[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]





   BUILDING AN OPPORTUNITY ECONOMY: THE STATE OF SMALL BUSINESS AND 
                            ENTREPRENEURSHIP

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

                                HEARING

                               before the

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD
                             MARCH 4, 2015

                               __________
                               
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]                           
                                           

            Small Business Committee Document Number 114-004
              Available via the GPO Website: www.fdsys.gov
                                    ______

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                   HOUSE COMMITTEE ON SMALL BUSINESS

                      STEVE CHABOT, Ohio, Chairman
                            STEVE KING, Iowa
                      BLAINE LUETKEMEYER, Missouri
                        RICHARD HANNA, New York
                         TIM HUELSKAMP, Kansas
                        TOM RICE, South Carolina
                         CHRIS GIBSON, New York
                          DAVE BRAT, Virginia
             AUMUA AMATA COLEMAN RADEWAGEN, American Samoa
                        STEVE KNIGHT, California
                        CARLOS CURBELO, Florida
                          MIKE BOST, Illinois
                         CRESENT HARDY, Nevada
               NYDIA VELAAZQUEZ, New York, Ranking Member
                        YVETTE CLARKE, New York
                          JUDY CHU, California
                        JANICE HAHN, California
                     DONALD PAYNE, JR., New Jersey
                          GRACE MENG, New York
                       BRENDA LAWRENCE, Michigan
                       ALMA ADAMS, North Carolina
                      SETH MOULTON, Massachusetts

                   Kevin Fitzpatrick, Staff Director
            Stephen Dennis, Deputy Staff Director for Policy
            Jan Oliver, Deputy Staff Director for Operation
                      Barry Pineles, Chief Counsel
                  Michael Day, Minority Staff Director
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                            C O N T E N T S

                           OPENING STATEMENTS

                                                                   Page
Hon. Steve Chabot................................................     1
Hon. Nydia Velaazquez............................................     2

                               WITNESSES

Mr. Jon Clifton, Partner, Managing Director, Government Division, 
  Gallup, Inc., Washington, DC...................................     4
Ms. Cynthia Kay, Owner and President, Cynthia Kay and Company, 
  Grand Rapids, MI, testifying on behalf of the National Small 
  Business Association...........................................     6
Mr. David Burton, Senior Fellow in Economic Policy, The Heritage 
  Foundation, Washington, DC.....................................     7
Ms. Elana Fine, Managing Director, Dingman Center for 
  Entrepreneurship, University of Maryland, Robert H. Smith 
  School of Business, College Park, MD...........................     9

                                APPENDIX

Prepared Statements:
    Mr. Jon Clifton, Partner, Managing Director, Government 
      Division, Gallup, Inc., Washington, DC.....................    28
    Ms. Cynthia Kay, Owner and President, Cynthia Kay and 
      Company, Grand Rapids, MI, testifying on behalf of the 
      National Small Business Association........................    35
    Mr. David Burton, Senior Fellow in Economic Policy, The 
      Heritage Foundation, Washington, DC........................    46
    Ms. Elana Fine, Managing Director, Dingman Center for 
      Entrepreneurship, University of Maryland, Robert H. Smith 
      School of Business, College Park, MD.......................    72
Questions for the Record:
    None.
Answers for the Record:
    None.
Additional Material for the Record:
    None.

 
     BUILDING AN OPPORTUNITY ECONOMY: STATE OF SMALL BUSINESS AND 
                            ENTREPRENEURSHIP

                              ----------                              


                        WEDNESDAY, MARCH 4, 2015

                  House of Representatives,
               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 11:00 a.m., in Room 
2360, Rayburn House Office Building. Hon. Steve Chabot 
[chairman of the Committee] presiding.
    Present: Representatives Chabot, Hanna, Rice, Gibson, 
Curbelo, Hardy, Radewagen, Velaazquez, Hahn, and Clarke.
    Chairman CHABOT. Good morning. This hearing will come to 
order. I want to thank everyone for being here, especially our 
witnesses and our members.
    Today, we are here to examine the state of small business. 
For the Members here, it is not the first or last time we will 
have this conversation. We have it every time we talk to our 
constituents. They are the ones, after all, who tell us the 
most about small business.
    But in those conversations, we do not have C-SPAN cameras, 
we do not have stenographers, and it does not make it into the 
Congressional record. So we are having this hearing today for 
our constituents, as well as for the small businesses all 
across the country, to have a conversation for the record that 
we have already had many times back home, so that we, as 
Members of the Small Business Committee of the U.S. House of 
Representatives, can start the legislative work of getting 
government off the backs of the American people and off the 
backs of small businesses all across the country.
    One out of every two employed Americans works at a small 
business. Seven out of every 10 new job opportunities are 
created by small businesses. When the federal government issues 
new rules, or raises taxes, or threatens to raise taxes, or 
increases health care costs, or prolongs a sense of 
uncertainty, this does not just impact the name on a store 
front; it impacts real people. It impacts every American worker 
that puts a roof over their head or food on the table by 
working at that small business.
    We have heard some say that our economy has recovered. And 
it has somewhat. But when you look at the number of unemployed 
Americans and the number of those who may be ``employed'' but 
cannot find full-time work--in other words, they are working 
only part-time--it is clear that we are not where we should be.
    As testimony today will reinforce, it is not another 
sweeping government program that will make life better for 
Americans who depend on small businesses. The answer is hidden 
in the thousands of pages of regulations and tax policies that 
are crushing the small business community. We must alter the 
mindset of the federal government so that it is always thinking 
about how its actions will impact our small businesses. That is 
what the Small Business Regulatory Flexibility Improvements Act 
was all about--requiring that all federal agencies consider the 
impact, both direct and indirect, that new rules or regulations 
will have on small businesses before they become final. And in 
another area, the labor force participation rate is at its 
lowest point in our history. The percentage of long-term 
unemployed is still much higher than before the recession. And 
maybe the most disturbing trend: every year of the Obama 
administration we have seen more businesses close than open, 
and that is something I think we really need to focus our time 
on. More businesses closing, dying, than opening or being born. 
In plain language, it means we have a problem.
    Small businesses are the foundation of our economy. As a 
Committee, we are here to make life better for small businesses 
and the working families that rely on them. Today, we begin 
that important work.
    I want to thank each of our witnesses for taking the time 
to be with us today, and I look forward to hearing your 
testimonies and asking some questions. And I would now yield to 
our ranking member, Ms. Velaazquez, for her making an opening 
statement.
    Ms. VELAAZQUEZ. Thank you, Mr. Chairman. And thank you for 
holding this important hearing.
    Creating two out of three net new jobs, small businesses 
are vital to our overall economic health. Recent job data 
affirms this point, with small firms creating 78,000 jobs 
between December and January, significantly outpacing larger 
companies. In January, businesses with fewer than 500 employees 
added 81 percent of new private sector jobs. Over the last four 
months, smaller companies have been responsible for 83 percent 
of newly created positions. When compared to the 38 percent of 
new jobs small firms created in 2010, it is clear that the 
small business sector is finally firing on all cylinders and 
providing the fuel to power our economy forward.
    For small businesses to grow, a number of ingredients must 
be in place. Access to affordable capital is one element. 
Whether it is a bank loan or a well-timed infusion of venture 
capital, small companies require capital to expand their 
operations, break into new markets, or launch new products. 
Thankfully, since the end of the Great Recession, the lending 
environment for small businesses has improved considerably. The 
majority of small firms that apply for credit in 2014 receive 
it, according to data from the Federal Reserve banks. Indexes 
that measure credit conditions for small companies reached 
record levels in the last quarter of 2014.
    Despite this positive news, room for improvement remains. 
Smaller loans are still well below pre-recession levels. Those 
small businesses or startups who are just getting off the 
ground, continue encountering difficulties in securing credit. 
It is my hope the committee will focus on this issue in the 
coming weeks.
    Beyond access to capital, in order to succeed, small firms 
need customers willing to purchase their products. There has 
been significant progress in this area as well. Consumer 
confidence has been climbing since June, peaking at an 11-year 
high in January. With fuel prices remaining low, it is 
anticipated that consumer spending will remain strong, 
providing demand for small firm goods and services. All of 
these factors suggest that our nation's entrepreneurs have made 
significant progress in recent months. As small businesses 
continue growing, expanding and adding workers to the payrolls, 
they will help strengthen our overall economy.
    It will remain the function of this committee to support 
policies that foster this growth. In that regard, I look 
forward to working with the chairman, and all my colleagues, to 
continue our bipartisan work to strengthen the small business 
sector.
    I just want to take this opportunity to thank all the 
witnesses for your valuable insight, and I yield back the 
balance of my time, Mr. Chairman.
    Chairman CHABOT. Thank you very much.
    The Committee members can submit opening statements for the 
record if they would like to do that.
    And I would like to go ahead and introduce our panel at 
this time, as well as introduce our five-minute rule, which is 
basically you get five minutes to speak to us. We hold 
ourselves to five minutes as well. We even have a lighting 
system for that purpose. The green light will be on for four 
minutes. The yellow light comes on and lets you know you have a 
minute to wrap up, and then the red light will come on. We 
would ask you to tie it up at that point, if not earlier. We 
will give you a little leeway but not too much. And we will 
introduce the panel and then we will hear from the panel.
    We will begin with Jon Clifton, who is a partner at Gallup, 
Inc. In this role, he manages Gallup's global government work 
and the Gallup World Poll, an ongoing study conducted in more 
than 160 countries, representing 98 percent of the world's 
adult population. He received his Bachelor's degree in 
Political Science and History from University of Michigan, and 
a Juris Doctorate from the University of Nebraska. We welcome 
you this morning.
    Our second witness will be Ms. Cynthia Kay, who is owner 
and president of Cynthia Kay and Company in Grand Rapids, 
Michigan. Her company produces high quality media productions 
and communications elements that are used here in the United 
States and abroad. Ms. Kay serves on the board of MiQuest 
Foundation, whose mission is to promote a culture of 
entrepreneurship in Michigan. She serves on the executive board 
of the National Small Business Association, whom she is 
representing today. A graduate of Michigan State University--we 
have got a lot of Michigan folks here. Ms. Kay also holds a 
Master's degree in Communications from Western Michigan 
University.
    And our third witness will be Mr. David Burton, who is a 
senior fellow in Economic Policy at the Thomas A. Roe Institute 
for Economic Policy at The Heritage Foundation. In this role, 
he focuses on tax matters, security law, entitlements, 
regulatory, and administrative law. He received a juris 
doctorate degree from University of Maryland School of Law and 
he holds a Bachelor of Arts degree in Economics from University 
of Chicago.
    So we welcome all three, and I will now yield to the 
ranking member to introduce our fourth witness.
    Ms. VELAAZQUEZ. It is my pleasure to welcome Ms. Elana 
Fine. She is managing director of the Dingman Center for 
Entrepreneurship at the University of Maryland's Robert Smith 
School of Business. Ms. Fine's primary focus is leading the 
center in its mission to broaden entrepreneurship. Her 
responsibilities include oversight of a venture incubator, an 
angel investor network, business competitions, and integration 
with Smith School entrepreneurship curriculum and research 
activities. She is also an adjunct faculty member and has an 
MBA from the University of Chicago. She was recently named a 
tech titan by Washingtonian Magazine. Welcome.
    Chairman CHABOT. Thank you.
    Mr. Clifton, you are recognized for five minutes.

