Another Foundation Funded By An Entrepreneur Turns Towards Big Government

Posted: Apr 03, 2018 10:19 AM
Another Foundation Funded By An Entrepreneur Turns Towards Big Government

“Are you making any money?”

That was the question put to me by someone who was curious and wanted to know if my business was successful, i.e. what was the state of my startup company? 

“Getting better every day,” was and is my response. 

Most that ask this question are looking to make a quick buck; they’re imitators, not innovators. They want explorers and trailblazers to take all of the risk and efforts to become successful and then they’ll swoop in with a competitive, “cheaper” copied solution and take market-share of the innovator’s sales and profits.

The entrepreneur is the marketplace change agent. Winston Churchill provides some insights to private enterprise, the marketplace, and entrepreneurs in general. 

“Some regard private enterprise as if it were a predatory tiger to be shot. Others look upon it as a cow that they can milk. Only a handful see it for what it really is—the strong horse that pulls the whole cart.” 

As a whole, corporations see budding entrepreneurs as the tiger threatening their cash cows. Government and education see private enterprise and entrepreneurs as the cow that needs to be milked and have some of their expertise and profits siphoned off for themselves. The customer sees the marketplace as the horse pulling their wagon by serving their needs.

Ewing Kauffman (1916 - 1993) was an avid reader growing up. He was especially taken with Magnificent Obsession, Lloyd C. Douglas’ first novel. After his service in the Navy during WWII, Kauffman became a pharmaceutical salesman. His sales performance earned him a commission higher than the salary of the president of the company. This resulted in a reduction of his sales commission. The following year earned him an exceptionally large salary and the company responded by cutting his sales territory. Kauffman’s treatment soured his relationship with the company and he struck out on his own and started Marion Labs. In starting his own business, Kauffman followed two guiding principles: share the rewards with those who produce and treat others as you wish to be treated.

Kauffman built his fortune as an entrepreneur in the health care field, he did not let that stop him from influencing his community. He sought out and found shortcomings in the modern philanthropic foundations models and then created the Ewing Marion Kauffman Foundation in 1966 with an endowment worth about $2 billion today. It focuses on “advancing education and entrepreneurship in meaningful ways that unleash the human potential and fundamentally changes people’s lives.”

In its 9th Annual State of Entrepreneurship Address in 2018, it discusses, “Breaking Barriers: The Voice of Entrepreneurs.” Its key findings:

  • “These entrepreneurs say the government isn’t supporting them as they seek to open or grow their businesses. The government resources that are available to them aren’t the ones they need, and many feel that the government supports established businesses over their own.”
  • “However, there is an opportunity for the government to support these entrepreneurs by being more proactive in supporting a business-friendly environment such as repairing infrastructure and streamlining taxes and regulations on businesses.”

Of concern with both of the findings above is the first phrase, the “government isn’t supporting them.” Kauffman’s research shows that a vast majority of new and older entrepreneurs never applied for government grants or funding,[1] while it asserts “these resources aren’t what they need.” The child’s game of “Chutes and Ladders” now becomes an adult entrepreneur’s inclusion in the government’s game of “Hooks and Anchors” in their life and business.

In nearly every case, a government thinks it helps a citizen or organization. In reality, it both hinders and sets its hooks into the business. Laws, regulations, bureaucracy, and plain bad ideas place a burden into an entrepreneur’s business. Solutions provided by the government are contrary to what the market needs. Their often detailed requirements are over and above what keeps a business healthy. Not to mention the necessary time and effort needed to seek out or apply for help. “We’re here to help” is in most cases a square-peg government solution for a round-hole market problem.

But Kauffman’s survey showed its lack of true entrepreneurial colors by asking government policy questions about family leave, raising the minimum wage, extending DACA, and even repealing net neutrality.[2] These policies have little to nothing to do with helping an entrepreneur become successful. One of the few lone, bright and shining stars concerning free markets was the survey question regarding “Lowering the corporate tax rate from 40% to 20%, eliminating state and local deductions, lowering the tax rate for all Americans, and settling a 20% business income deduction” which had a “69 positive impact” answer.[3]

But their second phrase, “supporting a business-friendly environment” belies the government’s support issue among entrepreneurs. About one-third of businesses are solopreneurs while an additional 50 percent or so have up to four or five employees, for a total of about three-fourths of all U.S. businesses. Of course the government won’t help these smallest of businesses; there are too many entrepreneurs, too many details, and too few programs as well as many misguided government solutions for them. 

Budding entrepreneurs are put between a rock and a hard place, not due to gross negligence or misconduct, but for sometimes slight errors with the state. This includes “used” software licensing that is bought “As Is.” 

Microsoft’s Office 2010 Home and Business License states, “…ONLY DIRECT DAMAGES UP TO THE AMOUNT YOU PAID FOR THE SOFTWARE. YOU CANNOT RECOVER ANY OTHER DAMAGES, INCLUDING CONSEQUENTIAL, LOST PROFITS, SPECIAL, INDIRECT OR INCIDENTAL DAMAGES.” This statement means it may be worth the time and effort to sue Microsoft for their mistakes, your costs may be beyond the cost of the software. Who loses when software vendors make mistakes? The entrepreneur will lose every time. Microsoft and the state will not lose, as we shall see.

For example, my friend K. described his foray into eCommerce in New York State about a decade or so ago. He had set up a web site and began making some online sales to the tune of around a few thousand dollars in profits over a number of months. A State Auditor finds the software he purchased erroneously calculated the taxes to be off by a few pennies per transaction (most orders were between $5-$20). The auditor fined him $30 per transaction error, thus taking ALL of his profits he had earned up to that time. He bitterly complained. He even said to the auditor, “So if I close my business, you won’t get ANY MORE taxes from me!” They shrugged their shoulders and handed him his bill and left.

Complex legislation and tax codes create not only ambiguity, but ignorant and innumerate entrepreneurs can use up valuable capital in fines and fees that could be used to grow their business. Not to mention others “fees” that are nothing more than additional taxes used to further burden hard working entrepreneurs.

In most states the numbers of solopreneur businesses are too many and too complex for state department of revenues to handle on a regular basis. The cost (time, expense) for the entrepreneur to process, collect, and pay taxes and the cost (cost/hour for state employees) for the state to process and recover taxes and fines owed outweigh the benefits of the taxes.

"He said to His disciples, “It is inevitable that stumbling blocks come, but woe to him through whom they come! It would be better for him if a millstone were hung around his neck and he were thrown into the sea, than that he would cause one of these little ones (Strong’s G3398 Thayer’s Greek Lexicon, literally, “of rank or influence”) to stumble.”"

Luke 17:1-2

Do you think that entrepreneurs should be tax exempt up to a certain amount?

[1] Breaking Barriers: The Voice of Entrepreneurs 2018 State of Entrepreneurship February 28th, 2018 

by the Kauffman Foundation, slide 27

[2] Breaking Barriers: The Voice of Entrepreneurs 2018 State of Entrepreneurship February 28th, 2018 

by the Kauffman Foundation, slide 31

[3] Breaking Barriers: The Voice of Entrepreneurs 2018 State of Entrepreneurship February 28th, 2018 

by the Kauffman Foundation, slide 30