The real problem, as I see it...
Just passing along an email I sent to the author of a recent LA Times article. Curious on what others think on the topic. Begin email...

Ms. Semuels,

I enjoyed and appreciate your article “California plunges to bottom in new business creation” (http://www.latimes.com/business/la-fi-state-new-businesses-20110824,0,6145591.story).

I propose a follow-up article on WHY California has seen such a dramatic drop in the establishment of new businesses (and the growth of existing businesses). Although you did cover a couple of the reasons – government red tape, environmental regulations – those are primarily the hindrances of manufacturing and agriculture based businesses. The two noted prohibitory factors aren’t really hindrances at all to a majority of the businesses that are established/would be established on a regular basis. The biggest problem, felt personally as well as noted by every entrepreneur (new and experienced alike) that I’ve spoken with, is funding. More accurately, the unavailability of funding.

As someone who is currently battling the economy to get funding for a new business (www.TheDownTag.com), I know all too well how difficult it is to find and secure the capital to launch. I’ve been working for the last two years to get Downtag off the ground, with the list of people who want to be my customers growing with each passing day. However, this means nothing within the traditional funding channels and those who control them. Ten years ago, an entrepreneur could secure funding with a sketch of an idea on the back of a cocktail napkin. Today, it requires an office full of corporate experienced leaders, a working demo (at minimum) of the product/service, and a mile long list of customers already using it – not to mention the financials to show that you’re either making a profit or are well on your way to breaking even. That’s all fine and good…if you have the personal finances to establish all of the aforementioned. How many people have a spare million under the mattress?

What is a “normal” entrepreneur to do to get all of this in place, which only puts them in the position to MAYBE get outside funding? Go to a bank? Not when all of the banks are holding onto their money with a death grip! Go to the SBA? Nope, their programs are about as useful as trying to hold a gallon of water with a sieve. Angel investors? Not an option anymore, now that pretty much all angel investors are sending their money overseas and/or are only investing in “established organizations” (see the previous list for what is required to qualify as an established organization). Incubators? They’re just as demanding as the angel investors with requirements that must be met and don’t provide the level of funding that businesses realistically require in seed or early stages.

You cite an unemployment rate of 12.4% which, in theory, should HELP small businesses by creating a pool of highly qualified yet low cost employees. Well, that would be true…IF funding were available to actually establish the businesses in the first place.

As I’m sure you know, small businesses are attributed with supplying a majority of the jobs in this country and always have held this accomplishment to my knowledge. As you also are aware, the unemployment rates are ridiculously high. Lest we forget that the real number is higher than the reported number since any number reported doesn’t account for the number of unemployed that haven’t applied for financial help and/or those who have “run out” of unemployment benefits.

So what’s the answer? Sure, we can cut some of the red tape out of the equation and loosen up on the regulations. Will that solve the REAL underlying problem? It won’t even make a visible dent, unless that visionary that works 20 hours a day chasing a dream with the only goal of saving a few lives can secure the funding to launch his business in the first place! Once that happens, California will see an increase in the number of businesses established, there will be a noticeable decrease in the unemployment rate, banks and investors start making crazy amounts of money again, and the world gets to once again see what California does best – revolutionizing the way we all live through unequaled innovation!

Saving lives…one tag at a time,

M. Shane Hill
Founder, President and CEO
Downtag, Inc.
MShaneHill@TheDownTag.com
www.TheDownTag.com