[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]



 
                       FULL COMMITTEE HEARING ON

                      THE ROLE OF SMALL BUSINESSES

                       IN STIMULATING THE ECONOMY

=======================================================================

                      COMMITTEE ON SMALL BUSINESS
                 UNITED STATES HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 24, 2008

                               __________

                          Serial Number 110-88

                               __________

         Printed for the use of the Committee on Small Business


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house



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                   HOUSE COMMITTEE ON SMALL BUSINESS

                NYDIA M. VELAZQUEZ, New York, Chairwoman


HEATH SHULER, North Carolina         STEVE CHABOT, Ohio, Ranking Member
CHARLIE GONZALEZ, Texas              ROSCOE BARTLETT, Maryland
RICK LARSEN, Washington              SAM GRAVES, Missouri
RAUL GRIJALVA, Arizona               TODD AKIN, Missouri
MICHAEL MICHAUD, Maine               BILL SHUSTER, Pennsylvania
MELISSA BEAN, Illinois               MARILYN MUSGRAVE, Colorado
HENRY CUELLAR, Texas                 STEVE KING, Iowa
DAN LIPINSKI, Illinois               JEFF FORTENBERRY, Nebraska
GWEN MOORE, Wisconsin                LYNN WESTMORELAND, Georgia
JASON ALTMIRE, Pennsylvania          LOUIE GOHMERT, Texas
BRUCE BRALEY, Iowa                   DAVID DAVIS, Tennessee
YVETTE CLARKE, New York              MARY FALLIN, Oklahoma
BRAD ELLSWORTH, Indiana              VERN BUCHANAN, Florida
HANK JOHNSON, Georgia
JOE SESTAK, Pennsylvania
BRIAN HIGGINS, New York
MAZIE HIRONO, Hawaii

                  Michael Day, Majority Staff Director

                 Adam Minehardt, Deputy Staff Director

                      Tim Slattery, Chief Counsel

               Kevin Fitzpatrick, Minority Staff Director

                                 ______

                         STANDING SUBCOMMITTEES

                    Subcommittee on Finance and Tax

                   MELISSA BEAN, Illinois, Chairwoman


RAUL GRIJALVA, Arizona               VERN BUCHANAN, Florida, Ranking
MICHAEL MICHAUD, Maine               BILL SHUSTER, Pennsylvania
BRAD ELLSWORTH, Indiana              STEVE KING, Iowa
HANK JOHNSON, Georgia
JOE SESTAK, Pennsylvania

                                 ______

               Subcommittee on Contracting and Technology

                      BRUCE BRALEY, IOWA, Chairman


HENRY CUELLAR, Texas                 DAVID DAVIS, Tennessee, Ranking
GWEN MOORE, Wisconsin                ROSCOE BARTLETT, Maryland
YVETTE CLARKE, New York              SAM GRAVES, Missouri
JOE SESTAK, Pennsylvania             TODD AKIN, Missouri
                                     MARY FALLIN, Oklahoma

        .........................................................

                                  (ii)



           Subcommittee on Regulations, Health Care and Trade

                   CHARLES GONZALEZ, Texas, Chairman


RICK LARSEN, Washington              LYNN WESTMORELAND, Georgia, 
DAN LIPINSKI, Illinois               Ranking
MELISSA BEAN, Illinois               BILL SHUSTER, Pennsylvania
GWEN MOORE, Wisconsin                STEVE KING, Iowa
JASON ALTMIRE, Pennsylvania          MARILYN MUSGRAVE, Colorado
JOE SESTAK, Pennsylvania             MARY FALLIN, Oklahoma
                                     VERN BUCHANAN, Florida

                                 ______

            Subcommittee on Urban and Rural Entrepreneurship

                 HEATH SHULER, North Carolina, Chairman


RICK LARSEN, Washington              JEFF FORTENBERRY, Nebraska, 
MICHAEL MICHAUD, Maine               Ranking
GWEN MOORE, Wisconsin                ROSCOE BARTLETT, Maryland
YVETTE CLARKE, New York              MARILYN MUSGRAVE, Colorado
BRAD ELLSWORTH, Indiana              DAVID DAVIS, Tennessee
HANK JOHNSON, Georgia

                                 ______

              Subcommittee on Investigations and Oversight

                 JASON ALTMIRE, PENNSYLVANIA, Chairman


CHARLIE GONZALEZ, Texas              MARY FALLIN, Oklahoma, Ranking
RAUL GRIJALVA, Arizona               LYNN WESTMORELAND, Georgia

                                 (iii)



                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page

Velazquez, Hon. Nydia M..........................................     1
Chabot, Hon. Steve...............................................     2

                               WITNESSES


PANEL I:
Hodgson, Mr. Michael G., President, ConSol, Stockton, CA, On 
  behalf of the National Association of Homebuilders.............     4
Misener, Mr. Paul, Vice President, Global Public Policy, 
  Amazon.com.....................................................     6
Fischer, Mr. David, Vice President, Online Sales & Operations, 
  Google Inc.....................................................     8
Ceru, Dr. Dennis, Adjunct Lecturer, Entrepreneurship, Babson 
  College, Babson Park, MA.......................................    10
Steiger, Mr. Marc, CEO, DLP Technologies, Inc., Cincinnati, OH, 
  On behalf of CompTIA...........................................    12

                                APPENDIX


Prepared Statements:
Velazquez, Hon. Nydia M..........................................    35
Chabot, Hon. Steve...............................................    39
Altmire, Hon. Jason..............................................    38
Clarke, Hon. Yvette..............................................    39
Hodgson, Mr. Michael G., President, ConSol, Stockton, CA, On 
  behalf of the National Association of Homebuilders.............    40
Misener, Mr. Paul, Vice President, Global Public Policy, 
  Amazon.com.....................................................    50
Fischer, Mr. David, Vice President, Online Sales & Operations, 
  Google Inc.....................................................    60
Ceru, Dr. Dennis, Adjunct Lecturer, Entrepreneurship, Babson 
  College, Babson Park, MA.......................................    66
Steiger, Mr. Marc, CEO, DLP Technologies, Inc., Cincinnati, OH, 
  On behalf of CompTIA...........................................    74

                                  (v)




                   FULL COMMITTEE HEARING ON THE ROLE

                   OF SMALL BUSINESSES IN STIMULATING

                              THE ECONOMY

                              ----------                              


                        Thursday, April 24, 2008

                     U.S. House of Representatives,
                               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 10:00 a.m., in Room 
1539 Longworth House Office Building, Hon. Nydia Velazquez 
[chairman of the Committee] presiding.
    Present: Representatives Velazquez, Gonzalez, Cuellar, 
Altmire, Clarke, Ellsworth, Sestak, Hirono, Chabot, King, 
Davis, Fallin, and Buchanan.

           OPENING STATEMENT OF CHAIRWOMAN VELAZQUEZ

    Chairwoman Velazquez./ Good morning. I now call this 
hearing to order on The Role of Small Businesses in Stimulating 
the Economy. This forum will take place during the 45th 
anniversary of National Small Business Week. The occasion 
reminds us of the important role that entrepreneurs play 
employing half of the private sector workforce, and creating 
almost 80 percent of all new jobs.
    Small businesses are also the country's primary source of 
innovation and drivers of advances in virtually every industry. 
It is not an exaggeration that small firms are the life blood 
of the American economy. That is important to keep in mind 
given the challenges we are facing today.
    The sub-prime mortgage crisis continues, and oil prices are 
climbing to record highs. Unemployment is rising, and our place 
as leaders of the global marketplace appears in peril, but 
small businesses can help us get things back on track if they 
have the right tools.
    That is why today's hearing is so timely. It will explore 
how to best help entrepreneurs continue their role in 
stimulating the American economy. We will do so with an eye 
towards addressing current economic realities, and looking for 
solutions that lead to sustained economic growth.
    Joining us are witnesses from an array of cutting-edge 
industries. Their insights into the challenges facing the 
economy will add to our discussion of these issues. They will 
also help explore how current challenges can be overcome 
through responsible policy and strategic partnerships that are 
rooted in the work of American small firms.
    As a nation, we can find a path from this economic downturn 
to recovery and growth. Small businesses have already proven 
that they are very good at leading the way. In fact, throughout 
history, entrepreneurial activity has been a principal reason 
our economy has regained its strength.
    Many businesses begin during economic slow-downs, creating 
jobs, products, and services. Take the last major recession as 
an example. During the early 1990s, self-employment, a core 
piece of the country's small business sector, was at an all 
time high, 7.7 percent. Moreover, some 25 percent of downsized 
managers over the age of 40 chose to start their own companies 
during this time. Most of the firms endured as successful, 
modern enterprises, others fared even better, and have given 
birth to companies, such as those on today's panel.
    Finally, it is no secret that during the late 20th century, 
technology was a key force in jump-starting and expanding 
economic activity. It remains so today. That was evidenced in 
the SBIR/STTR Re-authorization we approved in the House 
yesterday, with overwhelming bipartisan support.
    It is also clear in the development and construction of 
energy-efficient homes, as well as the marketing, tracking, and 
shipment of small business products around the globe. Small 
businesses are leveraging the power of high tech tools.
    These entrepreneurs are harnessing real time communication, 
market mapping software, and on-demand inventory systems. They 
are extending the reach of the Internet, and bridging the path 
to platform independence.With each step, they revitalize our 
economy, and build a market-leading America of tomorrow.
    This Committee has always supported such efforts. At a time 
when small businesses and our nation as a whole face daunting 
obstacles, we will redouble our work to advance policies that 
will help entrepreneurs thrive in the markets of the 21st 
century.
    I thank each of the witnesses for joining us today in 
celebrating Small Business Week, and in discussing these 
important issues. I'm looking forward to your testimony.
    With that, I yield to Ranking Member Chabot for his opening 
statement.

                OPENING STATEMENT OF MR. CHABOT

    Mr. Chabot./ Madam Chairwoman, thank you for holding this 
hearing examining the role of small businesses in stimulating 
our nation's economy. I'd also like to thank our impressive 
panel of witnesses here this morning. I'm looking forward to 
hearing your testimony, and a special welcome to Marc Steiger, 
who's from Cincinnati, Ohio, one of the distinguished members 
of the panel here. And I happen to represent Cincinnati, so 
we're particularly pleased to have him here.
    It's fitting that we are holding this hearing during Small 
Business Week, as we recognize the contributions of America's 
small business owners and workers. These are the men and women 
who use their entrepreneurial talents to help improve our 
lives, sustain our economy, and expand opportunities for all of 
us, all Americans.
    There is no doubt that small businesses drive America's 
economy, creating about 70 percent of the new jobs, and 
accounting for more than half of our private sector employees. 
These jobs are important, and in a time of economic 
uncertainty, they become even more critical to moving our 
country forward.
    Small businesses are playing an increasingly important role 
in the technological sector. Statistics show that they are on 
the cutting edge of research, hiring 40 percent of all 
technology employees, and generating 13 times more patents per 
employee than large firms.
    Small firms also lead our nation in trade. NAFTA and free 
trade agreements, such as those with Chile, Singapore, and Peru 
boost prosperity, strengthen our ties with other nations, and 
create and support new jobs for America's workers.
    Almost one-third of all U.S. exports are generated by small 
business, and 97 percent of all U.S. exporters are small 
companies.
    Small businesses also create opportunities for every 
American. The Small Business Administration reports the number 
of women, minority, and veteran-owned businesses is growing 
rapidly, and comprising an increasing percentage of our 
economy.
    These successes are impressive, but we must do all that we 
can to give small firms the tools to prosper. They need access 
to capital, counseling, and programs to help them build and 
expand their businesses.
    By supporting policies to keep taxes low, promote free 
trade, allow small businesses to pool together to purchase 
health insurance, and reduce frivolous lawsuits, we can help 
small companies to compete.
    Small businesses exemplify the American values of hard 
work, ingenuity, and achievement. And during Small Business 
Week, we honor small companies for their vital contributions to 
their communities, and to our nation.
    I also want to mention that I am the Ranking Member of the 
Anti-Trust Task Force, and so will have to leave here shortly, 
and will be ably substituted by either Steve King, or Lynn 
Westmoreland, or one of the other distinguished members of the 
panel who will fill in until I can get back. We're discussing 
an issue of some relevance to our community, in particular. 
It's the Delta Northwest merger, and Delta, we happen to be the 
second-largest hub. And the Chairman of the committee, Mr. 
Conyers is also very interested in that particular topic, as 
well. I try to be at these meetings from beginning to end as 
often as possible, but this is one I have to actually go over 
there.
    And one other detail I wanted to do was to introduce a 
young lady here who is just--she's a great young lady, and she 
happens to be the daughter of my Staff Director, Kevin 
Fitzpatrick. And her name is Elizabeth. She also happens to my 
goddaughter. Elizabeth, you want to stand up there so people 
can see you. She's also a champion swimmer, by the way, too.
    (Applause.)
    Mr. Chabot./ I know she would love to sit through all the 
testimony, and all the questioning, but I think she may have 
some other more interesting things to do at some point this 
morning, so she may move; not that this is not terribly 
interesting, but to a fourth grader, there's probably bigger 
and better things to see in Washington while she's here.
    Chairwoman Velazquez./ But did you hear what she said to me 
when I said hello to her?
    Mr. Chabot./ No, I didn't.
    Chairwoman Velazquez./ That when she grows up, she wants to 
be like me. She wants to be a Democrat.
    (Laughter.)
    Mr. Chabot./ Elizabeth, did you say that? I think not, but 
in any event, thank you, again, Madam Chairwoman for holding 
this hearing this morning, despite that comment. We look 
forward to hearing from all the witnesses, and I yield back.

