Government is smitten with entrepreneurship. Government lusts after entrepreneurship’s jobs, its revenue, its potential to revitalize urban economies and neighborhoods, and the way it can transform a city’s image.
But the love affair is largely one-sided.
Entrepreneurship is just not that into government. It can’t ignore it, but it would like it to just go away — until it needs something only government can provide.
Entrepreneurs are more likely to see government as an obstacle than a partner, but civic efforts to start and grow entrepreneurship have never been more widespread. So what is the proper role of government in entrepreneurship?
We assembled a roundtable of experts to see if this relationship can be saved. They are:
The Bureaucrat: Paul Washington, executive director, Denver Office of Economic Development
The Expert: Thom Ruhe, vice president of entrepreneurship, Kauffman Foundation
The Entrepreneur: Tom Higley, a serial entrepreneur in Denver and head of 10.10.10, a program that challenges 10 entrepreneurs to tackle some of society’s toughest problems.
ID8: Let’s start with something broad. How important is government to entrepreneurship?
Washington: Very important. Government is one of the largest purchasers of goods and services in any local economy and so the government can serve a very important role as a customer base. Government controls the regulations to do business in that jurisdiction and making those regulations commonsensical, easy to navigate and predictable is a very key role.
Government plays a key role in its ability to convene. Whether that’s convening interest in why residents or other businesses should move to the area, the government can market itself and convene media interests or business interests for that purpose. I mentioned how hard it is for small businesses to obtain a sustainable customer base; the government can bring larger B to B interests together and make those introductions to small businesses.
Ruhe: Government can be very important to entrepreneurship; it depends upon the way you address it. In most cases, government is a problem. It’s an impediment. What we hear through our research at the Kauffman Foundation is things, usually at the local level, are stymying entrepreneurship. Whether it be permitting, occupancies, permit, access, opening for business, this is a big area of frustration for entrepreneurs. And if local government understood that better, they could effect change that could make it much easier for the entrepreneurs within their community to start and grow new things.
There are things government does at the state and federal policy levels that definitely promote, support or impede entrepreneurship. One of the big things that government can do to help is address immigration because immigrants are job creators in this country. The Startup Act, which is stalled in committee, is a perfect example of legislation that needs to be passed yesterday.
Another area where the government can be more of an asset than a hindrance is passing the much-delayed legislation and SEC rulings around crowdfunding.
Higley: Government fills a role that can’t be filled by entrepreneurs. It does certain things that entrepreneurs can’t do for themselves. Among those things, it thinks broadly of economic development for a region. It focuses on that community from the perspective of making the place a great place to live, work and play. And what governments do to make a place a great place to live, work and play is think about infrastructure elements or components that government has to make real.
Some of those have to do with transportation, some of them have to do with investment and long-term planning that really looks out on the horizon and imagines how this city can mature in time in a way that makes it even more attractive to folks that start new companies and build new businesses. Education is critical. Entrepreneurs require a steady stream of talent and the quality of educational institutions from beginning to end is important. And government needs to play a critical role in convening and calling attention to what’s happening in the local business community.
ID8: Can government create entrepreneurship?
Higley: I wish it could. In some ways, that would be terrific, but there aren’t lots of successful examples. Political administrations tend to come and go. And the things you put in place as initiatives during one term can be undone by a following administration. I think the folks who are best able to drive the creation of entrepreneurs are entrepreneurs themselves.
Ruhe: I do not believe government can create entrepreneurs. They can create and maintain the environment that makes it more conducive for entrepreneurship to thrive. That’s what they control. Think about some of the most dire situations around the world. Oftentimes, one of the earliest harbingers of stability are the entrepreneurs. They’re called street vendors and other names, but it’s the entrepreneurs that venture forth first when they see local conditions as stable enough to brave a certain activity to provide for their family. So, even in those circumstances, entrepreneurship occurs, which is why I don’t credit government for making entrepreneurs. They could make situations and circumstances that enhance or detract from entrepreneurship.