    STATEMENTS OF JON CLIFTON, PARTNER, MANAGING DIRECTOR, 
GOVERNMENT DIVISION, GALLUP; CYNTHIA KAY, OWNER AND PRESIDENT, 
    CYNTHIA KAY AND COMPANY; DAVID BURTON, SENIOR FELLOW IN 
 ECONOMIC POLICY, THOMAS A. ROE INSTITUTE FOR ECONOMIC POLICY, 
THE HERITAGE FOUNDATION; ELANA FINE, MANAGING DIRECTOR, DINGMAN 
CENTER FOR ENTREPRENEURSHIP, ROBERT H. SMITH SCHOOL OF BUSINESS

                    STATEMENT OF JON CLIFTON

    Mr. CLIFTON. Thank you, Mr. Chairman, and members of the 
Committee. It is a pleasure to be here to discuss Gallup's 
analytics on the state of the U.S. economy, the attitudes of 
small business owners, and the current barriers to job growth 
and startups.
    Gallup completed its first national representative survey 
of the world in 2006. Our biggest finding from this study is 
what the whole world wants is a good job. That finding 
compelled us to more thoroughly study the jobs situation around 
the world. Gallup now quantities the prevalence in quality of 
jobs in more than 140 countries each year, and Gallup also 
tracks employment daily in the United States, surveying roughly 
30,000 adults per month and more than 350,000 people per year.
    There are a number of signs from Gallup's data that the 
U.S. economy has been improving since the recession--economic 
confidence is improving, self-reported discretionary spending 
is steadily increasing, and people are reporting that hiring is 
outpacing firing in their workplaces. Despite this encouraging 
news, job creation remains a problem.
    While official unemployment has fallen from roughly 10 
percent in 2010 to roughly 6 percent today, using this metric 
to represent the total jobs picture would be misleading. 
Traditional unemployment includes only people who are looking 
for work, who are available for work, and who have not worked a 
single hour in the past week. This means that if a person is 
giving up looking for work or if a person has worked only a 
single hour in the past week, that person is not considered 
unemployed.
    A different metric offered by Gallup quantifies the number 
of people employed full time for an employer--or what others 
might call a ``good job''--as a percent of the total adult 
population. Known as Payroll to Population, this metric stands 
at 44.3 percent today and has not meaningfully increased since 
2010 when we started quantifying this metric.
    One of the main reasons that the job situation has yet to 
recover is that according to the U.S. Census, the number of 
business deaths now exceeds the number of business births among 
employer firms for the first time since 1977 when this 
measurement began.
    This leads us to the importance of small businesses and 
startups in this country. They contribute roughly 70 percent of 
all new jobs created in a single year. Considering their 
importance, Gallup works with Wells Fargo to track the opinions 
and behaviors of small business owners on a quarterly basis.
    The good news is that the attitudes of small business 
owners are steadily improving. The Wells Fargo Gallup Small 
Business Index stands at +71 today, which is the highest index 
score since the onset of the recession. Now, 64 percent of 
small business owners report that their company's current 
financial situation is good, and 71 percent expect their 
company's financial situation to be good 12 months from now.
    However, despite this positive trajectory, small business 
owners face clear challenges. When asked to name their most 
important challenge, the number one issue they report is 
finding new customers. That is 15 percent of the small 
businesses that we talked to. This is followed by mentions of 
the economy in general, which represents 12 percent, and in 
third is government regulations, which represents 10 percent. 
However, if we add those who cite healthcare and Obamacare at 8 
percent, or just the government in general, which is at 6 
percent, fully 24 percent of small business owners say the 
government is in some way their biggest challenge. Also worth 
noting, while many small business owners believe available 
credit is a major issue, only 3 percent say it is their most 
important challenge.
    In addition to the barriers faced by small business owners, 
there are also barriers facing would-be entrepreneurs. One in 
four Americans have thought about starting a business but have 
abandoned the idea. For an economy with a negative net number 
of startups each year since 2008, this represents a missed 
opportunity to engage would-be entrepreneurs that could result 
in business startups. Three major barriers are keeping these 
would-be entrepreneurs from taking the plunge: 1) They prefer 
the security of a stable income, 2) they do not have enough 
money to start a business, and 3) they lack the knowledge on 
how to start a business. Because the majority of business 
owners fund their early stage businesses through personal 
savings, a steadily declining personal savings rate in the 
United States has negatively affected prospective 
entrepreneurs' ability to finance new businesses. Moreover, if 
they lack insight on where or how to begin, starting a business 
is even more difficult, and these prospective entrepreneurs are 
more likely to be more risk averse.
    Creating good jobs and subsequently rebuilding America's 
middle class hinges on the success and failures of small 
businesses and startups. Existing small businesses are 
experiencing headwinds, caused primarily by challenging 
business realities, the overall economy, and a concern about 
government regulations. Would-be entrepreneurs face barriers 
such as not having enough money to start a business and lacking 
knowledge about starting a business.
    It would be wise for Congress and American leadership to 
consider all options to unlocking this invaluable economic 
institution. The American public would be behind them. Other 
than the U.S. military, there is no other institution in the 
United States that the public has more confidence in than small 
business. Thank you.
    Chairman CHABOT. Thank you very much.
    Ms. Kay, you are recognized for five minutes.

