"David, I really like you," my biggest client—in fact, my only client—was saying over the phone. And I remember thinking, this is going to be bad, really bad.
I had been trying to make it in the early 1990s with my own investment business, after my boss at a large established investment house threw me out of his office for saying the pension funds we managed had long-term problems about which our clients should be warned.
My own venture wasn't going well, though, something I had to admit while working one day out of what had become my new personal office—a Mrs. Fields chocolate cookie shop.
For the first time, giving up seemed a possibility. Just then I noticed a "for sale" sign at the cash register. Apparently this Mrs. Fields store wasn't making money. Paying closer attention to everyday transactions I had been watching only casually, I tried to figure out why. After a while I had a theory, so I scraped up enough money for a down payment and managed a few weeks later to start making a profit—though it did mean getting up daily at 5 a.m. to bake cookies and muffins.
No such turn-around was in sight for my investment business, however, which made that phone call from my only client even more painful. In addition to saying how much he liked me, my client was also saying he felt he had to let me go. He explained his wife had just called him from her law office.
"You know that hotshot investment advisor you're always talking about?" she had asked him. "I just saw him delivering a tray of cookies and muffins to our conference room."
I did some fast talking. He listened, thought about it, and not only stayed a client but gave me referrals. Eventually my floundering start-up became a merchant banking firm, one I've been running for 20 years.
But any start-up, any small business has such stories. Tom Stemberg, the founder of Staples, found himself fresh out of Harvard explaining to incredulous classmates that he had just gone into the grocery business because he had to learn retail. Bernie Marcus, the cofounder of Home Depot, never stopped hearing his business model couldn't work—what could he do that hardware stores couldn't? The long litany of "no's" finally ended with some believers.
Most people—our customers, our employees, or just the folks we meet in everyday life—have an implicit sense of such stories. They know trial gives meaning to work and life, and they know starting up a small business is usually about just such early struggle. Frequently they ask about it.
One group though that has never been curious about the struggles of small business owners is the political class. One of them, George McGovern, was famously honest about it after attempting to run a motor inn in Stratford, Conn.:
"I wish that during the years I was in public office, I had had firsthand experience about the difficulties business people face every day. That knowledge would have made me a better U.S. senator and a more understanding presidential contender."
Making much the same point to another member of the political class but a more successful presidential contender, Steve Jobs warned President Obama a few years ago he was "headed for a one-term presidency" unless he began understanding government burdens on American business make it "easier to build a factory in China than it is here."
But business owners get used to politicians not understanding and so, though it set off a furor, most of us weren't surprised by President Obama's recent comments that "the private sector is doing fine," or that "if you've got a business—you didn't build that. Somebody else made that happen." Politicians are less interested in creating wealth than in redistributing it to their constituencies. They rarely get it about economics, tending to think those who make the economy go—the small business owners who create more than 65 percent of the new jobs—are just lucky or among "the fortunate." Small business success, they seem to think, is not so much about risk-taking or hard work but government and infrastructure.
Yet we all duly and readily extend credit to the virtuosos who define the arts and to champions in sports that the people come to see. Credit for the piano concertos, after all, goes to Mozart, not the Emperor Joseph. And the home run records belong to Babe Ruth and Roger Maris, not the New York City Public Works Commissioner for building a road to Yankee Stadium or the ground crews for keeping the dust down in the batter's box. But when it comes to the economy, acquisitive politicians don't want the public dwelling too long on what most people instinctively know, that rewarding small business initiative—rather than targeting it with higher taxes and more regulation—creates far more jobs than any government "stimulus."
We go through cycles of recognition about this. The "demand-side" economics and stagflation of the '70s in the Nixon and Carter years gave America a teachable moment, and Ronald Reagan took advantage of it. With early T.V. speeches that were expository, not theatrical, the Great Communicator got his title by explaining elementary economics and pointing to less government as the key to more growth and jobs.
President Obama, who believes his recent comments were taken out of context, and the Democratic Party, which will meet in convention soon, are now facing their own teachable moment. Clarifying their positions would advance the cause of economic understanding and help make this presidential campaign more about economic ideas than attack ads or consultants' maneuvers.
That is why as chairman of
Job Creators Alliance—an association that speaks for entrepreneurs—I have recently written to the head of the 2012 Democratic Party platform committee, Los Angeles Mayor Antonio Villaraigosa, asking for a chance to work with him on a Democratic Party platform plank reaffirming strong support for small business and taking the one step that would be a huge boon to jobs growth. Under the administration's 2013 plan, small businesses face an imminent tax increase because over 75 percent of them pay taxes by using the personal form. Out of these 4.3 million businesses that have employees and file their taxes as individuals, nearly a third—1.2 million small businesses—would be considered "individuals making more than $200,000 a year." These job creators will face big new tax bills if the Bush tax cuts expire.
Increasing taxes on this group is a threat to the prosperity of all Americans: They account for 91 percent of the income earned by pass-through employer-corporations (such as LLCs), which "pass through" to owners the tax liability on business income. Such businesses employ more than half (54 percent) of the private sector workforce and pay nearly half (44 percent) of all federal business income taxes. They are the engine of the American economy.
That's why the message of entrepreneurs at a meeting with Mayor Villaraigosa would be simple—cancelling the tax increases on small businesses and putting that commitment in the platform would be just the signal President Obama and his party need to send to business owners and executives.
In addition, we have some stories to tell the mayor. Most business owners have had, after all, their equivalent of getting up at 5 a.m., 350 days a year, to bake cookies and muffins. We need to tell those stories. (It's why Job Creators Alliance exists.) Because, as George McGovern noted, that sort of experience can be transformative, especially for the political class.