Tag Archives: bootstrap

Personal Responsibility, Civic Duty and the US Entrepreneurship Model

By Lauren A. Burnhill, @LaurenOPV

Bootstrap your start-up business! Max out your credit cards, cash in the 401-k, tap your friends and family. If you’re still alive at break-even, maybe you can find enough of the right capital to grow sustainably. We all know this is how the game is played here in the US, but that doesn’t make it right.

Essentially, we’re sending the message that we believe entrepreneurs should:

(a) Con their loved ones into parting with money that they probably can’t spare as if this somehow proves the business concept is worthy;

(b) Dip into already inadequate retirement savings, thus potentially making you and I, aka the US taxpayer, responsible for retirement costs;

(c) Take excessively high levels of risk with personal, family and community well-being on the off chance that they could get really rich somewhere down the line. OK, maybe it’s just the tech world that has visions of IPO payouts. Many entrepreneurs create a business because they need to, or because they want to fill a need in their local community. The rules of bootstrap make even less sense for these men and women.

We encourage entrepreneurs to behave in a manner quite opposite to the principles of fiduciary responsibility that the investment managers looking at their businesses must follow. How can it be a good thing to encourage such extreme personal risk taking?  Don’t we have a responsibility, to ourselves and out society, to  look after our own health, well-being and eventual retirement needs? Why can’t we come up with models for launching new business that don’t require people to do stupid things in order to “prove” that they are seriously committed to their new venture?

This blog post “How High is your Enterpreneurial Pain Tolerance?” by Chris J. Snook on YoungEntrepreneur.com uses language that validates the notion that you have to push to the point of pain to start a new company. Underneath the language, Chris is actually making sensible points and offering sage advice. You could probably re-write the whole piece as “How Balanced are your Work/Life Priorities?” with very few word changes. We’ve got to stop buying into the “No pain, no gain” notion of entrepreneurship. It’s been discredited as a way to build muscles in the gym and it’s not the right mindset for building sustainable businesses either.

I’m excited about a number of provisions in the JOBS Act, especially new crowdfunding regulations.  I hope that reaching out to the crowd will replace “friends and family” as a source of start-up capital. Under crowdfunding protocols, our entrepreneurs can find people who are interested in their specific business proposition and have a bit of cash that they want to put up to make things happen. No matter how off-beat your interests, there are always people who share them – that’s one of the beautiful thinks about a heterogeneous society!

If your friends are out doing multiple bottom line kinds of things, or raising families, chances are they have as little cash as you do. If they can’t invest in your start-up, should that brand you a failure? If your family doesn’t have cash to spare, does that mean your business plan is unworthy? In both cases, I think the answer is, or should be, “no”.

I don’t want to see entrepreneurs putting their retirement savings at risk. First, Social Security is on the verge of bankruptcy, so personal savings could mean the difference between retirement and indigence. Second, even if Social Security were fine, most bankruptcy laws exempt retirement savings. Why? I’m not a lawyer, but I’d guess at least part of the rationale is that most of us will need to supplement Social Security payments in order to sustain a reasonable quality of life in our retirement years.

I don’t want to see entrepreneurs cutting back on health care for themselves or their families either. I know it’s expensive – and I’ve had to cut back on health care myself over the past year or so – but we are sacrificing productivity and well-being to the myth of bootstrapping. Shouldn’t we be aiming for a model that values healthy entrepreneurs who respect and value their friends and family? 70% of chronic disease is preventable. Making sure that our entrepreneurs protect themselves from diabetes, heart disease, obesity etc. means greater personal productivity over the long run and lower health care costs for society as a whole. Let’s get better coverage of prevention and value the time that people dedicate to wellness activities.

We need to find new ways of assessing and ensuring commitment when it comes to entrepreneurs and new ventures. Companies like the Entrepreneurial Finance Lab  (for SMEs) and the Startup Genome (primarily for tech) are working on this. Post a comment if you know of similar initiatives!

The model we have today encourages the entrepreneur to set aside personal responsibility and civic duty in the pursuit of success. How is this consonant with the concept of a triple bottom-line (financial, social and environmental) enterprise?  Instead of pushing the bootstrap model of entrepreneurship, why don’t we invest some time and effort into exploring new methodologies and instruments for early stage financing?

This isn’t just a problem for start-ups and small businesses in the US. When I look at the developing impact investment industry,  this same issue of early stage financing is a major roadblock around the world.  Thinking creatively around financing is a bit of an anathema, especially in the wake of the global financial crisis. Nevertheless, new regulations for crowdfunding, small business private placements, start-up visa programs  and expanded definitions of permissible program related investments suggest that we can change our mindsets from time to time.

I think we need better financial product design and new investment methodologies as well, and I’ll write about these ideas in the near future. For now, I’d like to hear about YOUR wish list! If you could make one change to the financial ecosystem supporting entrepreneurship and impact, what would it be?