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93–730 2015

BUILDING AN OPPORTUNITY ECONOMY: THE 

STATE OF SMALL BUSINESS AND 

ENTREPRENEURSHIP 

HEARING 

BEFORE THE

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

FIRST SESSION 

HEARING HELD 

MARCH 4, 2015 

Small Business Committee Document Number 114–004 

Available via the GPO Website: www.fdsys.gov 

SBREP-219 with DISTILLER


Congress.#13
(II) 

HOUSE COMMITTEE ON SMALL BUSINESS 

STEVE CHABOT, Ohio, Chairman 

STEVE KING, Iowa 

BLAINE LUETKEMEYER, Missouri 

RICHARD HANNA, New York 

TIM HUELSKAMP, Kansas 

TOM RICE, South Carolina 

CHRIS GIBSON, New York 

DAVE BRAT, Virginia 

AUMUA AMATA COLEMAN RADEWAGEN, American Samoa 

STEVE KNIGHT, California 

CARLOS CURBELO, Florida 

MIKE BOST, Illinois 

CRESENT HARDY, Nevada 

NYDIA VELA ́ ZQUEZ, New York, Ranking Member 

YVETTE CLARKE, New York 

JUDY CHU, California 

JANICE HAHN, California 

DONALD PAYNE, JR., New Jersey 

GRACE MENG, New York 

BRENDA LAWRENCE, Michigan 

ALMA ADAMS, North Carolina 

SETH MOULTON, Massachusetts 

KEVIN FITZPATRICK, Staff Director 

STEPHEN DENNIS, Deputy Staff Director for Policy 

JAN OLIVER, Deputy Staff Director for Operation 

BARRY PINELES, Chief Counsel 

MICHAEL DAY, Minority Staff Director 

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(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Hon. Steve Chabot ................................................................................................... 1 

Hon. Nydia Vela ́zquez ............................................................................................. 2 

WITNESSES 

Mr. Jon Clifton, Partner, Managing Director, Government Division, Gallup, 

Inc., Washington, DC ........................................................................................... 4 

Ms. Cynthia Kay, Owner and President, Cynthia Kay and Company, Grand 

Rapids, MI, testifying on behalf of the National Small Business Association 6 

Mr. David Burton, Senior Fellow in Economic Policy, The Heritage Foundation, Washington, DC ........................................................................................... 7 

Ms. Elana Fine, Managing Director, Dingman Center for Entrepreneurship, 

University of Maryland, Robert H. Smith School of Business, College Park, 

MD ......................................................................................................................... 9 

APPENDIX 

Prepared Statements: 

Mr. Jon Clifton, Partner, Managing Director, Government Division, Gallup, Inc., Washington, DC ............................................................................ 28 

Ms. Cynthia Kay, Owner and President, Cynthia Kay and Company, 

Grand Rapids, MI, testifying on behalf of the National Small Business 

Association ..................................................................................................... 35 

Mr. David Burton, Senior Fellow in Economic Policy, The Heritage Foundation, Washington, DC ............................................................................... 46 

Ms. Elana Fine, Managing Director, Dingman Center for Entrepreneurship, University of Maryland, Robert H. Smith School of Business, 

College Park, MD .......................................................................................... 72 

Questions for the Record: 

None. 

Answers for the Record: 

None. 

Additional Material for the Record: 

None. 

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(1) 

BUILDING AN OPPORTUNITY ECONOMY: 

STATE OF SMALL BUSINESS AND 

ENTREPRENEURSHIP 

WEDNESDAY, MARCH 4, 2015 

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

Washington, DC. 

The Committee met, pursuant to call, at 11:00 a.m., in Room 

2360, Rayburn House Office Building. Hon. Steve Chabot [chairman of the Committee] presiding. 

Present: Representatives Chabot, Hanna, Rice, Gibson, Curbelo, 

Hardy, Radewagen, Vela ́zquez, Hahn, and Clarke. 

Chairman CHABOT. Good morning. This hearing will come to 

order. I want to thank everyone for being here, especially our witnesses and our members. 

Today, we are here to examine the state of small business. For 

the Members here, it is not the first or last time we will have this 

conversation. We have it every time we talk to our constituents. 

They are the ones, after all, who tell us the most about small business. 

But in those conversations, we do not have C-SPAN cameras, we 

do not have stenographers, and it does not make it into the Congressional record. So we are having this hearing today for our constituents, as well as for the small businesses all across the country, 

to have a conversation for the record that we have already had 

many times back home, so that we, as Members of the Small Business Committee of the U.S. House of Representatives, can start the 

legislative work of getting government off the backs of the American people and off the backs of small businesses all across the 

country. 

One out of every two employed Americans works at a small business. Seven out of every 10 new job opportunities are created by 

small businesses. When the federal government issues new rules, 

or raises taxes, or threatens to raise taxes, or increases health care 

costs, or prolongs a sense of uncertainty, this does not just impact 

the name on a store front; it impacts real people. It impacts every 

American worker that puts a roof over their head or food on the 

table by working at that small business. 

We have heard some say that our economy has recovered. And 

it has somewhat. But when you look at the number of unemployed 

Americans and the number of those who may be ‘‘employed’’ but 

cannot find full-time work—in other words, they are working only 

part-time—it is clear that we are not where we should be. 

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As testimony today will reinforce, it is not another sweeping government program that will make life better for Americans who depend on small businesses. The answer is hidden in the thousands 

of pages of regulations and tax policies that are crushing the small 

business community. We must alter the mindset of the federal government so that it is always thinking about how its actions will impact our small businesses. That is what the Small Business Regulatory Flexibility Improvements Act was all about—requiring that 

all federal agencies consider the impact, both direct and indirect, 

that new rules or regulations will have on small businesses before 

they become final. And in another area, the labor force participation rate is at its lowest point in our history. The percentage of 

long-term unemployed is still much higher than before the recession. And maybe the most disturbing trend: every year of the 

Obama administration we have seen more businesses close than 

open, and that is something I think we really need to focus our 

time on. More businesses closing, dying, than opening or being 

born. In plain language, it means we have a problem. 

Small businesses are the foundation of our economy. As a Committee, we are here to make life better for small businesses and the 

working families that rely on them. Today, we begin that important 

work. 

I want to thank each of our witnesses for taking the time to be 

with us today, and I look forward to hearing your testimonies and 

asking some questions. And I would now yield to our ranking member, Ms. Vela ́zquez, for her making an opening statement. 

Ms. VELA ́ ZQUEZ. Thank you, Mr. Chairman. And thank you for 

holding this important hearing. 

Creating two out of three net new jobs, small businesses are vital 

to our overall economic health. Recent job data affirms this point, 

with small firms creating 78,000 jobs between December and January, significantly outpacing larger companies. In January, businesses with fewer than 500 employees added 81 percent of new private sector jobs. Over the last four months, smaller companies have 

been responsible for 83 percent of newly created positions. When 

compared to the 38 percent of new jobs small firms created in 2010, 

it is clear that the small business sector is finally firing on all cylinders and providing the fuel to power our economy forward. 

For small businesses to grow, a number of ingredients must be 

in place. Access to affordable capital is one element. Whether it is 

a bank loan or a well-timed infusion of venture capital, small companies require capital to expand their operations, break into new 

markets, or launch new products. Thankfully, since the end of the 

Great Recession, the lending environment for small businesses has 

improved considerably. The majority of small firms that apply for 

credit in 2014 receive it, according to data from the Federal Reserve banks. Indexes that measure credit conditions for small companies reached record levels in the last quarter of 2014. 

Despite this positive news, room for improvement remains. 

Smaller loans are still well below pre-recession levels. Those small 

businesses or startups who are just getting off the ground, continue 

encountering difficulties in securing credit. It is my hope the committee will focus on this issue in the coming weeks. 

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Beyond access to capital, in order to succeed, small firms need 

customers willing to purchase their products. There has been significant progress in this area as well. Consumer confidence has 

been climbing since June, peaking at an 11-year high in January. 

With fuel prices remaining low, it is anticipated that consumer 

spending will remain strong, providing demand for small firm 

goods and services. All of these factors suggest that our nation’s entrepreneurs have made significant progress in recent months. As 

small businesses continue growing, expanding and adding workers 

to the payrolls, they will help strengthen our overall economy. 

It will remain the function of this committee to support policies 

that foster this growth. In that regard, I look forward to working 

with the chairman, and all my colleagues, to continue our bipartisan work to strengthen the small business sector. 

I just want to take this opportunity to thank all the witnesses 

for your valuable insight, and I yield back the balance of my time, 

Mr. Chairman. 

Chairman CHABOT. Thank you very much. 

The Committee members can submit opening statements for the 

record if they would like to do that. 

And I would like to go ahead and introduce our panel at this 

time, as well as introduce our five-minute rule, which is basically 

you get five minutes to speak to us. We hold ourselves to five minutes as well. We even have a lighting system for that purpose. The 

green light will be on for four minutes. The yellow light comes on 

and lets you know you have a minute to wrap up, and then the red 

light will come on. We would ask you to tie it up at that point, if 

not earlier. We will give you a little leeway but not too much. And 

we will introduce the panel and then we will hear from the panel. 

We will begin with Jon Clifton, who is a partner at Gallup, Inc. 

In this role, he manages Gallup’s global government work and the 

Gallup World Poll, an ongoing study conducted in more than 160 

countries, representing 98 percent of the world’s adult population. 

He received his Bachelor’s degree in Political Science and History 

from University of Michigan, and a Juris Doctorate from the University of Nebraska. We welcome you this morning. 

Our second witness will be Ms. Cynthia Kay, who is owner and 

president of Cynthia Kay and Company in Grand Rapids, Michigan. Her company produces high quality media productions and 

communications elements that are used here in the United States 

and abroad. Ms. Kay serves on the board of MiQuest Foundation, 

whose mission is to promote a culture of entrepreneurship in 

Michigan. She serves on the executive board of the National Small 

Business Association, whom she is representing today. A graduate 

of Michigan State University—we have got a lot of Michigan folks 

here. Ms. Kay also holds a Master’s degree in Communications 

from Western Michigan University. 

And our third witness will be Mr. David Burton, who is a senior 

fellow in Economic Policy at the Thomas A. Roe Institute for Economic Policy at The Heritage Foundation. In this role, he focuses 

on tax matters, security law, entitlements, regulatory, and administrative law. He received a juris doctorate degree from University 

of Maryland School of Law and he holds a Bachelor of Arts degree 

in Economics from University of Chicago. 

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4 

So we welcome all three, and I will now yield to the ranking 

member to introduce our fourth witness. 

Ms. VELA ́ ZQUEZ. It is my pleasure to welcome Ms. Elana Fine. 

She is managing director of the Dingman Center for Entrepreneurship at the University of Maryland’s Robert Smith School of Business. Ms. Fine’s primary focus is leading the center in its mission 

to broaden entrepreneurship. Her responsibilities include oversight 

of a venture incubator, an angel investor network, business competitions, and integration with Smith School entrepreneurship curriculum and research activities. She is also an adjunct faculty 

member and has an MBA from the University of Chicago. She was 

recently named a tech titan by Washingtonian Magazine. Welcome. 

