Dr Jeff Cornwall

Tag Archives: economy

Was Boom a Bust?

Thomas Frank of the Wall Street Journal offered a rather harsh analysis of the economic boom that was the past two decades. 

It is, in other words, a political disaster, with tax cuts, trade agreements, deregulatory measures, and enforcement decisions all finely crafted to benefit one part of society and leave the rest behind. Few of the voters who gave Ronald Reagan his landslide victories, it is fair to say, intended for this to be the outcome. They wanted their country to stand tall again, certainly; they wanted the scary regulators off their backs, maybe; but I can recall no conservative who trumpeted those long-ago elections – or any of the succeeding contests, for that matter – as a referendum on plutocracy.

Say what?  Have no fear….  James Pethokoukis sets the record straight in his column at US News.

The Real Economic Hero

One of the myths about entrepreneurship is that high growth, high
potential ventures (some call them gazelles) are the main driver of
economic growth. For example, consider this quote from National Dialogue on Entrepreneurship:
“High-growth businesses — sometimes known as gazelles — -are the real
drivers of innovation and economic growth in our economy.”

High potential businesses are those that tend to attract venture
capital. VCs need businesses that yield very high returns in a very
short time — some will tell you that they seek 100% annual returns
with an exit within 3-5 years and others simply say they seek 5 times
their initial investment within about the same time period. However,
gazelle companies represent a tiny fraction of 1% of entrepreneurial
ventures.

Do they have an impact? Of course. Are they the “main driver of our economy”? No.

Those boring little entrepreneurs who toil away with only their own
investment — maybe with a little help from their family and friends –
is what really drives today’s entrepreneurial economy. It is these
small businesses that now generate about 50% of the US economy and have
created 77% of new jobs for the past twenty years. They do so with
ingenuity, bootstrapping, passion, persistence, and as Monroe Carell
told our students yesterday, patience.

Gazelles quickly get absorbed into corporate America within 3-5
years if they have any success. The average entrepreneur is not even
considered successful unless the business lasts at least five years.
They are in it for the long run.

Rather than measuring success in terms of mind-boggling returns to
investors, the average entrepreneur measures success in terms of making
a living for his/her family, by creating good jobs, by becoming able to
contribute to building a better community.

Don’t misunderstand my point. I like high growth. high potential
businesses. We get a few coming through our program and they are
challenging, interesting, and fun to watch. I hope we get more.

But, they are not the heroes of our entrepreneurial economy. That
title belongs to the average entrepreneur who will never get a dollar
from a venture capitalist — who builds a successful business seemingly
out of almost nothing.

Average entrepreneurs may not be “gazelles”, but they are the work horses we need to move this economy steadily into future.