    Chairwoman Velazquez./ Thank you. And I just want to 
welcome all of you, friends, people that are here, and to say 
please excuse this room. This is not our regular Small Business 
Committee room. We have a better room than this one, but it is 
being renovated.
    With that, it's my pleasure to welcome Mr. Michael G. 
Hodgson. He is President of ConSol, a green energy consulting 
firm based in Stockton, California. He will be testifying on 
behalf of the National Association of Homebuilders. The 
Homebuilders is a federation of more than 800 state and local 
associations. About one-third of its 235,000 members are 
homebuilders or remodelers. The remainder of its membership 
works in closely-related fields, including mortgage finance, 
and building products and services. Welcome. You have five 
minutes. The timer is there. You're going to see the green 
light. It means you start. The yellow one says that it's about 
to finish. Welcome.

  STATEMENT OF MR. MICHAEL G. HODGSON, PRESIDENT, CONSOL, ON 
      BEHALF OF THE NATIONAL ASSOCIATION OF HOME BUILDERS

    Mr. Hodgson./ Thank you. Chairwoman Velazquez, Ranking 
Member Chabot, and Members of the Committee, my name is Mike 
Hodgson, and I'm President and Founder of ConSol, a residential 
energy consulting firm in Stockton, California, and Chairman of 
the Energy Efficiency Tax Credit Working Group of the National 
Association of Homebuilders.
    Since 1981, I have worked with homebuilders to improve the 
production of energy-efficient new homes. ConSol is 
consistently recognized as the builder's energy advocate at the 
local, state, and national level, dedicated to assisting 
homebuilders achieve the highest level of quality construction, 
and energy performance. My business is closely linked to the 
health of the housing industry and its technological future in 
energy-efficiency, and sustainability.
    Thank you for the opportunity to testify today about the 
urgent need to restore the health of the housing industry, and 
small businesses like mine, as well as to discuss the 
importance of incentives for producing more energy-efficient 
housing.
    Currently, the housing market is in the midst of a historic 
downturn, characterized by falling home prices, declining home 
sales, constrained mortgage credit, and a painful contraction 
in the residential construction sector.
    In California, my company's largest market, new 
construction permits have fallen 46 percent from their 2005 
levels, and researchers predict they'll fall an additional 24 
percent in 2008.
    Small businesses like mine that depend on the health of the 
housing industry have reacted quickly to keep solvent. For 
example, ConSol's revenue is down 30 percent in the last two 
years. I've been forced to lay-off 31 employees, 30 percent of 
my company's workforce. I know many other small businesses in 
our industry has had to take similar steps.
    NAHB has made several recommendations for stabilizing the 
housing industry in the immediate term, such as creating a 
temporary home buyer tax credit, among others. My written 
testimony provides specific details on how this, and other 
proposals can help the housing market, and the overall economy 
recover from the current downturn.
    With respect to energy policy in the housing industry in 
the long-term, it is important to improve the promotion of 
residential energy efficiency. Section 45L of the Tax Code, for 
example, contains the new energy-efficient home credit, which 
is a key market incentive to shift builders toward significant 
energy savings in new home construction. The program, which 
expires at the end of this year, provides a $2,000 tax credit 
to a homebuilder who constructs a qualified new energy-
efficient home certified to achieve a 50 percent reduction in 
energy use.
    This credit is particularly beneficial to small 
homebuilders who often have the most flexibility to react to 
the marketplace preferences, such as increased energy 
efficiency, or green homebuilding. However, homebuilders also 
report, and I know this first-hand, that the increased 
construction costs required to meet the requirements of the tax 
credit dramatically exceed $2,000.
    The Senate recently passed a two-year extension of this 
credit, along with its housing stimulus legislation, but the 
House has not acted on it. It is crucial that leaders in both 
Houses of Congress work together to not only renew the credit 
as soon as possible, or make it permanent, but also to increase 
the dollar amount.
    Furthermore, many businesses in the construction sector 
experience losses, and, therefore, are unable to fully utilize 
this credit. Mechanisms need to be developed by which the 
credit can be transferred from a builder to investors, or other 
stakeholders, similar to the model in the low-income housing 
tax credit.
    I would like to quickly highlight the work done by NAHB to 
promote green building. The first National Consensus Standard 
on residential green building in the United States will be soon 
be approved by the American National Standards Institute, ANSI. 
As a member of the Consensus Committee that helped developed 
this benchmark, I can personally attest to the rigorous process 
that produced a viable and affordable alternative to other 
private rating tools.
    NAHB also established a National Green Building program 
that embodies a consumer education campaign highlighting the 
benefits of green building, and sustainability in housing 
design.
    Together, the National Green Building Standard, and the 
National Green Building program will help homebuilders continue 
to push the envelope in green building construction. This, in 
turn, will create new market opportunities for small businesses 
like mine that provide residential energy-efficiency services.
    NAHB appreciates the efforts by Congress to address the 
housing crisis, support small business, and promote energy 
efficiency and green building. Thank you for the opportunity to 
testify today.
    [The prepared statement of Mr. Hodgson may be found in the 
Appendix on page 40.]

    Chairwoman Velazquez./ Thank you, sir. Our next witness is 
Mr. Paul Misener. He is Amazon.com's Vice President for Global 
Public Policy. He is responsible for formulating and 
representing the company's policy positions worldwide.
    Amazon was one of the first businesses to sell products 
over the Internet. Today, it is one of the world's largest and 
most successful retailers. The company was founded in 1994 by 
Jeff Bezos, and is headquartered in Seattle, Washington. 
Welcome.

 STATEMENT OF MR. PAUL MISENER, VICE PRESIDENT, GLOBAL PUBLIC 
                       POLICY, AMAZON.COM

    Mr. Misener./ Good morning, Chairwoman Velazquez, and 
Ranking Member Chabot, and Members of the Committee. Thank you 
very much for inviting me to talk about this very important 
topic. And I am delighted to respond to your specific request 
to know how Amazon.com drives the growth of small firms, and 
about the effect that small companies have on the economy.
    Madam Chairwoman, I would like to offer you and your 
Committee three essential observations this morning. First, the 
online economy has evolved dramatically since its inception in 
the early 1990s, bringing unforeseen benefits to small 
businesses. Second, these benefits arise not only from the new 
markets that can be reached online, but also from the myriad 
retailing services now available online to small businesses 
from Amazon.com, and others. And third, the demographics of 
today's online economy can be surprising, particularly with 
respect to the share of the online economy held by small 
businesses.
    With these observations in view, we may safely conclude 
that the online marketplace is a very important avenue through 
which small businesses may help stimulate the overall economy.
    Madam Chairwoman, the Internet is a great enabler of small 
business. In its early days, the online economy was a haven for 
innovative, technically savvy small businesses, and today it 
has evolved to become a crucial sales channel for all kinds of 
small businesses, not just those with technical expertise.
    Several different eCommerce business models now co-exist 
and vigorously compete on the web. One model is platform 
retail, whereby large companies, such as Amazon.com, eBay, and 
others, provide eCommerce services to other companies, both 
large and small. Through Amazon.com's platform, over 1.3 
million sellers, most of them small businesses and individuals, 
now have easy access to over 79 million active consumer 
accounts worldwide.
    You've asked me for an indication of how my company drives 
the growth of small firms. Well, simply put, Amazon.com strives 
to provide our small business seller customers a wide variety 
of retail tools so they can concentrate on the areas of their 
business they know and like best. For example, with product ads 
by Amazon, small businesses can easily and efficiently 
advertise on Amazon.com the specific products available on 
their own web sites. For small businesses that don't have their 
own web sites, we offer several types of services, like selling 
on Amazon, which allows small businesses to post their 
inventory on our web site without any individual item listing 
fees.
    Through WebStore by Amazon Service, we even create and run 
complete eCommerce web sites for small businesses. And whether 
or not a small business has a web site, we can provide the 
global reach of our physical distribution network through our 
fulfillment by Amazon Service.
    As for small businesses with media products, we make 
additional services available. One simply way creators and 
small publishers can use our retail platform is through our 
Amazon Advantage program, in which they need to print or 
manufacture only a few books or disks. Small publishers then 
can offer these few copies to the entire Amazon customer base 
of more than 79 million active customers.
    Digital delivery, of course, is another low-investment way 
to get media products to consumers. We have a rapidly growing 
digital music and video business that allow individual creators 
and small publishers to sell their audio and video works on 
line, without every reducing them to physical form.
    Moreover, as you may have heard, we have also introduced 
the Amazon Kindle, which is this little device here. It's a 
portable reading device that wirelessly can download books, 
blogs, newspapers and magazines. This way authors and small 
publishers easily can attract an audience and distribute their 
works without the up-front investments in printing and physical 
distribution that often act as significant barriers to entry. 
On my own Kindle, I have several books from individual authors 
and publishers who don't need to have any physical books in 
print.
    The demographics of today's online economy can be 
surprising. Indeed, the share of the online economy held by 
small business is surprisingly large, because it is 
systematically under-counted in surveys, including by the U.S. 
Census.
    The upshot of this significant under-counting of sales by 
small business is that the proportion of eCommerce by small 
business is greatly underestimated. The sales by sellers with 
annual revenues on the order of $100,000 likely could account 
for as much as a quarter of all consumer eCommerce in the U.S. 
Obviously, the surprisingly high portion of eCommerce conducted 
by small businesses means that such businesses can have a 
greater effect on the online economy than may be generally 
assumed.
    In conclusion, Madam Chairwoman, the Internet is a great 
enabler of small business. The online economy has evolved 
dramatically since its inception in the early 1990s, bringing 
unforeseen benefits to small businesses. These benefits arise 
not only from the new markets that can be reached online, but 
also from the myriad of services now available to small 
businesses by Amazon, and other providers.
    Lastly, the demographics of today's online economy can be 
surprising, particularly with respect to the large share of the 
online economy held by small businesses. With these 
observations in view, we may safely conclude that the online 
marketplace is a very important avenue through which small 
businesses may help stimulate the economy.
    Thank you again for inviting me to testify, and I look 
forward to your questions.
    [The prepared statement of Mr. Misener may be found in the 
Appendix on page 50.]