                    STATEMENT OF CYNTHIA KAY

    Ms. KAY. Thank you. Good morning. My thanks to Chairman 
Chabot, Ranking Member Velaazquez, and the members of the Small 
Business Committee, for asking me to testify today.
    As you heard, I am the president of a communications 
company, but I think it is also important to note that I come 
from a family of small business owners. My dad co-owned a small 
dry-cleaning business. My sister and her husband own a boutique 
rental company in Raleigh, and my brother is an attorney. I am 
also proud to be representing the National Small Business 
Association.
    As a small business owner for 27 years, I have experienced 
numerous economic downturns. Probably the last one was the most 
difficult. However, I am glad to tell you that business is 
booming for my company, and I am not alone. And SBA recently 
released its year-end economic survey, and it shows that the 
economic outlook is really better than it has been in quite 
some time. But, the majority of small firms expect a flat or 
recessionary economy in the coming year.
    And SBA also held its Small Business Congress, where we 
identified our top 10 priorities for Congress. And the top 
priority is ensure corporate-only tax reform, include some kind 
of workable solution for the millions of pass-through small 
businesses.
    In the interest of transparency, I need to tell you, my 
company is a C corp; however, 83 percent of all small firms are 
pass-throughs. They pay taxes for their business at a personal 
income level, so it is no surprise that taxes are consistently 
ranked as the most burdensome administratively, and payroll 
taxes the most burdensome financially.
    Broad reform of the entire tax code is necessary, and 
frankly, I firmly believe that addressing just one piece of 
this is only going to lead to greater complexity and be at the 
expense of small business.
    Even in the best of times, access to capital is a huge 
hurdle. When I started my business, I did what a lot of 
business owners do--I went to get a loan and I had to sign a 
personal guarantee against the equity of my house. And I have 
done that on a number of occasions. Years later, when my sister 
and her husband tried to get a loan, they encountered the same 
difficulties. In fact, my business and my family financed their 
startup, and this is not an unusual story. In fact, it is very 
typical. It is difficult to get credit in good times; it is 
even harder to get credit during trouble economic periods. In 
fact, in the last seven years, one in three small firms on 
average cannot get access to adequate financing. Capital is the 
lifeblood of small business, and without it, the heart of 
America's economy is millions of small businesses stand poised 
to fail.
    In recent years, Congress enacted important tax provisions 
for small business on a temporary basis. They have now expired, 
and Congress continues to delay these extensions. So in the 
absence of comprehensive tax reform, extending and making 
permanent tax important provisions has been NSBA's priority for 
quite some time.
    Tax extenders are very significant to my business. You have 
all heard the saying, ``Lights, camera, action.'' Well, that 
costs a lot of money, and we are constantly updating our 
equipment. In the past, we used section 179 expensing and it is 
really important that we are able to deduct the cost of an 
asset in the year that we buy it. Why? Because our equipment 
gets outdated much quicker than the five to seven years that it 
costs to depreciate it. And it does not just affect my company; 
it affects more than one in three NSBA members.
    So on behalf of NSBA, I do want to thank you, Chairman 
Chabot, for all of your work in advancing the Small Business 
Regulatory Flexibility Improvements Act earlier this year. It 
is a very important piece of legislation, and NSBA is pleased 
to have supported it.
    But there is still a lot to be done. That is why NSBA 
played a critical role in developing the role of a national 
regulatory budget to bring much-needed reform. Small businesses 
simply need the environment to grow and to create jobs, and 
frankly, we need lawmakers who are willing to tackle major 
issues that are facing our country, and do it together.
    I began today by saying that the economy has improved, and 
it has. There is pent-up demand for goods and services, and 
potential small business owners are constantly calling me and 
asking about owning a small business. And while I tell them 
that it is great to own a small business, I also tell them 
about the significant challenges. It is no wonder that many 
people, when they look at the obstacles, walk way.
    At NSBA, we stand ready to work with you to help ease the 
burdens of using proactive solutions. Again, I want to thank 
you for the opportunity to speak, and I am happy to answer any 
questions.
    Chairman CHABOT. Thank you very much.
    Mr. Burton, you are recognized for five minutes.

                   STATEMENT OF DAVID BURTON

    Mr. BURTON. My name is David Burton. I am senior fellow in 
Economic Policy at The Heritage Foundation. I would like to 
express my thanks to you, Mr. Chairman and Ranking Member 
Velaazquez, for the opportunity to be here this morning. The 
views I express are my own and not necessarily those of The 
Heritage Foundation.
    After complying with the multitude of state and federal 
regulations that business owners have to comply with, they 
should have some time left over to actually run their 
businesses. Entrepreneurs should not have to be lawyers to run 
their businesses. Unfortunately, that is about where we find 
ourselves these days, and if we want to return to sustained 
prosperity in the United States, we need to change that.
    Entrepreneurship matters. It fosters discovery, innovation, 
and job creation. It leads to more productive production 
processes that improve productivity and lead to increases in 
real wages. Entrepreneurs develop new and better and less 
products and improve consumer well-being. They make markets 
more efficient. New firms account for most of the net job 
creation in the United States, and the vast majority of the 
economic gains from innovation and entrepreneurship accrue to 
the general public, rather than entrepreneurs.
    But entrepreneurship is in decline. Business exits, as we 
heard, now exceed business formations. But there are many other 
indicia of entrepreneurial health that also indicate that we 
place an unprecedented burden on small startup businesses. 
Accordingly, job creation, productivity improvements, and 
welfare-enhancing innovation have slowed, and the decline is an 
important reason for our anemic economic performance.
    The reasons for this decline are many fold. One policy 
change or a few are not going to solve the problem, because the 
problem is caused by the accumulated and combined weight of 
hundreds of regulatory and statutory requirements imposed on 
small startup businesses.
    The problems fall into eight basic categories.
    1. Poor tax policies that raise the cost of capital impose 
high taxes on risk-taking and impede economic growth. Moreover, 
the tax system is monstrously complex, which has a 
disproportionate impact on small and startup firms.
    2. Access to capital. Securities law and banking 
regulations and practices that limit the ability of small firms 
to get the capital that you need to launch or grow. After all, 
if you cannot get the capital to launch, all the other 
impediments to entrepreneurship are generally academic or mute.
    3. The healthcare system is the most costly in the world. 
More costly than any other OECD country. And the Patient 
Protection and Affordable Care Act, also known as Obamacare, 
imposes high costs on firms with 50 or more employees.
    4. Environmental and energy regulations raise the cost of 
energy, including electricity and limited development of energy 
resources.
    5. The cost of complying with a broad range of increasingly 
burdensome and complex regulations. These rules have a 
disproportionate and adverse effect on small firms who can ill-
afford to use scarce resources to comply with state or federal 
regulatory requirements instead of growing their business. They 
also tend to be the people who are least experienced in 
regulatory compliance.
    6. We have increasingly complex and increasingly opaque 
labor and employment laws that raise the cost and risk of 
employing people, and they reduce wages and cost jobs.
    7. The U.S. immigration system is broken, and it is 
difficult for firms to gain access to talented foreign workers 
and for immigrant entrepreneurs to launch businesses in the 
United States.
    8. And lastly, the U.S. legal system is the most costly in 
the world, imposing high and potentially ruinous costs on small 
firms and creating a whole series of regulatory risks.
    If we want to return to a prosperous American with 
opportunity for all and rising real wages, then Congress needs 
to systematically address these issues with alacrity. The key 
to reducing the decline in entrepreneurship is to 
systematically reduce the legal impediments to 
entrepreneurship. Since the decline is caused by the combined 
weight of many poor public policies, the solution requires 
systematically improving public policy in a wide variety of 
areas.
    My written testimony sets forth 97 specific proposals that 
I believe if adopted will transform the American economy, lead 
to resurgence in entrepreneurial activity, strong economic 
growth, real wage increases, and renewed prosperity. I will be 
glad to discuss any of those specific recommendations in 
greater detail if time allows. Thank you very much.
    Chairman CHABOT. Thank you very much.
    Ms. Fine, you are recognized for five minutes.

