Small Business Whitepaper
November 16, 2017
Richard B. Sanford, BS, RHU, ASM
What happened? What caused our country’s continuing decline in successful small business start-up numbers and employee job count since the close of World War II?
Up to the mid-1940’s, U.S. small businesses were touted as our nation’s economic growth engine, generating most of the new product and service ideas while lowering costs for products and services that fulfilled consumer’s wants and needs. Small business has typically been the leading economic sector producing new jobs. And as nationally reported, as late as 2000, this job sector contained the most employed citizens (estimated 72%).
But times change, now our nation’s political community prods the nations small business community to hire and increase its employee count in order to reduce the nations pool of unemployed. All in the face of ever-increasing government rules and regulations that stifle small business growth coupled with a national financial environment that delivers near zero growth in the economic garden that grows small business and its job generating capabilities. It’s a wonder any expansion is possible.
The author, closely monitoring the use small business condition since appointment to the U.S. Small Business Administration’s national advisory board in 1981, discovered and recorded four ‘water-shed’ events that have and continue to have negative impacts upon our small business community, diminishing its ability to thrive, prosper and continue its job creating addition to the U.S .economy.
These four water-shed events are;
- The entry of the U. S. in World War II
- The return to civilian life and work of our soldiers, sailors and airmen/women
- The formation of the U.S. Small Business Administration in 1954
- The diminishing education and training of future
Entrepreneurs/owners and managers caused by the fading use of the ‘apprenticeship training model’ used successfully by entrepreneurs for hundreds of years, world-wide.
Water-shed event #1
The entry of the u.s. into World War II required the expansion of our military forces (soldiers, sailors and airmen/women) and where did they come from? The ranks of our nations young citizens. Most were aged 18 to 29. These workers were the ones, who prior to WWII, provided our nations employee pool of future entrepreneurs. The ones who would be apprenticed in prior times to learn the management skills of running a small business, providing replacements for entrepreneurs as they naturally tired, wore out, became disabled due to sickness or injury or passed on.
This water-shed event robbed our country of a talent pool of future entrepreneurs and created a generation bubble of untrained, in-experienced, aspiring small business owners.
Observing a decline in small business vitality in the 1980’s I asked why? Why are 80% of small business start-ups failing by the end of their first year of operation (according to data supplied by US SBA), and why has this phenomenon continued over the past seven decades.
I’ve asked this question repeatedly, year after year, of any one who had an interest in small business. I stumbled upon the answer when putting together notes regarding a recent local re-discovery of vocational education at the high school level to help fill open jobs requiring vocational skills. A change in our country’s national education focus in the 1950’s from ‘vocational education’ to the post WWII new focus of college based ‘liberal arts education’ provided (aimed at) initially, the nation’s returning warriors, and financed largely by the “Servicemen’s Readjustment act of 1944”, commonly known as ‘the G I bill of rights’, thus, big government and its deep pockets of tax money entered the educational arena, and essentially ended entrepreneurial apprenticeship and much of the vocational education provided by local high school programs. National education became focused on a liberal arts education funded by government subsidies and student loans. The natural results are what we see today; excess liberal arts trained students graduating with huge student debt, too few jobs for them, increases in highly educated citizens who can’t find work.
We need to re-discover our lost focus on ‘apprenticeship training’ which starts at the junior and high school level and continues with apprenticing in our nations small business communities. We need workers with ‘hands-on business management training’ by small business owner/employers who have the experience and skills to teach qualified worker/nas/content/live/sbamrentices the skills needed to replace retiring entrepreneurs and fill jobs being reported today as ‘going unfilled’ nation-wide.
These entrepreneurial ‘instructor coaches’ will need class room tools (text books) , which have only recently became available, (growing your business, 1,2,3 @ amazon.com).