    Chairwoman Velazquez./ Thank you, Mr. Misener.
    Our next witness is Mr. David Fischer. He's the President 
of Online Sales and Operations for Google. He is responsible 
for the company's Internet sales channel, and operation of its 
advertising program in North America.
    Google, Inc. is an American public corporation that earns 
revenue from online and mobile advertising. The company is 
headquartered in Mountain View, California. Welcome.

STATEMENT OF MR. DAVID FISCHER, VICE PRESIDENT, ONLINE SALES & 
                    OPERATIONS, GOOGLE, INC.

    Mr. Fischer./ Thank you. Chairwoman Velazquez, Ranking 
Member Chabot, and Members of the Committee, it's a great 
pleasure to be here to testify about American small businesses, 
which are one of the most important and dynamic facets of our 
economy.
    Google is committed to helping small businesses prosper on 
the Internet. Indeed, much of Google's success is predicated on 
the success of our small business customers and partners, and 
we place tremendous value on this relationship with these 
entrepreneurs. For many of them, their success is fundamentally 
linked to the continuing growth of the Internet.
    Today, hundreds of thousands of businesses are using Google 
advertising to reach customers, and hundreds of thousands of 
web site owners are generating revenue by placing Google ads on 
their pages. A significant majority of these partners are small 
businesses, and our tools are helping them compete, and succeed 
in the global marketplace.
    In my testimony this morning, I'll first explain how online 
advertising enables small businesses to connect efficiently and 
cost-effectively with new customers. Second, I'll explore how 
advertising partnerships provide new sources of revenue for web 
site owners. And last, I'll offer some comments on future 
trends in the Internet economy, and important implications for 
policy makers.
    Online advertising enables small businesses to affordably 
and efficiently find their customers, whether it's a local 
plumber reaching a new customer down the block, or a niche 
antique dealer connecting with a collector overseas.
    Small businesses are using Google's advertising program, 
known as AdWords, as a sort of matchmaking service for new 
customers. Through a simple online tool, businesses create 
short text ads for their products that appear when a Google 
user conducts a search. For example, a Google search for the 
word flowers will s how you both relevant search results, as 
well as ads from local and national florists.
    We found that our advertising system gives small businesses 
a level playing field to compete efficiently with much larger 
companies. Any business can get started with just $5. Here's 
one example. Bulb America, a Brooklyn, New York-based lighting 
and fixture company got started in 1998 with just two 
employees. It's grown to over 25 employees, with $6.5 million 
in total sales in 2007. Today, the company attributes about 65 
percent of those sales, or over $4 million last year, to Google 
advertising.
    Chairwoman Velazquez, Bulb America is just one of thousands 
of businesses in your district, and across the U.S. that are 
finding new sources of revenue through our advertising program. 
But Google advertising isn't just helping small businesses find 
customers more efficiently, it's also helping to find a whole 
new breed of online entrepreneurs.
    In 2003, Google created a program called AdSense, which 
pays web site owners to place our ads on their pages. Every 
time someone clicks on one of those ads, the advertiser pays 
Google, and we share a majority of that revenue with the web 
site owner.
    Our business model enables entrepreneurs, educators, 
bloggers, and others to generate revenue by sharing their 
expertise and opinions with the world. In many cases, these 
individuals are able to dedicate themselves full-time to their 
web sites because of the support they receive from our 
advertising programs.
    In 2007, for example, Google paid out $4.5 billion to our 
partners, thousands of whom are small businesses and 
entrepreneurs. Chairwoman Velazquez, in the 12th District of 
New York alone, we paid out more than $51 million to more than 
6,000 AdSense partners last year.
    Askthebuilder.com is just one example of a small business 
success story. Based in Cincinnati, Ohio, Tim Carter delivers 
practical tips for handymen across the country. In April of 
2004, Carter added AdSense to his web site, and immediately 
experienced a jump in revenue of 400 percent. Today, Tim Carter 
receives a monthly check from Google that averages about 
$42,000, and he is just one of 2,000 businesses in the First 
District of Ohio with whom we shared a total of $1.6 million 
last year.
    Thousands of small businesses are using online advertising 
to create new economic opportunities and flexibility. We at 
Google are very pleased to help support this proliferation of 
economic activity, free speech, and entrepreneurial spirit.
    I'd like to conclude with a few thoughts about the future 
trends we see emerging in the Internet marketplace, and how 
they might impact this Committee's work.
    First, the vast majority of our advertising customers and 
partners hosting our ads are not Fortune 500 companies, but 
small firms, creating niche products for specific audiences. 
The web allows users with individual tastes to find these niche 
products and services more efficiently, and the economic 
potential of this content is driving some of the most 
innovative online businesses today.
    We believe that the continued growth of small businesses is 
dependent on fostering activity among the millions of 
individuals users and companies who make up the vibrant online 
community. As the Committee continues its important work as a 
champion of small business, I would encourage you to constantly 
consider how any new laws and regulations will affect these 
online entrepreneurs.
    Finally, we just continue to preserve the Internet as an 
open platform. Just a decade ago, Google's founders were 
graduate students at Stanford University, when they launched 
their small business, a new approach to searching the Internet. 
A free and competitive online network and open standards 
enabled the success of Google's search engine. Preserving this 
openness online is critical to insuring the success of a new 
generation of small businesses.
    As policy makers interested in promoting small business, I 
urge you to consider the openness of the Internet as a guiding 
principle in your legislative work, and as a critical component 
to insuring the continued success of American small businesses.
    We look forward to continuing our partnership with these 
businesses, and to answering any questions you might have about 
our efforts. Thank you.
    [The prepared statement of Mr. Fischer may be found in the 
Appendix on page 60.]

    Chairwoman Velazquez./ Thank you, Mr. Fischer.
    Our next witness is Dr. Dennis Ceru. He's an Adjunct 
Professor at Babson College, where he teaches MBA courses in 
Entrepreneurship and Business Strategy. He has more than 25 
years of experience delivering successful business and 
technology solutions through leadership and management 
positions in the fields of technology, financial services, and 
healthcare.
    He's also the President and CEO of Strategic Management 
Associates, a company dedicated to providing business leaders 
with the tools necessary to expand and manage growth. Welcome.

        STATEMENT OF MR. DENNIS CERU, ADJUNCT LECTURER, 
                ENTREPRENEURSHIP, BABSON COLLEGE

    Mr. Ceru./ Thank you. Chairwoman Velazquez, Members of the 
Committee, thank you for this opportunity to talk with you this 
morning about the role of small business in stimulating the 
economy.
    Again, my name is Dennis Ceru, and I represent Babson 
College, as well as the Global Entrepreneurship Monitor. GEM is 
a joint venture of Babson College and the London School of 
Business, and it is the largest ongoing study of 
entrepreneurial dynamics in the world. We started with 10 
participating countries, the project now in its eighth year of 
operations, has expanded to include 42 countries in 2006, and 
now 44 countries in 2008.
    Some of the information that I will share with you today is 
derived from this research, as well as the research of my 
colleagues at Babson College, and peppered with my own 
experience in owning, managing, and advising small and medium-
sized businesses.
    First off, the main characteristics of entrepreneurial 
activity in the United States is significant. The total 
entrepreneurial activity index in 2007 is at 9.6 percent. This 
counts both nascent entrepreneurs, as well as new business 
owners. The overall business owners index, the count of early-
stage plus established businesses is 14.1 percent.
    Interestingly enough, there are gender differences in this, 
with about 62 percent of the early-stage entrepreneurs in the 
U.S. being men, and 37-1/2 being women. Early-stage 
entrepreneurs in the U.S. are very confident people. They 
believe their business has high potential, with 22 percent of 
them expecting to create more than 10 jobs, and 50 percent 
growth in the next five years, compared to only 7.1 percent 
growth projected by current business owners. To us, this 
signifies opportunity, enthusiasm, and a positive outlook.
    Over 49 percent of early-stage companies plan to offer 
products that are new to customers, contrasting with only 31 
percent from established business owners. More than 37 percent 
of early-stage companies will use the latest or newest one to 
five-year technology in their business, as compared to only 10 
percent of established businesses. What this says to us is that 
entrepreneurs are innovative. They are innovative in their use 
of technology, as well as their creation of new business 
models, new services, and new technologies.
    They're also young. Most are 34 years of age or younger, 
41.6 percent, and about 62 percent of these early-stage 
entrepreneurs have some degree of a college education. This is 
a dynamic, young, educated workforce.
    In the United States, most of this activity is centered 
around the consumer-oriented services sector, about 42 percent, 
followed by the business services sector, closely followed by 
transforming and very little in extractive services. In other 
countries, of course, we see very different combinations of 
these sectors.
    Experts in entrepreneurship overwhelmingly believe that 
there is sufficient equity funding, debt funding, and private 
funding for their new and growing firms. Government support for 
entrepreneurship is believed to be stronger at the local level, 
than at the national level, with 55 percent claiming support 
from local sources, and only 45 percent claiming support at the 
national level. The findings from this indicate that these 
entrepreneurs are consumer focused. They do believe they have 
the capital to start their businesses, and they still seek most 
of their support at the local, rather than the national level.
    In terms of current issues, the slump in the housing 
markets is causing distress not only in the homebuilding 
industries, but the overall financial markets, as well, and 
many small businesses and nascent entrepreneurs will be 
affected if this slump continues for a prolonged period of 
time.
    The Federal Reserve has been responding with significant 
interest rate cuts, which have provided some stimulus. Venture 
capital investment has continued to grow in this country, with 
about a 14 percent year-to-year increase in the annual amount 
invested in portfolio companies in 2006, and an 11 percent 
increase in the first six months of 2007.
    Some of the new tax legislation proposed before Congress 
could potentially change the treatment of venture capitalist's 
profits from capital gains to ordinary income; thus, affecting 
early-stage companies that represent not only the highest 
investment risk, but as both the Committee and some of my 
colleagues have stated, also create the most jobs and 
opportunities for the American economy.
    The finding from this is that there has been a negative 
ripple or trickle-down effect from the overall economic crisis. 
However, as has been mentioned by Chairwoman Velazquez and 
Ranking Member Chabot, that the times of economic distress are 
often the times when new businesses start, and they are times 
when entrepreneurs are able to seek opportunities that 
established businesses, perhaps, are a little bit less 
comfortable taking.
    So, in conclusion, thank you very much for inviting me here 
today. I hope that my testimony has underscored some of the 
important facts and statistics behind entrepreneurship in the 
United States, and I welcome your questions at the conclusion 
of this testimony.
    [The prepared statement of Dr. Ceru may be found in the 
Appendix on page 66.]

    Chairwoman Velazquez./ Thank you, Dr. Ceru.
    Our next witness is Mr. Marc Steiger, and he is CEO for DLP 
Technologies, Inc. in Cincinnati, Ohio. And I understand you 
are a constituent of Mr. Chabot.
    He will be testifying on behalf of the Computer and 
Technology Industry Association. CompTIA membership extends 
into more than 100 countries, and includes companies at the 
forefront of innovation.
    The association has expertise in a broad range of issues 
areas, including convergence technology, eCommerce, IT 
training, software services, certification, public policy, and 
workforce development. Welcome.