                    STATEMENT OF ELANA FINE

    Ms. FINE. Chairman Chabot, Ranking Member Velaazquez, and 
members of the Committee. Thank you for inviting me to testify 
before you today.
    I am Elana Fine, managing director of the Dingman Center 
for Entrepreneurship at University of Maryland's Robert H. 
Smith School of Business.
    Throughout my career in technology consulting and 
investment banking, I have worked with hundreds of startups and 
venture-backed companies, and am therefore well versed in their 
challenges and opportunities.
    To provide a little context, the Dingman Center is one of 
the nation's preeminent institutions where the research, 
education and practice of entrepreneurship are pursued 
vigorously. We develop and execute curricular and 
extracurricular programs to inspire and equip the next 
generation of entrepreneurs. Our programs are focused on 
guiding student entrepreneurs from idea to launch.
    My role at the Dingman Center includes oversight of our 
student venture incubator, the Dingman Center Angels Investment 
Network, business competitions, and relationships with the 
broader startup community. I also serve as an adjunct faculty 
member at the Smith School.
    I have been asked to give an overview of entrepreneurial 
activity from a university perspective. I recognize that the 
macro level of activity can be hard to quantify and to really 
assess whether we are headed in the right direction. Based on 
the pop culture success of television shows, like Shark Tank, 
the proliferation of technology incubators and downtown 
innovation hubs, it might seem like everyone is working on a 
startup. Then we look at the statistics, like the Kauffman 
Index, and entrepreneurial activity, which shows a decline from 
2011 to 2013, and we wonder if we are doing enough.
    From this perspective, a decline in entrepreneurial 
activity might also be seen as an indicator of an improving 
economy as employers have better job prospects. As we would say 
in startup terms, we just do not know the metrics that matter. 
So I am here today to give you a more grassroots perspective on 
what I see as some leading indicators of the future of 
entrepreneurship.
    We informally think about our student ventures in three 
categories. The first category is dorm room high group 
startups, like Facebook, which although an outlier, raised the 
visibility of student entrepreneurship and has inspired a 
generation.
    The next category we think about are the students starting 
businesses while in school that they do not often continue 
beyond graduation. Every year we see a panoply of new apparel 
companies, mobile applications, tutoring services, dating 
sites, and food concepts. We have seen university support 
increase to match student interest and demand in these 
activities. The data from the Dingman Center shows interest in 
our ventures-creation activities grew from 161 students in 
2012-2013, to almost 400 students in this academic year. 
Students run these businesses for two to three years until 
graduation. The company might not be a success in standard 
terms, but as educators, we have provided a skillset we expect 
will be used for a startup now or even 10 years from now.
    Our best example in this category is University of Maryland 
alumnus Kevin Plank, who ran a campus flower delivery service 
called Cupid's Valentine. After graduation, instead of solving 
the problem of expensive flowers, Plank decided to solve the 
problem of soggy cotton t-shirts and turned his savings from 
Cupid's Valentine into the seed money for Under Armour, which 
is now a multi-billion dollar company employing thousands.
    The last category of students feed the entrepreneurial 
labor pool. These students are not working on their own idea 
but won internships at local startup companies. The challenge 
is that startups can rarely pay market rates, so they often 
have to forego these opportunities to take higher paying 
internships.
    All of the students represent future entrepreneurs, but I 
caution focusing too much on the first category. Instead, there 
are a number of initiatives that can increase exposure and odds 
of success. For example, the National Science Foundation's I-
Corps program is a model of a federally-funded program that 
could increase the odds of success among early-stage university 
spinouts.
    On campuses, we need similar programs that can build on our 
current momentum. These programs might provide scholarships for 
students or loan forgiveness so students can choose to work at 
startup firms.
    We also need more funding opportunities that others have 
mentioned. Without an initial ten to a hundred thousand 
dollars, it is nearly impossible for a young entrepreneur, who 
is burdened with student loans with no savings or credit, to 
build a product and test acquisition strategies. Banks, angel 
investors, and even granting institutions do not have vehicles 
to fund these businesses.
    As you embark on your Committee's activities, I encourage 
you to consider the following: Seed programs that expose more 
students to entrepreneurial activities and equip them with the 
tools to vet ideas early; recognize that failure rates will 
always be high and that success in entrepreneurship can also be 
viewed by total births and deaths, because it means there are 
more companies in the field; consider programs that provide 
nondiluted funding to a broader spectrum of businesses, and 
think creatively about apprentice-like programs and high-growth 
startups that might increase the entrepreneurial labor pool.
    Thank you for your time and opportunity to discuss student 
entrepreneurship. I am happy to answer any questions you might 
have.
    Chairman CHABOT. Thank you very much. And I will recognize 
myself now for five minutes.
    I will start with you, Ms. Kay. My understanding is you 
have--and this is according to your written testimony--you have 
eight employees, yet you have had to hire five outside experts 
from an accountant to a corporate lawyer to an HR lawyer and on 
and on. Is that not kind of out of whack? Where are we going 
wrong, the need for a business to expend so much of their 
capital and resources just complying with the law, rather than 
the substance of what makes them profitable and able to be 
successful and hire as many people as you possibly can? So I 
will leave that up to you.
    Ms. KAY. Well, one of the things I always say is that as a 
small business owner, you wear lots of hats. You are doing 
everything. You are the HR department. You are the sales 
department. You are doing the work. And we certainly cannot be 
expert in all of these things. So unlike large companies that 
have a staff of people to do things in house, I do have an 
accounting firm. I actually checked the numbers this past year, 
and it was a good year. We did not have a lot of issues. The 
cost of it was $16,000 for a small company. Corporate lawyer 
and HR lawyer, there are so many things that are happening on 
the HR front that it is almost impossible for us to stay up 
with all of the regulations.
    And I think it is important that you know that small 
business owners want to be in compliance. We want to comply 
with the law. We simply do not have the expertise. Mr. Burton 
here talked about needing lawyers to do the things. Simply 
reading all of the documents and going through the forms is 
extremely complex. So while smart business people can be 
creative and entrepreneurial, we are not regulation 
specialists, and we need people to help us.
    Chairman CHABOT. Thank you very much.
    Mr. Burton, I will turn to you next. You had mentioned that 
you had 97 proposals, and I commend you for that. If you could 
limit that to what you consider to be the three most 
significant, that if we could actually accomplish, that would 
do the most to benefit small businesses in this country, what 
three--I mean, if you need four, that is okay. If you can only 
come up with two, that is okay. But I am thinking three because 
that is usually what we do.
    Mr. BURTON. I will do it. But part of the problem is it is 
not any one or two rules. I mean, you have hundreds, literally, 
of rules that small businesses had to comply with, all of 
which, when you look at them together--I mean, by itself--may 
be reasonable. But the combined weight of hundreds of rules is 
killing people, like Cynthia. And if you just get rid of four 
of the hundreds, you have done something useful but not solved 
the problem.
    The written testimony I wrote sort of divides things into 
intermediate, so there is smaller chunks, and then big picture 
stuff. So, for example, fundamental tax reform would be in a 
category of something that could be transformational, but there 
is a whole series of small things. For example, making 179 
expensive, liberalizing the S corporation rules, fixing the 
independent contractor employee distinction, fixing the 
