I commiserate with the owners of privately-held, small to mid-sized, business enterprises. They’re getting a raw deal.
Consider this. That classification of business firms accounted for 64 percent of the net new jobs created between 1993 and 2011. In creating jobs, small firms make an invaluable contribution to the well-being of, not only their employees and their families, but also their suppliers, and the communities they live in.
So why have we, as a nation, squeezed small business into a vice? Why are we making it so hard for them to succeed, thrive and fulfill their purpose?
A Generational Impact Too
Amongst the ranks of small business owners are a good number of Baby Boomers whose dreams of a comfortable retirement have foundered on the reef of The Great Recession. For years they worked hard, looking forward to a reasonable reward for their risk, a return on their financial investments and justification for the family sacrifices that were part and parcel of starting and running a small business.
The Baby-Boom owners I have spoken to also want to leave a legacy. They wish to pass on a vibrant firm that continues to provide employee and community value – beyond their own retirement. And while the current state of economic affairs may be particularly hard on these BBBBs (Baby Boomer Business to Business) owners, the situation is largely the same for all owners – independent of age.
So, I stand with these men and women. We should appreciate them more – and give them a freakin’ break.
A break from what?
Small to midsize B2B business owners are currently trying to find the elbow room they need to achieve their goals. But they are gripped in a five-jawed vice – each jaw bringing its own unique and undeserved pressure from a completely different angle.
Jaw 1: The Economy
The economy is still underperforming. A GDP growth projection of 2.7% for 2014 seems to be the best we can muster and low GDP growth has been chronic since 2009. There is no coasting possible. All progress must be self-generated by slogging through the economic swamp. There is no tail wind and the swamp bed is mushy
The chart below shows the meager U.S. GDP growth from 2001 through 2013.
| Year | GDP Growth | Historical and other mitigating events |
| 2001 | 1.0% | Bush 43 became President. Recession worsened by 9/11 attacks and War on Terror, but helped by Bush tax cuts. Fed started lowering rates. |
| 2002 | 1.8% | Bush calls for regime change in Iraq, creates Homeland Security. |
| 2003 | 2.8% | Unemployment at 6%. Fed lowered rate to 1%. Iraq War began. |
| 2004 | 3.8% | Fed started raising rates. |
| 2005 | 3.4% | Hurricane Katrina cost $250 billion in damage. |
| 2006 | 2.7% | Fed funds rate raised to 6.75%. Swine flu epidemic. |
| 2007 | 1.8% | Dow reached new high of 14,164.43. Inflation at 4.1%. Fed dropped rate 3 times, to 4.25%, to ease banking liquidity crisis. LIBOR rose to 5.6%. |
| 2008 | -0.3% | Stock market crash of 2008 led to global financial crisisand $350 billion spent on bank bailout bill. Fed lowered rate 7 times to 0%. |
| 2009 | -2.8% | Obama became President. Dow dropped to 6,594.44.Obama Stimulus Act spent $400 billion, reversed downward spiral. |
| 2010 | 2.5% | BP oil spill. Bush tax cuts extended. Obamacare and Dodd-Frank passed. |
| 2011 | 1.8% | Japan earthquake and Mississippi River floods. 10-year Treasury yield hit 200-year low. Iraq War ended. |
| 2012 | 2.8% | Presidential campaign and fiscal cliff created business uncertainty. Super storm Sandy hit East Coast. See U.S. Economy 2012 |
| 2013 | 1.9% | Slow growth thanks to sequestration. Low nominal GDP growth thanks to low inflation. |
(Sources: Bureau of Economic Analysis and www.About.com for the historical notations and links)
The last year for which GDP growth exceeded 4% was 2000. Even our dual wars in Iraq and Afghanistan didn’t help much. After fueling defense-related industries for the last 10 years, we are now watching that sector have to adjust to the ends of those conflicts – and simultaneously deal with sequestration.
And if these low growth figures weren’t enough, adding insecurity to the frustration of slow momentum these businesses continue to be susceptible to random bursting of economic “bubbles” – housing, mortgage-backed securities, banking regulation, stock prices, commodities and the occasional international crisis that threatens exports.