Chairman CHABOT. Thank you. 

Mr. Clifton, you are recognized for five minutes. 

STATEMENTS OF JON CLIFTON, PARTNER, MANAGING DIRECTOR, GOVERNMENT DIVISION, GALLUP; CYNTHIA KAY, 

OWNER AND PRESIDENT, CYNTHIA KAY AND COMPANY; 

DAVID BURTON, SENIOR FELLOW IN ECONOMIC POLICY, 

THOMAS A. ROE INSTITUTE FOR ECONOMIC POLICY, THE 

HERITAGE FOUNDATION; ELANA FINE, MANAGING DIRECTOR, DINGMAN CENTER FOR ENTREPRENEURSHIP, ROBERT 

H. SMITH SCHOOL OF BUSINESS 

STATEMENT OF JON CLIFTON 

Mr. CLIFTON. Thank you, Mr. Chairman, and members of the 

Committee. It is a pleasure to be here to discuss Gallup’s analytics 

on the state of the U.S. economy, the attitudes of small business 

owners, and the current barriers to job growth and startups. 

Gallup completed its first national representative survey of the 

world in 2006. Our biggest finding from this study is what the 

whole world wants is a good job. That finding compelled us to more 

thoroughly study the jobs situation around the world. Gallup now 

quantities the prevalence in quality of jobs in more than 140 countries each year, and Gallup also tracks employment daily in the 

United States, surveying roughly 30,000 adults per month and 

more than 350,000 people per year. 

There are a number of signs from Gallup’s data that the U.S. 

economy has been improving since the recession—economic confidence is improving, self-reported discretionary spending is steadily increasing, and people are reporting that hiring is outpacing firing in their workplaces. Despite this encouraging news, job creation 

remains a problem. 

While official unemployment has fallen from roughly 10 percent 

in 2010 to roughly 6 percent today, using this metric to represent 

the total jobs picture would be misleading. Traditional unemployment includes only people who are looking for work, who are available for work, and who have not worked a single hour in the past 

week. This means that if a person is giving up looking for work or 

if a person has worked only a single hour in the past week, that 

person is not considered unemployed. 

A different metric offered by Gallup quantifies the number of 

people employed full time for an employer—or what others might 

call a ‘‘good job’’—as a percent of the total adult population. Known 

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5 

as Payroll to Population, this metric stands at 44.3 percent today 

and has not meaningfully increased since 2010 when we started 

quantifying this metric. 

One of the main reasons that the job situation has yet to recover 

is that according to the U.S. Census, the number of business 

deaths now exceeds the number of business births among employer 

firms for the first time since 1977 when this measurement began. 

This leads us to the importance of small businesses and startups 

in this country. They contribute roughly 70 percent of all new jobs 

created in a single year. Considering their importance, Gallup 

works with Wells Fargo to track the opinions and behaviors of 

small business owners on a quarterly basis. 

The good news is that the attitudes of small business owners are 

steadily improving. The Wells Fargo Gallup Small Business Index 

stands at +71 today, which is the highest index score since the 

onset of the recession. Now, 64 percent of small business owners 

report that their company’s current financial situation is good, and 

71 percent expect their company’s financial situation to be good 12 

months from now. 

However, despite this positive trajectory, small business owners 

face clear challenges. When asked to name their most important 

challenge, the number one issue they report is finding new customers. That is 15 percent of the small businesses that we talked 

to. This is followed by mentions of the economy in general, which 

represents 12 percent, and in third is government regulations, 

which represents 10 percent. However, if we add those who cite 

healthcare and Obamacare at 8 percent, or just the government in 

general, which is at 6 percent, fully 24 percent of small business 

owners say the government is in some way their biggest challenge. 

Also worth noting, while many small business owners believe available credit is a major issue, only 3 percent say it is their most important challenge. 

In addition to the barriers faced by small business owners, there 

are also barriers facing would-be entrepreneurs. One in four Americans have thought about starting a business but have abandoned 

the idea. For an economy with a negative net number of startups 

each year since 2008, this represents a missed opportunity to engage would-be entrepreneurs that could result in business startups. 

Three major barriers are keeping these would-be entrepreneurs 

from taking the plunge: 1) They prefer the security of a stable income, 2) they do not have enough money to start a business, and 

3) they lack the knowledge on how to start a business. Because the 

majority of business owners fund their early stage businesses 

through personal savings, a steadily declining personal savings 

rate in the United States has negatively affected prospective entrepreneurs’ ability to finance new businesses. Moreover, if they lack 

insight on where or how to begin, starting a business is even more 

difficult, and these prospective entrepreneurs are more likely to be 

more risk averse. 

Creating good jobs and subsequently rebuilding America’s middle 

class hinges on the success and failures of small businesses and 

startups. Existing small businesses are experiencing headwinds, 

caused primarily by challenging business realities, the overall economy, and a concern about government regulations. Would-be entreSBREP-219 with DISTILLER

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preneurs face barriers such as not having enough money to start 

a business and lacking knowledge about starting a business. 

It would be wise for Congress and American leadership to consider all options to unlocking this invaluable economic institution. 

The American public would be behind them. Other than the U.S. 

military, there is no other institution in the United States that the 

public has more confidence in than small business. Thank you. 

Chairman CHABOT. Thank you very much. 

Ms. Kay, you are recognized for five minutes. 

STATEMENT OF CYNTHIA KAY 

Ms. KAY. Thank you. Good morning. My thanks to Chairman 

Chabot, Ranking Member Vela ́zquez, and the members of the 

Small Business Committee, for asking me to testify today. 

As you heard, I am the president of a communications company, 

but I think it is also important to note that I come from a family 

of small business owners. My dad co-owned a small dry-cleaning 

business. My sister and her husband own a boutique rental company in Raleigh, and my brother is an attorney. I am also proud 

to be representing the National Small Business Association. 

As a small business owner for 27 years, I have experienced numerous economic downturns. Probably the last one was the most 

difficult. However, I am glad to tell you that business is booming 

for my company, and I am not alone. And SBA recently released 

its year-end economic survey, and it shows that the economic outlook is really better than it has been in quite some time. But, the 

majority of small firms expect a flat or recessionary economy in the 

coming year. 

And SBA also held its Small Business Congress, where we identified our top 10 priorities for Congress. And the top priority is ensure corporate-only tax reform, include some kind of workable solution for the millions of pass-through small businesses. 

In the interest of transparency, I need to tell you, my company 

is a C corp; however, 83 percent of all small firms are passthroughs. They pay taxes for their business at a personal income 

level, so it is no surprise that taxes are consistently ranked as the 

most burdensome administratively, and payroll taxes the most burdensome financially. 

Broad reform of the entire tax code is necessary, and frankly, I 

firmly believe that addressing just one piece of this is only going 

to lead to greater complexity and be at the expense of small business. 

Even in the best of times, access to capital is a huge hurdle. 

When I started my business, I did what a lot of business owners 

do—I went to get a loan and I had to sign a personal guarantee 

against the equity of my house. And I have done that on a number 

of occasions. Years later, when my sister and her husband tried to 

get a loan, they encountered the same difficulties. In fact, my business and my family financed their startup, and this is not an unusual story. In fact, it is very typical. It is difficult to get credit in 

good times; it is even harder to get credit during trouble economic 

periods. In fact, in the last seven years, one in three small firms 

on average cannot get access to adequate financing. Capital is the 

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lifeblood of small business, and without it, the heart of America’s 

economy is millions of small businesses stand poised to fail. 

In recent years, Congress enacted important tax provisions for 

small business on a temporary basis. They have now expired, and 

Congress continues to delay these extensions. So in the absence of 

comprehensive tax reform, extending and making permanent tax 

important provisions has been NSBA’s priority for quite some time. 

Tax extenders are very significant to my business. You have all 

heard the saying, ‘‘Lights, camera, action.’’ Well, that costs a lot of 

money, and we are constantly updating our equipment. In the past, 

we used section 179 expensing and it is really important that we 

are able to deduct the cost of an asset in the year that we buy it. 

Why? Because our equipment gets outdated much quicker than the 

five to seven years that it costs to depreciate it. And it does not 

just affect my company; it affects more than one in three NSBA 

members. 

So on behalf of NSBA, I do want to thank you, Chairman Chabot, 

for all of your work in advancing the Small Business Regulatory 

Flexibility Improvements Act earlier this year. It is a very important piece of legislation, and NSBA is pleased to have supported it. 

But there is still a lot to be done. That is why NSBA played a 

critical role in developing the role of a national regulatory budget 

to bring much-needed reform. Small businesses simply need the environment to grow and to create jobs, and frankly, we need lawmakers who are willing to tackle major issues that are facing our 

country, and do it together. 

I began today by saying that the economy has improved, and it 

has. There is pent-up demand for goods and services, and potential 

small business owners are constantly calling me and asking about 

owning a small business. And while I tell them that it is great to 

own a small business, I also tell them about the significant challenges. It is no wonder that many people, when they look at the 

obstacles, walk way. 

At NSBA, we stand ready to work with you to help ease the burdens of using proactive solutions. Again, I want to thank you for 

the opportunity to speak, and I am happy to answer any questions. 

Chairman CHABOT. Thank you very much. 

Mr. Burton, you are recognized for five minutes. 

STATEMENT OF DAVID BURTON 

Mr. BURTON. My name is David Burton. I am senior fellow in 

Economic Policy at The Heritage Foundation. I would like to express my thanks to you, Mr. Chairman and Ranking Member 

Vela ́zquez, for the opportunity to be here this morning. The views 

I express are my own and not necessarily those of The Heritage 

Foundation. 

After complying with the multitude of state and federal regulations that business owners have to comply with, they should have 

some time left over to actually run their businesses. Entrepreneurs 

should not have to be lawyers to run their businesses. Unfortunately, that is about where we find ourselves these days, and if we 

want to return to sustained prosperity in the United States, we 

need to change that. 

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Entrepreneurship matters. It fosters discovery, innovation, and 

job creation. It leads to more productive production processes that 

improve productivity and lead to increases in real wages. Entrepreneurs develop new and better and less products and improve 

consumer well-being. They make markets more efficient. New firms 

account for most of the net job creation in the United States, and 

the vast majority of the economic gains from innovation and entrepreneurship accrue to the general public, rather than entrepreneurs. 

But entrepreneurship is in decline. Business exits, as we heard, 

now exceed business formations. But there are many other indicia 

of entrepreneurial health that also indicate that we place an unprecedented burden on small startup businesses. Accordingly, job 

creation, productivity improvements, and welfare-enhancing innovation have slowed, and the decline is an important reason for our 

anemic economic performance. 

The reasons for this decline are many fold. One policy change or 

a few are not going to solve the problem, because the problem is 

caused by the accumulated and combined weight of hundreds of 

regulatory and statutory requirements imposed on small startup 

businesses. 