 STATEMENT OF MR. MARC STEIGER, CEO, DLP TECHNOLOGIES, INC. ON 
                       BEHALF OF CompTIA

    Mr. Steiger./ Thank you. Good morning, Chairwoman 
Velazquez, Ranking Member Chabot, and distinguished members of 
the Committee.
    My name is Marc Steiger. I'm appearing today as a member of 
Computing Technology Industry Association, CompTIA, which 
represents over 10,000 member companies. I also am appearing as 
the owner of DLP Technologies, a small business that is working 
to do its part to fuel the American economy.
    I am a member of CompTIA, and I am a VAR. The typical small 
business does not have an IT department, but relies upon the 
services of an important segment of the computer industry 
referred to as value-added resellers, or VARs. VARs are small 
system integrators that design, install, and maintain computer 
systems and networks for other small businesses. Over one-third 
of the computer hardware sold in the United States today is 
sold by VARs.
    First, Madam Chair, I want you to know that the SBA Loan 
program has been a great benefit to my company. We just 
purchased a commercial condominium for our office space with 
SBA guaranteed funds, and some of our emergency working capital 
is also backed by the SBA. I want to thank this Committee for 
you support of the SBA Loan program.
    DLP Technologies has worked with small and medium-sized 
businesses in the Cincinnati area for over 25 years. We've 
become their IT support department, assist their computer 
users, manage their computer equipment, and help their 
businesses become more efficient. We have about 100 small 
business clients in many diverse industries, from law firms, to 
printers, from small manufacturers, to nursing homes, from 
chains of opticians, to chains of chili parlors.
    DLP supports the American economy as the employer of 11 
employees with a payroll of $675,000. We support our employees 
by providing a full program of benefits, and we support our 
community by paying a variety of taxes. However, our major 
contribution to the economy is through the impact we have on 
our clients, and I'd like to give two examples.
    Last year, we did a technology project for The Counseling 
Source, a provider of mental health services for the elderly. 
Because of this project, The Counseling Source is now able to 
serve 300 clients up from 200 before the project. They have 
increased their clinical staff 50 percent, while decreasing 
their administrative staff from 10 to 4. This is a prime 
example of how we assist our clients to increase productivity.
    Another example is a project we did for Thoma and Sutton 
Eye Care Professionals, a 22-store optical chain based in 
Cincinnati. By upgrading and supporting their technology 
platform, we were able to improve their productivity, and allow 
an 8 percent increase in sales, with no increase in personnel. 
We also supported their increase in size by two stores by 
allowing their team to concentrate on more important matters, 
while we took the responsibility for technology issues. Their 
CEO asked me to emphasize to you today that his company would 
not have been able to make this investment without the Section 
179 tax benefits.
    Sometimes our small businesses need the assistance of 
government, sometimes we need government to stay out of the 
way. So today I'd like to mention four issues of concern to me, 
and other small technology businesses that affect our 
contributions to the economy.
    One, the cost of healthcare insurance is becoming more and 
more out of reach for small businesses. I pay $68,000 in annual 
premiums for 11 employees. So far, I consider myself lucky as 
our employees have not faced any major health issues, but what 
if we were to have a huge claim tomorrow? My costs could double 
or triple overnight. Why should I currently have a competitive 
advantage over another business, who's only fault is that 
someone on their staff or family happens to get very sick? 
Business should compete on the basis of value-offered, and not 
on which business has the lowest healthcare claims. Please, 
help make healthcare more fair and affordable for small 
businesses.
    Two, as a small business owner, I'm very appreciative of 
the temporary increase to the Section 179 tax benefit enacted 
under the Economic Stimulus Bill. As I said earlier, one of my 
clients specifically identified this program as allowing him to 
afford $100,000 project which increased his productivity 8 
percent. While we are most appreciative of this one-year bump, 
we ask for your support in making this $250,000 limitation 
permanent.
    Three, we are concerned with the impending implementation 
of a 3 percent Federal Income Tax Withholding on government 
contracts. A 3 percent withholding would represent 30-50 
percent of my gross profits on educational sales, which is a 
huge disincentive for me to continue with this business. I want 
to thank this Committee for its work to repeal this 
withholding. This was bad tax policy when it passed, and it is 
bad tax policy now.
    Four, IT security is important. It is essential for my 
clients. We urge this Committee to implement legislation that 
would create a Small Business Cyber Security Task Force to 
study how industry and government can work together more 
effectively to promote cyber security amongst small businesses.
    I certainly do appreciate your attention, as well as the 
honor of appearing on this panel today. We thank you for your 
vigilance in helping small businesses to remain competitive. I 
would be pleased to answer any questions you might have.
    [The prepared statement of Mr. Steiger may be found in the 
Appendix on page 74.]