characterization of capital versus labor income for self-
employment purposes. In the securities law area, there is a 
whole host of things that would enable businesses to raise 
money. For example, preempting Blue Sky laws on Reg A, fixing 
Title 3 of the Jobs Act, and protecting Regulation D so that 
people can raise money in private placements. There is a move 
afoot to severely restrict the ability of firms to raise 
private placements.
    And then there is just not piling on massive paperwork 
requirements in the employee-employer relationship, and there 
is a whole host of things going on there--the Protected 
Concerted Activity Initiative by NLRB, the criminal background 
screening rules which--you know, there is a reason why. Maybe 
there is a problem there, but a 157-footnote document is not 
guidance; it is just obfuscation, and we need to fix it and not 
make things totally here. But the list is almost endless. And 
you need to address a lot of things, not any one or two.
    Chairman CHABOT. Let me turn to you, Mr. Clifton. I am 
almost out of time. I have got about 30 seconds.
    You had mentioned that, I think, the largest real category 
that small businesses--the challenge they face is basically 
dealing with the federal government regulations and that sort 
of thing. They would like to get new customers, but that is the 
highest single thing, but if you add the other things 
together--Obamacare, et cetera--has that been pretty consistent 
over the years, do you know? I mean, this exasperation with 
dealing with government in general and the regulations? Is that 
pretty consistent over time? Is it getting better or worse, or 
do you know?
    Mr. BURTON. No, it has been very consistent. In fact, just 
this study, the data that I shared today, is actually the 
aggregate of what has happened over the past five quarters. So 
it is a very stable number.
    Chairman CHABOT. Okay. Very good. Thank you.
    My time has expired. I now yield to the gentlelady from New 
York.
    Ms. VELAAZQUEZ. Thank you, Mr. Chairman.
    Ms. Fine, many economists have long discussed that 
employer-based health insurance can lead to job lock where 
employees stay in their job solely for the benefits. The ACA 
effectively eliminates job lock, and some have projected that 
it will increase entrepreneurial activity. What impact do you 
believe the ACA will have on entrepreneurs' decisions to start 
a new business?
    Ms. FINE. I would expect that it would increase the 
interest in starting new ventures because of the reduction of 
job lock. In general though, I would say for most 
entrepreneurs, particularly high-growth entrepreneurs, if they 
have an idea that they are passionate about and they see a 
window of opportunity for and they think that--most likely they 
think they are going to be the next Mark Zuckerberg, whether or 
not they have health care probably will not stop them, but it 
does reduce one of the barriers as some of the fellow panelists 
mentioned about training and other things. It might be one 
thing that they do not have to worry about anymore.
    Ms. VELAAZQUEZ. Thank you.
    In this committee room, Ms. Fine, we often hear that taxes 
and regulations are the biggest challenges for small firms. As 
an actual practitioner in entrepreneurship, I wanted to ask 
your views on this: What are the greatest challenges facing 
your students as they try to get their companies off the 
ground?
    Ms. FINE. Yeah, I will say that is not top--those two 
things are not top of mind. What is top of mind is funding, and 
I will echo Cynthia's comments about finding customers and just 
where do I find them, how do I access my network, who is really 
going to trust me as a small business with not much of a 
balance sheet. The old kind of adage that you never get fired 
for buying IBM. To me, those are the biggest hurdles for our 
entrepreneurs.
    Ms. VELAAZQUEZ. Thank you.
    Ms. Kay, if Congress were only to reform corporate taxes, 
how would that impact small businesses?
    Ms. KAY. Well, I think you need to look at what it is for 
small businesses. I think I mentioned 83 percent are pass-
through.
    Ms. VELAAZQUEZ. Pass-through. Mm-hmm.
    Ms. KAY. And so for them, you know, only reforming 
corporate tax is really not going to impact small business. And 
what we end up seeing, and I will be the first to tell you I am 
not a technical expert; that is why I have accountants. But I 
see so many of the tax burdens. If we do not take care of this 
large segment of small businesses--and as I mentioned, I am a C 
corp, so it does not affect me--but so many of my supplier and 
customers are, that I see that as a huge issue.
    Ms. VELAAZQUEZ. So closing so-called loopholes, many of 
which are used by small companies, such as bonus depreciation 
179 expensing, closing those loopholes are favored by many. How 
would this impact small businesses?
    Ms. KAY. I think the biggest issue we have is uncertainty. 
If we do not know that we are going to be able to use, for 
example, 179 expensing, we are left in a position where we are 
unable to make reasonable decisions--buying decisions, 
financial decisions about our company. So what is most 
important to us, frankly, we would love to see those become 
permanent, but is certainty. That would be the biggest thing 
that would help us to move our businesses forward.
    Ms. VELAAZQUEZ. But if we do not take up comprehensive tax 
reform, it means that we might have winners and losers. So for 
the 83 percent of pass-throughs, if we eliminate tax loopholes, 
such as 179 and bonus depreciation, there will be losers. How 
can we support having that equation where we are going to 
provide tax reform for some but at the expense of others?
    Ms. KAY. Well, as I said, I think we are most interested in 
comprehensive tax reform.
    Ms. VELAAZQUEZ. Okay. Very good.
    Ms. KAY. But in the absence of that, we are looking for 
many of these other things, like tax extenders.
    Ms. VELAAZQUEZ. Okay, so it is over. Thank you.
    Chairman CHABOT. The lady's time has expired.
    The gentleman from Florida, who is the chairman of the 
Subcommittee on Agriculture, Energy, and Trade, Mr. Curbelo is 
recognized for five minutes.
    Mr. CURBELO. Thank you very much, Mr. Chairman, for 
scheduling this important hearing. And I thank the witnesses 
for their insightful testimony.
    I am passionate about small business, because I believe 
that small businesses afford opportunities to those who need 
them the most, oftentimes through casual encounters. Think 
about that young person who might have dropped out of college. 
Their neighbor might be a small business owner and they might 
get a job that way. Think of a recently-arrived immigrant who 
is looking for a way to get ahead. Small businesses tend to 
hire those types of individuals.
    So I want to ask a question on the EB5 Regional Center 
pilot program that Congress established in 1992. I want to ask 
Mr. Burton specifically. For those who are not fully familiar 
with the program, under the EB5 program, investors are required 
to put up at least one million dollars or $500,000 in high 
unemployment areas, and these are foreign investors. In return, 
they receive a two-year green card for themselves and their 
immediate family. If the project succeeds and at least 10 U.S. 
jobs are created, the investors gain permanent residency. If 
the project fails, they lose their green cards and absorb the 
losses of that failure.
    This program is expected to sunset at the end of this year. 
Mr. Burton, do you have any thoughts on whether this program 
should be extended, or are there other programs like this that 
Heritage may support for entrepreneurial immigrants?
    Mr. BURTON. I personally think something along the lines of 
the EB5 program where you are basically allowing people who 
invest capital in the United States and create jobs in the 
United States to enter the United States lawfully makes a great 
deal of sense. I am confident The Heritage Foundation will 
probably reach that conclusion, but right now the institution 
is undergoing a review of immigration law and trying to develop 
a fairly comprehensive approach to it. But personally, I think 
that the EB5-type approach, although there are little problems 
with it and I am not an EB5 guru, it definitely makes sense, 
and I am sure that we would be happy to work with you to 
develop an approach.
    Mr. CURBELO. Thank you, Mr. Burton.
    Does anyone else on the panel have any thoughts or insights 
onto this EB5 program? If you do not, that is okay.
    I had another question, Mr. Burton. I also reviewed and 
listened to your testimony. I think one obstacle or barrier to 
small businesses is missing, and that is transportation 
infrastructure. We all know how fundamental it is to have a 
robust and modern transportation infrastructure in our country 
is for our economy according to a recent report by INRIX. In 
2013, traffic congestion robbed the U.S. economy of $124 
