Entrepreneurship's contributions to job creation, innovation, and tax revenue in America

Entrepreneurship

Why Entrepreneurship is Important to the American Economy

The many contributions of entrepreneurs to the growth of the American economy overshadow those from other nations globally by a wide margin, from job creation and innovation to the development of entirely new markets. Entrepreneurship in the United Sates is credited with 70% of overall new job creation (Kuratko, 2007). In addition, American entrepreneurs are credited with creating more social welfare than all of the Federal, State and Local government spending programs combined (Arbaugh, Camp, Cox, 2005). In addition to all these factors the ability to quickly translate innovation into marketable new products and services, often ingeniously designed and package for the convenience of consumers, is well-known and increasing tracked through metrics (Handfield, Petersen, Cousins, Lawson, 2009). What is especially unique about entrepreneurialism in the United States is its direct effect on the broader economy. No other country relies so heavily on entrepreneurs to serve as the fuel of their economic growth over time. This paper evaluates each of the dominant areas where entrepreneurialism in the U.S. makes a major contribution. In addition to the significant contributions to job growth, innovation, and continued investments in knowledge creation, American entrepreneurs pay 54% of all individual income taxes and 60% for corporate tax returns from S-Corporations (Kuratko, 2007). One successful new firm contributes more in terms of Federal, State and Local taxes that three comparably sized firms that have been in business over fifty years (Handfield, Petersen, Cousins, Lawson, 2009). This is because of the intensive investment in innovation and translating new discoveries into salable products. Throughout this report both the qualitative and quantitative contributions of entrepreneurs to the American economy are explored.

Entrepreneurs and New Job Creation

As the success of American entrepreneurs go in terms of creating enterprises that need new employees, so goes the entire U.S. economy. This is a statistically proven fact based on U.S. Census Bureau, Business Dynamics Statistics summary showing that start-ups of between 1 and 4 people contribute the majority of new job growth in the last three years (Sadeghi, 2008). U.S. Census data also indicates that while corporations with over 10,000 employees stabilize their employment and rarely have double-digit increases, the majority of new venture firms up to 500 employees have significant gains in employment over time (Ganco, Agarwal, 2009).

Analyzing the specific data sets from the U.S. Census Bureau using Microsoft Excel also illustrates how recession-resistant new job creation is in start-ups and firms less than ten years old. Entrepreneurs are the basis of this growth and will eventually lead the global economic turnout out of the recession affecting so many nations' economies today. This specific data growth is attributable to the development of more knowledge-intensive businesses (Madsen, Neergaard, Ulhoi, 2008). As has been stated by Dr. Micheal Porter of the Harvard Business School (Porter, 2008) the greatest competitive advantage any nation has is the personal productivity of its workers, and the ability to create entirely new ventures. Dr. Porter often cites how industry after industry in the United States transformed global competition by concentrating on personal productivity as a goal first. He specifically mentions how manufacturing processes for the development of commercial and military jet aircraft at Gulfstream and Boeing are based more on Business Process Management (BPM) workflows that were discovered by each of the aerospace manufacturers' smaller, start-up suppliers (Porter, 2008). Porter argues that in redefining core business process areas through the development of new products and the selective hiring of skilled employees to fine-tune and perfect them, entrepreneurs actually revolutionize entire industries in the process (Hessels, Gelderen, Thurik, 2008).

It is then the ability of entrepreneurs to look at a long-standing process that is shared between suppliers, buyers and manufacturers in B2B-centric industries on the one hand, and between manufacturers and consumers in B2C-centric industries on the other, and creatively define how that process can be streamlined and made more efficient. What the greatest value add of entrepreneurs to this process are is the ability to match the unique skills sets they have, and hire the best possible team that can refine solutions to process-based problems and deliver exceptional value to customers (Audretsch, 2009). The entrepreneur as orchestrator of processes, people, and systems is critical and serves as the catalyst of new job growth. If one considers the most effective American entrepreneurs of the last fifty years, this ability to orchestrate processes, people and systems together to deliver exceptionally high increases in process efficiency or the ability to get exceptional value from minimal costs is apparent. Microsoft's Bill Gates and Paul Allen have revolutionized the many processes each of us uses to communicate both individually as well as when part of a team. Their use of technologies have transformed word processing for individual communication to being able to share concepts in real-time, globally, through collaborative portal technologies including Microsoft SharePoint Server and Microsoft Windows Server operating systems. In attacking the inefficiencies of these process areas, from personal communication to global collaboration, Bill Gates and Paul Allen created an economic ecosystem that thrives on the individual insights, creativity and knowledge of employees. Through the process of commercialization of these products, entire divisions of Microsoft employees were need to design, market, launch, support and plan the next generation of these technologies. It is shortsighted to view the role of these entrepreneurs as only hiring staff for the initial ramp-up of a new products; it is in fact the successful functioning of an entire ecosystem that breeds on creativity and insights from individual contributors. As more customer needs are met, there is the need to scale the ecosystem. When this happens, more employees are added to these areas of growth inside Microsoft. The creation of an ecosystem that is market-driven on the one hand and continually seeks process-related improvement, customer-based value additions, is one of the most powerful catalysts of new job creation any nation has ever experienced (Handfield, Petersen, Cousins, Lawson, 2009). It is an American phenomenon that is often replicated in other parts of the world. Examples abound of how entrepreneurs have found a given process or tasks, from as simple as writing a document to as complex as designing a new bridge, to initially be so complex that attacking the inefficiencies inherent in it can nurture entire new businesses. In attacking these process inefficiencies through the use of teams formed by hiring the best possible experts in these areas, American entrepreneurs have successfully transformed human productivity into a competitive advantage in every industry they compete in (Porter, 2008).

