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Do we need the government’s intervention Dr. Jerry Burch
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“The entrepreneur is the single most important player in a modern economy” Edward Lazear
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“Small businesses are vital for our workers… That’s why it makes sense to have the small business as the cornerstone of a pro-growth economic policy…The Small Business Administration is working hard to make it easier for people to start up companies… So we have doubled the number of small business loans since I came to office” U.S. President _____
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Rules I will give you $30,000 to start You decide how much to give each of the following firms as start up cash You get 10% of the profits if you pick 1 company You get 5% of the profits if you pick 2 companies You get 3.33% of the profits if you pick all 3 Winner is determined by who makes the most revenue after year 1.
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Founder is a Granbury native She has experience as a restaurant cook and waitress She wants to open a new Chinese food restaurant on the square
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Founder is moving in from out of state He has extensive experience running a hardware store He wants to open a small hardware store that specializes in home improvement products in Granbury
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Founder has an MBA and extensive experience in manufacturing. She was the co-founder of a tool manufacturing facility in New England She has decided to relocate to Texas for lower taxes She wants to open a specialized tool manufacturing businesses focused on increasing production efficiencies. The facility will be located between Granbury and Tolar.
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Where do you put my $30,000? Company 1 – Chinese 2 Go Company 2 – Hardware Mogul Company 3 – Tolar Tool
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What if the $30,000 came out of your pocket? Company 1 – Chinese 2 Go Company 2 – Hardware Mogul Company 3 – Tolar Tool
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What if the $30,000 came out of your pocket? Company 1 – Chinese 2 Go Company 2 – Hardware Mogul Company 3 – Tolar Tool Let me make the decision easier…
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You are at the race track with $30,000 Which horse do you bet on if you want to win?
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You are at the race track with $30,000 Which horse do you bet on if you want to win? Company 1 Company 2Company 3
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$25,000 start up costs Financed by founder’s savings Operates in retail or personal services Most likely home-based Owner aspires to generate around $100,000 in 5 years Vast majority aren’t entrepreneurs in the sense of building companies that grow They are wage substitution businesses
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Startups need to be more productive than existing companies. RESULT – They are not. Average new firm makes worse use of resources than average existing firm. Average new job wage is 72% of state average in first year… still below state average at year 4.
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New firms create around 2.2 million jobs each year. This is 7% of all new jobs created annually. U.S. Bureau of Labor Statistics
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Existing Companies Startups 93% 7% Higher wage More efficient More benefits Lower wage Less efficient Fewer benefits
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A study of U.S. firms started in 1998 798,066 people in first year 670,111 in 2002 Conclusion – New firms have net job destruction after their first year.
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Government intervention Encourages the creation of any new business Stimulates growth in competitive industries with lower barriers and higher rates of failure Typical entrepreneur Picks the wrong business/industry Fails within 5 years Is not the best entrepreneur May already be unemployed and has less to lose
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Enough bad news! We get it!!! What is the solution????
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Encourage high quality, high growth companies to be founded
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Every horse runs slower if the track is muddy
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Stop subsidizing the formation of the typical startup Just say “NO” Focus on the subset of businesses with growth potential
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Help companies become more efficient Don’t just focus on start ups Provide expert help on implementation of capital Provide expert help on process improvement We compete on a global scale
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Help companies generate innovative solutions Discourage typical start up ideas Provide expert facilitation to help companies develop innovative products, services, & solutions
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Entrepreneurs are not created equal There are limited resources Place your money on the entrepreneurs that can deliver results Innovative ideas High efficiency Growth industries High success rate industries
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