    Chairwoman Velazquez./ Thank you, Mr. Steiger.
    Mr. Hodgson, I would like to address my first question to 
you, if I may.
    We all know that the housing industry is critically 
important to the overall health of our economy. And in your 
testimony, you indicated support for a first-time home buyer's 
tax credit. How could this type of tax credit jump-start the 
housing market, and help homebuilders and firms like ConSol?
    Mr. Hodgson./ Well, the homebuilding industry actually 
reaches into many business sectors, and so by enacting a first-
time tax credit for home buyers, that would stimulate the 
purchase of new homes. And that would help the homebuilders, 
but the homebuilding industry, just looking at the Association, 
is really about a third of their membership. A lot of the 
members are like me, so it would also stimulate the retail 
industry, the building supply industry, the energy services 
industry, which I'm a member of, and the financial industry. So 
I think it would have a very large effect on companies, small 
businesses like mine by getting the housing market back on 
track.
    Chairwoman Velazquez./ Can you give me some suggestions as 
to how this can be structured so that it just not jump-starting 
the housing market, but also encouraging the development of 
affordable housing?
    Mr. Hodgson./ Well, assuming the home tax credit is a 
first-time tax credit, that's going to affect the affordable 
market. I think the proposals that have been in the Senate and 
the Ways and Means Committee have been around $7,000, so that 
really only addresses the, I would say affordable housing 
market, the first-time home buyer. So I think that would have 
an impact. And right now, the housing economy needs any sales, 
but the sales that are critically absent right now are the 
first-time home buyer, the person who is trying to afford that 
home for the first time, both because of the availability of 
product, but also the lack of financial qualifications. The 
credit market is very, very difficult to quality in.
    Chairwoman Velazquez./ Thank you.
    Mr. Fischer, with an increasing number of small firms 
having access to the Internet in various communities, many have 
opted to advertise online. I would like to get your perspective 
on the trends Google is seeing with small business eCommerce. 
Are more small businesses advertising on the Internet?
    Mr. Fischer./ The first thing that I would say about small 
businesses, overall, and that this Committee surely knows well 
is, some of the biggest challenges small businesses face are in 
time and resources, that it's often one person, or just a 
handful of people driving to drive a business. And, so, we see 
more and more people coming online, but part of what's allowing 
that is tools of the sort that Google offers, that other 
companies offer, to make it easier for companies to establish 
an online presence, which is a critical step, obviously.
    And then as that happens, we're seeing more and more 
businesses start to advertise their site. And we see many, many 
success stories through advertisers who come online and are 
able to take a small business, and offer to grow it 
significantly.
    We have stories. I would point, for example, to one story 
of a realtor in the Outer Banks of North Carolina, who has been 
in business since 1978. It's called Twiddy Real Estate, and 
they describe that the difference between coming-they describe 
themselves as having been in the dark ages before they came 
online, and now they sort of describe themselves as being in a 
renaissance, because they said they've been able to target 
people much more specifically through advertising, to find 
people who are searching for rentals on the Outer Banks; 
whereas, before, they might just have to buy newspaper 
advertising, or do brochure mailings in a much broader way, and 
so it's that targeting that's really allowing small businesses 
to reach out to their niche audience very effectively.
    Chairwoman Velazquez./ If we see that it has a significant 
impact on small businesses, can you talk to the Committee about 
what tools Google offers to assist small businesses, and are 
they affordable?
    Mr. Fischer./ Absolutely. The first thing that Google does 
is take that first critical step of helping businesses come 
online, who may not be online. And, as I said, often time is a 
big constraint, so Google's local business center allows small 
businesses to come and actually register, create a presence 
online and be found through Google, through Google maps when 
you search in your neighborhood for the local plumber, or 
bakery, or electrician, so that they have a presence, and they 
have a basic web site. And that is free. And we offer other 
free tools that allow you to build-out a more dynamic web site, 
as much as you want to build.
    And then the advertising, that enables you to both move 
into advertising, online advertising which I mentioned. There's 
only a $5 sign-up fee, and you control your budget. We give you 
a great deal of ability to target exactly the audience that you 
want to reach, and to manage your budget, as appropriate, for 
your business. And out of that, we see many examples of people 
generating very high return on investments.
    And then, finally, I would point to our ads program called 
AdSense, where we allow you to place our ads on your web site. 
And that was some of the examples that I mentioned earlier, and 
generate revenue that way, as well. And that, again, is not 
only free, it actually generates revenue. But all of these, we 
aim to set up tools that people can access free of charge, as 
much as possible.
    Chairwoman Velazquez./ Mr. Misener, with shoppers becoming 
more Internet savvy, the competition to attract new customers 
is growing more intense. What advantages do small firms have 
when it comes to attracting new customers?
    Mr. Misener./ That's a great question, Chairwoman. The 
advantage the small business has is they can focus today on 
what they do, and like most, what they do best, and like most. 
They can focus on their businesses, as opposed to trying to 
figure out the Internet, and the technology associated with.
    If you look back a decade, or a dozen years ago, the 
companies that were founded at the time, Mr. Fischer's company, 
my company, Yahoo!, eBay, all founded by engineers. And that's 
because at the time, they needed to be technically savvy people 
to understand the technology to operate on the Internet.
    No longer is that the case, and so today's small businesses 
have the advantage of being able to concentrate on their niche 
markets, their specialties, their expertise, and then sell it 
through the Internet in a way that does not require them also 
to be technologists.
    Chairwoman Velazquez./ What challenges do entrepreneurs 
face in retaining customers as the number of online businesses 
continues to grow?
    Mr. Misener./ I think it's a good news story, Madam 
Chairwoman. They actually are doing quite well online. And as I 
indicated, the size of the small business market online, the 
proportion of sales online by small businesses, I think is 
surprisingly large. And it is a good news story. The only sort 
of foreseeable concern that we have is one that we share with 
Mr. Fischer, which is somehow a closing of the Internet would 
actually close off the markets to small businesses and 
entrepreneurs, and so we're anxious to see the openness of the 
Internet preserved.
    Chairwoman Velazquez./ Thank you.
    Dr. Ceru, in the past 15 years, we have noticed an increase 
in small business entrepreneurship that can be attributed to 
the Internet. What is it about the economics of starting a 
business online that is so attractive to entrepreneurs?
    Mr. Ceru./ A number of factors, and I think both of my 
colleagues have alluded to that, in part. We describe this as 
the long tail, or the fact that now a small business can 
effectively reach niche markets, and not have to have a brick 
and mortars location, and attempt to reach them by traditional 
means, but through the great reach, and the breadth, and the 
depth of the Internet, be able to access customers who might 
not normally find them.
    This, combined with the fact that the relative investment 
is insignificant, if any at all, to establish an online 
presence, spurs many business owners to start their businesses 
in that virtual environment.
    Chairwoman Velazquez./ And what can you tell us in Congress 
to do to continue to promote such activity?
    Mr. Ceru./ I think there's many things that need to happen 
to promote that activity, not just in an online venue, but in 
the traditional venues, as well.
    Chairwoman Velazquez./ Especially during this difficult 
time, sir.
    Mr. Ceru./ Especially in these times, yes. I think the SBIR 
grants are very important. Based on our experience at Babson 
College and my experience advising small companies, I believe 
we need to focus significantly on science, and technology, and 
engineering. That is largely supported, in part, by government 
programs at the national level, more so than at the local 
level. I think innovation should be continued to be supported 
in our country, both from a policy perspective, through tax 
credits, as well as through educational efforts. And, finally, 
encouraging women and minority ownership of entrepreneurial 
venues, activities, companies is essential as our country's 
demographics are shifting dramatically, and there's more of a 
need to be inclusive of these different demographics in the new 
economy.
    Chairwoman Velazquez./ Thank you.
    Mr. Steiger, you spoke to us about the role that small 
business loan played in terms of providing access to capital 
for you to start up your business, or for some of your clients. 
Given the difficult times that we are in in our economy, what 
do you think the SBA can do to spur greater investment in 
start-up firms?
    Mr. Steiger./ I don't know what you can do to increase it, 
but I'll tell you that the programs you have are very 
effective. The programs you have were able to let me build a 
building, which certainly helps the local economy. It allowed 
me to lock in my financing for 20 years, which gives me a nice 
stable path on which to grow the economy, so I found those 
programs very effective. I hope you continue them.
    Chairwoman Velazquez./ Thank you.
    Now I recognize Mr. Buchanan.
    Mr. Buchanan./ Thank you, Madam Chair.
    Mr. Hodgson, you're from California?
    Mr. Hodgson./ That's correct. Stockton, California.
    Mr. Buchanan./ As a homebuilder. I think you hear 
California, I'm from Florida, a member of Congress from 
Florida, but Vegas has been hit the hardest in terms of some of 
the areas. But looking at some of the incentives, you think of 
a recession, down 3-4 percent, 5-10 percent in business, but 
homebuilders, at least in our area, many of them are down 50, 
60, 70 percent. It's simply a supply and demand issue, or way 
over-built, and we just don't have demand right now.
    Some of these incentives that you're talking on behalf of 
yourself, and the Homebuilders Association, what do you think 
are the top two or three that really can make a difference? I 
mean, it's nice to have tax credits, as you mentioned, to give 
to the buyers, but from the builder's standpoint, unless you 
have a way of selling off those credits to generate some cash, 
many of them have losses, so I'm not sure where we go with 
that. But I want to talk to you a little bit about just what 
more we can do to help, without goofing things up here, but 
actually be a real help to small homebuilders, and builders in 
general, because it's a huge issue.
    Mr. Hodgson./ Well, I hate to be limited just to few, but 
let me give you top -
    Mr. Buchanan./ Give me your top two or three.
    Mr. Hodgson./ You're absolutely right. Our market is down 
60, 70 percent from two years ago, and we're predicting the 
market to go even lower in 2008. Just as an example, if I may, 
we do the front end of construction work, and we do energy 
design, and mechanical design, et cetera. Two years ago we were 
doing around 21,000 permits through our office, and it sounds 
like a large number, but let me kind of give you a perspective 
on that. And that means that we did about 800 master plans, and 
those are homes that are models that other homes we built from. 
That was in 2005.
    This year, we've done eight, so new construction has 
stopped. And builders really are not taking the risk because of 
the foreclosure market product that's coming down the road, and 
the inventory that they will have. But in our market, and I 
apologize, I'm not familiar with the Florida market. Really, 
most homebuilders have limited their own inventory, and it's 
now the recurring--the inventory that's coming back that is 
really causing the supply. So, to me, the number one thing to a 
small business is expanding the carry-back period for the net 
operating loss. That would allow capital immediately into this 
year, into the builder's books, and allow them to take credit 
for that.
    The second is allowing -
    Mr. Buchanan./ Let me, on that, how far are you looking to 
carry it back?
    Mr. Hodgson./ I believe currently it's a two-year carry-
back, and it's been proposed for four years. And that is what 
we're supporting.
    Mr. Buchanan./ Okay.
    Mr. Hodgson./ The second, which is more dear to my heart, 
necessarily, as I'm an energy efficiency advocate and try to 
push builders to go beyond just code, and what's very difficult 
in our market now is the Federal Tax Credit for energy 
efficient new housing. It was passed for three years, and then 
extended for a year. The mentality of the homebuilder is, if I 
want to do something and change for market differentiation so I 
can sell my product, as opposed to a different product, is I 
need to make a long-term risk assessment. So when I'm building 
a product, I have to look at where that product is going to be 
two, three years down the road. And if the tax credit is only 
good for a year, I'm not going to make that judgment call, 
because I don't want a product I build in 2008 to look 
different than the product I build in 2009 or 10. So we really 
support an extension.
    I know the House and the Senate have passed different 
versions of two years. I think, personally, that's far too 
short. It should be a long-term effort, a five or ten-year 
credit, or make it permanent. And make it above code, so you're 
always driving energy efficiency. So those would be my top two.
    Mr. Buchanan./ Okay. I know in our area, the whole concept 
of green housing and more efficiency, not just in our area, but 
something we need to do as a country, when you're talking about 
tax incentives for buyers, I assume that's what you're 
referring to, is that what you're talking about there?
    Mr. Hodgson./ Well, the tax credit I was talking about 
specifically is 45L, an extension of that. And that actually 
goes to the homebuilder. So the person who makes the decision 
in that -
    Mr. Buchanan./ What about the purchaser?
    Mr. Hodgson./ The purchaser, we're also supporting that 
that extension be--I believe that also has been proposed for a 
two-year extension.
    Mr. Buchanan./ Because I think there's a lot of people that 
will buy homes if there's some tax credits, as a way of 
stimulating the market, move out of what they've got, if they 
can cut their energy cost in half, and that's a good thing for 
everybody.
    Mr. Hodgson./ Absolutely. That, I believe, is covered in 
179 on the commercial side. And I'm not a tax person, so I'm 
not sure what the residential. I think it's 25, with a letter 
after it.
    Mr. Buchanan./ Another thing, I'd like to get your general 
feeling, just real quick, on the sub-prime. How did that affect 
your area? You said 20 percent of homes that were sold in the 
last couple, three years were sub-prime lending, which, as you 
know, people don't qualify for conventional financing, so we 
created all this creative financing. But what's been your 
experience in your immediate market, that area? What's your 
thoughts on it?
    Mr. Hodgson./ Well, Stockton occasionally gets national 
publicity. One of those was about six weeks ago as being the 
foreclosure capitol of the nation, so we have very direct 
experience. And it's approximately 40 percent of our market was 
sold in `05 and `06, about two out of every five homes were 
sold in the sub-prime market, with sub-prime market-type loans. 
So that's coming back to really build inventory, and inventory, 
it's a supply and demand, so what we're finding is that that's 
going to depress our market through 2008, probably through 
2009. We're not looking for any turn in our market through 