Water-shed event #2
With the conclusion of World War II, our young, (and some not so young after their war experience), veterans were discharged and returned to civilian life, facing the challenge of ‘what work will I find’? Many, having experienced training in mechanical, electrical, maintenance and services support disciplines, choose not to return to farms, small towns and the jobs they left behind when entering military service, and sought jobs using their new job skills obtained via military training and education and experience.
Also, many were seeking independence from being told what, how and when to do their job, every minute of the day, as in their military experience, and choose to start small businesses, as a way to escape and acquire independence.
Thus, massive numbers of entrepreneurs were spawned, but with one large handicap. They were launching a small business without benefit of having experienced apprenticeship training and skill development in the management and strategic business planning of a small business by a successful small business owner/manager.
Thus began the first decade of small business ‘start-up’ failure rates of 80%.
Water-shed event #3
The third water-shed event that has, unexpectedly, worked against small business success rates, was the formation of the U.S. Small Business Administration in 1954.
Created to assist this new expansion of small businesses following World War II, the U.S. SBA was charged with assisting small businesses in their efforts to succeed. Thus government employees were poised to teach entrepreneurs business management, strategic planning and financial management skills. R e a l l y? I’m reminded of George Bernard Shaw’s quote, ”he who can, does, he who cannot , teaches”
U.S. SBA leadership also determined government employees were better qualified and skilled at making small business loans than the bank lenders who feared to take the risks presented by applicants that were inexperienced, untrained entrepreneurs. And rightly so, as small business start-up failure rates of 80% had already presented themselves in the 1950’s and would continue through-out the end of the twentieth century and continues today.
Note: small business failures not only cease their business operations, they also cease to provide loan pay-backs as well. Guess who has carried these loan losses from 80% start-up failure rates?
So, easy capital provided by U.S. SBA loan guarantees via an entrepreneur’s local bank, encouraged many would-be entrepreneurs to launch a small business with-out the training and skills, giving them little chance of success. Some entrepreneurs did survive and prosper, but most did not!
Water-shed event #4
With the absence of hands-on apprenticeship training for aspiring entrepreneurs (‘one who organizes and takes the risks of a business or enterprise,….webster)…….. Where does an entrepreneur go to learn ‘how to’ successfully think, plan and manage an enterprise?
Learning how to make ‘right decisions and avoid making wrong decisions’ is the critical key to successful business operations.
Prior to World War II, aspiring entrepreneurs learned management skills ‘at the knee of successful small business owners’. Now, they are faced with using little but their own initiative, intuition and ‘guess based’ trial and error decision making. Producing high first year failure rates. Also, it is estimated that current failure rates for the three to five year business cycle is four percent.
Yes, there are a plethora of business courses and texts offered to small business in America’s book store shelves and college curriculum. But none I’ve found, in searching diligently over 40+ years, are focused on small business management and the use of strategic business planning in creating a successful small business.
What offered are courses and texts on the functions of business. How to do the work of bookkeeping, taxes, human resources, marketing, sales, administration, internet management, manufacturing, etc., etc.
But nothing on small business management. Nothing about simplified strategic small business planning. The two critical skills coupled with learning how to make right versus wrong decisions taught by small business owner managers of the past. The skills new and struggling entrepreneurs need in order to increase their odds of success and decrease their odds of failure.
There is a small rumble of new attention being given in some areas of American Education, to apprenticeship training in the occupational education arena. An article published 7-2-2016, in the Lansing State Journal, entitled “high school grads fast track careers”. Subjects in auto mechanics, other mechanical careers, offered as alternatives to a liberal arts college degree.
American entrepreneurs and would-be entrepreneurs need a source for small business management and skill training, taught by successful entrepreneurs, to reduce the dismal business failure rates of the past 70+ years, increase small business success rates, increase U.S. job opportunities, reducing national unemployment and assist in the rebuilding of U.S. economic strength and prosperity.
A question; who, what entity, is best positioned (and motivated) to perform this critical and necessary service needed by the U.S. Small Business community of our country?
Post script: a follow-up strategic action plan, describing one such path to accomplishing the challenge identified above, is available via the author.