Wednesday, January 25, 2017

"Revitalize a Spirit of Entrepreneurship" – New Mission for the SBA??

On January 24, 2017, the U.S. Senate’s Small Business and Entrepreneurship Committee quizzed Linda E. McMahon as President Donald Trump’s nominee to be the Administrator of the U.S. Small Business Administration ("SBA"). See the SBA’s website at Confirmation of U.S. cabinet members can often expose the nominees to hostility and challenges. Here, these hearings were collaborative and not contentious.

Perhaps that’s because Mrs. McMahon was a former candidate for Senator (Conn.) and introduced and endorsed for this position by the two Senators who beat her in 2010 and 2012. She was also the former CEO and President of World Wrestling Entertainment, Inc. (“WWE”), stepping down in 2009. As entrepreneurs, she and her husband built their business from a privately owned company to a publically traded global enterprise, with over 800 employees. At her hearing, she acknowledged that, "Like all small business owners, I know what it’s like to take a risk on an idea, manage cash flow, navigate regulations and tax laws, and create jobs."

The Small Business Administration plays several key roles in supporting job growth through entrepreneurship. Its purpose is to help "level the playing field" between small and larger businesses. Senators mentioned statistics that small business accounts for perhaps 90 to 98% of businesses and about 64% of job growth in the United States. Job growth is a key target of Donald Trump’s “Make America Great Again” campaign slogan.

Here’s what seems critical to U.S. job creation and “Making America Great Again.”

  • Regulatory Complexity and Compliance; Unusable Websites. Entrepreneurs face disproportionate costs and distractions from excessive bureaucratic complexity and compliance obligations, both for operations and for taxation. Small businesses often don't have the resources to wade through the complex web of “jargon-filled” federal regulations. The Senators urged simplicity, fewer regulations, quicker bureaucratic responses and “normal websites that a normal person can understand.” So they called upon Mrs. McMahon to be a strong advocate of deregulation and simplification of regulation.
  • Government Procurement. Small business is generally excluded when governmental procurement solicits big projects and fails to carve it into smaller projects. Other agencies are not held accountable for allocating a fare share to small businesses, particularly, women-, minority- or veteran-owned businesses. Senators urged her to lower regulatory burdens by promoting smaller government procurement projects and advocated getting a fair share of these projects allocated to small businesses.
  • Office of Advocacy ("OA"). This office within the SBA is responsible for intervening with other federal agencies on behalf of small businesses. It has a spotty record of success. Mrs. McMahon committed to learning about what did not work and will give it teeth to become more successful.
  • Education. The Senators identified the mismatch of job opportunities with the skills offered by the American workforce. Mrs. McMahon believes that this is due to a shortage of trained people for these jobs and committed to explore how the SBA may promote educational programs and outreach to communities. Nothing was mentioned about policy issues involving skilled immigration, such as H1-B visas or foreign entrepreneur visa waivers or parole. 
  • Access to Capital. The SBA acts both as bank lender and guarantor of bank loans. Senator Mazie Hirono, D-Hawaii, wanted Mrs. McMahon to identify the factors that restrict a small business’ “access to capital.” Mrs. McMahon replied that the recent restrictions imposing over-collateralization requirements on small business, to protect bank solvency, actually hurt job growth. Since collateralization is a key principle of prudent lending, Mrs. McMahon distinguished a good “cash flow business” from a “bricks and mortar business” (that owns it real estate). She reminded small businesses to get a line of credit once they have begun earning money, since debt can accelerate real growth and sustain continuity in a surprise downturn.
  • Critical Role of Intellectual Property. Mrs. McMahon responded to a question on the importance of teaching entrepreneurs to protect their intellectual property. IP rights were the cornerstone of the WWE’s growth. According to my handwritten notes written in my kitchen, she said: “Intellectual property was a large part of the WWE. From the beginning, we wanted to be sure of our rights. It was very important that we copyright our TV shows and our music programs. You might have invested so much, but if you don’t protect your intellectual property, you don’t have a leg to stand on. You need to protect that and spend money on intellectual property protection.” 
  • Disaster Relief. Small businesses are hardest hit by natural disasters and Mrs. McMahon stated that this is her first priority, should she be confirmed. Small businesses might not have adequate capital to replace inventory or facilities destroyed by hurricanes or floods. Both FEMA and the SBA provide assistance, but SBA provides emergency loans. Mrs. McMahon identified a key goal to focus on the disaster relief program to help small businesses get back on their feet. Sen. Marc Rubio, R-FL, asked to extend SBA disaster relief to cover pandemics like the Zika virus as a natural disaster.
  • Small Business Innovation Research Program. Aside from lending programs, the SBIR (a temporary) program provides grants to small businesses that develop innovative products. Such funding has been critical to supporting innovation in governmental programs, especially military innovation. Senators urged that Mrs. McMahon support making this a permanent part of the SBA.
  • Mentorship. Everyone agreed that the Service Corps of Retired Executives (“SCORE”) provides invaluable mentorship and advice to entrepreneurs and is a good investment for the SBA. Mrs. McMahon would like to see more mentoring. But she warned that SCORE mentors should be free to warn “this business will not be a success” when necessary. I guess she will be visiting some incubators soon! 
  • International Trade. Ranking Democrat, Sen. Jeanne Shaheen, D-N.H., asked Mrs. McMahon for support in international trade. Import-focused trade might run contrary to President Trump and other Cabinet members’ agendas, but export-focused trade (including SaaS online services and IoT devices) could be a good fit for promoting high-growth U.S. small businesses.

The Committee hopes to make a decision next week, but the record remains open for two weeks after Jan. 24 for additional submissions concerning Mrs. McMahon’s nomination. Speak now or hold your peace.

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