2010.
    Mr. Buchanan./ Okay. Thank you.
    Mr. Misener, what's been the experience, and I know Amazon 
has been a huge success story, but what has been the growth 
online sales, you said since `94. Has it continued to be 20 
percent a year? What is that number?
    Mr. Misener./ Yes. Thank you, Mr. Buchanan. We just 
released our quarterly report yesterday, and our growth was in 
excess of 30 percent, and so the online market does continue to 
grow. Roughly 30 percent of the units that ship as a result of 
the sale through Amazon are from other sellers besides Amazon, 
our retail platform.
    As I mentioned before, there are 1.3 million small 
businesses and individuals who sell through Amazon's platform. 
Picture this, if someone comes to Amazon and wants to buy a 
particular product, say a frying pan, they'll come and see a 
picture of the frying pan. There will be a description of the 
frying pan, and perhaps we'll have it for sale for a certain 
price. But right next to our sale price is the price from other 
sellers, competing directly with us. And oftentimes it's lower, 
and people buy. As I say, 30 percent of the units sold through 
us were not by sales by Amazon.com. And, so, we're seeing a 
sustained growth there.
    The number of active customer accounts is now 79 million, 
that's people that have bought something in the past year from 
us, so that, plus the overall demographics, which I mentioned 
before, which I think are so important, that systematically 
small businesses are being under-counted in their online sales. 
So, it really is a good news story, I think, at present.
    Mr. Buchanan./ It's a great story. Let me ask you just 
practically, just I know a lot of companies have online sites. 
I mean, it's unbelievable. But my experience is that very few 
are very effective. Now, a lot of them are sometimes just 
informational, and that's very helpful, helps people make a 
decision. But how do a lot of these sites get more, and really 
I'm going to ask you, too, how do they get more out of their 
sites, because my sense of it is, is that for every hundred 
sites, there's maybe two or three, I'm not talking about big 
corporations, but I'm talking about small business, are really 
effective in doing business in a significant way online. I 
mean, I think it's come a long way. Look at the overall 
numbers, but there's a lot more sites, but my own experience, 
if I was to think of 100 sites, there's probably five, ten that 
really have some sense of figuring out where it's really been a 
great tool. But I think most of them are up there, and they 
don't get the hits, and that. But how does a small business 
really take advantage of it? And I think, obviously, you've got 
some great opportunities, and obviously, Google does. But I 
want to have both of you focus a little bit on that today.
    Mr. Misener./ Sure. I'd be happy to, Mr. Buchanan.
    Mr. Buchanan./ And do you agree with my premise, that out 
of 100 sites that are up there for commercial use, small 
business, that a lot of them are not nearly as effective as 
they can be. And I'm sure there's five or ten that really do a 
good job, but 90 percent are not doing what they'd like to do 
with their sites. That's just my experience.
    Mr. Misener./ I don't have statistics on that, but I think 
that you're probably in the right ball park. I think part of is 
a legacy of the experience of the mid-90s. In the mid-90s, the 
way to get online was to create your own web site and run it 
yourself. That was the only option. But now there are so many 
other options, we see people starting to switch over so that a 
lot of the services that are technically difficult, payment 
processing, for example, or advertising, or search 
functionality, or fulfillment, all these things are difficult 
to manage, but now service providers are stepping in and 
allowing small businesses again to concentrate on what they do 
most.
    We have this worldwide fulfillment network. This involves 
gigantic distribution centers throughout our country and around 
the world. Why not allow small businesses to come in and allow 
their products to sit in our warehouses until they sell them, 
and then we will take care of the shipping for them, so they 
don't have to be experts in shipping, or inventory management, 
and those sorts of things.
    So, I think despite the rather gloomy view of the web sites 
around the Internet that you have and I share, I think we're 
going to see shifts now by small businesses to service firms, 
like our's, and others. We're not the only ones, of course. 
That will allow them to concentrate on the things that they do 
best.
    Mr. Buchanan./ Let me ask you, and I'll ask both of you, 
one of the things that's a little more controversial, and I'm 
not for raising sales tax, but how do we deal with this issue 
of Amazon, or my son's play football. They buy their shoes in 
Minnesota. They sell into the state, a lot of local merchants, 
small businesses say that you guys have an advantage over them 
because when they go buy a book, they've got to pay 6 percent 
in Florida, or 8 percent in Texas. What's your position, just 
out of curiosity, about how we deal with that issue between the 
state getting their share, and that being unfair to local 
merchants? What's your thoughts on that?
    Mr. Misener./ There's a real simple way of getting at it. 
It's called the Streamline Sales Tax Project. This is where 
many states have come together to simplify their sales tax 
codes. The reason why Amazon currently is not required to 
collect sales tax in many states is because of the Supreme 
Court decision back in 1992, which said that the sales tax 
codes in our country are so inordinately complex that it would 
be unconstitutional burden on eCommerce, or interstate commerce 
for us to be required to collect.
    We have taken it upon ourselves to participate with the 
states to simplify their sales tax codes in an effort to get to 
the point where it no longer would be that burden. And, so, my 
guidance would simply be that if states are interested in this, 
to join in and participate in the Streamline Sales Tax Project, 
which is aimed at getting to the point of simplification, where 
companies like our's can collect.
    Mr. Buchanan./ We want it to work for everybody, but it's 
something that I deal with. I was Chairman of the Florida 
Chamber, and it was a big issue on both sides, people felt 
about it.
    Mr. Fischer, just supporting small business, and you guys 
have done a lot in this area, how does that small company get 
more focused? I mean, obviously, if you're selling a product 
across the country, it's one thing, but how does a merchant in 
Sarasota, Florida, Tampa, Florida impact his local market? 
Maybe you're selling a car, a house, they're not selling books 
across the country. How does that work, where you can get the 
local impact, get the biggest bang for the buck, working 
through Google?
    Mr. Fischer./ Sure. Well, Congressman, one of the key 
features of our advertising program is that we allow you to 
target not just the type of audience, the particular searchers 
by their queries and what they might be searching, but actually 
by location. So, for example, you could choose Sarasota. You 
could choose the State of Florida, you could choose particular 
areas to target. And some small businesses want to sell 
nationwide, or even target the entire world, and some it's more 
appropriate for them to target specific areas, and we enable 
them to do that.
    If I might, I would like to just go back to your earlier 
question about web sites, and how useful, and how well designed 
they are, if I could.
    Chairwoman Velazquez./ You will have 20 seconds.
    Mr. Fischer./ Twenty seconds, sure. The only thing I would 
say is I agree with your general premise, some are good, some 
need work. We provide a series of free tools that actually 
allow advertisers to both--sorry, web sites to actually track 
the use of their web site, and to actually provide tools to 
optimize their web site to improve it, because you're right. 
You can't just have a web site, it needs to be a good web site 
to be effective.
    Chairwoman Velazquez./ Thank you. Mr. Ellsworth.
    Mr. Ellsworth./ Thank you, Madam Chair. Thanks for holding 
this important hearing, and thank you, gentlemen. I've learned 
quite a bit.
    I think I have solved one problem, though, today, for at 
least two of you. Mr. Misener, if you take the Kindle and you 
download the Congressional record into that, and then give that 
to Mr. Hodgson, there should be enough hot air contained in 
there to heat all the homes that you build for the future, so 
it--so you might disagree. Thank you very much.
    I think you can hear the common theme through this 
Committee in all of our hearings, is that we're asking you to 
help us help you. I think we went down the line. Mr. Hodgson, 
thank you. When I meet with homebuilders back in Indiana, 
they're very helpful, telling me just the nuts and bolts, the 
nitty gritty things they need, and what really restrict them 
from--I know a couple of months ago we were talking about the 
regulations on sidewalks in a very hilly area, and how that 
hampers what they do, and what they have to go through.
    And one of the questions I have for you is, is your 
entire--in your position on the energy efficiency, is that 
pervasive through your organization, is that your's, or is that 
the homebuilders? It seems to me, the folks back home had said 
that the requirements that we're putting on are a bit 
restrictive, and adding to the cost, which is slowly down their 
homebuilding. Just if you can quickly touch on that, if that's 
the position of the national organization?
    Mr. Hodgson./ It's my position, not the national 
organization's position. I think NAHB has a very clear policy 
on what's cost-effective, and how they determine energy 
efficiency codes. My niche in the market is to drive builders 
to code, make sure they do a good job, and design well, and 
then to push them beyond code. And we have about a 20 percent 
market share in our area, which is California, basically, the 
southwest. And we're very strong advocates of energy 
efficiency, so I think my leaning is on the left side of the 
coast, which is also probably on the left side of the position 
of NAHB.
    Mr. Ellsworth./ Okay. Thank you.
    Dr. Ceru, again staying with that theme of, you've studied 
this topic probably as much as anybody. One, two, three 
recommendations, if you were sitting in the Chairwoman's seat, 
don't try that, what would you say? Something in our power that 
we can do to help small businesses, you all do your job better, 
what would be your recommendations? Mr. Steiger said here's the 
three things, he needs healthcare. What would be your list of 
three, if you could do that?
    Mr. Ceru./ Well, I think healthcare certainly is a burning 
issue for small businesses. As a small business owner myself 
for many years, it was a significant portion of my payroll 
expenses, in addition to paying the federal and the state 
payroll taxes, disability, and unemployment taxes. So 
healthcare is a burning issue.
    Investment tax credits for small businesses is a very 
important issue. As an owner of a technology company, we did 
benefit from Section 179 benefits, as well. I think today 
they're even more important. What we see at Babson College, and 
many of the colleges throughout Massachusetts and the country, 
is a significant interest in green technology, in energy-
renewable technology, and many of these will require 
significant time to get to market penetration, and get to a 
pricing level that they become affordable on a mass 
scale.Between the beginnings of that idea, and the reaping of 
profits from those products, I think on both the national, as 
well as the state level, investment tax credits can be 
significant.
    And probably the last one is to take into consideration the 
sources of capital. Many entrepreneurs today are not getting 
traditional venture capital funding, they're getting more angel 
investing, small business loans, and banking loans. And the 
restriction of credit in today's environment, that source of 
debt financing is going to become more stringent, more 
difficult.
    I, myself, participate in an angel investors group, and 
there's becoming more of a conservative sway in that group. I 
think to increase the benefits of investing and easing the 
restrictions, if you will, from a tax onerous perspective on 
that investment is the beginning fuel for that new source of 
capital, and that new source of activity.
    Mr. Ellsworth./ Thank you very much.
    Madam Chair, I'd yield back. Thank you.
    Chairwoman Velazquez./ Mr. King.
    Mr. King./ Thank you, Madam Chair. I appreciate this 
hearing, and I very much appreciate this testimony. I really 
have something, I hope I've got time to ask from each of you. 
But I turn first to Dr. Steiger.
    You made a mention of bad tax policy, and to make a 
clarification into that, I'd ask you from a withholding 
perspective, you pay wages on a weekly basis, I presume, and 
you're doing at least monthly deposits, I would think, on 
payroll taxes, and on income tax. Is the federal government's 
position, the message that you get, that that's not adequate, 
and that they have to then take the 3 percent out of the top of 
any federal contracts you might have, in addition to the 
withholding?
    Mr. Steiger./ My understanding, if I'm correct, is that 
there's a program out there that has been pushed off, but that 
if I sell anything as a government contractor, or I sell 
anything under just part of a government contract, that if I 
sold you a computer for a dollar, and it cost me 96 cents, that 
the government paying me would withhold 3 cents on that dollar.
    Mr. King./ And then you get a big check back when you file 
your income tax on April 15th.
    Mr. Steiger./ A year later when I file my income tax, that 
turns out to be -
    Mr. King./ And then you would have to calculate into your 
price the cost of that capital to carry that over.
    Mr. Steiger./ I don't think that helps anyone.
    Mr. King./ And I agree. And I just wanted to illuminate 
that. My point, though, is that you are now filing at least 
monthly withholdings for your taxes and your payroll.
    Mr. Steiger./ I think my payroll is within a few days of 
after I pay my employees.
    Mr. King./ Perhaps weekly.
    Mr. Steiger./ Yes.
    Mr. King./ And if that's the case, then, the federal 
government really doesn't have a concern about whether you're 
paying your bills or not, because you're paying them up front 
weekly or monthly. And to withhold an additional part, that's--
I just wanted to reiterate that point. I'm glad that you 
brought it up. That's something that I think intimidates the 
potential people that might want to become the entrepreneurs, 
which I'd direct the next question then to Dr. Ceru on that.
    I'm interested in all of you, especially the 
entrepreneurial background. Dr. Ceru, as I read through your 
testimony, and simultaneous to the time you delivered it, I'm 
quite impressed with the science that you put behind the 
evaluation of entrepreneurship.
    I see in this testimony where you state, ``Entrepreneurship 
is a complex phenomenon.'' And you've identified a lot of it, 
as much as I've ever seen, but that complexity I don't see 
referenced in your testimony, that complexity of how do we 
measure, let me just say, the intimidation effect of government 
regulation, or the fear of the taxes that Mr. Steiger has 
referenced? What is the psychological composition of the 
entrepreneur, is it genetic, is it nature versus nurture? How 
do we raise more? And then, or if we can't, how do we then 
prepare a climate by which these entrepreneurs can grow and 
blossom, as opposed to getting locked into the corporate 
structure for somebody other than their own aspirations?
    Mr. Ceru./ This is, perhaps, my favorite question of all to 
answer. It's what most of my classes begin with, the question 
of nature versus nurture with entrepreneurship. And what we 
found over the years by anecdotal experience, and by studies 
across countries, is that there are certain individuals who 
have talents that lend themselves more readily to 
entrepreneurship. That simply means they are self-chosen. There 
are individuals who have the expressed interest and desire in 
entrepreneurial activity, and we firmly believe, and have 
proven that it can be taught. These are skills and tools that 
can be taught.
    Babson College, and I'm fortunate enough to be a part of 
this, is actually working in conjunction with a charitable 
foundation to develop a teaching curriculum for Latin America, 
