In a recent post on Blog Maverick, Mark Cuban gives P-E Obama a low mark for failing to include any entrepreneurs in his economic recovery team. Leaving aside the question of whether or not the current economic situation could be helped by entrepreneurship or if there are low-level economic issues that need to be resolved first, it got me thinking about public policy as it relates to entrepreneurship. If the government decided to pick establishing new ventures as one of its key policy goals, what would that legislation look like?

I have owned and operated Distance Software for over a year now. Before that I worked at a small research company for seven years funded mostly by government contracts, and before that, I worked for a B2B startup that collapsed in the dotcom boom. I have never worked for a company that more than 50 people. I have never worked in an office that had more than the office I work in right now (8, when both companies in the space have all their staff in). With these experiences, I feel fairly qualified to talk about what might encourage and support entrepreneurship from a public policy standpoint. Here are my top five initiatives:

1. Fix the #%@$&ing heath care system - The debate over health policy is hopelessly framed as a choice between a "socialist" single-payer system and the current employer-paid system. The Obama campaign ran ads here in Wisconsin in which it described his health policy as somewhere in the middle of the extremes of an "expensive single-payer system", and the current system, described as "Insurance companies in control, denying coverage", or something to that effect. With this kind of view, I have to agree with Cuban that they are blindly failing to include the entrepreneur's perspective on what would make good policy.

   Personally, the number one thing that prevented me from starting my own business years ago was the knowledge that I didn't know where or how I would get health coverage. I can't be the only business owner who has felt this way. Now that I'm in business, with every hire I make I have to consider how I will offer them some health benefit if I hope to be competitive. Because of the employer-paid system, every single business in America is also in the business of navigating the health insurance industry, and has to spend some amount of tie and energy picking a plan, administering that plan, and accounting for the plan costs in their books. Sounds pretty inefficient doesn't it?

   The current health care system is rabidly anti-entrepreneur. I don't claim that a single-payer system will solve all the problems, but pretty much anything would be better than what we've got. I can guarantee you that if Americans had universal coverage that would cover them regardless of their employment situation, you'd see the market flooded with 30-something entrepreneurs who suddenly have no reason not to take the plunge.

2. Create Something like SCORE, but More Useful - Once I had gotten a lot of the basic elements of my business in place that were easy to figure out with a little research, like contracts, invoicing, employment issues, payroll, and an accounting system, I had a lot of questions that were more esoteric and, in my mind, required the input of a business veteran.  I had questions like:

   "I'm starting to hire, but a lot of my clients imagined that they would be getting me and only me on their projects.  How do you transition from one to many as a consultant without making clients feel like they've gotten a bait-and-switch?"

   "How soon should I hire an administrative person? Can it be done too soon?"

   "Are there any short or long term drawbacks to incorporating as an LLC versus a standard corporation given my corporate goals?"

   A few of the resources I had used recommended contacting the Service Corp of Retired Executives (SCORE), as a way to speak with a real live veteran of the business. I contacted my local branch and arranged to meet with someone there. The guy I met with meant perfectly well, and did answer a few of my questions, but he was just a volunteer trained by the organization and had kind of a stock routine he followed. I listened to his info and took their pamphlets, but I kept waiting for him to say, "and then we'll set you up with one of our Executive members", which never happened. Perhaps it's different in other parts of the country, but overall I felt like it was a huge missed opportunity to match up old with new and answer some of those esoteric questions. I believe that an organization, maybe even SCORE with some tweaking, could be federally created and funded and to fill that role.

3. Qualified Tax Holiday - This is a general policy idea that makes sense for entrepreneurs. It's a simple concept: anyone can request that their payroll taxes be waived for one year. There are some strict rules that try to disincentivize gaming the system:

   - Note that it only applies to payroll taxes, so people can't go selling off stock and homes during that year and avoid capital gains.
   - You can only do it once (obviously).
   - It only applies to the first $100K of income, so there is also not much point in trying to do much other than work real hard that year.
   - It can only be used for personal taxes, so corporations cannot use it to avoid their tax liability.
   - It must be declared in advance, not retroactively.  You file a form with the IRS saying I'm not going to pay taxes next year, and then you are exempt.  That makes sense for entrepreneurs, and others who expect they might have a dicey financial year.

