So, if small businesses are the biggest hiring force and
most small businesses are started from personal savings.
Then
We should pay people more so they can save more and start up small businesses.
Makes sense to me.

Totally true. The VC are not interested in anything except software ventures with UNLIMITED UPSIDE POTENTIAL. Making hardware or starting a brick-n-mortar store? GTFO, loser!

Banks will loan money, after you are doing well enough to not need it.

So... if banks aren't loaning to small businesses the way they say they are...

Why the fark should we be protecting them?

Venture Capital is the most expensive kind of funding.

It can be great to get a cash infusion of millions of dollars to help get your company moving, but they want equity in return. If you don't keep an eye on your term sheet, you could end up losing your company if you fail to meet the VC demands.

VC invests in your business because they expect to make a large return on their investment within 5-10 years max. They want explosive growth quickly so they can maximize the return to the venture fund.

Zombie Butler: So, if small businesses are the biggest hiring force and
most small businesses are started from personal savings.
Then
We should pay people more so they can save more and start up small businesses.
Makes sense to me.

You can't have citizens doing things with their own money. They might make a profit that doesn't go to the bank.

Citizens with their own money... pff. Communism.

lohphat: FTFA: "If you can run a company off cash flow, keep all the equity, there's no better thing than being in full control of your destiny."

And this, my friends, usually creates an extremely dysfunctional management situation of the founder calling all the shots and ignoring the BoD and other talent brought aboard because they alone have majority equity. The ultimate all-your-eggs-in-one-basket scenario.

The megalomania created by this almost always results in single-minded decisions running the company into the ground.

I don't necessarily disagree with your statements, but considering that the article is about small businesses being started with personal savings, the chance that there is a BoD who is not the owner/founder is small.

In my experience, the biggest threat (and cause of failure) to small businesses is that the owner may be a great artisan or great in his/her field, but that expertise in the field does not make that person great at the business of the field.

Right BF, artisans and hobbyists rarely have the talents needed to run a business and in most cases trying to detracts from their art and/or hobby enough so that neither the art nor the business is viable.

This is just my own limited experience but I've only known three people who have personally started a company....

One was nearly my brother in-law who started a manufacturing company at age 26.
One was a guy who started a software company.
One was a girl who started a marketing company - straight out of college.

At first, they all sounded really impressive. Upon further inspection, both were really unimpressive.

The brother in-law started a company that manufactured some odd widget. He got a factory and some big expensive machinery. I mean, he was only two years older than me, went to the same college as me, and I'm just thinking, 'How did you ever know there was a market to produce this thing?'. I later learned his Dad was a mid-to-high level manager at a company that purchased large quantities of that exact widget. His Dad's company was his ONLY customer for nearly 18 months - but it was big enough to keep the company afloat. Later, more work came in and last I heard, he was very successful.

The software company, as it turns out, was pretty shady - much worse than Dad helping you get contracts. Basically, government workers often get the final say in which million dollar product to buy. Well, one of those employees decided to start a company selling the same software they were looking to buy. Him and his buddies (who are all Senior officers at said company) all voted for this new start up, with no product, and then quit their jobs (essentially) and went to work at the company. Then, they took their million dollar contract and hired a few people to code it up. The product sucked. But they still sold it - to all of their buddies from years of conventions and conferences. It was very common that our biggest advocate at a particular jurisdiction would also quit and come work for us, immediately after we got the contract. They didn't do much work though. Customers hated our product and threats of lawsuits were in the air when I left. This was years ago, but last I heard they still exist.

The marketing company, well, same story as the first. It sounded great; until I learned the only client she had was her Mom's company. After a handful of years she never landed another client and eventually gave up and went to work at her Mom's company. She was under 30 with no experience other than her 'marketing company' and she was given some fancy title like 'Senior Marketing Manager' and was a member of the elite 'Senior Management Staff'.

That's not to say plenty of companies don't truly grow from nothing. Just that I haven't seen it personally.

Cinaed: So... if banks aren't loaning to small businesses the way they say they are...