The problems fall into eight basic categories. 

1. Poor tax policies that raise the cost of capital impose high 

taxes on risk-taking and impede economic growth. Moreover, the 

tax system is monstrously complex, which has a disproportionate 

impact on small and startup firms. 

2. Access to capital. Securities law and banking regulations and 

practices that limit the ability of small firms to get the capital that 

you need to launch or grow. After all, if you cannot get the capital 

to launch, all the other impediments to entrepreneurship are generally academic or mute. 

3. The healthcare system is the most costly in the world. More 

costly than any other OECD country. And the Patient Protection 

and Affordable Care Act, also known as Obamacare, imposes high 

costs on firms with 50 or more employees. 

4. Environmental and energy regulations raise the cost of energy, 

including electricity and limited development of energy resources. 

5. The cost of complying with a broad range of increasingly burdensome and complex regulations. These rules have a disproportionate and adverse effect on small firms who can ill-afford to use 

scarce resources to comply with state or federal regulatory requirements instead of growing their business. They also tend to be the 

people who are least experienced in regulatory compliance. 

6. We have increasingly complex and increasingly opaque labor 

and employment laws that raise the cost and risk of employing people, and they reduce wages and cost jobs. 

7. The U.S. immigration system is broken, and it is difficult for 

firms to gain access to talented foreign workers and for immigrant 

entrepreneurs to launch businesses in the United States. 

8. And lastly, the U.S. legal system is the most costly in the 

world, imposing high and potentially ruinous costs on small firms 

and creating a whole series of regulatory risks. 

If we want to return to a prosperous American with opportunity 

for all and rising real wages, then Congress needs to systematically 

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address these issues with alacrity. The key to reducing the decline 

in entrepreneurship is to systematically reduce the legal impediments to entrepreneurship. Since the decline is caused by the combined weight of many poor public policies, the solution requires systematically improving public policy in a wide variety of areas. 

My written testimony sets forth 97 specific proposals that I believe if adopted will transform the American economy, lead to resurgence in entrepreneurial activity, strong economic growth, real 

wage increases, and renewed prosperity. I will be glad to discuss 

any of those specific recommendations in greater detail if time allows. Thank you very much. 

Chairman CHABOT. Thank you very much. 

Ms. Fine, you are recognized for five minutes. 

STATEMENT OF ELANA FINE 

Ms. FINE. Chairman Chabot, Ranking Member Vela ́zquez, and 

members of the Committee. Thank you for inviting me to testify before you today. 

I am Elana Fine, managing director of the Dingman Center for 

Entrepreneurship at University of Maryland’s Robert H. Smith 

School of Business. 

Throughout my career in technology consulting and investment 

banking, I have worked with hundreds of startups and venturebacked companies, and am therefore well versed in their challenges 

and opportunities. 

To provide a little context, the Dingman Center is one of the nation’s preeminent institutions where the research, education and 

practice of entrepreneurship are pursued vigorously. We develop 

and execute curricular and extracurricular programs to inspire and 

equip the next generation of entrepreneurs. Our programs are focused on guiding student entrepreneurs from idea to launch. 

My role at the Dingman Center includes oversight of our student 

venture incubator, the Dingman Center Angels Investment Network, business competitions, and relationships with the broader 

startup community. I also serve as an adjunct faculty member at 

the Smith School. 

I have been asked to give an overview of entrepreneurial activity 

from a university perspective. I recognize that the macro level of 

activity can be hard to quantify and to really assess whether we 

are headed in the right direction. Based on the pop culture success 

of television shows, like Shark Tank, the proliferation of technology 

incubators and downtown innovation hubs, it might seem like everyone is working on a startup. Then we look at the statistics, like 

the Kauffman Index, and entrepreneurial activity, which shows a 

decline from 2011 to 2013, and we wonder if we are doing enough. 

From this perspective, a decline in entrepreneurial activity might 

also be seen as an indicator of an improving economy as employers 

have better job prospects. As we would say in startup terms, we 

just do not know the metrics that matter. So I am here today to 

give you a more grassroots perspective on what I see as some leading indicators of the future of entrepreneurship. 

We informally think about our student ventures in three categories. The first category is dorm room high group startups, like 

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Facebook, which although an outlier, raised the visibility of student 

entrepreneurship and has inspired a generation. 

The next category we think about are the students starting businesses while in school that they do not often continue beyond graduation. Every year we see a panoply of new apparel companies, mobile applications, tutoring services, dating sites, and food concepts. 

We have seen university support increase to match student interest 

and demand in these activities. The data from the Dingman Center 

shows interest in our ventures-creation activities grew from 161 

students in 2012–2013, to almost 400 students in this academic 

year. Students run these businesses for two to three years until 

graduation. The company might not be a success in standard 

terms, but as educators, we have provided a skillset we expect will 

be used for a startup now or even 10 years from now. 

Our best example in this category is University of Maryland 

alumnus Kevin Plank, who ran a campus flower delivery service 

called Cupid’s Valentine. After graduation, instead of solving the 

problem of expensive flowers, Plank decided to solve the problem 

of soggy cotton t-shirts and turned his savings from Cupid’s Valentine into the seed money for Under Armour, which is now a multibillion dollar company employing thousands. 

The last category of students feed the entrepreneurial labor pool. 

These students are not working on their own idea but won internships at local startup companies. The challenge is that startups can 

rarely pay market rates, so they often have to forego these opportunities to take higher paying internships. 

All of the students represent future entrepreneurs, but I caution 

focusing too much on the first category. Instead, there are a number of initiatives that can increase exposure and odds of success. 

For example, the National Science Foundation’s I-Corps program is 

a model of a federally-funded program that could increase the odds 

of success among early-stage university spinouts. 

On campuses, we need similar programs that can build on our 

current momentum. These programs might provide scholarships for 

students or loan forgiveness so students can choose to work at 

startup firms. 

We also need more funding opportunities that others have mentioned. Without an initial ten to a hundred thousand dollars, it is 

nearly impossible for a young entrepreneur, who is burdened with 

student loans with no savings or credit, to build a product and test 

acquisition strategies. Banks, angel investors, and even granting 

institutions do not have vehicles to fund these businesses. 

As you embark on your Committee’s activities, I encourage you 

to consider the following: Seed programs that expose more students 

to entrepreneurial activities and equip them with the tools to vet 

ideas early; recognize that failure rates will always be high and 

that success in entrepreneurship can also be viewed by total births 

and deaths, because it means there are more companies in the 

field; consider programs that provide nondiluted funding to a 

broader spectrum of businesses, and think creatively about apprentice-like programs and high-growth startups that might increase 

the entrepreneurial labor pool. 

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Thank you for your time and opportunity to discuss student entrepreneurship. I am happy to answer any questions you might 

have. 

Chairman CHABOT. Thank you very much. And I will recognize 

myself now for five minutes. 

I will start with you, Ms. Kay. My understanding is you have— 

and this is according to your written testimony—you have eight 

employees, yet you have had to hire five outside experts from an 

accountant to a corporate lawyer to an HR lawyer and on and on. 

Is that not kind of out of whack? Where are we going wrong, the 

need for a business to expend so much of their capital and resources just complying with the law, rather than the substance of 

what makes them profitable and able to be successful and hire as 

many people as you possibly can? So I will leave that up to you. 

Ms. KAY. Well, one of the things I always say is that as a small 

business owner, you wear lots of hats. You are doing everything. 

You are the HR department. You are the sales department. You 

are doing the work. And we certainly cannot be expert in all of 

these things. So unlike large companies that have a staff of people 

to do things in house, I do have an accounting firm. I actually 

checked the numbers this past year, and it was a good year. We 

did not have a lot of issues. The cost of it was $16,000 for a small 

company. Corporate lawyer and HR lawyer, there are so many 

things that are happening on the HR front that it is almost impossible for us to stay up with all of the regulations. 

And I think it is important that you know that small business 

owners want to be in compliance. We want to comply with the law. 

We simply do not have the expertise. Mr. Burton here talked about 

needing lawyers to do the things. Simply reading all of the documents and going through the forms is extremely complex. So while 

smart business people can be creative and entrepreneurial, we are 

not regulation specialists, and we need people to help us. 

Chairman CHABOT. Thank you very much. 

Mr. Burton, I will turn to you next. You had mentioned that you 

had 97 proposals, and I commend you for that. If you could limit 

that to what you consider to be the three most significant, that if 

we could actually accomplish, that would do the most to benefit 

small businesses in this country, what three—I mean, if you need 

four, that is okay. If you can only come up with two, that is okay. 

But I am thinking three because that is usually what we do. 

Mr. BURTON. I will do it. But part of the problem is it is not 

any one or two rules. I mean, you have hundreds, literally, of rules 

that small businesses had to comply with, all of which, when you 

look at them together—I mean, by itself—may be reasonable. But 

the combined weight of hundreds of rules is killing people, like 

Cynthia. And if you just get rid of four of the hundreds, you have 

done something useful but not solved the problem. 

The written testimony I wrote sort of divides things into intermediate, so there is smaller chunks, and then big picture stuff. So, 

for example, fundamental tax reform would be in a category of 

something that could be transformational, but there is a whole series of small things. For example, making 179 expensive, liberalizing the S corporation rules, fixing the independent contractor employee distinction, fixing the characterization of capital versus 

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labor income for self-employment purposes. In the securities law 

area, there is a whole host of things that would enable businesses 

to raise money. For example, preempting Blue Sky laws on Reg A, 

fixing Title 3 of the Jobs Act, and protecting Regulation D so that 

people can raise money in private placements. There is a move 

afoot to severely restrict the ability of firms to raise private placements. 

And then there is just not piling on massive paperwork requirements in the employee-employer relationship, and there is a whole 

host of things going on there—the Protected Concerted Activity Initiative by NLRB, the criminal background screening rules which— 

you know, there is a reason why. Maybe there is a problem there, 

but a 157-footnote document is not guidance; it is just obfuscation, 

and we need to fix it and not make things totally here. But the list 

is almost endless. And you need to address a lot of things, not any 

one or two. 

Chairman CHABOT. Let me turn to you, Mr. Clifton. I am almost out of time. I have got about 30 seconds. 

You had mentioned that, I think, the largest real category that 

small businesses—the challenge they face is basically dealing with 

the federal government regulations and that sort of thing. They 

would like to get new customers, but that is the highest single 

thing, but if you add the other things together—Obamacare, et 

cetera—has that been pretty consistent over the years, do you 

know? I mean, this exasperation with dealing with government in 

general and the regulations? Is that pretty consistent over time? Is 

it getting better or worse, or do you know? 

Mr. BURTON. No, it has been very consistent. In fact, just this 

study, the data that I shared today, is actually the aggregate of 

what has happened over the past five quarters. So it is a very stable number. 

Chairman CHABOT. Okay. Very good. Thank you. 

My time has expired. I now yield to the gentlelady from New 

York. 

Ms. VELA ́ ZQUEZ. Thank you, Mr. Chairman. 