for grade school teachers to teach their children the 
foundations of business and entrepreneurship. So not only do we 
believe this, but we're putting it into practice. And those 
skills center around the basic understanding of business, a 
basic understanding of where opportunities come from, and how 
to recognize an opportunity. And then from there, the tools 
that help individuals to shape that opportunity into a moldable 
business revenue model that enables success.
    If I may just finally answer your question with, we're very 
fortunate in this country, because we have a national culture 
that encourages experimentation, and does not penalize failure. 
Much as no one wants to fail, we find that many entrepreneurs 
often will start a business or two before they start a 
successful business. In many parts of the world, this is 
culturally and nationally not acceptable. In this country, 
we're very fortunate to allow individuals to make mistakes, and 
learn from those mistakes, and then proceed.
    Mr. King./ I'm quite taken by this. And I would say that, I 
suggest another look that might be also helpful with the 
perspective. If one could go back and survey the entrepreneurs 
as they get closer to the end of their career, the changes they 
might have observed, and the difficulties of doing business in 
today's climate versus that of a quarter of a century ago, and 
ask them the specific question; do you think you could do it 
over again, or would you do it over again knowing what you know 
today? Were they blissfully ignorant, and youthfully exuberant, 
and did that overcome the lack of knowledge? And back to you, 
Dr. Ceru. And I recognize the clock has ticked out.
    Mr. Ceru./ Yes, I'll be very brief with this. It is both. 
Many of the more seasoned entrepreneurs, if you will, will 
readily admit that if they knew everything they knew in their 
more mature years, they never would have taken the leap. But by 
the same token, these tend to be serial entrepreneurs who have 
taken multiple leaps. And my own experience, I work with a 
group of CEOs, six to twenty million dollar companies, they're 
all serial entrepreneurs. As their companies have been 
purchased by larger firms, their tenure is six months or less 
before they leave the established companies, and go back to yet 
another entrepreneurial activity. They have the gray hair that 
I have, so they're still not afraid to take that jump.
    Mr. King./ I thank all the panel. I thank the Chair, and I 
yield back.
    Chairwoman Velazquez./ Time has expired. Mr. Gonzalez.
    Mr. Gonzalez./ Thank you very much, Madam Chair.
    My question is going to be directed to Mr. Fischer. And I 
truly believe this, that any business, big or small, just is 
not going to be successful unless they really are Internet 
savvy. That's where everything is going.
    I appreciate everything Google has added, and it's very 
interesting, but there are a couple of issues, because I really 
would try to get in my own mind an understanding, if I was a 
small business person. I finally get to retire. I move to 
Hawaii, and I've got Gonzo's Custom Surf Shop. I've got my web 
site, and it's an interesting one. But the truth is, it's all 
about search and placement in order to get the eyes. And 
there's two different ways of doing that.
    I've got my web site. It's pretty interesting. Hopefully, 
you'll capture it when someone is searching for custom boards 
somewhere in Hawaii. But, better yet, maybe I should also get 
an ad. I think that enhances and increases the chances of 
certain people seeing my ad. And that's what I--I'm going to 
reach from the search, which I'm sure you've read. And it's old 
now, but I think he was so far--JohnBattelle, the 
pronunciation.
    ``Neal Moncrief couldn't afford to have a bad quarter. In 
fact, even a bad month made things a bit tense at home. Running 
your own business is like that. When things go south at the 
office, you take it home with you. As a small businessman, 
Moncrief lives on the edge of profit and loss. A bad month 
means avoiding his local banker, putting off home and car 
payments, and having less meat on his family table. But 
Moncrief is proud of what he had achieved. He built a small 
eCommerce company, survived the nuclear winter of 2001-2002, 
and emerged with enough cash flow to take care of his family. 
Moncrief has search engines to thank for that cash flow, Google 
in particular. Thanks to the traffic that Google drove to 
Moncrief's online storefront, which I think was two big feet or 
something, Moncrief no longer worked for the man.
    Moncrief is one of tens of thousands of merchants who have 
taken to the web since the Internet became a global phenomenon. 
For every household brand built during the bubble's infamous 
glory, eBay, Amazon, Expedia, thousands of Neal Moncriefs 
toiled in relative obscurity building the web's bike shops and 
insurance agencies, it's button merchants, and stroller stores. 
These digital cousins of strip mall America are the very 
beating heart of the United States economy. Small business writ 
large across cyber space.
    You think Amazon's got scale, you think eBay is huge, mere 
drops in the bucket. Amazon's 2000 revenues were around $2.76 
billion, but the Neal Moncriefs of the world'` - and I think 
the Professor will love this - ``taken together drove more than 
$25 billion across the net that same year, according to the 
United States government figures. That's the power of the 
Internet. It's a beast with a very, very long tail. The head, 
eBay, Amazon, Yahoo, may get all the attention, but the real 
story is in the tail. That's where Moncrief lives.
    But while the web may offer access to hundreds of millions 
of customers, you still have to let them know you exist'' - 
which is getting to my point. ``When folks went looking for 
something, they usually started at a search engine, and through 
some combination of luck, good karma, and would seem like fair 
play, when folks punch big feet or similar key words into 
Google, Neal's site came up first. Moncrief had never purchased 
an advertisement. All those search engine referrals were 
organic. `We were the right answer for the search, so why buy 
an ad.''
    Now all that came to a crashing halt because he was no -
when he went into the search, or people did, he was no longer 
at the very top. And the question was why? And I do want to get 
to that particular point.
    ``Google will have to determine what should come first when 
someone is looking, for instance, hip-hop. Who gets to be first 
in such a system? Who gets the traffic, the business, the 
profits? How do you determine of all the possibilities, who 
wins, and who loses? Because we all know when we go into a 
search, it's huge, and hopefully you picked up Gonzo's Custom 
Surf Shop. But, truly, I don't know if I'm going to be on page 
one, or page 100. If I'm page 100, no one is ever going to get 
to me.''
    So the question then goes, ``Have we evolved where it's 
just not a web site any more. That's not going to be enough. 
You are going to have to go online with advertising.'' And then 
the question is how do you determine when Gonzo's Surf Shop 
comes up next to a particular search? Am I relegated to page 
100? Do they have to get to page 100 before Gonzo's comes up, 
and my ad also pops up at the same time.
    Mr. Fischer./ Congressman, at its core, Google, of course, 
is a search company. And above all else, we aspire and aim to 
have the best possible search results available. And that's a 
constant work in progress. Since day one, and Google now being 
almost 10 years old, we've constantly evolved, and we're 
constantly improving, working to improve our search engine and 
its capacity. And companies like, perhaps, Gonzo's Surf Shop, 
with a good web site still do appear, small businesses, plenty 
of small businesses do appear near the top, some may not. And 
what we always say is that we run our search engine, and for 
us, it's a church and state issue. You can't buy your way to 
the top of the organic search results, but you can purchase 
ads. So you could have the best web site, and it might be 
really relevant. And if you do, then you can show it for free, 
like the example you mentioned out of the book. But you also 
have the opportunity to buy in.
    I'm happy to go longer, but I recognize we're out of time, 
so I'll stop there. And we can follow-up, and provide more 
details, if you're interested.
    Mr. Gonzalez./ Thank you, Madam Chair.
    Chairwoman Velazquez./ Ms. Hirono.
    Ms. Hirono./ Thank you, Madam Chair. And I thank my 
colleague for using the Hawaii surf shop as an example of an 
entrepreneur.
    I'm particularly interested in promoting green buildings 
and energy-efficient homes, so this is a question directed to 
Mr. Hodgson. I commend your industry for stepping forward, and 
really pushing the whole process of supporting green building.
    You mentioned Code Section 45L. Now that is just a credit 
for new homes, new homebuilding. Does it apply to remodeled 
homes?
    Mr. Hodgson./ 45L is for new homes. There is also a 
retrofit section for energy-efficiency improvements for rehab, 
or remodel, or renovation.
    Ms. Hirono./ And is that an extensively used section by 
homebuilders?
    Mr. Hodgson./ Well, the homebuilders I deal with are people 
who build new homes, and are not remodelers, so I'm not 
familiar with that. But I presume it's a code that's being 
proposed to be extended for two years, so I really couldn't 
speak to the popularity of that code.
    Ms. Hirono./ Another question. I understand that there are 
national ANSI standards on green buildings, and there are a 
number of areas that these standards cover. I'm wondering 
whether you think that it would be a good idea for federal 
legislation, perhaps another code section that incorporates the 
ANSI standards, so that although it's voluntary, any builder 
who builds to ANSI standards with regard to green building 
should maybe get some other kind of credit, tax credit?
    Mr. Hodgson./ Well, the ANSI standards that have been 
developed by the International Code Council, and National 
Association of Homebuilders are a building code, so there's no 
credit associated, tax credit associated with green building 
that I know of.
    Ms. Hirono./ Yes, I realize there probably isn't anything 
now, and my question is, should there be? Should we move things 
along even more than through the 45L tax credit?
    Mr. Hodgson./ I'm sure that would be an encouragement. 
Having federal legislation to promote green building standards, 
in my opinion, is not necessary, because the International Code 
Council is the combination of the three, sub-national or 
regional codes. And when they adopt this process, or adopt the 
ANSI-700 standard, which should happen in their 2010 adoption 
process, it will then become referenceable in the 49 states 
that use the I-Codes as a building code.
    Ms. Hirono./ Does that include Hawaii? You said 49.
    Mr. Hodgson./ I think Hawaii is the example that it's not 
included, but I'll have staff get back to you on that.
    Ms. Hirono./ So you're saying that's adequate to promote 
green building.
    Mr. Hodgson./ Correct. And then at that time, 
Congresswoman, what will happen is the local jurisdiction, or 
the state will make the call on what level of requirement they 
would want to have within the green building code. The beauty 
of having an ANSI standard is previous to this, there really 
was no building definition of green. And now there's a very 
good scale for the variety of features that you've looked at 
for green building, so that now we could have a measurable 
scale of what the green building is in the residential market, 
and what it's not. And that will become an integral part of our 
building code within three years.
    Ms. Hirono./ Thank you very much. I yield back, Madam 
Chair.
    Chairwoman Velazquez./ Mr. Sestak.
    Mr. Sestak./ Thank you, Madam Chair. I'm sorry I was late.
    My questions may not have to do with the overall value 
attendant to this hearing, but what I was curious about going 
through the read-ahead is the value that small businesses give 
to the entrepreneurship that's made America great.
    I guess my question is, do any of you see a depletion in 
the resources that are necessary to do that, much like oil is 
going to run out? I'm talking about human capital. China has 
passed us in the IT exports throughout the world, and I think 
more than now, as compared to 2001 until today, more than 50 
percent of our IT companies that were wholly owned by the 
United States at that time now have foreign ownership.
    More to the point, I guess, is number three guy in China 
said it wasn't the Harvards and the Yales we most admire about 
you, it's your community colleges that graduate the artisans 
that made your manufacturing prowess what it is. So my question 
really has to do, in my region, in Philadelphia region, Acker 
Shipyard, for the homebuilders kind of gets to this point. 
We're importing 180 people to do welding, because we can't find 
the people with the skill any longer to do welding. You know, 
when I had them during Viet Nam War, you flipped your helmet, 
lit the arc, laid the bead. Now you have to sit at a computer 
and lay out welding, the bead and all, that old science of 
technology.
    The question over here, I guess, is for small businesses, 
as you see the value of going on the Internet and doing all 
this, I went to four companies in Montgomery County in my 
district, and two of them out-source over 50 percent of what 
they do, not because they want to. They don't want to. They 
have to get a telephone book this thick through specs to India 
in order to make the kinds of programs they want, where they 
would prefer to have Americans do it. They just can't find 
enough of them.
    This innovation that is so rampant everybody says in small 
businesses, and attendant to this great spur that got us to 
where we are, do you see that endangered from the artisan that 
helps your business, to this wonderful IT ability to compete, 
now no longer just with someone from Arkansas, but someone from 
overseas? It seems to me that's the most critical element for 
small businesses, because you all talk about this innovation 
that comes from somewhere. Where is it going to come from 30, 
40 years from now? Or do you really don't think this is an 
issue much at all? Sir?
    Mr. Hodgson./ Homebuilding is not high tech, fortunately. I 
guess we're a little on the low tech side, but one of the 
critical issues as our market was growing previous to the last 
two years was the lack of qualified personnel. And in the 
California market, which I'm most familiar with, we made a very 
extensive effort, and I actually came from the community 
college system, to set up something called The California 
Homebuilding Foundation. And it's a partnership between the 
building industry and 22 community colleges to train framers, 
plumbers, electricians. And they actually give scholarships to 
these kids to go to community colleges. So I think the lack of 
qualified personnel was a huge issue, as we were going through 
our growth process of 2001-2006.
    I'm not concerned with a lack of innovation in the 
homebuilding market. Homebuilders respond to market forces, and 
the public tells us what we need to build by what they buy. And 
as the market changes, we've heard green building, there are a 
variety of other issues in energy-efficiency and peak load 
reduction have been on the west coast market. We respond well 
to those things, because we survive well.
    Mr. Sestak./ Amazon?.
    Mr. Misener./ Just briefly, Congressman, we have two areas 
of experience here. One is within our company, and the other is 
with our customers. Within our company, it is a challenge to 
find qualified technologists. It constantly is, we'd love to 
see better technical education in our country to provide that 
steady stream of technical expertise. But outside the company, 
for our customers, in particular for our small business sellers 
through our site, we're doing our work to take that technical 
requirement away from them, so they don't have to worry about 
being technically savvy, so we're actually in a circumstance 
where we think we are able to provide services to our seller 
customers, and then inure to the benefits of our buyer 
customers that remove those kinds of that technical necessity, 
so you don't have to be an engineer from MIT to understand how 
to run a good small business online.
    Mr. Sestak./ Any comment?
    Mr. Fischer./ I would just agree with Mr. Misener is the 
sense that we focus on innovation, and we evaluate success by 
something that creates incredibly easy to use tools. And we 