billion according to this group. Without significant action to 
alleviate congestion, this cost is expected to increase 50 
percent, to $186 billion, by 2030.
    Do you have any thoughts on our nation's transportation 
infrastructure system, its effects on small business, and what 
we should do here in Congress to improve it, if anything at 
all?
    Mr. BURTON. Having an adequate freight and passenger 
transportation system is important to all businesses, large and 
small. We tend to take those things for granted until they are 
not working right. The Heritage Foundation certainly supports 
having a robust transportation network, but in general, we 
would like to shift the responsibility for that towards the 
states which are more familiar with their local traffic and 
transportation needs than the federal government.
    Mr. CURBELO. Thank you.
    Yes, please, Mr. Clifton.
    Mr. CLIFTON. On your commentary about the regulation that 
was done in 1992, one of the things that Gallup has been 
working on for some time now is studying what entrepreneurs 
look like. So when it comes to passing regulation that might 
force people who are not inherently entrepreneurs to therefore 
become entrepreneurs might set them up for failure. And so we 
have been studying thousands of individuals, and actually 
calling individuals, like Ms. Kay herself, and we have found 
that they are very different than the general public. And so 
what we need to do is be much more intentional about who we are 
seeking out in terms of being entrepreneurs, because these rare 
individuals, as I mentioned from our data, from our research, 
look very different. So any regulation that might draw someone 
to be an entrepreneur who should not be one would not be wise.
    Mr. CURBELO. Thank you very much. And my time has expired. 
Thank you, Mr. Chairman.
    Chairman CHABOT. Thank you. The gentleman's time has 
expired. I am sure that Mr. Clifton did not mean to insult 
anybody here.
    But in any event, the gentlelady from New York, Ms. Clarke, 
is recognized for five minutes.
    Ms. CLARKE. Thank you, Mr. Chairman. And I thank the 
ranking member, as well as our witnesses, for their testimony 
today.
    Today's hearing is a very important one. Entrepreneurship 
is the spirit from which small businesses are born. And so we 
in Congress must continue to do our part to keep the spirit of 
entrepreneurship alive and thriving in this country.
    I would like to thank the witnesses again for their 
assessments on today's state of the economy and small 
businesses. We have made great progress in the scope of 
macroeconomic growth since 2008, with a 5 percent GDP growth in 
the third quarter of 2014, and an unemployment rate that fell 
to 5.6 percent in December of last year. However, it is clear 
that there is still a lot of room for continued economic 
improvement, particularly concerning hourly wages, as well as 
the volume of smaller loans to startups and small businesses.
    So my first question to the panel is household medium 
income adjusted for inflation is hovering around $52,000, which 
is well above the $56,800 number--excuse me, hovering around 
$52,000, which is well below the $56,800 number from the year 
2000. Hourly wages for private sector employees rose 1.7 
percent in December 2014 from a year earlier. What can we do to 
increase the household medium income? And furthermore, what can 
we do to see a more significant rise in the hourly wages for 
all private sector employees across the board?
    Mr. BURTON. I have some thoughts on that.
    Ms. CLARKE. Thank you, Mr. Burton.
    Mr. BURTON. There is sort of two key points to getting 
ordinary people's incomes back up. One is making the economy 
more productive, and there are a couple keys to that. 
Entrepreneurship, new technologies is one. A second piece of it 
getting more capital in the hands of ordinary people so they 
are more productive. A farmer with a big combine is more 
productive than a guy with a hoe. But that is true throughout 
the economy.
    So there are policies that we can take, particularly tax 
and securities regulation, banking policies, that will help 
people get the capital they need. But we also need to 
eliminate--from an employer's point of view you have costs, and 
from an individual's point of view you have wages. But in 
between there, there are a lot of costs that employers now have 
to bear that are not going into the wages of their employees, 
and we need to try to shrink those costs that are not ending up 
in people's pockets, and there are a lot of ways to do that.
    Ms. FINE. I can comment briefly on this just from a 
perspective of the technology industry. I think we know that 
higher tech jobs pay more, and so thinking about additional 
training so that we can increase the technical competence of 
our workers so that they will be better skilled for higher-
paying jobs would be one perspective from my experience working 
with a lot of startup companies who want to build technology 
but cannot necessarily find the trained workers.
    Ms. CLARKE. Okay. Let me go on to my next question then.
    While the volume of loans larger than one million dollars 
has recovered since the Great Recession, the volume of loans 
below one million dollars has barely recovered. Small 
businesses and startups often seek out lines of credit that are 
less than $100,000. How can we work to make sure that smaller 
businesses that need smaller loans can actually access this 
capital that is critical in a startup or even transitioning 
phase for a business?
    Mr. BURTON. I have two quick specific things. One is we can 
enable small businesses to use peer-to-peer lending, like 
prosper and lending club. The SEC basically shut that down for 
small businesses. And there are a couple of different ways to 
go about that. I discussed some in this, but I can go into 
greater detail. And I think that is an area where we may be 
able to achieve bipartisan cooperation in the Congress under 
strong interest in financial services, I think.
    The second is I think you all could ask a GAO study on 
banking practices that disproportionately affect small 
businesses. The community bankers in particular constantly say 
the regulators when they audit them are doing various things, 
but then when you call them up and ask them for specifics, they 
are not forthcoming. I have not been able to figure out what 
the truth is. And maybe GAO can. And I think, again, that is an 
area where we can have genuine bipartisan cooperation trying to 
figure out what are the true impediments to small business 
borrowing. And I would be glad to work with the Committee on 
that.
    Chairman CHABOT. Thank you. The gentlelady----
    Ms. CLARKE. Thank you, Mr. Chairman.
    Chairman CHABOT. Thank you. The gentlelady's time is 
expired.
    The gentlelady from American Samoa, Ms. Radewagen, who is 
the chair of the Subcommittee on Health and Technology is 
recognized for five minutes.
    Ms. RADEWAGEN. Thank you, Mr. Chairman.
    My question is for Mr. Clifton. Ms. Kay and Mr. Burton both 
put a little more emphasis on access to capital as being a 
significant problem facing small businesses. Do you think that 
your research shows that other problems, such as taxation or 
overregulation has become a bigger impediment? Or does your 
data suggest a genuinely improving capital access market?
    Mr. CLIFTON. Thank you for the question.
    Our data would suggest there is an overemphasis on credit 
and its availability. Most small businesses and would-be 
entrepreneurs start their businesses with their own money or 
from money that they have borrowed from a family member.
    The other thing is there are studies that suggest--one from 
Harvard--is that making too much available credit again can 
draw in people who should not be entrepreneurs. Would-be 
entrepreneurs are very clear about what their challenges are, 
and one of them is they do not know where to start. I think one 
thing that you could extrapolate from that is the fact that 
there is too much regulation for them to shift through, and any 
way to take that down or to help them with programs like at the 
University of Maryland where there are educational 
opportunities to help them navigate the complex ways to start a 
business would be very helpful, and the emphasis should be on 
those things.
    Ms. RADEWAGEN. Thank you.
    I have another question for Ms. Kay. You mentioned both you 
and your sister have started businesses, and I am wondering, 
did either of you use any of the products or services offered 
by SBA? Why or why not?
    Ms. KAY. Actually, we did not. And I will be honest with 
you. I looked at SBA loans and quite frankly, the length of 
time that it would have taken and the complexity of going 
through the process was significant. So for us, it was easier 
to sign a personal guarantee and take a loan against a home and 
be in business and do what I really love doing, which is the 