Ms. Fine, many economists have long discussed that employerbased health insurance can lead to job lock where employees stay 

in their job solely for the benefits. The ACA effectively eliminates 

job lock, and some have projected that it will increase entrepreneurial activity. What impact do you believe the ACA will have on 

entrepreneurs’ decisions to start a new business? 

Ms. FINE. I would expect that it would increase the interest in 

starting new ventures because of the reduction of job lock. In general though, I would say for most entrepreneurs, particularly highgrowth entrepreneurs, if they have an idea that they are passionate about and they see a window of opportunity for and they 

think that—most likely they think they are going to be the next 

Mark Zuckerberg, whether or not they have health care probably 

will not stop them, but it does reduce one of the barriers as some 

of the fellow panelists mentioned about training and other things. 

It might be one thing that they do not have to worry about anymore. 

Ms. VELA ́ ZQUEZ. Thank you. 

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In this committee room, Ms. Fine, we often hear that taxes and 

regulations are the biggest challenges for small firms. As an actual 

practitioner in entrepreneurship, I wanted to ask your views on 

this: What are the greatest challenges facing your students as they 

try to get their companies off the ground? 

Ms. FINE. Yeah, I will say that is not top—those two things are 

not top of mind. What is top of mind is funding, and I will echo 

Cynthia’s comments about finding customers and just where do I 

find them, how do I access my network, who is really going to trust 

me as a small business with not much of a balance sheet. The old 

kind of adage that you never get fired for buying IBM. To me, those 

are the biggest hurdles for our entrepreneurs. 

Ms. VELA ́ ZQUEZ. Thank you. 

Ms. Kay, if Congress were only to reform corporate taxes, how 

would that impact small businesses? 

Ms. KAY. Well, I think you need to look at what it is for small 

businesses. I think I mentioned 83 percent are pass-through. 

Ms. VELA ́ ZQUEZ. Pass-through. Mm-hmm. 

Ms. KAY. And so for them, you know, only reforming corporate 

tax is really not going to impact small business. And what we end 

up seeing, and I will be the first to tell you I am not a technical 

expert; that is why I have accountants. But I see so many of the 

tax burdens. If we do not take care of this large segment of small 

businesses—and as I mentioned, I am a C corp, so it does not affect 

me—but so many of my supplier and customers are, that I see that 

as a huge issue. 

Ms. VELA ́ ZQUEZ. So closing so-called loopholes, many of which 

are used by small companies, such as bonus depreciation 179 expensing, closing those loopholes are favored by many. How would 

this impact small businesses? 

Ms. KAY. I think the biggest issue we have is uncertainty. If we 

do not know that we are going to be able to use, for example, 179 

expensing, we are left in a position where we are unable to make 

reasonable decisions—buying decisions, financial decisions about 

our company. So what is most important to us, frankly, we would 

love to see those become permanent, but is certainty. That would 

be the biggest thing that would help us to move our businesses forward. 

Ms. VELA ́ ZQUEZ. But if we do not take up comprehensive tax 

reform, it means that we might have winners and losers. So for the 

83 percent of pass-throughs, if we eliminate tax loopholes, such as 

179 and bonus depreciation, there will be losers. How can we support having that equation where we are going to provide tax reform 

for some but at the expense of others? 

Ms. KAY. Well, as I said, I think we are most interested in comprehensive tax reform. 

Ms. VELA ́ ZQUEZ. Okay. Very good. 

Ms. KAY. But in the absence of that, we are looking for many 

of these other things, like tax extenders. 

Ms. VELA ́ ZQUEZ. Okay, so it is over. Thank you. 

Chairman CHABOT. The lady’s time has expired. 

The gentleman from Florida, who is the chairman of the Subcommittee on Agriculture, Energy, and Trade, Mr. Curbelo is recognized for five minutes. 

SBREP-219 with DISTILLER

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Mr. CURBELO. Thank you very much, Mr. Chairman, for scheduling this important hearing. And I thank the witnesses for their 

insightful testimony. 

I am passionate about small business, because I believe that 

small businesses afford opportunities to those who need them the 

most, oftentimes through casual encounters. Think about that 

young person who might have dropped out of college. Their neighbor might be a small business owner and they might get a job that 

way. Think of a recently-arrived immigrant who is looking for a 

way to get ahead. Small businesses tend to hire those types of individuals. 

So I want to ask a question on the EB5 Regional Center pilot 

program that Congress established in 1992. I want to ask Mr. Burton specifically. For those who are not fully familiar with the program, under the EB5 program, investors are required to put up at 

least one million dollars or $500,000 in high unemployment areas, 

and these are foreign investors. In return, they receive a two-year 

green card for themselves and their immediate family. If the 

project succeeds and at least 10 U.S. jobs are created, the investors 

gain permanent residency. If the project fails, they lose their green 

cards and absorb the losses of that failure. 

This program is expected to sunset at the end of this year. Mr. 

Burton, do you have any thoughts on whether this program should 

be extended, or are there other programs like this that Heritage 

may support for entrepreneurial immigrants? 

Mr. BURTON. I personally think something along the lines of 

the EB5 program where you are basically allowing people who invest capital in the United States and create jobs in the United 

States to enter the United States lawfully makes a great deal of 

sense. I am confident The Heritage Foundation will probably reach 

that conclusion, but right now the institution is undergoing a review of immigration law and trying to develop a fairly comprehensive approach to it. But personally, I think that the EB5-type approach, although there are little problems with it and I am not an 

EB5 guru, it definitely makes sense, and I am sure that we would 

be happy to work with you to develop an approach. 

Mr. CURBELO. Thank you, Mr. Burton. 

Does anyone else on the panel have any thoughts or insights onto 

this EB5 program? If you do not, that is okay. 

I had another question, Mr. Burton. I also reviewed and listened 

to your testimony. I think one obstacle or barrier to small businesses is missing, and that is transportation infrastructure. We all 

know how fundamental it is to have a robust and modern transportation infrastructure in our country is for our economy according to 

a recent report by INRIX. In 2013, traffic congestion robbed the 

U.S. economy of $124 billion according to this group. Without significant action to alleviate congestion, this cost is expected to increase 50 percent, to $186 billion, by 2030. 

Do you have any thoughts on our nation’s transportation infrastructure system, its effects on small business, and what we should 

do here in Congress to improve it, if anything at all? 

Mr. BURTON. Having an adequate freight and passenger transportation system is important to all businesses, large and small. 

We tend to take those things for granted until they are not working 

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15 

right. The Heritage Foundation certainly supports having a robust 

transportation network, but in general, we would like to shift the 

responsibility for that towards the states which are more familiar 

with their local traffic and transportation needs than the federal 

government. 

Mr. CURBELO. Thank you. 

Yes, please, Mr. Clifton. 

Mr. CLIFTON. On your commentary about the regulation that 

was done in 1992, one of the things that Gallup has been working 

on for some time now is studying what entrepreneurs look like. So 

when it comes to passing regulation that might force people who 

are not inherently entrepreneurs to therefore become entrepreneurs might set them up for failure. And so we have been 

studying thousands of individuals, and actually calling individuals, 

like Ms. Kay herself, and we have found that they are very different than the general public. And so what we need to do is be 

much more intentional about who we are seeking out in terms of 

being entrepreneurs, because these rare individuals, as I mentioned from our data, from our research, look very different. So any 

regulation that might draw someone to be an entrepreneur who 

should not be one would not be wise. 

Mr. CURBELO. Thank you very much. And my time has expired. 

Thank you, Mr. Chairman. 

Chairman CHABOT. Thank you. The gentleman’s time has expired. I am sure that Mr. Clifton did not mean to insult anybody 

here. 

But in any event, the gentlelady from New York, Ms. Clarke, is 

recognized for five minutes. 

Ms. CLARKE. Thank you, Mr. Chairman. And I thank the ranking member, as well as our witnesses, for their testimony today. 

Today’s hearing is a very important one. Entrepreneurship is the 

spirit from which small businesses are born. And so we in Congress 

must continue to do our part to keep the spirit of entrepreneurship 

alive and thriving in this country. 

I would like to thank the witnesses again for their assessments 

on today’s state of the economy and small businesses. We have 

made great progress in the scope of macroeconomic growth since 

2008, with a 5 percent GDP growth in the third quarter of 2014, 

and an unemployment rate that fell to 5.6 percent in December of 

last year. However, it is clear that there is still a lot of room for 

continued economic improvement, particularly concerning hourly 

wages, as well as the volume of smaller loans to startups and small 

businesses. 

So my first question to the panel is household medium income 

adjusted for inflation is hovering around $52,000, which is well 

above the $56,800 number—excuse me, hovering around $52,000, 

which is well below the $56,800 number from the year 2000. Hourly wages for private sector employees rose 1.7 percent in December 

2014 from a year earlier. What can we do to increase the household 

medium income? And furthermore, what can we do to see a more 

significant rise in the hourly wages for all private sector employees 

across the board? 

Mr. BURTON. I have some thoughts on that. 

Ms. CLARKE. Thank you, Mr. Burton. 

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16 

Mr. BURTON. There is sort of two key points to getting ordinary 

people’s incomes back up. One is making the economy more productive, and there are a couple keys to that. Entrepreneurship, new 

technologies is one. A second piece of it getting more capital in the 

hands of ordinary people so they are more productive. A farmer 

with a big combine is more productive than a guy with a hoe. But 

that is true throughout the economy. 

So there are policies that we can take, particularly tax and securities regulation, banking policies, that will help people get the capital they need. But we also need to eliminate—from an employer’s 

point of view you have costs, and from an individual’s point of view 

you have wages. But in between there, there are a lot of costs that 

employers now have to bear that are not going into the wages of 

their employees, and we need to try to shrink those costs that are 

not ending up in people’s pockets, and there are a lot of ways to 

do that. 

Ms. FINE. I can comment briefly on this just from a perspective 

of the technology industry. I think we know that higher tech jobs 

pay more, and so thinking about additional training so that we can 

increase the technical competence of our workers so that they will 

be better skilled for higher-paying jobs would be one perspective 

from my experience working with a lot of startup companies who 

want to build technology but cannot necessarily find the trained 

workers. 

Ms. CLARKE. Okay. Let me go on to my next question then. 

While the volume of loans larger than one million dollars has recovered since the Great Recession, the volume of loans below one 

million dollars has barely recovered. Small businesses and startups 

often seek out lines of credit that are less than $100,000. How can 

we work to make sure that smaller businesses that need smaller 

loans can actually access this capital that is critical in a startup 

or even transitioning phase for a business? 

Mr. BURTON. I have two quick specific things. One is we can 

enable small businesses to use peer-to-peer lending, like prosper 

and lending club. The SEC basically shut that down for small businesses. And there are a couple of different ways to go about that. 

I discussed some in this, but I can go into greater detail. And I 

think that is an area where we may be able to achieve bipartisan 

cooperation in the Congress under strong interest in financial services, I think. 