Jaw 2: Banks
In 1999 two key provisions of the 1933 Glass-Steagel Act were repealed leaving banks free to trade risky securities. Abetted by “bundling” and complicit rating agencies, they screwed up by investing too heavily in mortgages and mortgage based securities. The house of cards collapsed, the stock market crashed, financial institutions started to hemorrhage, retirement portfolios lost huge sums, and Congress was compelled to provide a $350 Billion bailout to keep the economic system functioning. The price to pay for the bailout? Bank regulations were tightened.
But, this crisis-based bailout gesture had the unintended side effect of turning the screws tighter on the most vulnerable of the banks’ commercial customers – small business owners.
Dodd-Frank attempted to fill the regulation vacuum. But it still hasn’t come into full effect, and certainly hasn’t re-established the separation of commercial and investment banking. The banker-bonus drug is still too powerful to cut off cold turkey. The earth under the feet of banking is still quicksand and no one has, of yet, replaced the warning signs or chained off the path to that repeated trap. Think about the repeated banking crises of 1890, 1927, the 1980s and 2008. It seems like small business is forced to go along for the ride.
Banks are tightening credit lines and covenants for small business, and often simply declining to lend – even when the business comes to the bank with purchase orders in hand needing cash to buy raw materials. If you accuse the banks of being unreasonable, they blame the regulations and the regulators. The regulations may have been designed to avoid bubbles, but they didn’t prevent conspiratorial manipulation of the LIBOR rate or the potential to continue to risk banking crises from investment speculation. We still have banks too big to fail… and still have to catch them when they fall. No real accountability exists.
Feels like blackmail. No relief from the banking jaw any time soon for small business.
Jaw 3: Large Mega-Customers
Larger companies are in a merger and acquisition frenzy. This gives them more and more purchasing power – and their small-business suppliers less and less power. There is little negotiating in these relationships. Pricing must be bare bones. The information regarding manufacturing costs must be shared. Payables policy must be extended to 45 or 90 days. Small firms are basically financing their huge customers with these unreasonable payables policies. It’s brutal.
Jaw 4: The Government & Politics
Government and Politics are not the same thing – though, of course, they are co-dependent. Politics is the manipulation of power to achieve some legislative end, while government is the deployment and enforcement of that legislation.
In the last 10 years, our leaders saw fit to commit two trillion dollars on two wars, and another trillion dollars on tax breaks. Think about it. What could three trillion dollars have meant to infrastructure spending during the Great Recession? How many of those construction workers furloughed when the housing bubble burst might have been absorbed by infrastructure projects – railroads, highways, bridges, water systems?
Politics and government has conceived, designed and currently maintain the road we, as small business owners, must travel. Politics is the R&D group that can invent better, or more difficult, ways to help us travel that road by either removing the bumps and pot holes in our paths, straightening the curves and loops that delay us, widening the thoroughfare so more of us can get to where we wish to go and/or inventing better transportation machines.
Is there anyone reading this that thinks that in our current political environment, our congressmen are likely to collaborate and accomplish any of those goals? Let’s not hold our breath.
Jaw 5: The Clock
Baby Boomers are not getting any younger. That repetitive, faint clicking sound they hear is not the machinery in their factories – it’s the clocks on their walls.
What does it all mean?
In the bigger picture, as we continue to make life difficult for the most productive of our people, other nations of the world are blowing by us in quality of life, health outcomes, education, innovation, public transportation, high speed internet access and infrastructure.
Michael Porter, Harvard Business school professor and well-known business author, has developed and done research on a worldwide comparative model for Social Progress, as measured by a Social Progress Index. The United States ranks 16th in the world overall.
It just seems another example of us being are our own worst enemy.
The irony is that, in general, no matter your political leaning we usually agree on the outcomes we’d like to see; a higher GDP, a lower unemployment, healthier citizens, higher educated citizens and a higher quality of life.
Clearly, crunching one of the main contributors to those beneficial outcomes, the small business, is not the answer.
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