President Trump’s New Economy Challenge (Part 4 of 20). The only way that President Trump will be able to create 25 million new jobs over the next decade is to mass-produce startup (aka small) businesses. President Trump’s proposed tax and regulatory reductions will provide a welcome relief to small business owners who employ 78% of all Americans and created 74% of all net new jobs this decade. However, much more should be done to mass-produce, highly-scalable small businesses, promote small business expansion and mitigate small business deaths. Hopefully, Linda McMahon, President Trump’s pick as Administrator of the Small Business Administration, will be amenable to mass-producing highly-scalable small business for the demographics that need it the most, namely women, minorities, next generation workers, veterans and other hopefuls at the bottom of America’s socioeconomic pyramid.
President Eisenhower created the Small Business Administration (SBA) in 1953 to elevate the status of small businesses in the wake of WWII and the assent of big business. During the Clinton and Obama Administrations, the SBA Administrator had Cabinet-rank status. During Republican Administrations, they were less regarded and survived a number of attempts at elimination. It will be interesting to see what the SBA’s status will be in the Trump Administration.
U.S. Private Sector Employment by Company Size
From a Jobenomics perspective, small business deserves far more attention and support from policy-makers than it currently does. Small business is the engine of the U.S. economy. According to the ADP Research Institute, today small businesses with less than 500 workers employ 78.2% of all Americans and micro-businesses with less than 20 workers employ 1.7-times more people than very large corporations with over 1,000 employees, 30,224,000 versus 17,448,000 respectively.
It is a common misconception that small businesses, especially micro and self-employed businesses, are the most fragile. As shown above, big businesses (500 to 999 employees) and large corporations (1000+ employees) suffered greater downturns and slower recoveries than their small business counterparts.
U.S. small businesses are more resilient to financial downturns and enduring over time than most people think. 80% of small business establishments started in 2014 survived until 2015, the highest share since 2005. About half of all establishments survive five years or longer. About one-third of establishments survive 10 years or longer.
It is also a common misconception that small businesses are only involved in service-providing industries whereas large major corporations dominate goods-producing industries. Data indicates that small business has a major role in goods-producing and service-providing industries. As the former head honcho of a major construction firm (a goods-producing industry), President Trump understands that the majority of workers on a construction site are employed by small business specialty subcontractors.
American policy-makers and decision-leaders do little to energize small business creation and promote American entrepreneurism that is at the heart of small business ownership. Instead, government policies rely on big business for small business sustainment. These policies are bearing less and less fruit. Without a viable small business creation and sustainment strategy, the U.S. economy is unlikely to prosper as it did in the 20th Century. Small business creation is unquestionably the best way to create tens of millions of new jobs.
U.S. Private Sector Job Creation by Company Size
Source: U.S. Census Bureau, Business Dynamics Statistics
Small business created significantly more jobs than big business during the Great Recession, during the post-Great Recession recovery as well as last year. Unfortunately, the engine power of small business has downshifted from 6.7-times big business to 2.1-times over the last ten years. The same is true for micro-businesses that have dropped from 3.0-times very large corporations to 0.7-times today. Without significant attention and meaningful action from the incoming Administration, this trend is likely to continue as the rate of startup activity continues its downward slide.
Startups (Less than 1-Year Old) As a Percentage of All U.S. Firms
In terms of new starts (firms less than 1-year old), BLS/Census Bureau Business Dynamic Statistics data indicates that the United States is now creating startup businesses at historically low rates, down from 16.5% of all firms to 8% in 2014. Based on a Wall Street Journal (WSJ) analysis of recently released BLS data, “If the U.S. were creating new firms at the same rate as in the 1980s that would be the equivalent of more than 200,000 companies and 1.8 million jobs a year.” The WSJ also reports the share of employment at firms less than 1-year old has slipped from nearly 4% to about 2% of private-sector jobs from the 1980s to today.
According to a Kauffman Foundation analysis of the same Business Dynamic Statistics data, net job growth occurs in the U.S. economy only through startup firms, and, counter to conventional wisdom, existing firms are net job destroyers. Furthermore, during recessionary years, job creation at startups remains stable, while net job losses at existing firms are highly sensitive to recessionary business cycles. The Kauffman study also stated that most city and state government policies that look to big business for job creation are doomed to failure because they are based on unrealistic employment growth models. “It’s not just net job creation that startups dominate. While older firms lose more jobs than they create, those gross flows decline as firm’s age. On average, one-year-old firms create nearly 1,000,000 jobs, while ten-year-old firms generate 300,000. The notion that firms bulk up as they age is, in the aggregate, not supported by data.”
The way that government and big business can incubate, accelerate and mass-produce startups is via community-based business incubators, business accelerators and business generators.
Business incubators tend to focus on high-tech, silver bullet innovations that have extraordinary growth and employment potential. Business accelerators focus on expanding existing businesses in order to make them larger and more profitable. Many cities have business incubators, usually located at or around universities or technology parks, and business accelerators that are associated with mezzanine financing institutions. The Jobenomics business generator concept involves mass-producing small and self-employed business with emphasis on minority-owned, women-owned, veteran-owned and new workforce entrant-owned startup businesses.