The second is I think you all could ask a GAO study on banking 

practices that disproportionately affect small businesses. The community bankers in particular constantly say the regulators when 

they audit them are doing various things, but then when you call 

them up and ask them for specifics, they are not forthcoming. I 

have not been able to figure out what the truth is. And maybe GAO 

can. And I think, again, that is an area where we can have genuine 

bipartisan cooperation trying to figure out what are the true impediments to small business borrowing. And I would be glad to 

work with the Committee on that. 

Chairman CHABOT. Thank you. The gentlelady—— 

Ms. CLARKE. Thank you, Mr. Chairman. 

Chairman CHABOT. Thank you. The gentlelady’s time is expired. 

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The gentlelady from American Samoa, Ms. Radewagen, who is 

the chair of the Subcommittee on Health and Technology is recognized for five minutes. 

Ms. RADEWAGEN. Thank you, Mr. Chairman. 

My question is for Mr. Clifton. Ms. Kay and Mr. Burton both put 

a little more emphasis on access to capital as being a significant 

problem facing small businesses. Do you think that your research 

shows that other problems, such as taxation or overregulation has 

become a bigger impediment? Or does your data suggest a genuinely improving capital access market? 

Mr. CLIFTON. Thank you for the question. 

Our data would suggest there is an overemphasis on credit and 

its availability. Most small businesses and would-be entrepreneurs 

start their businesses with their own money or from money that 

they have borrowed from a family member. 

The other thing is there are studies that suggest—one from Harvard—is that making too much available credit again can draw in 

people who should not be entrepreneurs. Would-be entrepreneurs 

are very clear about what their challenges are, and one of them is 

they do not know where to start. I think one thing that you could 

extrapolate from that is the fact that there is too much regulation 

for them to shift through, and any way to take that down or to help 

them with programs like at the University of Maryland where 

there are educational opportunities to help them navigate the complex ways to start a business would be very helpful, and the emphasis should be on those things. 

Ms. RADEWAGEN. Thank you. 

I have another question for Ms. Kay. You mentioned both you 

and your sister have started businesses, and I am wondering, did 

either of you use any of the products or services offered by SBA? 

Why or why not? 

Ms. KAY. Actually, we did not. And I will be honest with you. 

I looked at SBA loans and quite frankly, the length of time that 

it would have taken and the complexity of going through the process was significant. So for us, it was easier to sign a personal guarantee and take a loan against a home and be in business and do 

what I really love doing, which is the work of doing business. For 

my sister, both she and her husband, highly educated, great work 

history, banks simply would not lend to them. And I do not think 

this is an unusual situation. And SBA has also found that what 

people are using is savings and credit cards. And we know that neither one of those is really a good long-term solution for starting a 

business. 

Ms. RADEWAGEN. Thank you. Thank you, Mr. Chairman. I 

yield back. 

Chairman CHABOT. Thank you. Who is next? 

If you are ready, we can go to you now, or if you would like to 

wait until the next one, that would be okay, too. Because you would 

be next. 

Okay. We will go on this side. We will come back. Thank you. 

The gentleman from Nevada, Mr. Hardy, who is the chairman of 

the Subcommittee on Investigations, Oversight, and Regulations is 

recognized for five minutes. 

Mr. HARDY. Thank you, Mr. Chairman. 

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As a small business owner myself for the past 20 years, I understand some of the issues that are out there. My question is I am 

a firm believer that business creates business. Not in all cases, but 

in most cases. We rely on each other to support our businesses. So 

to through that process, what can Congress do to maybe get out of 

the way? Or I do not think Congress has anything to do with job 

creation personally, but I think what can we do to get out of the 

way of small businesses so they feel like they are free to invest in 

that entrepreneurship or expand that business that needs to be expanded or create that new one? Any ideas on that? 

Ms. KAY. Well, one of the things that I think is really critical 

is simplicity. When you run a small business, it really is all about 

time and money, and we only have so much of both of those things. 

And anything where there is huge complexity that is involved 

means we are taking time away from doing business to deal with 

regulations or HR issues. So reducing the complexity of doing business for me is huge. And I know for a lot of other business owners 

as well. And it is interesting that you use the terminology ‘‘get out 

of the way,’’ because when I spoke to fellow business owners in 

Michigan and told them that I was coming, several of them said 

those exact words—could you tell them to move out of the way so 

that we can actually get work done? 

So anything that could be done to improve simplicity and give us 

certainty about where we are going so we are not revisiting issues 

time and time again I think would be important. 

Mr. HARDY. Thank you. 

In many instances in your written testimony, you have discussed 

over burdensome regulations. Being on that regulation oversight 

Committee, I have a great desire to move some deregulation out of 

this place. Can you give me some specifics that have actual documentation where we can help somewhere along the line? Anybody? 

Mr. BURTON. Absolutely. I mean, there is probably 80 in my 

written testimony, and I would be glad to go through them with 

you or your staff. But in the tax area, there is a lot of statutory 

changes that need to be made, but some of them are regulatory, 

particularly governing who is an employee versus an independent 

contractor. Whether income in an S corp or partnerships are subject to self-employment tax or not. In the securities regulation area, 

it is almost all regulatory, and there is a lot of things. There are 

also some things that need to be stopped. The SEC is proposing 

rules, for example, Reg D, which is how most small businesses raising capital from investors raise capital these days, a trillion dollars 

a year, basically requiring about three forms instead of one, and 

then a whole host of obligations that never existed before. Sort of 

undo the Jobs Act Regulation. There is that. There is, with 

crowdfunding, a four-page statute on the House side became a 30- 

page statute. In the Senate it became a 600-page rule in the SEC. 

And that is meant for the smallest companies in America. I mean, 

it is just ridiculous. There is a long, long list. 

Mr. HARDY. My staff will be in contact with you and make sure 

that we cover those. 

Mr. BURTON. I would be glad to do it. Yeah. 

Mr. HARDY. One of the other things, Mr. Burton, in your testimony, we talk about the 97 issues out there that are restricting, 

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one of those being about the states’ lands being devolved from the 

Bureau of Land Management and turned back to the states. As you 

know, in the State of Nevada, where I come from, almost 86 percent of our state is held by the federal government, which keeps 

us from having that equal footing that all other states have to be 

able to be independent. Can you give me some ideas of what we 

need to emphasize and how we can make that work and happen? 

Mr. BURTON. Yes and no. Everything in my testimony, except 

the energy and environmental stuff, I have personal experience on 

and can go on way beyond you guys’ time limits. On that, I basically borrowed it from my colleague at The Heritage Foundation, 

a gentleman named Nick Loris. And if you want to go very deep 

into the weeds on land management, he can help you. I know that 

there is a strong interest in terms of trying to reduce impediments, 

primarily in the West, to using federal lands by small businesses, 

and they have some pretty good ideas about how to do it. 

Mr. HARDY. I have one other question I want to hit. This is 

probably for Mr. Clifton. 

How can we can have a very strong economy without job growth? 

We look at these reports and we continue to hear that unemployment is going down, but on the other hand, where are the jobs? 

Where is this coming from? Is there something different in the way 

we are doing reporting today than we were that is causing this effect? Because there are still hundreds or tens of millions of people 

out of jobs out there. 

Chairman CHABOT. The gentleman’s time has expired, but you 

can answer the question, whoever it was directed to. Mr. Clifton. 

Mr. CLIFTON. Thank you for the question. 

We are not calculating the unemployment figure any differently 

than we have since we have been doing that in terms of the U.S. 

government. The challenge is the people that are working part-time 

who want full time or who are minimally employed or who are no 

longer in the workforce because they have given up, are not included. So that figure that we look at today at about 5.6 percent 

as unemployment does not reflect the 20 million people out there 

that would like to have a good job. So that is the data around that. 

And can you have a good economy without more people that are 

fully employed? The answer to that is no. What would be great is 

if the U.S. economy looked more like states like Nebraska and 

North Dakota. When we look at their Payroll to Population, Nebraska’s hovers at around 50 percent and North Dakota’s hovers 

around 54 percent. America’s is at 44.3 percent. That is too low. 

Thank you. 

Chairman CHABOT. Thank you. The gentleman’s time has expired. 

The gentlelady from North Carolina, Ms. Adams, is recognized 

for five minutes. 

Ms. ADAMS. Thank you, Mr. Chair. And thank you, ranking 

member, for holding this important meeting. 

Creating jobs and growing our economy is one of my top priorities, and small businesses certainly are a significant part of that 

equation. 

I have a few questions for Ms. Fine. I have been an advocate for 

a long time for women-owned businesses, and according to the 

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State of Women-Owned Businesses Report, my state, North Carolina, was among the top three with the fastest growing growth in 

the number of women-owned firms. We have estimated about 

267,000 women-owned businesses generating about $35 billion in 

yearly income. Based on your experience, how can we keep this momentum going to further increase the number of women-owned 

businesses, and more specifically, African-American women? 

Ms. FINE. Yes, thank you for the question. 

I would say this is obviously something that we see, and we are 

trying to tackle this challenge as well, because we just do not see 

enough women. I think a couple of things is, one, just more exposure. There are not as many role models of successful, well-known 

entrepreneurs, so I think finding and celebrating those successes is 

very important. Second, I think is just starting earlier to address 

that you really can teach entrepreneurship. You can at least expose 

somebody to entrepreneurship the same way that you do to anything, like Math, Science, et cetera, so I think there are a lot of 

great programs of like what the Network for Teaching for Entrepreneurship is doing and getting programs into middle school and 

high schools. I think that taking some of those programs and even 

finding them even more for young women would be very important. 

And just having I think in general inspiring women to think bigger 

about what they can do as entrepreneurs because they actually 

have a lot of the great talent and skillset that is very important 

to being successful. 

Ms. ADAMS. Thank you. I was going to follow up with a question 

about students. I worked with young women for 40 years at Bennett College in Greensboro, but you have kind of touched on that, 

so I will not ask that question. But, you know, with Facebook and 

Twitter and all of the access that they have that are integral to entrepreneurship, I am sure they are using that as well. 

One of the biggest challenges, and you have mentioned access, 

but oftentimes, small businesses are really not aware of the federal 

resources available to them, or any resources for that matter. So 

how should the federal government in your thinking, or other entities, work better to educate and connect small businesses to those 

resources that can help them succeed? 

Ms. FINE. Obviously, I do put the onus of that a little bit on the 

entrepreneurs. Sometimes I am a little bit surprised that entrepreneurs do not take the step to look for all the resources available. 

I think there is this perception that anything related to a government loan, SBA, et cetera, a patent, for example, takes a really 

long time and is a complicated process. So I think being more 

transparent about the processes and trying to make them faster 

and more efficient so that entrepreneurs do not feel that they are 

missing a window of opportunity would be a start. 

Ms. ADAMS. Well, and I agree with you. I am thinking though, 

the federal government is a complicated kind of process and it can 

be a little, I guess, intimidating in terms of applications and that 

kind of thing. So perhaps if we could do more. Not just letting them 

know what is available but how to apply and the kinds of things 

and the steps that need to be taken. But thank you very much for 

your comments. 