Washington: I think city and state government can and should help create an environment where those risks can be taken and where entrepreneurial risks are celebrated. States can nudge the culture in that direction. You do that by using the bully pulpits of the governor or the mayors out there celebrating and recognizing entrepreneurism. The state should push the educational system to teach and understand what being an entrepreneur is about so that students grow up with some notion of what it means to own and operate their own business.
ID8: Does government stifle entrepreneurship?
Washington: Absolutely. By having unnecessary and cumbersome regulations and by having unpredictable policies, whether they’re tax or growth policies. Unpredictability means increased risk, which makes the cost of capital higher. So governments should maintain consistent policies so that business folks can manage around that risk. Cities and states can stifle entrepreneurism by having ineffective branding and policies, everything from being too conservative when it comes to social and economic issues to being too liberal when it comes to legalization of activities that might be illegal on a nationwide basis.
Ruhe: The things that they do to pose barriers are things that restrict access to capital, that restrict or deincentivize capital investment. They make it harder to do cross-border collaboration. Prior to 9-11, NAFTA was creating an absolute boom for North America. It’s credited for feeding the Mexican renaissance and how much the Mexican economy has grown. After 9-11, most of the benefits of NAFTA were rescinded and gutted under the auspices of national security. That has had a massive negative economic impact on the United States.
Higley: One way that government fails to support entrepreneurship is failing to follow up on its conversations with members of the entrepreneurial community, with a startup that’s actually doing something that can be supported. There just isn’t the urgency around what needs to happen. The other things are processes, regulatory frameworks or environments that were created for large companies, but are applied to very early stage companies. That burden can be ridiculous to early stage entrepreneurs. And government can fail to provide infrastructure to make the city and state an attractive place. Sometimes, that’s about simple, obvious infrastructure pieces, like transportation. Sometimes it’s doing whatever is necessary to be a great place for investors to invest capital. That could be making the community attractive to a venture firm; it could be supporting the angels in the community. It could be looking for things that help startups navigate what they have to navigate to be able to get to the next level.
ID8: Do politicians understand entrepreneurship?
Ruhe: Most politicians wouldn’t recognize an entrepreneur if their PAC-funded motor coach backed up over one. It is a word that gets used as a talking point and is not really understood. They don’t understand it. And that’s part of the problem. Everybody wants the benefits of it, but nobody’s taking the time or the discipline or the effort to understand who entrepreneurs actually are and what they can do to actually help them.
Higley: I can’t speak to what most government officials know and understand. I can say that it’s not likely that even most business people who are not entrepreneurs understand what entrepreneurship is about. Business is very different viewed from the perspective of the entrepreneur than it is, say, the typical senior manager of a business. I think that the conversation goes way beyond a distinction between entrepreneurs and what they need and want and expect, and government and what it needs and wants. I think entrepreneurs have a different set of needs and perspectives than businesses, mature businesses as well. It’s easier for government oftentimes to sympathize with, connect to and really collaborate with large businesses than with early stage entrepreneurs.
Washington: I don’t think you have to run a business to understand entrepreneurism. But nothing can replace making payroll and the anxiety that brings, the hustle that requires, the understanding of risk. Those are key elements to being a successful entrepreneur and those are experiences that can’t be replicated through academia or reading a book or talking to an entrepreneur. Now, just because you know what it’s like to be an entrepreneur does not make you an effective governor of a municipality or a state. That is a different skill set.
I think (Colorado Gov. John) Hickenlooper is a great example of someone who has both skill sets, but just because you’ve been an entrepreneur doesn’t mean you can effectively govern to the benefit of entrepreneurs. And just because you have not been an entrepreneur doesn’t mean that you don’t understand what it takes to govern effectively for small business.
ID8: Would electing entrepreneurs to political office or appointing them to government positions make government friendlier to entrepreneurship?
Higley: Sure. I say that with some reservation. I think that there’s no question that having some empathy and some understanding from your own experience can make you a much more effective leader interfacing with the entrepreneurial community. But it’s also true that there’s a kind of mismatch between what you do as a government official and what you are able to do and how you operated as an entrepreneur.
