Getting started with a new business can be difficult in the best of circumstances, as CATAlliance has advocated before. Today’s challenging economy means that entrepreneurs have more to contend with, as Juliana Davies explores in the article below. Davies spends most of her time writing features for the business education website http://www.mbaonline.com, and more of her pieces can be found on that site.Helping MBAs Turn into Successful Entrepreneurs with Business Friendly Policies
Many experts argue that startup firms are crucial to economic recovery and increased employment rates. But due to overwhelming regulations and fierce competition in the international market, the current business climate is often somewhat unfriendly to new companies. To mitigate these difficulties, startup founders must adopt pragmatic strategies related to company infrastructure, financial management and generating public support.
Jay S. Fishman of Bloomberg View recently wrote that startup companies constitute roughly 99.7 percent of the private sector. Despite their prevalence, he notes that these firms are at a disadvantage in the age of globalization for several reasons. First, there is no tax relaxation for new companies, and startups must contend with the same costly permits and persistent regulatory fees as established firms with more capital. Fishman argues that both startups and the U.S. economy as a whole would benefit from a three-year “incubation period,” whereby newly launched companies would face fewer taxes and less restrictions; however, such a program has yet to be implemented. Fishman also notes that this high degree of regulation has negative implications within the global market. American companies must compete with overseas firms whose countries impose much looser business regulations. In a great many cases, this disparity has led to a competitive, antagonistic international market.
As these unfavorable conditions materialized in recent years, industry experts have shared strategies to help startup companies overcome various obstacles in the early stages of development. A June 2012 article in Forbes reports that startup guru Peter Thiel recently taught a course at Stanford University, in which he outlined some important ground rules for new companies. Thiel argued that many startup companies are too anxious to break into the global market and compete with international entities; these companies are sacrificing innovation for competition, and many fail as a result. Other startups fall apart, he said, due to cracks in their foundations. Though the failure of these companies might be attributed to external forces, the blame often falls on messy internal conflicts or faulty management practices. For this reason, all founders must align their interests and objectives and outline distribution of leadership prior to the launch of their company.
Another area where startups struggle is taxes. Karen E. Klein of Bloomberg Businessweek recently outlined the various tax incentives available to small businesses. For instance, as of 2010, new businesses can deduct up to $10,000 in startup costs from their income taxes; these expenses can cover virtually every aspect of small business operations, from legal to marketing. Companies can also deduct up to $500,000 for “fixed assets”, which may include stationary office furniture, electronic equipment, and technological implements. This deduction can be applied to the maximum amount for up to four years. Finally, Klein notes that startup founders who purchase their own hardware can write off as much as 50 percent of the costs.
The Internet is also playing a part. Jenna Wortham of The New York Times recently reported on an emerging trend in new business development: crowdsourcing. She notes the widespread popularity of sites like Kickstarter, on which company owners can pitch ideas and web users, if interested, can pledge money toward the project. While some companies have generated millions of dollars using this strategy, the money is not the only benefit associated with crowdsourcing. Companies that reach out to the public are effectively establishing a solid support base – and once a company is operating at full capacity, many of these supporters become customers. And as one entrepreneur told Wortham, “The terms on Kickstarter are more attractive than any bank loan or venture capital amount.”
Economic analysts agree that 2012 is a tough time for any startup company. However, many of the entrepreneurs who succeed understand that innovative problem-solving and strong attention to financial matters go a long way in the global market. ++ Action Item: What are your thoughts? Add to the conversation on CATA's social media group (5400 members) at: http://www.linkedin.com/groups/Canadian-Advanced-Technology-Alliance-CATA-37239/about