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Kara Nortman

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Small Business Means Big Impact

Posted: 08/24/2012 5:12 pm

When I cast my ballot for President Obama in 2008, I was as hopeful and optimistic as I have ever been about the future of our country. Four years later, I was recently invited by The Legacy Foundation to the White House as part of the Silicon Beach delegation and, while I was honored to take part, I was also equivocal about how well "Hope" was translating into action. After a full day of briefings and brainstorming with my Silicon Beach colleagues and other officials, I found my optimism and inspiration returning, but I have also found myself disheartened by our country's bi-partisan inertia.

The administration representatives with whom we met during the visit were inspiring, talented, energetic and practical. They have lobbied for the Affordable Care Act and the Dream Act, reduced the IT budget, and worked to open up government data through public APIs.

But talent and energy alone will only take us so far, and it became abundantly clear that the administration faces larger issues beyond their direct control. Our country sits at 8 percent unemployment, we have an ever-widening wealth gap, and we are the only industrialized country where the most recent college-age generation is considered less educated and less skilled than the generation before it.

To solve these problems and achieve its real potential, the Obama administration will have to look outside the Congressional morass. To create jobs and prepare our students for the jobs of tomorrow, this talented administration should forge creative partnerships with the private sector to push its agenda forward.

Small Business Means Big Impact

The economy has added 4.5 million private sector jobs over the last 29 straight months. In fact, all job growth in the last 30 years has come from new, "start-up" businesses, regardless of economic climate, heavily impacting unemployment rates.

You may be thinking "the private sector already invests in small businesses (be it in Silicon Valley, Silicon Alley, Silicon Beach or other areas rife with innovation), why does the government need to get involved?" But is funding the same entrepreneurs who build the same social media companies getting us anywhere as a country?

We may have great social platforms like Facebook and Twitter that catalyze events like the Arab Spring, but the private sector disproportionately chases the elusive "socially powered recommendation," while ignoring major opportunities in local communities. We are missing the bigger picture.

According to my friend and impact-investor, Heidi Krauel, "every dollar that goes to a local owner creates a four times multiplier in that economy, versus money that flows to an absentee owner." A 2011 study from the Economic Development Quarterly supports this assertion, finding a positive correlation between locally-owned small to medium-sized businesses and per capita income growth. The Maine Center for Economic policy also reports that every $100 spent at locally owned Portland businesses contributes an additional $58 to the local Portland economy, while $100 spent at a representative national chain store yields just $33 in local economic impact.

How can the public and private sectors work together to promote small businesses and a diversified talent pool?

To start, the government should look for ways to support mission oriented, community-based funds like Pacific Community Ventures (PCV) and Brightpath Capital, which both have a high success rate. PCV worked with 145 businesses (including 10 in their private equity portfolio) in 2011 that provided $45 million in wages in some of California's hardest hit neighborhoods. Based on a survey of 66 companies that received assistance through PCV's Business Advising Program., results showed 8 percent job growth in 2011, which is seven times the state and national average.

The administration should celebrate these successes by encouraging more traditional investors to enter the field. Personally, if I saw that I could make an 8 percent return over many years by investing in a fund dedicated to reducing unemployment in my city, I'd sign up immediately. Add the Jobs Act into the mix and perhaps the average citizen can make a micro-investment in funds like these.

Another opportunity for the government to attract capital to "targeted employment areas" is through the one class of visa that never reaches its annual cap, the EB5 visa. To qualify, a potential immigrant must invest either $1 million in any U.S. business or $500,000 in a U.S. business that creates 10 jobs in an area experiencing unemployment of at least 150 percent of the national average. The government could create a platform that matches EB5 applications with small business investment, providing a new avenue for funding local communities.

Or, what about creating the entrepreneurship equivalent of the Peace Corps or Teach for America? Teach for America is the number one employer of graduating seniors at more than 20 colleges and universities. Why is this? In addition to a sense of service, the program attracts college students who don't know how to get a job right out of college. Let's create a program to mentor college grads to help start or support emerging businesses built to serve local communities across the U.S. If this program is successful, it will both provide greater opportunity for local business and develop a new class of entrepreneurs.

Investing in STEM, Not Just SM

To diversify and grow our labor pool from within, we need to expose kids to STEM-based education which is education focused on science, technology, engineering and mathematics and also show kids that professions in engineering and science can be a path to creativity and prosperity.

Graduates with a STEM degree earn 26 percent more than those with a non-STEM degree, and those that can't afford college can still learn to code at vocational school. While you can't send a rocket to the moon without an advanced degree, you make a great living ($70k-130k annually) as a software engineer.

How do we get them to code? You guessed it, private and public sector partnership.

Government incentives for companies that offer public courses on coding would directly address this opportunity, and the possibilities are endless. National Innovation Days, hackathons with government agency API's/datasets, and sponsored trips to Washington, D.C. to present to a panel of the nation's top VCs are all strategies that could make this vision a reality.

As a nation, we need more small businesses, a more diverse labor pool and improved STEM-education. And we in the private sector have the resources to make this happen. If President Obama created new public private partnerships and then applied his significant rhetorical gifts to promote them, he could catalyze a new era of government and industry collaboration for the good of the whole country.

 
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