Why the fark should we be protecting them?

Trust me they aren't. Unless you have collateral and have been in business for 2 years. Same for SBA loans (see 7(a) loan program; 50% bank / 50% gov backed loan). It's just stupid. We've been having much more potential with venture capitalist interest. They at least read all the literature provided vs having a seizure at "oh not enough credit history, though you have no delinquencies and have a 740 FICA score". Whole lot of derp going on.

Fark_Guy_Rob: This is just my own limited experience but I've only known three people who have personally started a company....

One was nearly my brother in-law who started a manufacturing company at age 26.
One was a guy who started a software company.
One was a girl who started a marketing company - straight out of college.

At first, they all sounded really impressive. Upon further inspection, both were really unimpressive.

The brother in-law started a company that manufactured some odd widget. He got a factory and some big expensive machinery. I mean, he was only two years older than me, went to the same college as me, and I'm just thinking, 'How did you ever know there was a market to produce this thing?'. I later learned his Dad was a mid-to-high level manager at a company that purchased large quantities of that exact widget. His Dad's company was his ONLY customer for nearly 18 months - but it was big enough to keep the company afloat. Later, more work came in and last I heard, he was very successful.

The software company, as it turns out, was pretty shady - much worse than Dad helping you get contracts. Basically, government workers often get the final say in which million dollar product to buy. Well, one of those employees decided to start a company selling the same software they were looking to buy. Him and his buddies (who are all Senior officers at said company) all voted for this new start up, with no product, and then quit their jobs (essentially) and went to work at the company. Then, they took their million dollar contract and hired a few people to code it up. The product sucked. But they still sold it - to all of their buddies from years of conventions and conferences. It was very common that our biggest advocate at a particular jurisdiction would also quit and come work for us, immediately after we got the contract. They didn't do much work though. Customers hated our product and threats of lawsuits were in the air when I left. This was years ago, but last I heard they still exist.

The marketing company, well, same story as the first. It sounded great; until I learned the only client she had was her Mom's company. After a handful of years she never landed another client and eventually gave up and went to work at her Mom's company. She was under 30 with no experience other than her 'marketing company' and she was given some fancy title like 'Senior Marketing Manager' and was a member of the elite 'Senior Management Staff'.

That's not to say plenty of companies don't truly grow from nothing. Just that I haven't seen it personally.

I was at a state high school science fair competition. There were kids doing very advanced mathematics, kids doing genetic experiments and such and it was all very impressive. Almost graduate school level stuff.

Then, it turns out that the kids were doing projects that were almost or very close to the what their parents did. Then, it wasn't so impressive.

lohphat: FTFA: "If you can run a company off cash flow, keep all the equity, there's no better thing than being in full control of your destiny."

And this, my friends, usually creates an extremely dysfunctional management situation of the founder calling all the shots and ignoring the BoD and other talent brought aboard because they alone have majority equity. The ultimate all-your-eggs-in-one-basket scenario.

The megalomania created by this almost always results in single-minded decisions running the company into the ground.

This is the part they don't like to tell you. Far more than half of new business ventures fail within a couple of years, many if not most of them because they didn't have the capital to survive the first couple of years. That's where the venture capital folks come in handy: keeping that from occurring.

A great book is The E-Myth. It proposes, as has been stated in this thread, that too many businesses are started by artisans who should stick to their knitting. The proverbial woman who makes great pies who opens a pie shop and then has no time to make pies.

Frankly, it takes a level of cognitive ability to start and run and successful business that 90-95% of the population just doesn't have. This does not mean education, just brains. There are simply too many complex decisions to make, and too many regulations to follow, for Mr. Average to successfully navigate the terrain.

Typically Mr. Average for his lack of brains by being quite charming and outsourcing the key components of his business, such as financial oversight and compliance, to key employees. It's all fine and dandy until the employees demand fair compensation (which he can't afford), shares in the business (which he is unwilling to do for fear of "losing control") , or quite commonly, embezzling from him.

When a new business fails, 50% of the time it is due to fraud on the part of one of the partners or key employees.