work of doing business. For my sister, both she and her 
husband, highly educated, great work history, banks simply 
would not lend to them. And I do not think this is an unusual 
situation. And SBA has also found that what people are using is 
savings and credit cards. And we know that neither one of those 
is really a good long-term solution for starting a business.
    Ms. RADEWAGEN. Thank you. Thank you, Mr. Chairman. I yield 
back.
    Chairman CHABOT. Thank you. Who is next?
    If you are ready, we can go to you now, or if you would 
like to wait until the next one, that would be okay, too. 
Because you would be next.
    Okay. We will go on this side. We will come back. Thank 
you.
    The gentleman from Nevada, Mr. Hardy, who is the chairman 
of the Subcommittee on Investigations, Oversight, and 
Regulations is recognized for five minutes.
    Mr. HARDY. Thank you, Mr. Chairman.
    As a small business owner myself for the past 20 years, I 
understand some of the issues that are out there. My question 
is I am a firm believer that business creates business. Not in 
all cases, but in most cases. We rely on each other to support 
our businesses. So to through that process, what can Congress 
do to maybe get out of the way? Or I do not think Congress has 
anything to do with job creation personally, but I think what 
can we do to get out of the way of small businesses so they 
feel like they are free to invest in that entrepreneurship or 
expand that business that needs to be expanded or create that 
new one? Any ideas on that?
    Ms. KAY. Well, one of the things that I think is really 
critical is simplicity. When you run a small business, it 
really is all about time and money, and we only have so much of 
both of those things. And anything where there is huge 
complexity that is involved means we are taking time away from 
doing business to deal with regulations or HR issues. So 
reducing the complexity of doing business for me is huge. And I 
know for a lot of other business owners as well. And it is 
interesting that you use the terminology ``get out of the 
way,'' because when I spoke to fellow business owners in 
Michigan and told them that I was coming, several of them said 
those exact words--could you tell them to move out of the way 
so that we can actually get work done?
    So anything that could be done to improve simplicity and 
give us certainty about where we are going so we are not 
revisiting issues time and time again I think would be 
important.
    Mr. HARDY. Thank you.
    In many instances in your written testimony, you have 
discussed over burdensome regulations. Being on that regulation 
oversight Committee, I have a great desire to move some 
deregulation out of this place. Can you give me some specifics 
that have actual documentation where we can help somewhere 
along the line? Anybody?
    Mr. BURTON. Absolutely. I mean, there is probably 80 in my 
written testimony, and I would be glad to go through them with 
you or your staff. But in the tax area, there is a lot of 
statutory changes that need to be made, but some of them are 
regulatory, particularly governing who is an employee versus an 
independent contractor. Whether income in an S corp or 
partnerships are subject to self-employment tax or not. In the 
securities regulation area, it is almost all regulatory, and 
there is a lot of things. There are also some things that need 
to be stopped. The SEC is proposing rules, for example, Reg D, 
which is how most small businesses raising capital from 
investors raise capital these days, a trillion dollars a year, 
basically requiring about three forms instead of one, and then 
a whole host of obligations that never existed before. Sort of 
undo the Jobs Act Regulation. There is that. There is, with 
crowdfunding, a four-page statute on the House side became a 
30-page statute. In the Senate it became a 600-page rule in the 
SEC. And that is meant for the smallest companies in America. I 
mean, it is just ridiculous. There is a long, long list.
    Mr. HARDY. My staff will be in contact with you and make 
sure that we cover those.
    Mr. BURTON. I would be glad to do it. Yeah.
    Mr. HARDY. One of the other things, Mr. Burton, in your 
testimony, we talk about the 97 issues out there that are 
restricting, one of those being about the states' lands being 
devolved from the Bureau of Land Management and turned back to 
the states. As you know, in the State of Nevada, where I come 
from, almost 86 percent of our state is held by the federal 
government, which keeps us from having that equal footing that 
all other states have to be able to be independent. Can you 
give me some ideas of what we need to emphasize and how we can 
make that work and happen?
    Mr. BURTON. Yes and no. Everything in my testimony, except 
the energy and environmental stuff, I have personal experience 
on and can go on way beyond you guys' time limits. On that, I 
basically borrowed it from my colleague at The Heritage 
Foundation, a gentleman named Nick Loris. And if you want to go 
very deep into the weeds on land management, he can help you. I 
know that there is a strong interest in terms of trying to 
reduce impediments, primarily in the West, to using federal 
lands by small businesses, and they have some pretty good ideas 
about how to do it.
    Mr. HARDY. I have one other question I want to hit. This is 
probably for Mr. Clifton.
    How can we can have a very strong economy without job 
growth? We look at these reports and we continue to hear that 
unemployment is going down, but on the other hand, where are 
the jobs? Where is this coming from? Is there something 
different in the way we are doing reporting today than we were 
that is causing this effect? Because there are still hundreds 
or tens of millions of people out of jobs out there.
    Chairman CHABOT. The gentleman's time has expired, but you 
can answer the question, whoever it was directed to. Mr. 
Clifton.
    Mr. CLIFTON. Thank you for the question.
    We are not calculating the unemployment figure any 
differently than we have since we have been doing that in terms 
of the U.S. government. The challenge is the people that are 
working part-time who want full time or who are minimally 
employed or who are no longer in the workforce because they 
have given up, are not included. So that figure that we look at 
today at about 5.6 percent as unemployment does not reflect the 
20 million people out there that would like to have a good job. 
So that is the data around that.
    And can you have a good economy without more people that 
are fully employed? The answer to that is no. What would be 
great is if the U.S. economy looked more like states like 
Nebraska and North Dakota. When we look at their Payroll to 
Population, Nebraska's hovers at around 50 percent and North 
Dakota's hovers around 54 percent. America's is at 44.3 
percent. That is too low. Thank you.
    Chairman CHABOT. Thank you. The gentleman's time has 
expired.
    The gentlelady from North Carolina, Ms. Adams, is 
recognized for five minutes.
    Ms. ADAMS. Thank you, Mr. Chair. And thank you, ranking 
member, for holding this important meeting.
    Creating jobs and growing our economy is one of my top 
priorities, and small businesses certainly are a significant 
part of that equation.
    I have a few questions for Ms. Fine. I have been an 
advocate for a long time for women-owned businesses, and 
according to the State of Women-Owned Businesses Report, my 
state, North Carolina, was among the top three with the fastest 
growing growth in the number of women-owned firms. We have 
estimated about 267,000 women-owned businesses generating about 
$35 billion in yearly income. Based on your experience, how can 
we keep this momentum going to further increase the number of 
women-owned businesses, and more specifically, African-American 
women?
    Ms. FINE. Yes, thank you for the question.
    I would say this is obviously something that we see, and we 
are trying to tackle this challenge as well, because we just do 
not see enough women. I think a couple of things is, one, just 
more exposure. There are not as many role models of successful, 
well-known entrepreneurs, so I think finding and celebrating 
those successes is very important. Second, I think is just 
starting earlier to address that you really can teach 
entrepreneurship. You can at least expose somebody to 
entrepreneurship the same way that you do to anything, like 
Math, Science, et cetera, so I think there are a lot of great 
programs of like what the Network for Teaching for 
Entrepreneurship is doing and getting programs into middle 
school and high schools. I think that taking some of those 
programs and even finding them even more for young women would 
be very important. And just having I think in general inspiring 
women to think bigger about what they can do as entrepreneurs 
because they actually have a lot of the great talent and 
