THE BLOG

It Takes a Village to Raise a Startup

10/12/2011 01:03 pm 13:03:27 | Updated Dec 12, 2011

For the past two years, governmental programs at the federal, state and local levels have been pumping billions of dollars into programs designed to create new jobs. The collective result is a handful of new jobs at the cost of millions upon millions of dollars. The vast majority of these jobs are not innovative, nor do they lead to additional hires. Even in industries touted for innovation, growth has been sluggish.

The classic top-down approach to job creation is deeply flawed. It's not enough to simply put more people on payroll. For economic recovery to truly take off, we need companies that are innovative, disruptive and scalable. New and growing firms are the instruments that create jobs. To focus on individual jobs -- the output -- is ineffective. The focus must be on the mechanism.

Some of the biggest, fastest growing companies in the past few years have created something new or radically innovated an existing premise or product. Apple, Google, Facebook, Twitter and Groupon each have hundreds or thousands of employees and have spawned hundreds of smaller companies that cater to newly created niche markets. These companies have not only created jobs, they've created industries.

It is individual entrepreneurs who are behind this growth, not government programs. And for each Facebook, there are hundreds of two- and three-person startup ventures that are also contributing to overall job creation. When people go from being employees to being co-founders they not only create new jobs for themselves, but for each additional hire they bring on board.

The good news is that this incremental growth makes an impact at the aggregate level. But entrepreneurship cannot be mandated into existence by committees and programs. It has to gain momentum at the grassroots level.

Entrepreneurs do not routinely matriculate into general society like MBAs or engineers or lawyers. They do not have formal societies or alumni groups, and most of them don't even call themselves entrepreneurs. They are employees, students, stay-at-home parents or retirees and are obsessed with a new solution that can address an existing pain-point better than anything currently available.

Government programs fail to reach many entrepreneurs because a large portion of these entrepreneurs are either fully or semi-employed and work on their startup idea on evenings and weekends. They may not work in the same industry as the startup they are building. And there can be a long burn before what was a side project turns into a cash-positive business venture.

Government programs can support entrepreneurs and help move them to market and scalability. Particularly on the local or regional levels, organizations like chambers of commerce or economic development departments can target needs within entrepreneurial communities that strengthen and accelerate startup growth.

And it's not only jobs that people are after. With jobs come things like pensions, benefits and the basic satisfaction of work. As Ewing Kauffman, founder of Marion Labs and benefactor of the Ewing Marion Kauffman Foundation, noted, a job means you can take care of yourself and your family. When you don't have to worry about what you will eat or where you will sleep, you can consider those around you. A job translates into human dignity.

Recently, Charles Schwab of Charles Schwab and Bill Conway of the Carlyle Group, who have both built sizable businesses, created thousands of jobs, paid pensions and college tuitions, and created returns for mom-and-pop investors and unions, put their focus on entrepreneurship and jobs. Conway concedes that, after years of extremely generous philanthropy, that he now calls 'stopgaps,' jobs, not handouts, matter most to individuals and to the strength of the country. This sentiment rings true with Mr. Kauffman's belief and charge for the Kauffman Foundation: "Every individual that we can inspire, that we can guide, that we can help to start a new company is vital to the future of our economic welfare."

Since innovative entrepreneurs are walking in uncharted territory and are building companies that have never been seen before, they need support in many forms -- only one of which is money. Entrepreneurs need access to industry mentor networks, out-of-industry experts, such as lawyers, and places to work. They need cities and communities that champion their risks, support their endeavors and integrate them into economies. Partners, customers, employees, investors, vendors and neighbors as well as policy and general business climate all contribute to entrepreneurial success. It takes a village to raise a startup.

A self-empowered entrepreneur has the ambition and vision to will a company into existence. Once entrepreneurs feel more connected and less exposed, their collective creative output can be felt from the local to national and international levels. The most effective action governments can take to support job creation is to create conditions that support individual entrepreneurs.