America’s Entrepreneurial Innovation Needs Help

The innovation engine that powered the U.S. economy over the last century seems to be slowing down and dying, threatening not only local opportunities, but the economies all over the world. The $30 billion trade surplus in advanced technology products that America enjoyed just one decade ago has now become a $56 billion deficit.

More and more people, like Henry R. Nothhaft, in his new book “Great Again: Revitalizing America's Entrepreneurial Leadership” are already calling these last ten years the “Lost Decade.” Nothhaft has put together a challenging but small list of things we have to do to revitalize our innovation leadership, and I’m supportive:

1. Liberate entrepreneurs from regulatory shackles. Startups in the U.S. face the highest combined federal and state tax rates in the world. At 39%, it’s more than 50% higher than the European Union countries average of 25.5%. Rates around the world are still going down, while U.S. rates have remained fixed for the last ten years.

   In addition, due to Sarbanes-Oxley and other regulations, accounting costs have gone up an estimated four times for all businesses, and 2008-2009 represented the worst IPO market in forty years. We need a regulatory regime that nurtures startups, rather than penalizing them like giant corporations.

2. Fix the patent office to keep up with the backlog. Since 1992, Congress has diverted nearly $1 billion in applicant-paid fees already earned by the USPTO to other uses (like the 2010 census), leaving the patent office unable to deal with the threefold increase in patent applications over the last 20 years.

   As of January 2011, there are a staggering 1.2 million applications awaiting approval, and more than half have never had an initial review, which really hurts startups. The average total fees for obtaining a patent are now way up to $38,000. In most cases, no patent means no financing, no new products, no new jobs, and no new industries for tomorrow.

3. Offer meaningful incentives to bring back high-tech manufacturing. In the last ten years alone, more than one-third of America’s largest factories have shut down. That’s 42,400 factories, including 15 semiconductor plants, and 12 million lost jobs. We now produce only 14% of the world’s supply of semiconductors, and even less of other things.

   Both China and Taiwan now provide a 5 year, zero-tax holiday, for semiconductor manufacturers, followed by 5 years at rates as low as 5%. Germany, Ireland, Israel, and most other non-Asian nations also provide major tax incentives, and huge R&D tax credits. We need to make a strong manufacturing base a national priority.

4. Ease immigration rules to turn brain drain to a brain gain. Studies show that foreign immigrants who enter on H-1B visas make a greater innovation and scientific contribution to the nation, by patenting at double the rate of native-born Americans, and publishing more highly-cited engineering articles.

   In fact, between 1995 and 2005, these same immigrants founded over 50 percent of the venture-backed technology companies in Silicon Valley, and are some of the key venture capitalists there as well. The evidence is that immigrants don’t take jobs, they create them by the millions.

5. More programs to support basic science and research. Over the past decade, there has been an exodus of scientific and technical expertise from the DoD (Dept of Defense) and academic community, with basic research dropping from a high of 26% in the 1960’s budget to only 12% of their budget today.

Government should learn from private industry and invest research funds just like a venture capitalist invests startup capital. It should invest in people and teams first of all, and let startup entrepreneurs take the fruits of that research and build from it a better tomorrow.

It’s time for us to get back to the basics of fostering innovation. I agree with Nothhaft that the answer is neither the “big government” of the radical left nor the “no government” of the radical right – it’s the “smart government” of the common-sense middle. Startups can be our silver bullet to kick-start our economy and innovation, so let’s give them some help, and be great again.

Marty Zwilling

Your Startup Technology is Like a Banana

By Bob La Loggia, CEO StormSource

Technology is like a banana. Yes, you heard me right, a banana. Just like technology, a banana has very distinct phases. Understanding these phases and taking action on them could be the difference between your company being king of the jungle or being caged in a zoo scraping flattened Junior Mints off the ground for sustenance.

Eating a green banana

You know the drill. You head to the grocery store, snake up and down the aisles pretending that you are the one in control of your choices and not the marketers. When you finally hit the produce section, it’s a welcomed reprieve from the cardboard, plastic, and aluminum. When you get to the bananas, you say, “Hmm, these look a little green. No biggie. They’ll be ripe within a day.” So, you grab a bunch and off you go.

They say that all humans are basically the same, regardless of ethnicity, gender, or religion. What happens next is a ritual that transcends all of mankind – a self-indulgent lie that occurs millions of times every day in all corners of the Earth: You talk yourself into trying to eat an unripe, green banana. You struggle to peel it, but you succeed. As you take that first bite, you realize something is wrong. Something is terribly wrong. You were expecting a fine wine and you got vinegar. You try to stay composed, but you can’t control yourself. You burst into a fit of fury and curse the heavens. The anguish is unbearable. You wish you were never even conceived.

Eating a green banana is like introducing a technology for which people aren’t ready. It looks good and seems pretty cool. But, when you try it, it’s a disappointment. Either the customer isn’t ready or the technology isn’t ready or the market isn’t ready. Remember when the first tablet computers were introduced? They failed. They were a green banana.

Rotten bananas

To see a brown, slimy, unwanted banana is a horrible experience. Just days ago, it was spritely, firm and full of potential. Now, it’s a pitiful has-been of a fruit. It’s hard to even look at. It’s starting to leak a little and stink. It’s that same uncomfortable feeling you get when you visit an old-folks home.

When your technology is out of date, prospects and customers get the same feeling. They may not write you off, but it’s definitely a struggle for them to take your technology seriously. And, it gets harder when they get marketed to by new, shiny competitors. It’s like putting a new, firm bunch of bananas on the counter next to a couple nasty, rotting ones.