usually measure that by a success, as something like InSearch 
where we have hundreds of millions of searches done in a month, 
and it's easy to do. And you can find what you're looking for. 
So when we think about innovations, some of the tools that I've 
talked about to make it easy for entrepreneurs to run their 
businesses effectively online, and so what we focus on is 
getting the right talent, and then providing those kinds of 
innovations. And I don't dare predict where -
    Mr. Sestak./ Talent is not a problem.
    Mr. Fischer./ Talent is always, I would agree with Misener, 
talent is always an issue. And we see it as the driving force, 
if you get strong talent, so we have some concerns. But in 
terms of innovation, we think that we always--we will work hard 
to get the best talent we can. And by creating an innovative 
environment, getting people through some of the things that Dr. 
Ceru talked about, embracing failure, not liking it, but 
willing to live with it, knowing that taking some risk is going 
to create the spirit of innovation and opportunities for 
success. And that's always been our approach, and to-date has 
been successful.
    Mr. Sestak./ There may not be time.
    Mr. Ceru./ Over time, but if I may, Madam Chairwoman. Yes?
    Chairwoman Velazquez./ Yes, go ahead.
    Mr. Ceru./ Yes. Thank you.
    I'd like to address that from two perspectives. The first 
is to take a look at it more from a historical trend, or change 
in models. And I think that we're witnessing a shift in the 
business models, and in the economy in our country that's 
happened at breakneck speed, compared to the change from the 
industrial age, to the manufacturing age, to the knowledge 
economy that we've since survived in, through the out-sourcing, 
and new models are being created.
    My own perspective based on what I see working with young 
people constantly, is that I'm very bullish on our future. I 
don't think there is a shortage of innovation. I don't think 
there is a shortage of interest. I think there is a broadening 
of the skill set in the workforce, and some of that is an 
infusion of talent from other countries, as we once again 
become once a different type of melting pot. And I agree with 
my colleagues that there has been, and I have seen a push at 
the regional and community college level to educate young 
people for what was traditionally considered skilled or trade 
person jobs, which also is going to be an ongoing, very 
beneficial aspect of our economy.
    Mr. Sestak./ Thank you.
    Chairwoman Velazquez./ Time is expired. Mr. Steiger.
    Mr. Steiger./ I'll be very quick.
    I think there's two issues. One is yes, it's hard to get 
good people, and that's a problem when good people are probably 
needed. But don't give up hope, because the entrepreneurial 
spirit is going on all over the place. We're constantly getting 
new competitors. People are constantly starting new businesses. 
We see great new competitors join us every day, and so I don't 
think there's a long-term worry. I think things are bright.
    Chairwoman Velazquez./ Time has expired.
    I would like to ask a question to Mr. Misener.
    In your testimony, you discussed the lack of accurate data 
regarding the online economy. And without such measures, it is 
really difficult to measure the impact of the Internet on our 
nation's economy, as well as the extent to which small firms 
have an online presence.
    Do you have any recommendations for developing a 
statistical benchmark to more accurately measure eCommerce 
activity?
    Mr. Misener./ Madam Chairwoman, that's a terrific question, 
and certainly I do. It is the case that the federal government, 
as well as private interests, have been missing the role of 
small business selling online in a dramatic fashion. The 
Internet Retailers is a prominent trade magazine which annually 
publishes its list of top 500 sellers online, retailers online. 
Amazon is at the top of this list. The most recent version of 
this had our 2006 sales of a little bit under $11 billion in 
2006, but it completely missed the sales through platforms like 
eBay, which during the same period had $52 billion of sales 
through its platform. eBay is not even on the list. Google is 
not on the list. Yahoo! Is not. Microsoft is not. They missed 
these. They undercount them, and because so many of the sales 
through the platforms like an eBay are by small businesses, 
we're completely missing a large segment of the online economy. 
And so I would love for the Census Department to drill down 
deeper with its eStats, instead of just looking at businesses, 
like they tend to, and the business reports, try to delve down 
further to get at the small business seller online.
    Chairwoman Velazquez./ Thank you.
    Dr. Ceru, do you have any insights into how we can get 
better, or more accurate data?
    Mr. Ceru./ Most of what we track through our research with 
GEM is more international, and more in terms of business 
starts, and business stops. What I can tell you is more 
anecdotal, and more I've seen at a local level, is that a lot 
of what happens through the eCommerce arena doesn't report out 
immediately, or as quickly as some other sources do, so it is, 
in essence, under the radar activity that becomes more 
difficult to track.
    The question would come up is, are you tracking number of 
hits to a given web site, or actual purchases through that web 
site, as one of the distinguishing factors. And I think my 
colleagues are probably working on that very arena to try to 
get more closely to that.
    Chairwoman Velazquez./ Thank you.
    And my last question is to both Amazon and Google. We all 
know that the Internet has the ability to level the playing 
field between firms by allowing small businesses in remote 
areas to compete for customers. Can you talk to us about any 
special efforts to reach out to these businesses in rural 
locations to highlight the benefits of eCommerce?
    Mr. Fischer./ Congresswoman, as your question indicated, 
it's--on the Internet, one of the beauties of the platform it 
creates is in some ways there are no rural and urban 
businesses. There are just businesses that have the opportunity 
to compete equally on a level playing field, as you suggested.
    Our primary focus is on trying to provide, as I've 
discussed, the tools that enable that as simply as possible. We 
have a number of outreach programs that we do in terms of 
outreach to different types of communities to provide the 
necessary education. We do that to certain communities, we do 
that to certain minority groups, and so on, as appropriate. And 
our goal is to provide tools that work effectively for all 
groups and all entrepreneurs, as effectively as possible. It 
takes a variety of flavors, but largely, we think there's a lot 
more in common across these, and by creating a level playing 
field, you can create tools, and you can create education 
materials that will work effectively for a large group of 
entrepreneurs.
    Chairwoman Velazquez./ Mr. Misener.
    Mr. Misener./ Yes, ma'am. I'll be brief. I certainly agree 
with Mr. Fischer.
    Just like the Internet has removed the barriers to 
consumers whereby a rural or isolated community may not have 
but one or two retail outlets, they're no longer beholding to 
those one or two retail outlets. They have the entire Internet 
available to them.
    Likewise, do small businesses. Small business selling 
through Amazon isn't beholding to just a local community of 
buyers, but rather to the 79 million and growing active 
customers of Amazon. So it really is a great enabler, and I 
think a very good news story for small business.
    Chairwoman Velazquez./ Thank you. Mr. Buchanan.
    Mr. Buchanan./ I know that Madam Chair is going to want me 
to be brief, so just real quick.
    I wanted to get, Mr. Steiger, your experience. You said you 
had good experience with the SBA, but were they with you there 
day one when you were looking at--I assume you had a business 
plan. Did they go through the business plan? I was just curious 
of the experience that you had with the SBA, and then have you 
gone back for additional capital? Because one of the things, I 
think, Doctor, you said, and I don't totally agree with, is the 
idea that I think banks are getting tighter and tighter on 
credit, and I think we're going to have to look for vehicles 
like the SBA to stimulate the economy. I'm not sure you said 
exactly that, but I just want to get your quick analysis of how 
long it took, and that type of thing, in 30 seconds.
    Mr. Steiger./ I didn't use the SBA at start-up, or when we 
purchased the business. I used the SBA when I knew I was 
stretching myself to grow the business, to build a building to 
be stable, and to--and I just bought my building six months 
ago, so it's a recent program. But it made the difference of 
being able to grow, and not grow. And, in that case, I think it 
was important.
    Mr. Buchanan./ Dr. Ceru, just to wrap up with you. I want 
to thank you for what you're doing, because I think we need to, 
and this Committee does, we need to really celebrate risk-
taking in entrepreneurship because that, in my opinion, is the 
way we compete with China, India. We are in a global economy, 
and we've got to do everything we can to embrace risk-taking. I 
know in Florida, the Federation I headed up is 137,000 
businesses. Those businesses, 99 percent were small business. 
Some day it will become--Google started as a small business, 
becomes big some day, so what you're doing in your area, we 
have to continue to do that.
    Let me say this. What I heard a statistic, out of 100 - 
this is a while back. The U.S. Chamber, 100 businesses, 92 fail 
in five years, eight succeed. What is the biggest reasons that 
we--how can we help more businesses, assuming only eight out of 
100 succeed in five years? What more can be done to--you think 
the biggest challenge is for people that start up in business, 
why they fail?
    Mr. Ceru./ We've seen a number of different issues, and 
they range from not having a good plan, to not having a good 
operating plan. And many times, we teach entrepreneurship, we 
have no shortage of brilliant ideas. I tell students all the 
time there's no such thing as a not good idea, but is it a good 
business concept? Is it a good business? And the shift from 
having that idea, turning into operations, living with it, 
managing through it, is a skill set that needs to be taught.
    There are many agencies like the Small Business 
Administration that does provide tools, and training for these 
individuals. I participate through the Small Business 
Educational Association of New England, in providing some of 
that. So I think we have to provide them with resources, we 
have to provide them with go-to centers, if you will. And at 
some point in time, we do have to provide them with sources of 
short-term liquidity to help them manage through what might be 
difficult periods in accounts receivable, or extended downturns 
in the economy.
    Mr. Buchanan./ And I guess that's one thing I've seen or 
experienced, is a lot times they run out of capital. They're 
always a little more optimistic. It usually takes a little bit 
longer, costs a little bit more. That's probably a big 
component why some don't succeed. They just kind of quite not 
get there in the capital. Is that what you've seen?
    Mr. Ceru./ Some of that running out of capital is 
inefficient management of inventory, or inefficient management 
of receivables that ultimately results in a reduction in 
capital. And the companies that I've worked with that have had 
the best success with that have had good internal management 
policies, combined with revolving line of credit, as opposed to 
an extended loan.
    Mr. Buchanan./ And just the last question you touched on, 
is how much of it is driven of the successful companies, is 
just personality. What you touched on earlier, you didn't put a 
percentage on it. Let's say 100 people go in business, and why 
some succeed, and don't. But how much of it is just the 
individual, he or she, that type of thing, regardless? Because 
I've seen people, great plan, plenty of capital, still not make 
it. But what's your thought on that?
    Mr. Ceru./ That fire in the belly, as we call it, is 
essential to get the idea off and rolling, and started. But one 
of the things that most entrepreneurs need to learn is, they 
may be the person to start the business, but not the person to 
manage the business on an ongoing basis. And one of our 
entrepreneurs who comes in to speak at Babson College said it 
most eloquently, that entrepreneurship is a team activity. And 
finding the right team members to fill out your great idea is 
essential to keep the business going.
    Mr. Buchanan./ Thank you, doctor. And thank you, Madam 
Chair.
    Chairwoman Velazquez./ I understand, Mr. Gonzalez, you want 
to ask -
    Mr. Gonzalez./ Just an observation, I guess, and that is, 
this Committee's chief concern is small business, as you 
obviously pick up on that. And as business models change, 
technology moves forward, we just can't allow maybe what's 
maybe going out there, I'm not saying that it's happening, that 
would ignore the needs of the small business person. And I 
understand, Mr. Fischer, Google doesn't have a subscription 
service for Gonzo's Custom Surf Shop to be included in a 
search. And I think that's the best business models you guys 
could ever come up. And you still have to make money at the end 
of the day, and I understand advertising.
    The concern then is, does the advertising then bump the 
placement, and such, and the exposure that a small business? 
And that is really where I'm coming from on that, because 
that's where you make money, and I understand that.
    Mr. Misener, the concern that I have, of course, with 
eCommerce and such, it's a blessing for many, and you've 
indicated that you have many suppliers that are small 
businesses, and so on, that you don't have all of the 
inventory, and some of it is provided by small businesses. By 
the same token, I know that in San Antonio, historically, we've 
had a little bookshop, the Twig Book Store, or Book Shop, and 
we thought it wasn't going to survive Barnes & Noble and 
Borders. They did. Now the question, I mean, they're barely 
hanging in there. The question is, is Borders or Barnes & Noble 
going to survive online? And we understand all of that, and we 
still have to be very mindful of what's going on out there. And 
I understand you also have to stay in business and make a 
profit at the end of the day.
    And there are some things that appear to be fair, and some 
things that don't. eBay and PayPal, and how they restrict the 
consumer in the way in which they can purchase through their 
service, all of that we have to be very mindful as to how the 
consequence to small business men and women in America. But I 
commend all of you. Thank you so much for you testimony today.
    Chairwoman Velazquez./ Before we wrap up, I just would like 
to address a question to the two small businesses that are 
represented here.
    We passed a first stimulus package, and there is discussion 
about a second stimulus package. Mr. Hodgson, and Mr. Steiger, 
I want you to answer this question based on your own business, 
and your own industry.
    What would you suggest is one legislative fix that will 
help your business, your industry continue to create jobs?
    Mr. Hodgson./ The one fix for my personal company is the 
extension of 45L. Our niche is in the energy-efficiency market. 
I think the stimulus to the housing market is the extension of 
the tax credit, in general.
    Chairwoman Velazquez./ Mr. Steiger.
    Mr. Steiger./ I don't know if I'm prepared to answer that. 
I think I came -
    Chairwoman Velazquez./ You have a long list?
    Mr. Steiger./ I have a long list.
    Chairwoman Velazquez./ You can submit it to us.
    Well, thank you all so much. This was very insightful, and 
I really want to take this opportunity to say that it's been a 
great hearing. The information has been very valuable to us. 
And in the sense that we continue to see how we can best 
provide legislative fixes, so that we can enable small 
businesses in this country to continue to do what you do best, 
and that is creating jobs at a time when the economy is in such 
a downturn and we need to see if we can play any role to get 
this economy back on track. With that, I thank you.
    I ask unanimous consent that members will have five days to 
submit a statement and supporting materials for the record 
without objection. So ordered. This hearing is now adjourned. 
Thank you.
    [Whereupon, at 11:56 a.m., the Committee was adjourned.]
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