To get an accurate view of job creation by entrepreneurs it is critically important to take a long-term or longitudinal view. When this is done from a strategic level it's clear that job creation in firms between 1 and 4 employees are recession-resilient as are those firms less than ten years of age with up to 500 employees (Sadeghi, 2008). The catalyst of these firms' ability to continue growing new positions and hiring additional staff is entirely dependent on this company's ability to find problems in potential customer bases and aggressively solve them. Often this is from a process-based perspective, as the examples from Microsoft illustrate. For start-ups focused on the B2B arena, their ability to find where potential customers are having the most difficulty translates into the greatest opportunity for any entrepreneur. The same holds true in B2C-based markets as well, as consumers seek greater convenience, greater selection and lower cost. The entrepreneurs who see the potential of creating a value-delivering ecosystem that responds to these needs is one that will deliver exceptional job creation and wealth growth. The ability of entrepreneurs to find these unmet needs and capitalize on them not only once, but over time by creating this ecosystem of value will dictate if they survive or not (Fourie, 2008). The American entrepreneurs continue to be global leaders in this regard, often devising entirely new approaches to delivering value through these ecosystems that quickly scale globally. The rapid growth of salesforce.com, who was launched as a start-up only in 1999 and now has grown to nearly a $1B company in ten years, and is the global leader in providing hosted CRM system applications, exemplifies this value-delivering ecosystem. Salesforce.com has become so efficient at this in fact that they now have created an AppExchange platform specifically for promoting those applications built on top of their own. This is American entrepreneurship at its most potent, focused and valuable. A value-generating ecosystem has been produced first with the hosted CRM applications on Salesforce.com, and second, on the AppExchange. These two ecosystems form the catalyst for thousands of jobs in Salesforce.com and now, in the hundreds of software partners salesforce.com has in each of the industries represented with applications on the AppExchange. No other nation has been able to produce this level of job creation and shared employment growth throughout a partnership ecosystem as rapidly as the United States has in the software industry. Job creation nurtured by entrepreneurs is the result of creating ecosystems that deliver exceptional value and streamline processes over time. While entrepreneurial accomplishment is common across all nations the ability to create and sustain value-based ecosystems as rapidly as American entrepreneurs are unique (Arbaugh, Camp, Cox, 2005).

American Entrepreneurs' Contribution to Social and Private Wealth Creation

Over time the greatest contribution of entrepreneurs is the creation of personal and social wealth (Audretsch, 2009). Consider the recession the United States is experiencing and the dramatic declines in private-sector Venture Capital spending, new venture risk capital and even the ability of companies to file for Initial Public offerings. Even in the midst of these challenging times however, entrepreneurs are paying 54% of all individual income taxes and 60% for corporate tax returns from S-Corporations (Kuratko, 2007). Segmenting only their state income taxes, entrepreneurs typically contribute over 60% of the local and city property taxes as well (Kuratko, 2007). Still start-up companies are able to generate profits, pay their employees, invest in R&D and create next-generation products to meet or exceed competitive threats and expectations. The social welfare generated by entrepreneurs in the United States far outstrips government spending, and in fact creates the most stable tax base the U.S. government has to rely on today (Fourie, 2008). In attaining their objectives of growing a business, entrepreneurs enrich not only their employees; they enrich their communities as well. The Corporate Social Responsibility (CSR) programs of start-ups are now common place, especially in the area of globalization as well. It is rare to find any start-up that is globally oriented that does not have a CSR program in place to assist those nations of the world they are expanding into. The idea of "doing well by doing good" pervades even the most bootstrapped start-ups that seek to expand into new markets.

The creation of private wealth and the corresponding growth of social welfare has also been a catalyst of long-term social change that would otherwise not have been possible. Consider the philanthropy of Bill gates and Warren Buffet, and their decision to create foundations to disperse the majority of their wealth even now. Gates is funding Internet access for remote American Indian villages so their schools will be able to get the latest educational tools and applications, while Buffet funds anti-poverty programs throughout the world as well. There are many other American entrepreneurs who are stepping up to solve the world's most difficult and challenging problems. All of this social welfare would have been impossible if they did not have the freedom in the United States and the critical combining of infrastructure to support their efforts at creating companies.