Mr. Chair, I yield back. 

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Chairman CHABOT. Thank you. The gentlelady yields back. 

The gentleman from New York, Mr. Hanna, who is the chairman 

of the Subcommittee on Contracting and Workforce, is recognized 

for five minutes. 

Mr. HANNA. Thank you, Chairman. 

You know, it is easy to demagogue regulations. And to speak to 

179, which I am in favor of, one man’s loophole is another man’s 

following the law. Right? So what is the complaint? And you find 

in government that in the effort—that every level to control every 

outcome will wind up with something that started out reasonably 

fluid that turns into something that is one barrier after another, 

but we have no way to measure the marginal change in one’s ability, or a company or an entrepreneur’s ability to deal with it. But 

we know that structurally everything is a burden. 

Mr. Clifton talked about entrepreneurs and some people are suited, some are not. I would suggest to you that the best way to figure 

that out is to try, and we made it very hard for people to try. 

But Mr. Burton, there is a thing called the Raines Act, which I 

imagine you are familiar with. How do states and local municipalities—everybody has a hand in this and everybody is making marginally some kind of problem for the guy who wants to go in business, or lady. And I am just curious, because it is easy to sit back 

and complain about government, and I am happy to do that, but 

in a practical world, how do you accept the notion that some things 

have to go wrong in order—if you agree with me—in order for other 

things to go overwhelmingly right? In other words, how do you 

measure opportunity versus control? 

Mr. BURTON. Well, three quick things. First, sort of on the business level, you are absolutely right. You have to let people fail. You 

have to let people have the opportunity to not succeed in their business or you will not get the positive aspects of entrepreneurship. 

And sometimes the SEC forgets that. State regulators can be 

among the worst. For example, Massachusetts prohibited people in 

Massachusetts from buying the original Apple IPO because investing in the Apple computer company was too risky and they wanted 

to protect their people. So some of the goofiest regulations imaginable are at the state and local level, not at the federal level. 

Mr. HANNA. It was the breakup of Microsoft, too, which made 

no sense. 

Mr. BURTON. But I agree with you. It is easy to complain, and 

we need to craft constructive solutions, which is why I tried to do 

that in my written testimony. Specifics. What regulation? What 

problem? And it is one of my frustrations with the bankers who 

constantly say it is the regulators, but they never have any solutions. And there are two possible reasons for that on the bank credit side. One is they are using it as an excuse. It is not really the 

regulators; it is them. And it could be for legitimate business reasons. Or the second reason is there is something going on there 

that we have not found out about. 

One other thing I thought I might mention. We talked about 

bank credit, but some of the most dynamic companies that are 

leading to huge employment gains and other social gains are the 

people looking for outside investors, not just banks. Because banks 

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ally, but they are not going to invest in startups. So people who are 

looking for outside investors and therefore, running into the securities laws are the source of much of the social gain from innovation 

and entrepreneurship, and we need to try to knock down some of 

those barriers. 

Mr. HANNA. What do you think, Mr. Clifton? 

Mr. CLIFTON. What is the question specifically? 

Mr. HANNA. Well, I mean, you talk about entrepreneurs. It is 

my opinion that we do not give people enough opportunity to succeed or fail; that the barriers to entry to business today are so prohibitive, and that at some point it becomes personal and other 

things become easier to do. People drop out of the system because 

they lose energy. They frankly become victims of the bureaucracy. 

But it is hard to measure that and understand it. 

And I am familiar with a number of banks and have been in 

business for a long time, and they would tell you that it is easier 

to loan big money than little money; that it is easier to avoid small 

entrepreneurs than it is to engage them because they can move on 

and make marginally less with a hell of a lot less aggravation. So 

have you seen that? 

Mr. CLIFTON. Well, so I think what you are asking is how do 

we quantify sort of this phenomenon about government regulations 

and its impact with small businesses. And that ultimately, I believe, is why I am here. Because the way that we have attempted 

to quantify it is by simply asking small businesses, ‘‘What is the 

biggest problem you face today?’’ And I think when we quantify 

that we see that 25 percent of them, in an open-ended fashion, say 

back to us, it is government regulation, the government in general, 

or it is something to do with Obamacare or healthcare. 

Mr. HANNA. And for Ms. Kay, it would be certainty. 

Mr. CLIFTON. And I would further say that if that is not the 

reality, it is at least the perception, and perception is a reality. And 

so that is something that maybe from a communications standpoint 

we would need to address. 

Mr. HANNA. Thank you. My time is expired. 

Chairman CHABOT. Thank you. The gentleman’s time has expired. 

The gentleman from South Carolina, Mr. Rice, who is chair of 

the Subcommittee on Economic Growth, Tax, and Capital Access is 

recognized for five minutes. 

Mr. RICE. Thank you. What a pleasure to listen to you today. 

It is, unfortunately, the same things I hear from small businesses 

back in my district. I was a tax lawyer and CPA for 25 years before 

I came here. I formed or advised 1,000 small businesses. I know 

what they have to deal with, and these are the same problems I 

have heard all along. 

Mr. Clifton, you said the biggest problem people referenced was 

finding customers, and actually, if you look at what has happened 

since 2008 when the president came into office, median household 

income has declined 8.7 percent. Interestingly, in that same period 

of time, the pay of the average government worker has gone up 12 

percent. But at the same time we have had energy costs, because 

we have put up roadblocks through EPA and warm and cold and 

all these things. Energy costs have gone up about 10 to 20 percent. 

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Food costs, because they rely on energy costs, have gone up 15 percent. Healthcare cost, with Obamacare, some because of 

Obamacare, some otherwise, have gone up 15 to 20 percent. And 

so you have got this squeeze on the middle class where their incomes are down almost 10 percent, all their costs are going up 15– 

20 percent, and is it really any wonder that there is a lack of customers? Because people have less money to spend. And when you 

see the economy going up—I mean, excuse me, the stock market 

going up and people say, ‘‘Oh, look, the economy is going great,’’ 

but the average middle class family is not feeling that. In fact, they 

are feeling quite the opposite. And they are really the customer 

base. I mean, two-thirds of the United States economy is based on 

consumer spending. 

Am I analyzing that correctly, Mr. Clifton? 

Mr. CLIFTON. I think that is accurate. I mean, if you look at 

kind of the root of what is happening here, is the fact that real 

household incomes have not increased. And when we look at the 

data, the data very clearly suggests that most would-be entrepreneurs or small businesses do start their businesses with their 

own money or capital from friends and family. 

Mr. RICE. I am not even talking about business owners; I am 

talking about their customers. Their customers are broke. 

Mr. CLIFTON. I do not disagree with that analysis. 

Mr. RICE. All right, now, Ms. Kay, you talked about uncertainty. 

It pains me when you look at some of the things we do here in Congress, for example, with the tax extenders, the 179 deduction. That 

is designed to be an incentive for small businesses to invest, to 

grow the economy, to spend money to grow the economy, to make 

their business more productive to grow the economy. How can it 

act as an incentive when we pass it two weeks before the end of 

the year? People do not know it even is there, so how is that an 

effective incentive? That is not a very good job by Congress, is it, 

Ms. Kay? 

Ms. KAY. Well, it certainly is not helpful. And I think when I 

talk about certainty, I am not talking about next week or next 

month or two months down the road. I am talking about long-term 

certainty. I am talking about the ability for us to plan a year out. 

And you are absolutely correct. When you wait until the last two 

weeks of a year, there are a number of people who are astute 

enough that they are going to take advantage of it, but for many 

small business owners, it is too late. And I think that what we are 

really looking for—and you talk about winners and losers. We understand that there are going to be some winners and some losers. 

I think what we are looking for is we are looking for some fairness, 

and we are looking for some long-term certainty so we know what 

the rules are so we can make some plans. And then I think you 

will find that people will invest in their companies. When I talked 

about—— 

Mr. RICE. I only have 40 seconds, so I just want to—— 

Ms. KAY. Okay. 

Mr. RICE. You know, tax extenders. We talk about tax extenders 

when we should be talking about tax reform. 

Ms. KAY. We should be. 

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Mr. RICE. We talk about repealing Obamacare when we should 

be talking about how we are going to replace it. We talk about— 

and then we have things like the Highway Trust Fund that is running out of money, and we do not know how we are going to build 

our infrastructure and we put Band-Aids on it every nine months. 

We talk about the Social Security Trust Fund and the Medicare 

Trust Fund. All these things create uncertainty to the economy, 

and how does that affect consumer spending, Mr. Clifton? It hurts 

it, does it not? 

Mr. CLIFTON. Absolutely. 

Mr. RICE. It hurts business investment, does it not? 

So I am glad that we here in Congress are not doctors or lawyers 

because I think we would be sued for malpractice before it was over 

with. 

Finally, Ms. Fine, you said that—— 

Chairman CHABOT. The gentleman’s time is expired but the 

chair will extend an additional minute if there is no objection. 

Mr. RICE. Thank you. Thank you, Mr. Chair. Thank you. 

You said that we needed to do more to help entrepreneurs. And 

if you mean more government programs and more government regulation, I think you can see the effect of this on the economy already. I think the best thing we can do to help new entrepreneurs 

is in fact do less. Thank you very much. 

Chairman CHABOT. Thank you. 

The gentleman from New York, Mr. Gibson, is recognized for five 

minutes. 

Mr. GIBSON. Well, thanks, Mr. Chairman. I appreciate the panelists. I think this has been a very informative hearing. I appreciate a lot of what has been discussed here this morning. 

I would tell you that a lot of it, as Mr. Rice mentioned, jives with 

what I hear back home. Concerns with taxes, levels of taxes, complexity of the code, concern with certainty, in particular the expensing piece of it. I have heard this morning also concerns about the 

regulatory state and expression of desire of reform and relief. I 

have heard access to credit mentioned, all these things. Every time 

I visit a small business and listen to the owners and their employees—lower healthcare costs and energy costs, particularly for the 

Northeast, the energy costs are a concern. All of this if we are competing. Even our small businesses may be competing nationally or 

possibly even internationally. And so all this bearing on the problem. I appreciate being added to this Committee to allow a voice 

for my people. 

And so I do have an initial question here, and I just want to 

again reiterate, I appreciate what has been said already. Why I say 

that is I think you have given us more data points of where the 

Committee is already thinking about going in terms of legislation, 

and so we appreciate your time, and I think it is meaningful. 

Mr. Burton, you mentioned 97 points. I have this one situation 

in our district where I have got a small business, about 200 actually, so more in the upper end of the small business. But sterling 

credit. And they have a tremendous relationship with a community 

bank. Sterling record. And they had a very exciting project to expand, and they could not make it happen because of Dodd-Frank. 

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And so among your 97 points, do any of them address explicitly 

that situation and other magnification on issues of access to credit? 

