week and are paid at least $20 -- maybe someone pays you to mow their lawn -- you're not counted as officially unemployed.
  30. It would serve everyone if we stopped reporting the misleading unemployment figure and started reporting real unemployment.
  31. There are two numbers that matter -- real unemployment (from the BLS), which is unemployment plus underemployment, and the percentage of adults with full-time employment (Gallup Good Jobs).
  1. The current state of startups and shootups is not what you've been told.
  1. You will hear from credible sources that there are 26 million businesses in America. This is misleading. Twenty million of these reported "businesses" are inactive companies that have no sales, profits, customers or employees. There are only 6 million firms in America.
  2. Our whole economy has an ecosystem of just 6 million businesses that together produce $17 trillion in sales and production, and fund everything.
  3. Of the 6 million, 3.8 million have four or fewer employees. These are mom-and-pop shops owned by people who aren't building a business but are building a life. God bless them all. We need every single one of them.
  4. So that leaves only 2 million small, medium and large businesses in the United States. These 2 million enterprises are our ecosystem or rain forest for life on earth.
  5. They comprise 1 million firms with five to nine employees, 600,000 firms with 10 to 19 employees and 500,000 firms with 20 to 99 employees. There are only 90,000 businesses in America with 100 to 499 employees. And just 18,000 with 500 employees or more -- and that figure includes only 1,000 companies with 10,000 employees or more.
  6. We are a country of small and medium-sized businesses -- not a country of big businesses.
  7. Here is the startup and shootup problem. The deaths of businesses recently outnumbered the births of businesses. The U.S. Census Bureau reports that the total number of business startups and business closures per year crossed for the first time in 2008.

    In the nearly 30 years before that, the U.S. consistently averaged a surplus of almost 120,000 more business births than deaths each year. But from 2008 to 2011, an average of 420,000 businesses were born annually nationwide, while an average of 450,000 per year were dying. The deaths of businesses during this time outnumbered the births of businesses.
  8. The economy will not come back until these trends fully reverse.
  9. There are two ways to reverse them.
  10. One -- stop creating new regulations for businesses. In 2014 alone, Congress enacted 224 laws, which resulted in agencies issuing 3,554 rules, according to a recent report. In addition, when Gallup asked small-business owners what is the biggest problem they face, they said complying with government regulations is a major barrier. So a really fast way to get 6 million businesses to stick their necks out and grow is to act on this extremely important finding. If they want to help, national, state and local governments should stop overwhelming small businesses with new rules and regulations.
  11. Overwhelming rules and regulations are killing small business.
  12. Two -- understand that we have wrongly concluded that innovation is the solution. The right answer is entrepreneurship -- startups and shootups.
  13. Few leaders know that an innovation has no value until an entrepreneur starts a business and creates a customer.
  14. There's a difference between an innovator and an entrepreneur. An innovator is first and foremost an inventor. Innovators are thinkers. But an entrepreneur is driven to act, to build. Innovators don't start companies -- entrepreneurs do.
  15. Innovation and entrepreneurship are not the chicken and the egg. That is the wrong analogy. The right analogy is the cart and the horse. Innovation is the cart; entrepreneurs are the horse. America needs more horses not more carts.
  16. Getting this backward has been a mistake made by most well-meaning leaders. Our research has found an oversupply of innovation and undersupply of entrepreneurship.
  17. America is superior to the whole world in developing intellectual abilities -- those that drive innovation. When children have a special God-given gift to learn -- to read and recall and reason at a high level, genius-level IQs -- we find them all. National testing finds them all. We have masterfully created systems of early identification and systematic paths to the best schools through scholarships and special attention. Few intellectually gifted children are left behind in the United States.

    Also, no superstar running back or point guard or star volleyball player gets left behind either. Nor does anyone with rare artistic or musical talent.
  18. We aren't as intentional and systematic with entrepreneurs -- because we know so little about what makes them tick.
  19. Gallup research concludes entrepreneurs are born then made.
  20. Gallup discovered 10 predictable themes within the most gifted high-potential business builders.
  21. Considering all of this, how do we get GDP and the middle class to boom? Create a system, city by city, for early identification and development of entrepreneurs that is as intentional as systems for IQ or sports or artistic talent.
  22. Gallup has created an assessment, Entrepreneurial Profile 10 (EP10), that predicts who has high potential to build multimillion dollar organizations.
  23. Use the EP10 to test all kids in eighth through 12th grades, city by city. Identify the most unusually talented and put them in a program that encourages them to start and build a business. Give it a good name -- something like "Operation Juilliard."
  24. There are 30 million kids in eighth through 12th grade. High talent is found in 2% of that group, or 600,000 kids. Kids with extraordinary talent -- those with the potential to build very large organizations -- are 0.5% of the 30 million, or 150,000.
  25. There are rare business builders in your city. You just don't know which ones they are.
  26. Cities in America have startup clubs and incubators. Many universities have entrepreneur departments -- few create new businesses. But by focusing on high-potential talent, the success rate of startups will jump as much as five times.
  27. We see little to no difference in natural talent among whites, blacks, Hispanics, Asians -- or among rich or poor. Or between men and women. God was very egalitarian when handing out this gift.
  28. Whether America goes broke or once again economically dominates the world depends on whether we stop killing small business with overwhelming rules and regulations and start systematically birthing startups and shootups.


Jim Clifton is Chairman of Gallup.

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