The Importance of JOBS

04/05/2012 11:00 am ET | Updated Jun 05, 2012
  • Jeff Jarvis Author, 'Public Parts' and 'What Would Google Do?'

The JOBS bill being signed by President Obama today is critical to the emergence and growth of the next generation of industries as ecosystems.

Those ecosystems are made up of three layers: Platforms (Google, Amazon, Salesforce, Facebook, Kickstarter, Federal Express, Foxconn), which make it possible for entrepreneurial ventures to be built at lower cost with less capital and reduced risk at greater speed. To provide the critical mass that large corporations used to provide -- to, for example, sell advertising at scale or acquire distribution or acquire goods or services at volume -- sometimes these ventures need to band together in networks (Glam, YouTube, Etsy, eBay). This is how I simplistically draw it on a whiteboard:


Our economy -- equity markets, regulation, taxation -- has been built to support The Firm: large companies that controlled the entire chain from design to manufacturing to marketing to distribution, gaining efficiency and control as they gained size. The new ecosystem still benefits large companies if they are platforms, as today much -- perhaps most -- of the value created via the net falls to new corporate behemoths: Google, Amazon, Facebook....

But it's at the entrepreneurial layer that the real work is being done, the real efficiency is being found, and the real value is being built. But they need capital -- not much, but they need it. And they need to be able to recognize the value they create. That's what I hope Steve Case and others worked toward with the JOBS bill. Andrew Ross Sorkin worries that the new law's loosened regulation for some companies will mean that more will lose money. But Henry Blodget counters that it's not the SEC's job to save you if you're stupid enough to invest in Groupon (told ya!). The lighter regulation certainly bears watching.

But the part of the bill that encourages me is the ability of small companies to raise small amounts from small investors. I see this as economically democratizing on both sides of the transaction: more small companies disrupting large firms and more real investors able to get in on the opportunities (and risks) of a platform-enabled entrepreneurial economy.

Such small-scale investment has already been possible in the U.K. -- not just possible but encouraged through 30 percent tax break on investments. Recently I got an email from a company set to benefit, Escape the City (soon to be renamed, which helps would-be refugees from London's financial district build new and, one hopes, better lives outside it. Cofounder Mikey Howe kindly wrote to me because he'd read What Would Google Do? and said it helped him think in new ways. (Thank you, Mikey.)

Howe wrote on the occasion of the company sending a letter to its 57,000 members inviting them to pledge to invest in the venture. Within one hour, $6.6 million was pledged. I checked back with him three weeks later and 2,200 members had pledged $15 million (more than they will end up raising). What's exciting is not just that a small company can more easily raise investment funds but that this small company knows its potential investors. They are members of the service already: a community of customers and investors. Imagine what that relationship could do to help a startup, when your users, your customers have a stake in your success. (I also enjoy the notion that their venture attempts to disrupt the financial district they left.)

Start Something You Love: Escape the City...1 year on from Escape the City on Vimeo.

Until the JOBS bill, about the closest thing we had in America was Kickstarter. My entrepreneurial journalism students are eager to try to use it to raise funds -- perhaps a bit too eager, I caution them, for funding a single product or project does not a sustainable strategy make (any more than begging for grants from foundations). But properly used, Kickstarter reduces risk by performing the best possible market research (pre-orders) and allowing an entrepreneur to use her customers' capital to start her venture while also turning customers into marketers. Kickstarter could not sell equity. Should it? I think that's an entirely different proposition. In any case, now we can see Kickstarters of a new sort help more new companies. See also the U.K.'s Funding Circle, which loans capital to startups (and which just got an investment from New York's Union Square Ventures).

The irony of the JOBS bill's title (it stands for Jumpstart Our Business Startups) is that it may end up killing more jobs than it creates as it funds highly disruptive and highly efficient new ventures that will try to replace large and now inefficient companies in old vertical industries. (See my post, the jobless future.)

But if the disruption is inevitable -- and I believe it is, across many industries from media to retail, banking to travel and even manufacturing -- then the only sane response is to find the opportunity in the change. The JOBS act helps more people, entrepreneurs and investors, find more opportunity. That, more than bailouts, is the wise role for government to play in the shift from an industrial to a digital economy.