Mr. BURTON. Absolutely. There is a number of things. Some of 

it is credit, but also, they could seek equity investment. There are 

lot of things in my testimony about equity investment. There are 

things about eliminating the artificial limitation of credit unions’ 

ability, which would give them another financial institution they 

could go to. I do not go a lot into it because I did not think it was 

sufficiently small business oriented, more financial services, but 

there is a lot of interest on the part of the House Financial Services 

Committee on a bipartisan basis in terms of trying to reduce the 

restrictions on community banks which might help. Peer-to-peer 

lending is another opportunity, and there are two different ways to 

do that. Either fix Title 3 of the Crowdfunding Act with respect to 

debt securities, or create a new regulatory regime so organizations 

like Prosper and Lending Club can lend to small businesses without having to use banks as intermediaries, and in fact, go around 

the banks. So there are a lot of things that could be done. 

Mr. GIBSON. Well, thank you. And we are listening. And I think 

some of these things we are already looking to move on, but that 

is helpful. 

Last question here, and it is really one I am curious of your feedback. Last Congress, we worked together and enacted a bipartisan 

piece of legislation that helped with job training, and explicitly, I 

am now thinking about my small business owners who are especially manufacturers that were very frustrated with their new recruits and their lack of preparation for some of the work that they 

want them to do. So the intention of the new bill was to try to address that; bring closer this activity that often leads to either a degree or certification in individuals who are going to start working. 

Because we know there is going to be activity to get a degree or 

certification. We want it to actually be meaningful. So more internships. Is there any feedback for us yet on this new law or is it too 

early? 

Mr. BURTON. I am not sure, personally. 

Mr. CLIFTON. I mean, from our data, that would suggest that 

that is the right direction because you have such a large percentage of would-be entrepreneurs that are asking for help in terms of 

how to get started. 

But I think it is also the signal of another thing. And so when 

we look at what is crossed in terms of business deaths and business births, another thing that might be happening is sort of this 

decline in the spirit of free enterprise. And there are a number of 

conversations in terms of leadership within the government that 

are looking to young people, such as forgiving their school debts, 

their loans, if they come to work for the government. And so there 

is nothing wrong by that because what we are doing is celebrating 

the heroes and the sheroes that want to get into the government. 

But what it fails to do is we are not sending the strong enough signals that there are those heroes and sheroes that will start the big 

next businesses that will create the jobs that will restart this economy. 

Mr. GIBSON. That is a good point. And my time is expired. And 

so I will yield back. Thank you. 

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Mr. RICE. Thank you to the gentleman. 

Now, I yield to the ranking member, Ms. Vela ́zquez. She has a 

couple of additional questions. 

Ms. VELA ́ ZQUEZ. Just two more questions. 

Mr. Clifton, I would like to ask, what percentage of survey respondents are would-be entrepreneurs? What percentage are 

startups in businesses less than three years, and what percentage 

are existing businesses older than three years? 

Mr. CLIFTON. Those data are available from the Small Business 

Administration, but I think I might be able to provide a data point 

that is more helpful. 

Ms. VELA ́ ZQUEZ. For the survey, the Gallup Survey. 

Mr. CLIFTON. We interview 600 small businesses per quarter 

with Wells Fargo. We pull the list from Dunn and Bradstreet and 

the waiting scheme that we do is based on their revenue and their 

location. 

Ms. VELA ́ ZQUEZ. So you do not have a breakdown in terms of 

would-be entrepreneurs, which percentage are startups in business 

less than three years and which percentage are those older than 

three years? 

Mr. CLIFTON. Correct. We do not collect those data. They are 

available from the SBA. But I think a data point that is even more 

helpful is our analytics suggest that the percentage of people that 

have the rare talent to be that sort of incredible Wayne Huizengatype that can start three global Fortune 500 companies, we believe 

it is somewhere three in 1,000 people that have that inherent talent. 

Ms. VELA ́ ZQUEZ. So none of the businesses—in your survey, 

none of the 600 are would-be entrepreneurs? 

Mr. CLIFTON. Correct. That is a separate survey that we do. 

Ms. VELA ́ ZQUEZ. Okay. 

Mr. CLIFTON. So 25 percent of Americans said that they have 

seriously considered—— 

Ms. VELA ́ ZQUEZ. I am confused, because the focus of the hearing is on would-be entrepreneurs and what hinders business creation. So I do not know if my next question has any basis, but in 

your opinion, is the Gallup Poll a good measure of the top challenges for startups, or more challenges facing existing businesses? 

Mr. CLIFTON. In my opening remarks, I addressed both. And 

they—— 

Ms. VELA ́ ZQUEZ. But yet, in your sample, you do not have any 

would-be entrepreneurs. 

Mr. CLIFTON. No, that is not—so in my opening statement, I 

addressed that we interviewed 25 percent of Americans that said 

they were would-be entrepreneurs. And they faced three significant 

barriers in order to start a business. So yes, I addressed both separately. 

Ms. VELA ́ ZQUEZ. So, Ms. Fine, in your work with entrepreneurs, how much do you hear that regulations like those from 

EPA, OSHA, factor into the decision of whether an entrepreneur 

starts a new business? 

Ms. FINE. Like I mentioned before, I mean, we work with 

startups, entrepreneurs, at such an early stage of their business. 

Like we would tell anyone, these are all regulatory forces that they 

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have to investigate, and I think it is more of understanding if the 

business models works, given those regulations. So they have to go 

look at those and understand it. And that is a part of the discovery 

they need to do. And I would count that as part of them starting 

as entrepreneurs. It does not keep them from starting that process 

necessarily, but it might keep them, based on what they find, from 

figuring out if they have a viable business model. 

Ms. VELA ́ ZQUEZ. Thank you. Thank you, Mr. Chairman. 

Mr. RICE. Thank you, Ms. Vela ́zquez. 

Mr. Burton, I want to ask you—maybe you are not the right person on the panel to ask this question, but do you think that the 

Dodd-Frank banking law prevents a community bank from making 

loans to small businesses that they would otherwise make? 

Mr. BURTON. I think aspects of the Dodd-Frank Act clearly reduce community bank lending to small businesses. But I am not 

sure that is the central problem. 

Mr. RICE. Okay. Ms. Kay, same question to you. 

Ms. VELA ́ ZQUEZ. Will you yield just for a second? It is on the 

community banks and Dodd-Frank. 

Mr. RICE. Sure. 

Ms. VELA ́ ZQUEZ. I serve on the Financial Services Committee, 

and I was there when we were working on the legislation. Do you 

know that community banks who have assets of $10 billion or less 

are exempted? 

Mr. BURTON. Yes. And that is one of the reasons why I said it 

was not necessarily the central problem. There are other aspects of 

Dodd-Frank that are problematic, but again, in terms of small business capital formation, I am not sure Dodd-Frank is the biggest 

problem we have on access to capital. 

Mr. RICE. Ms. Kay, do you think Dodd-Frank prevents community banks from making loans to small businesses that they would 

otherwise make that they deem an acceptable risk but they would 

not make it with the Dodd-Frank banking regulation? 

Ms. KAY. I would love to answer that question, but I am really 

not qualified to do that. 

Mr. RICE. Okay. Same question to you, Mr. Clifton. 

Mr. CLIFTON. We do not have data on that specifically. 

Mr. RICE. Okay. All right. Thank you very much. 

Look, this has been a wonderful hearing. You all have done a 

great job of educating me. Thank you so much for taking your time 

to come here to Washington to explain your perspective on the 

challenges facing small businesses today. I really cannot thank you 

enough. 

And with that, I ask unanimous consent that members have five 

legislative days to submit statements and supporting materials for 

the record. 

Without objection, so ordered. 

This hearing is now adjourned. 

[Whereupon, at 12:33 p.m., the Committee was adjourned.] 

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A P P E N D I X 

GALLUP 

Testimony of 

Jon Clifton, J.D. 

Partner, Managing Director 

Gallup Government 

Before the 

U.S. House of Representatives 

Committee on Small Business 

Hearing on 

Building an Opportunity Economy: State of Small Business and 

Entrepreneurship 

March 4, 2015 

Good morning, Mr. Chairman and Members of the Committee. It 

is a pleasure to be here to discuss Gallup’s analytics on the state 

of the U.S. economy, the attitudes of small-business owners and the 

current barriers to job growth and startups. 

The Importance of Jobs and Gallup’s Tracking of the Job 

Situation 

Gallup completed its first nationally representative survey of the 

world in 2006. Our biggest finding from this study was that what 

the whole world wants is a good job. This finding compelled us to 

more thoroughly study the global jobs situation. Gallup now quantifies the prevalence and quality of jobs in more than 140 countries 

each year. Gallup also tracks employment daily in the United 

States, surveying roughly 30,000 adults per month and more than 

350,000 people per year. 

The State of the U.S. Economy 

There are a number of signs from Gallup’s data that the U.S. 

economy has been improving since the recession: Americans’ attitudes toward the economy are improving, self-reported discretionary spending is steadily increasing and people are reporting 

that hiring is outpacing firing in their workplaces. Despite this encouraging news, job creation remains a problem. 

While official unemployment has fallen from roughly 10% in 

2010 to roughly 6% today, using this metric to represent the total 

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jobs picture could be misleading. Traditional unemployment includes only people who are looking for work, who are available for 

work and who have not worked a single hour in the past week. 

This means that if a person has given up looking for work or if a 

person has worked only a single hour in the past week, that person 

is not considered unemployed. A different metric offered by Gallup 

quantifies the number of people employed full time for an employer—often referred to as a ‘‘good job—as a percentage of the 

total adult population. Known as Payroll to Population (P2P), this 

metric stands at 44.3% today and has not meaningfully increased 

since early 2010, when Gallup started tracking this daily. 

Barriers to Job Growth 

One of the main reasons that the jobs situation has yet to recover is that, according to the U.S. Census, the number of business 

deaths now exceeds the number of business births among employer 

firms for the first time since 1977, when this measurement began. 

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The Current State of the Small Business Economy 

This leads us to the importance of small businesses and startups 

in this country. They contribute roughly 70% of all new jobs created in a single year. Considering their importance, Gallup works 

with Wells Fargo to track the opinions and behaviors of small-business owners quarterly. 

The good news is that the attitudes of small-business owners are 

steadily improving. The Wells Fargo/Gallup Small Business Index 

stands at +71, which is the highest index score since the onset of 

the recession. Sixty-four percent of small-business owners report 

that their company’s current financial situation is good and 71% 

expect their company’s financial situation to be good 12 months 

from now. 

However, despite this positive trajectory, small-business owners 

face clear challenges. When asked to name their most important 

challenge, the No. 1 issue they report is finding or attracting new 

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customers (15%). This is followed by mentions of the economy in 

general (12%) and government regulations (10%). However, if we 

add those who cite healthcare/Obamacare (8%), our just government in general (6%), fully 24% of small-business owners say the 

government is in some way their biggest challenge. Also worth noting, while many small-business owners believe available credit is 

a major issue, only 3% say it is their most important challenge. 

