Too Big To Fail - Or Too Small to Succeed?

A common fallacy in American business in general, and in Colorado’s economy in particular, is:

(A) Most jobs are in small business,
(B) Most new jobs will be in small business, and,
(C) We need to support small business as a key to renewed economic success.

This is fundamental economic nonsense.

Most small businesses are single proprietorships, including many consultants who are marginally employed far below their actual skill level. Armies of accountants, attorneys, therapists and multi-level marketing personnel help to swell the cohorts of small business people, but all are constrained at the level of net productivity. As a rule of thumb, if a person is billing on an hourly basis, they cannot contribute to productivity increases; they can only increase their billing rate – or add to their billable hours.

Nevertheless, the myth persists of small business as a major engine of our economy.

Why?

Small business appeals to our pioneer spirit; from the solo mountain trapper and the cow poke on the cattle drive, to the inventor tinkering in his garage, we see ourselves as a collection of independent spirits striking boldly striking into new territory in technology and creative effort. Our legends conveniently forget the thousands of combined hands that it has taken to build mills, mines, railroads, highways and farms. We like the other versions of the story much better.

But here’s the deal:

(A) The game is rigged;
(B) We need to get in that rigged game;
(C) We need to get bigger – much bigger.

Let’s take it from the top.

Lesson One: That the game is rigged is well known, and ubiquitous.

The recent bank and auto company bailouts, followed by the extreme disinterest in effective regulation and punitive efforts for management incompetence, have underlined the weakness of small business in general, and Colorado small business in particular, to change the rules.

Bailouts and bonuses continue at the top nearly all major corporations involved in the recent financial meltdown, and all indications are that there will be no substantive effort from any quarter to put an end to these practices; all of the political noise we could ever make will simply not change the game, period, full stop.

Lesson Two: Get in the game.

If those of us in nascent industries in Colorado do not get in The Game, we deserve what we get. Colorado urgently needs to improve it’s ability to raise capital, and if it is foreign offshore and overseas capital that we end up raising, fine. Americans sometimes forget that the US built it’s canals, railroads and other industries with foreign investment, primarily from Britain and France. Now we need to be able to tap overseas capital markets again, this time via the Toronto Stock Exchange (TSX) and the London Exchange (AIM). Both of these exchanges could help Colorado become independent of the capital markets in the US that are no longer responsive to our needs, and also improve our leverage when we work with US capital providers by providing us with a choice in capital sources.

A necessary pre-requisite for this effort is to clean up our enforcement of securities and banking laws; if we are not up to international standards of control, we will represent just as a poor a risk as we did during the penny stock days of the 1980s.

Lesson Three: Get bigger.

Nothing brings home the fallacy of ‘small business’ like comparing the business efforts of the growing behemoth firms in Brazil, Russia, India and China, in industries like oil, autos and aluminum, with the puny efforts of American small business men and women. The endless complaints regarding our loss of manufacturing capabilities are generally voiced by people who are not trying to get bigger.

There is often a strange illogical leap into believing that small business is a key to competition with these giant multi-national firms, but few of us stop to think about that could actually work.