   In general, I despise the notion that taxes are what make it hard to keep a business open, or what keep people from starting businesses. Mark Cuban had a post on this same point a few weeks back: entrepreneurs simply don't care about what the marginal tax rate is, they are are worried about their big idea. On the other hand, during the first year of a business, you will probably have a cash flow problem one or (many) more times. You need to budget for and regularly pay your own estimated taxes, and you probably are cash poor since you may have money tied up in inventory or waiting on payment from clients. If that burden can be eased on entrepreneurs, they can use that money to establish a nest egg to get through tough times, invest in a piece of equipment, or make a payroll that wouldn't have been made, all keys to keeping a business running. The goal is simply to increase the success rate during that critical first year. If non-entrepreneurs choose to utilize it for a little extra pocket cash, so be it.

4. SBA Payment Gap Fund - This is a fairly simple idea that might make a huge difference to a lot of small businesses. A core problem with a new business is that while you both bill clients and pay staff for work completed, your staff has to be paid immediately and your clients generally have some delay in their payment, usually 20 or 30 days. Once you have been in business for a while, you create a cushion that allows you to pay staff without issue and then backfill when invoices are paid. Up until that point though, you generally have to either delay paying staff, borrow to cover your costs, or avoid paying other bills to create the cushion, none of which are good options.

   To address this problem, the SBA could create a "Small Business Payment Gap Fund" that works as follows:

   - Small businesses wishing to use the fund would submit their outgoing invoice and along with a letter of agreement from the payee indicating that the amount would be paid within a certain number of days.
   - The Payment Gap Fund would issue an immediate payment (minus 1% for using the service or something along those lines) for the amount due, and send a bill to the original payee.
   - The original payee would then pay the Fund instead of paying the entrepreneur.
   - As long as the clients are paying back the Fund, the entrepreneur can continue to use the service. Once the overdue amounts exceed some level, the service is frozen and cannot be used by that business until the balance is paid.
   - If the client does not pay, the entrepreneur eventually becomes liable for the money.

   The idea is that good businesses with paying customers who simply need better cash flow can benefit, but it avoids the hassle and risk of a debt system since the loans end up being very short term.

5. Require Inclusion of Small Businesses in Contract Bidding - This one is specific to the tech industry. State and Federal Governments frequently contract with private industry to design and develop custom computer applications. Generally, they get bids from the same set of clients over and over again, large consulting firms who specialize in this kind of work. Since almost without exception, the work goes to the lowest bidder, they hire a lot of entry-level staff and pile on a few layers of management to get things built. This makes it appear as though they have a large team ready to go that can still work on the cheap. Of course, this flies in the face of the consensus opinion of how good systems get built: small high-quality teams, little or nothing separating the users from the developers, frequent releases with immediate feedback from the users, and so on. The end result is highly predictable: big, unwieldy systems that don't meet user needs, take far longer than agreed upon to finish, overrun on cost, and generally fail to meet the stated objective of the contract.

   I remember a recent example: the Milwaukee Public Schools contracted to have a system built to help school administrators manage their students' standardized test results so that they can better do their work of reporting current performance levels and creating plans to address shortcomings. The system was built by some big software consulting shop and delivered to the vast majority of users in a single release. On the day that it was most needed, when many of the administrators began running their reports to get key data, the system ground to a halt, making it basically unusable and creating a major crisis. Many users resorted to staying up until the wee hours so that they could log on with then load was lower and get access to their data.

   I was so frustrated when I heard about this because I knew that a small team doing frequent releases and good unit and load testing practices could have easily delivered this system with none of the issues. However, if a small company like Distance Software had submitted a bid, they would have looked at the size of the staff and tossed it. The people doing the buying don't understand that building software is not like building a house. If you want to build a big house, you need more people because there is more work to do. If you want to build a big piece of software, you want to stick with a small team because communication overhead is what kills you.

   So what to do? Force government agencies to consider small business proposals on their merit and cost and require them to ignore the size of the company. Require a certain percentage of final bidders to be small businesses (and don't use the Federal Government definition of 500 people; that's insane). Once a few agencies get really good, really cheap, on-time software built by a couple of developers and a designer, they will hopefully realize what they have been missing.

So there are my five initiatives that I would propose if I were put in charge of encouraging new ventures and supporting existing ones.  What would you add to the list?