Barriers to Startups 

In addition to the barriers faced by current small-business owners, there are also barriers facing would-be entrepreneurs. One in 

four Americans have thought about starting a business, but have 

abandoned the idea. For an economy with a negative net number 

of startups each year since 2008, this represents a missed opportunity to engage would-be entrepreneurs that could result in business startups. Three major barriers are keeping these would-be entrepreneurs from taking the plunge: 1) they prefer the security of 

a stable income, 2) they do not have enough money to start a business and 3) they lack the knowledge on how to start a business. 

Because the majority of business owners fund their early-stage 

businesses through personal savings, a steadily declining personal 

savings rate in the United States has negatively affected prospective entrepreneurs’ ability to finance new businesses. Moreover, if 

they lack insight on where and how to begin, starting a business 

is even more difficult, and these prospective entrepreneurs are 

more likely to be more risk averse. 

Conclusions 

Creating good jobs and subsequently rebuilding America’s middle 

class hinges on the success and failure of small businesses and 

startups. Existing small businesses are experiencing headwinds 

caused primarily by challenging business realities, the overall economy and a concern about government regulations. Would-be entrepreneurs face barriers such as not having enough money to start 

a business and lacking knowledge about starting a business. It 

would be wise for Congress and American leadership to consider all 

options to unlocking this invaluable economic institution. The 

American public would be behind them. Other than the military, 

there is no other institution in the United States that the public 

has more confidence in than small businesses. 

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Testimony of Elana Fine, Managing Director, Dingman Center 

for Entrepreneurship, University of Maryland’s Robert H. Smith 

School of Business Before the U.S. House of Representatives Committee on Small Business 

March 4, 2015 

Chairman Chabot, Ranking Member Velazquez and members of 

the committee, 

Thank you for inviting me to testify before you today. I’m Elana 

Fine, managing director of the Dingman Center for Entrepreneurship at University of Maryland’s Robert H. Smith School of Business. I have a bachelor’s degree in finance from the University of 

Maryland and an MBA from University of Chicago’s Booth School 

of Business. Throughout my career in technology consulting and investment banking, I’ve worked with hundreds of startups and venture-backed companies and am therefore well versed in understanding the challenges and opportunities facing startup companies. 

To provide a little context, the Dingman Center is one of the nation’s preeminent institutions where the research, education and 

practice of entrepreneurship are pursued vigorously. We develop 

and execute curricular and extra curricular programs to inspire 

and equip the next generation of entrepreneurs. Twenty-eight years 

ago, before entrepreneurship was as en vogue as it is now, a visionary dean named Rudy Lamone, partnered with Michael Dingman, 

founder of Signal Corporation to establish the Dingman Center. As 

one of the first university-based entrepreneurship centers in the 

country, the Dingman Center has consistently been the gold standard for teaching entrepreneurship. This past fall, the Global Consortium for Entrepreneurship, a member organization of more than 

200 entrepreneurship centers worldwide, awarded the Dingman 

Center its 2014 NASDAQ award for Entrepreneurial Excellence, 

for our unique breadth of campus, regional, national and international programs. 

My role at the Dingman Center includes oversight of our student 

venture incubator, the Dingman Center Angels investor network, 

business competitions and integration with the Smith School entrepreneurship curriculum. I’m responsible for developing relationships with the broader community of entrepreneurs, alumni and 

corporate partners to build a bridge between our campus and the 

local startup ecosystem. I also serve as an adjunct faculty member 

of the Smith School. 

Our programs are focused on guiding student entrepreneurs 

through the venture creation process. We listen to their initial 

ideas, match them with experienced advisors and mentors, provide 

a toolset to conduct customer research and develop new business 

models, suggest ways to prove their concept in small ways and provide access to seed capital. In our 28-year history, thousands of students have walked through our doors to start a business or just to 

be exposed to entrepreneurship in a small way. 

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I’ve been asked to give an overview of entrepreneurial activity 

from a university perspective. I recognize that the macro level of 

activity can be hard to quantify and assess whether we are headed 

in right direction. Based on the pop culture success of television 

shows like ‘‘Shark Tank’’ and ‘‘Silicon Valley,’’ the proliferation of 

technology incubators, co-working spaces, and downtown innovation hubs, and the newsworthy valuations of companies such as 

Uber, SnapChat and WhatsApp, we might believe that everyone is 

working on a startup. Then we look at statistics like the Kauffman 

Index on Entrepreneurial Activity, which showed a decline from 

2011 to 2013 and wonder if we are doing enough. Or we look at 

2013 statistics from the Global Entrepreneurship Monitor and see 

that Sub-Saharan Africa has more than double the early stage entrepreneurial activity of North America. However, this activity is 

more ne4cessity driven than innovation driven due to lack of other 

job prospects. From this perspective, a decline in entrepreneurial 

activity might also be seen as an indicator of an improving economy as employees have better job prospects and don’t have to 

spend their life savings to hang their own shingle. The data is hard 

to analyze because we don’t know the right level of entrepreneurial 

activity. As we would say in startup terms, we still don’t know the 

metric that matters. So, I’m here today to give you a more grassroots perspective on what I see as leading indictors for the future 

of entrepreneurship. 

At the Dingman Center, we separate our students into three categories and focus on creating programs that will make the most 

significant impact on these various groups. The first category is the 

one that has created the ‘‘Social Network’’ misconception—the belief that there are thousands of Mark Zuckerbergs in dorm rooms 

across campus who will launch the next Facebook. Students, venture capitalists, entrepreneurship centers and policy makers must 

recognize that Facebook is an outlier. We would never be successful 

if we were trying to pick the next Facebook, so we spend more of 

our time on the other groups. 

The next category we think about are the students starting businesses while in school. Every year we see panoply of new apparel 

companies, mobile applications, tutoring services, dating platforms, 

and food concepts. We have seen university support increase to 

match student interest and demand in these venture creation activities. Although a small sample, the data from the Dingman Center shows interest in our venture creation programs grew from 161 

students in 2012/2013 to almost 400 students in 2014/2015. Students run these businesses for two to three years until graduation 

where they often decide that this isn’t the right business to pursue 

after graduation. The company might not be a success in standard 

terms, but as educators we have provided a skill set that we expect 

will be used for a startup now or 10 years from now. 

Our best example of this category is University of Maryland 

alumnus Kevin Plank, who ran a campus flower delivery service 

called Cupid’s Valentine. After graduation, instead of solving the 

problem of expensive flowers, Plank decided to solve the problem 

of soggy cotton t-shirts and turned his savings from Cupid’s Valentine into the seed money for Under Armour. In the many times I 

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have heard Plank tell his story, he has cited the lessons he learned 

from his first student business and the courage that business gave 

him to start Under Armour when he had the idea for a stretchy 

performance t-shirt. Although we hope to have many Kevin Planks 

walk through the doors of the Dingman Center, we would also like 

to see more of them stick with their student businesses, which I’ll 

address later. 

The last category of student entrepreneurs feed the entrepreneurial labor pool. These students might work on their own businesses or hold internships at local startup companies. The challenge for these students in that startups can rarely pay market 

rates, so they often have to forego opportunities to take higher paying internships or even summer jobs at pizza shops. We’ve created 

several programs to subsidize these students to work at startups 

to try to replicate the Silicon Valley culture where employees often 

spin out their own startups. We believe it is the cycle and culture 

of entrepreneurship that creates innovation hubs, rather than any 

one specific program. 

All of these buckets of students represent the future entrepreneurs, but I caution focusing too much on the first category. Instead, there are a number of initiatives than can increase exposure 

and odds for success of the last two categories. For example, the 

National Science Foundation’s ICorps program is a perfect example 

of federally funded programs that can increase the odds of success 

among early stage university spinouts. ICorps is designed to help 

federally funded academic researchers with ground-breaking innovations determine the commercial viability of their innovations. 

This same approach, based on Silicon Valley-tested startup best 

practices, is now being implemented across many agencies. While 

it started at NSF, NIH, DOE and other agencies are embracing the 

process. This program has the potential to fundamentally change 

the way we transfer technology from our world-class universities 

and federal labs. Furthermore, the same program has potential to 

greatly improve the highly regarded SBIR/STTR programs that 

were created to support small business innovation. 

However, programs like ICorps focus on innovation that leads to 

entrepreneurship. On campuses, we need similar programs that increase the entrepreneurship that leads to innovation—those the encourage students to test the waters on identifying a problem in the 

market and designing and testing a solution. We know there are 

more than enough problems to solve. Sample programs might provide scholarships to students pursuing entrepreneurial activities or 

loan forgiveness so students can choose to work at startup firms. 

As we seed more entrepreneurs, we will also need more funding 

mechanisms to substitute for what we often call a friends-and-family round of financing. Without an initial $10,000 to $100,000 it is 

nearly impossible for a young entrepreneur, who is burdened by 

student loans and has no savings or credit, to build a product and 

test customer acquisition. Banks, angel investors and even granting institutions do not have vehicles to fund the typical student 

businesses. Corporations, like Capital One recognize this need and 

are leading the way for local entrepreneurs by providing $500 to 

$2,500 seed grants for our student entrepreneurs. 

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In addition to exposing young people to the entrepreneurial process, matching them with experienced mentors and increasing their 

access to funding, we also need to be creative about how to limit 

downside risk. The success and wealth of Bill Gates, Steve Jobs 

and Mark Zuckerbergs of the world certainly attracts entrepreneurs, but the downside risk keeps many capable operators on 

the sidelines. We characterize and celebrate entrepreneurs for their 

ability to take risks, but there could be innovations that never get 

to market because the perceived risk to someone’s family might be 

seen as too high. I’d encourage the committee to consider policies 

that limit downside risk along with those that encourage the upside risk. 

Therefore, as you embark on your committee’s activities, I’d encourage you to consider the following thoughts and recommendations: 

• Few of us are stock pickers. Instead of picking winners 

and hoping for short-term rewards, we need to seed programs 

that expose more students to entrepreneurial activities and 

equip them with the tools to vet ideas early and increase the 

odds of success. 

• Recognize that failure rates will always be high and that 

success in entrepreneurship can also be viewed by total births 

and deaths because it means there are more companies in the 

field. 

• Consider programs that provide non-dilutive funding substitutes to friends-and-family funding and angel funding for a 

broader spectrum of businesses. Keep in mind that entrepreneurs are like marathon runners and come in all shapes 

and sizes. 

• Think creatively about ‘‘apprentice’’-like programs in high 

growth startups that might increase the entrepreneurial labor 

pool. 

• Consider how to limit downside risk that might keep capable entrepreneurs on the sidelines. 

In a Washington Post article, I wrote that teaching entrepreneurship is like teaching a child to drive. You give them a little taste 

off the side in a shallower waters and if it takes, they feel comfortable to take the risk off the higher diving board. This is how 

we teach entrepreneurship - we expose our students to a non-linear 

way of thinking and problem solving. Our challenge, as outlined 

above, is no transition these students from the safe risk-taking environment of an academic institution, to the business world. I look 

forward to working with you to create policies to build on the momentum we are seeing on campuses nationwide. 

Æ 

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