Jobenomics Community-Based Business Generators mass-produce startup businesses by: working with community leaders to identify high-potential business owners and employees; executing a due diligence process to identify potential high-quality business leaders and employees; training and certifying these leaders and employees in targeted occupations; creating highly-repeatable and highly-scalable “turn-key” small and self-employed businesses,; establishing sources of startup funding, recurring funding and contracts to provide a consistent source of revenue for new businesses after incorporation; and providing mentoring and back-office support services to extend the life span and profitability of businesses created by the Business Generator. Jobenomics contends that Community-Based Business Generators could vastly improve the rate of startups and expanding businesses, and reduce the rate of contracting and closing businesses.
Jobenomics Community-Based Business Generator Concept
The process starts by using community leaders to identify high-potential job seekers. Churches, non-profits, schools, sports teams and veterans groups are a great source for identifying talent, desire and fortitude. These organizations provide the first phase of the triage process by screening and assessing high performance people who are known to them. The second stage is accomplished during onboarding that involves Jobenomics screening and assessing. The third stage uses aptitude and personality tests to determine potential career paths.
Once completed, candidates will be separated into a business leadership group or a high potential employee group for training. The leadership group will undergo management and startup business training. The employee group will undergo skills training based on the role that they will assume in the startup business (operational, technical, mechanical, financial, marketing, administrative, etc.). After the training is completed and certifications awarded, the team will commence startup operations under the guidance and assistance of the Business Generator team.
Jobenomics Community-Based Business Generator Process
Starting with a notional labor pool of thousands of potential candidates, Jobenomics will work with local civic organizations identify, nominate and endorse in writing the highest qualified candidates for entry into the Jobenomics Community-Based Business Generator program. This is the first stage of the due diligence and selection process.
These nominees will then be subjected to standard aptitude and attitude tests in order to identify and assist (1) those that should be sent to other educational (GED and postsecondary) or training (vocational) centers for career development, (2) those that are qualified and suitable for immediate employment with existing companies, and (3) those that have an aptitude for starting a small or self-employed business. Jobenomics Community-Based Business Generator will help all people who enter the program to find meaningful employment.
Jobenomics envisions that 25% of the nominees would seek a traditional education and training path, 25% would be hired directly by existing business who are looking for quality workers, and 50% would seek a more independent and self-sufficient route offered by a small business startup or self-employment. Of the 50% that choose the Jobenomics Community-Based Business Generator training and certification process, Jobenomics anticipates that only one-quarter of these individuals will eventually execute a small business startup or incorporate as a self-employed business.
The three-quarters that undergo but do complete the Jobenomics Community-Based Business Generator process will be certified (with empirical data by professional testing and evaluation) as high-quality candidates for immediate employment or traditional education/vocational training. Anticipating this eventuality, Jobenomics has “pipeline” to connect individuals who have undergone some level of due diligence to companies that are hiring or anticipate future employment vacancies. The Jobenomics pipeline system has been operational for years with the Department of Defense and facilitated the hiring of 250,000 veterans.
The Jobenomics process focuses on preparing workers for starting a business, whether they actually start a business or use the experience to be more competitive to get a job. In today’s world, gainful employment is difficult and oriented to those that are currently employed, credentialed or highly-skilled. Conversely, a common complaint that Jobenomics often hears from companies is that they have a very hard time (1) finding good people who want to work, (2) who have the right attitudes and aptitude for work, and (3) who have workforce credentials, experience or related skills.
Every nominee that enters the Jobenomics process will start a self-employed business, which can be incorporated in a matter of weeks, and undergo elementary business training. The reason for setting up a small business is to make them more competitive in today’s job market. Many employers prefer to “try before they buy.” An incorporated self-employed individual can position themselves for subcontract or contingent work (1099) as a prelude to standard full-time work (W2). Even if a self-employed individual never receives an income as a self-employed business, that individual can present themselves with credentials (Employer ID Number, website, business card and skills resume) that better prepares and aligns them with the business community. In addition, Jobenomics will provide additional credentials regarding the individual’s workforce aptitude, skills and suitability tailored to the specific hiring opportunity. Jobenomics credentialing, along with letters of recommendation from the nominees’ sponsoring organization, will greatly distinguish the individual from the masses of unemployed, new or returning workforce entrants.
Today, the United States does not have standardized national, state or local processes to create or mass-produce startup businesses. The U.S. startup process is largely ad hoc. By instituting a community-based (all jobs are local) standardized, repeatable and scalable process to mass-produce startup businesses, millions of new establishments could be created across America. By being part of a small business team, team members will be motivated to grow the business in order to make it more profitable, which facilitates upward mobility, higher wages, better benefits, potential equity positions, and, perhaps most importantly, a sense of camaraderie and purpose.
Stay tuned for the next installment in the President Trump’s New Economy Challenge series entitled, “Why Work Anymore?” scheduled for release on 21 February 2017.
About Jobenomics: Jobenomics deals with economics of business and job creation. The non-partisan Jobenomics National Grassroots Movement’s goal is to facilitate an environment that will create 20 million net new middle-class U.S. jobs within a decade. The Movement has a following of an estimated 20 million people. The Jobenomics website contains numerous books and material on how to mass-produce small business and jobs. Monthly website traffic exceeds one-half million hits, which is indicative of the high level of public interest regarding economic, business, labor force and workfare solutions. For more information, see Jobenomics Overview and the Author’s Biography.