Washington: I don’t think having a flood of business-minded folks or even private sector individuals in government is going to mean more effective and efficient government. There is an entirely different skill set to running a business vs running a government organization. Whether you’re a politician, an appointee or a business owner, the most important characteristic is the ability to listen empathetically, the ability to understand someone’s perspective. And you have to couple that with the ability to execute. And you have to execute in a way that moves the needle.
Ruhe: Putting entrepreneurs in positions of governmental authority will absolutely help. Make the environment, make the world a better place for entrepreneurs. You can see the impact Hickenlooper is having in Colorado. I’ve seen it at the city level with Louisville Mayor Greg Fischer. He’s an entrepreneur. If it were within our power we would elevate entrepreneurs to as many seats of political authority as we could.
ID8: Given their distinct missions and structures and the different speeds at which they move, are government and entrepreneurship fundamentally incompatible?
Washington: I think the truth lies in the middle. Entrepreneurs are frustrated with city and government processes because of the time and effort they require and the dollars expended. But government has to protect the health and safety of citizens; there are certain safeguards that have to be adhered to so that you have a safe, operating, law-abiding society. The challenge is for entrepreneurs to understand what they do impacts a larger population. If you want to locate an entertainment venue in a neighborhood, that’s going to mean noise, that’s going to mean drinking, those are things have to be considered and dealt with.
On the flip side, government has to understand that, absent anything to do with the safety and health of citizens, unnecessary red tape and processes need to be streamlined. Otherwise, you’re not adding value to that business and that’s where entrepreneurs get frustrated. Each of those parties comes at a problem from a different perspective, but they’re all relevant. The sooner that business is operating safely and effectively, the sooner taxes are increased, the safer that business operates, the more productive and vibrant the city is. There needs to be that common understanding and that’s really the challenge.
Ruhe: I do not think they’re fundamentally incompatible. No entrepreneur can start a business in the United States without the benefit and protection of many of the things that government provides. We have a stable transportation system which allows me to ship and receive products and inputs. We have a great, regulated federal communication system that allows me to communicate with my clients and the rest of the world. The question is what can they do to enhance that? In a political environment where increasing taxes is a non-starter, the only way we’re going to increase our revenue base is by starting more companies that grow in the existing tax environment. That should be the focus.
ID8: Innovative, creative people are attracted to cities with a high quality of life. Should government be trying to create those conditions in order to draw entrepreneurs?
Washington: Governments need to focus on creating an attractive place for individuals to live, work, play and study. If you can accomplish that, you will have more vibrancy in your jurisdiction, including more vibrancy in business because entrepreneurs are going to want to move there. Employees they hire are going to want to move there. Individuals are going to want to vacation there; they’re going to want to study there. That’s the simple blocking and tackling of government. Clean streets, safe streets, good educational system. Thoughtful, forward-thinking transportation systems and infrastructure and consistent policies are some of the key criteria for making an environment in which people want to live, work, play and study.
Ruhe: I don’t think you have to be an entrepreneur or aspire to be an entrepreneur to appreciate living in a dynamic environment. The question is to find which improvements can serve multiple ends. For example, it could be financially supporting a community college that’s producing better-prepared graduates in programming. We hear time and time again entrepreneurs need more tech folks. If you could make that a priority within the community, you would be helping your community better prepare graduates that will have jobs ready and waiting for them and that will generate a good tax base.
Higley: Yes. Yes. Yes. Absolutely. So here’s where I give Denver enormous credit. And I think this isn’t only about government, this is government in cooperation with the private sector, but downtown Denver today didn’t become this thing last year or the year before. It happened over 20 years. I got here in 1989 and I can tell you that most of what happens down here wouldn’t happen back then. In 1989, there was no Coors Field where the Rockies play. In 1989, there was no Pepsi Center; the new Mile High Stadium hasn’t been built. Elitch Gardens wasn’t downtown; LoDo wasn’t filled with restaurants. So there has been a focused investment in developing the infrastructure and making this a great place to live, work and play. And government had to play a critical role in that.