Just right

When you peel back the perfect banana, time seems to stand still. The world is beautiful, easy, and calm. You chomp down and confirm this wonderful feeling.

When your technology is not too young and not too old, when it’s in the prime of its life, it’s a magical thing. It just works and your customers get it. We come across web sites and applications like this all time. You know them when you see them. They feel right. But, you also know when it when you see technology that is old or technology that is not yet ripe. They don’t feel right.

In your business, make it a priority to have the right technology, even if it’s just your web site. Don’t make it too “out there” and make sure it doesn’t look too old. Your prospects and customers will tolerate green or brown bananas for a while, but eventually they’ll move on to the next tree where the fruit is ripe. Don’t let this happen to your business.

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Bob La Loggia is the founder and CEO of StormSource Software, maker of Appointment-Plus online scheduling software. He is a veteran of four startups, has over 22 years in technology, and has seen a lot of bananas. You can contact him directly through his website or email.

10 Reasons Why Capital Shouldn't Make Or Break Your Startup

By John Williams

Fast Company magazine recently reported that PayPal founder Paul Thiel is giving away $100,000 to twenty-four young men and women to finance startup businesses. The caveat is that these young entrepreneurs have to drop out of college to do it.

This move is indicative of the possibility that the traditional ways of going about making a living through a college education, an entry-level position at a firm, and steady promotion through the ranks is a dead model. Instead of following a proscribed course which may lead nowhere, entrepreneurial leaders such a Thiel are sparking a change in the way we think about success.

Thiel is providing his mentees with capital to make their startups a reality. For most of us, though, the idea of investors or even securing financing may as well go the way of the corporate ladder. For those of us without angel investors, there are still plenty of reasons to move ahead with new ventures, and we are not alone:

1. It's all you. When you don't accept capital from someone else, you aren't beholden to anyone else's input. You get to call the shots. You get to keep and reinvest every bit of what you make. You get the personal satisfaction of making something out of almost nothing. People love the fact that Microsoft was started in a garage. Dick's Sporting Goods was started with $300. Become a compelling story yourself.

2. Having no money can help you plan. With a bank account full of someone else's money, it's hard not to feel flush with cash and have a false sense of security. An inflated sense of financial well-being can result in sloppy budgeting and accounting as you write checks here and there without pause. But when your only capital is your hard-earned seed money, every penny that goes out will be scrutinized painfully. Your mortgage and grocery bill depend on it.

3. You can keep overhead low. You may want office space outside of your home, but you may not need it to start. Print advertising is expensive, but social media is free. Fancy websites are expensive, but blogs and Facebook pages are free. New desks and computers are expensive, but second-hand stores and Craigslist are great sources for used equipment and supplies. A box of business cards and a card table in your spare bedroom may be all you need. The rest can come later. Or not. Frugal business practices can be rewarding.

4. A lean image is appreciated. Who hasn't dreamed of a big fancy desk, over-the-top corporate parties, and glossy ads in national magazines? But in the current business climate conspicuous displays of wealth are frowned upon and summon images of Enron, oil companies, and big banks. The shoestring budget and image are in style. Take advantage.

5. Starting small gives you flexibility. Starting small and nimble allows you to adjust and be flexible as you gain experience instead of being tied to a large concept by heavy investment in upfront costs. If you spend $50K on a website selling party supplies but you soon realize it's the sales of catering supplies you offer that have taken off, you will want to have a site that promotes your newfound focus. But if you've spent all your money on the website for party supplies, you may not have the funds to have the site redone.

6. Businesses can be built on sweat equity. Startup businesses requiring the least amount of capital are those that require little more than your time and hard work. A landscaping service can be started with only a used lawnmower and effort. A freelance writer needs only a computer and her time. If you will be making a product to sell, be sure the cost of materials is minimal and beyond that it costs only your labor. Making cakes, making baby clothes, or making birdhouses, for example. As your services gain demand, your time becomes more valuable and you can charge more.

7. Moonlighting can pay the bills. Some people say if you are serious about starting a business you must go all-in from the beginning, but for some that simply isn't a reality. You can pay your bills with another job so that profits from your startup can be invested back into your business. The only trick here is that you have to be willing to work around the clock between your day job and your startup.

8. You will (MUST) love what you are doing. Don't equate "startup entrepreneur" with "future millionaire" or visions of a buy-out by a big-time corporation. Making something from nothing doesn't happen overnight. The struggles that come with reaching your business goals will be a lot easier to live through if you love what you are doing and are committed to your idea.

9. People can help you if you help them. A local fishing guide might make friends with folks at the bed and breakfast, each referring clients to each other. You can network to give and get referrals for other businesses. Ask satisfied customers to spread the word on yelp, tripadvisor, Angieslist, etc., and to tell their friends.

10. Customer service is free. Out-do the big-shots and other competitors when it comes to customer service. Being polite and doing diligent work costs you nothing. It's amazing how rare it is for professionals to return phone calls and emails promptly, show up on time, or finish a project for the price quoted. Do this and you will separate yourself from the crowd.

According to the nonprofit Kauffman Index of Entrepreneurial Activity, the 2010 startup rate is the highest in fifteen years, a great deal of which are sole proprietorships by necessity. But a sole proprietor startup is not a bad thing, and it does not require the investment capital that may be keeping you from moving forward with your business idea. If lack of capital is holding you back from initiating your startup, think again to convince yourself that this excuse won't fly.

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Today’s guest post is by John Williams, president and founder of Logo Garden, a resource website for anyone starting or running a small business. John is a veteran of over two decades in the advertising industry. He has published extensively on branding, and often shares his thoughts on the Logogarden.com blog.