skillset that is very important to being successful.
    Ms. ADAMS. Thank you. I was going to follow up with a 
question about students. I worked with young women for 40 years 
at Bennett College in Greensboro, but you have kind of touched 
on that, so I will not ask that question. But, you know, with 
Facebook and Twitter and all of the access that they have that 
are integral to entrepreneurship, I am sure they are using that 
as well.
    One of the biggest challenges, and you have mentioned 
access, but oftentimes, small businesses are really not aware 
of the federal resources available to them, or any resources 
for that matter. So how should the federal government in your 
thinking, or other entities, work better to educate and connect 
small businesses to those resources that can help them succeed?
    Ms. FINE. Obviously, I do put the onus of that a little bit 
on the entrepreneurs. Sometimes I am a little bit surprised 
that entrepreneurs do not take the step to look for all the 
resources available. I think there is this perception that 
anything related to a government loan, SBA, et cetera, a 
patent, for example, takes a really long time and is a 
complicated process. So I think being more transparent about 
the processes and trying to make them faster and more efficient 
so that entrepreneurs do not feel that they are missing a 
window of opportunity would be a start.
    Ms. ADAMS. Well, and I agree with you. I am thinking 
though, the federal government is a complicated kind of process 
and it can be a little, I guess, intimidating in terms of 
applications and that kind of thing. So perhaps if we could do 
more. Not just letting them know what is available but how to 
apply and the kinds of things and the steps that need to be 
taken. But thank you very much for your comments.
    Mr. Chair, I yield back.
    Chairman CHABOT. Thank you. The gentlelady yields back.
    The gentleman from New York, Mr. Hanna, who is the chairman 
of the Subcommittee on Contracting and Workforce, is recognized 
for five minutes.
    Mr. HANNA. Thank you, Chairman.
    You know, it is easy to demagogue regulations. And to speak 
to 179, which I am in favor of, one man's loophole is another 
man's following the law. Right? So what is the complaint? And 
you find in government that in the effort--that every level to 
control every outcome will wind up with something that started 
out reasonably fluid that turns into something that is one 
barrier after another, but we have no way to measure the 
marginal change in one's ability, or a company or an 
entrepreneur's ability to deal with it. But we know that 
structurally everything is a burden.
    Mr. Clifton talked about entrepreneurs and some people are 
suited, some are not. I would suggest to you that the best way 
to figure that out is to try, and we made it very hard for 
people to try.
    But Mr. Burton, there is a thing called the Raines Act, 
which I imagine you are familiar with. How do states and local 
municipalities--everybody has a hand in this and everybody is 
making marginally some kind of problem for the guy who wants to 
go in business, or lady. And I am just curious, because it is 
easy to sit back and complain about government, and I am happy 
to do that, but in a practical world, how do you accept the 
notion that some things have to go wrong in order--if you agree 
with me--in order for other things to go overwhelmingly right? 
In other words, how do you measure opportunity versus control?
    Mr. BURTON. Well, three quick things. First, sort of on the 
business level, you are absolutely right. You have to let 
people fail. You have to let people have the opportunity to not 
succeed in their business or you will not get the positive 
aspects of entrepreneurship. And sometimes the SEC forgets 
that. State regulators can be among the worst. For example, 
Massachusetts prohibited people in Massachusetts from buying 
the original Apple IPO because investing in the Apple computer 
company was too risky and they wanted to protect their people. 
So some of the goofiest regulations imaginable are at the state 
and local level, not at the federal level.
    Mr. HANNA. It was the breakup of Microsoft, too, which made 
no sense.
    Mr. BURTON. But I agree with you. It is easy to complain, 
and we need to craft constructive solutions, which is why I 
tried to do that in my written testimony. Specifics. What 
regulation? What problem? And it is one of my frustrations with 
the bankers who constantly say it is the regulators, but they 
never have any solutions. And there are two possible reasons 
for that on the bank credit side. One is they are using it as 
an excuse. It is not really the regulators; it is them. And it 
could be for legitimate business reasons. Or the second reason 
is there is something going on there that we have not found out 
about.
    One other thing I thought I might mention. We talked about 
bank credit, but some of the most dynamic companies that are 
leading to huge employment gains and other social gains are the 
people looking for outside investors, not just banks. Because 
banks do not invest in startups, generally. They might lend to 
you personally, but they are not going to invest in startups. 
So people who are looking for outside investors and therefore, 
running into the securities laws are the source of much of the 
social gain from innovation and entrepreneurship, and we need 
to try to knock down some of those barriers.
    Mr. HANNA. What do you think, Mr. Clifton?
    Mr. CLIFTON. What is the question specifically?
    Mr. HANNA. Well, I mean, you talk about entrepreneurs. It 
is my opinion that we do not give people enough opportunity to 
succeed or fail; that the barriers to entry to business today 
are so prohibitive, and that at some point it becomes personal 
and other things become easier to do. People drop out of the 
system because they lose energy. They frankly become victims of 
the bureaucracy. But it is hard to measure that and understand 
it.
    And I am familiar with a number of banks and have been in 
business for a long time, and they would tell you that it is 
easier to loan big money than little money; that it is easier 
to avoid small entrepreneurs than it is to engage them because 
they can move on and make marginally less with a hell of a lot 
less aggravation. So have you seen that?
    Mr. CLIFTON. Well, so I think what you are asking is how do 
we quantify sort of this phenomenon about government 
regulations and its impact with small businesses. And that 
ultimately, I believe, is why I am here. Because the way that 
we have attempted to quantify it is by simply asking small 
businesses, ``What is the biggest problem you face today?'' And 
I think when we quantify that we see that 25 percent of them, 
in an open-ended fashion, say back to us, it is government 
regulation, the government in general, or it is something to do 
with Obamacare or healthcare.
    Mr. HANNA. And for Ms. Kay, it would be certainty.
    Mr. CLIFTON. And I would further say that if that is not 
the reality, it is at least the perception, and perception is a 
reality. And so that is something that maybe from a 
communications standpoint we would need to address.
    Mr. HANNA. Thank you. My time is expired.
    Chairman CHABOT. Thank you. The gentleman's time has 
expired.
    The gentleman from South Carolina, Mr. Rice, who is chair 
of the Subcommittee on Economic Growth, Tax, and Capital Access 
is recognized for five minutes.
    Mr. RICE. Thank you. What a pleasure to listen to you 
today. It is, unfortunately, the same things I hear from small 
businesses back in my district. I was a tax lawyer and CPA for 
25 years before I came here. I formed or advised 1,000 small 
businesses. I know what they have to deal with, and these are 
the same problems I have heard all along.
    Mr. Clifton, you said the biggest problem people referenced 
was finding customers, and actually, if you look at what has 
happened since 2008 when the president came into office, median 
household income has declined 8.7 percent. Interestingly, in 
that same period of time, the pay of the average government 
worker has gone up 12 percent. But at the same time we have had 
energy costs, because we have put up roadblocks through EPA and 
warm and cold and all these things. Energy costs have gone up 
about 10 to 20 percent. Food costs, because they rely on energy 
costs, have gone up 15 percent. Healthcare cost, with 
Obamacare, some because of Obamacare, some otherwise, have gone 
up 15 to 20 percent. And so you have got this squeeze on the 
middle class where their incomes are down almost 10 percent, 
all their costs are going up 15-20 percent, and is it really 
any wonder that there is a lack of customers? Because people 
have less money to spend. And when you see the economy going 
up--I mean, excuse me, the stock market going up and people 
say, ``Oh, look, the economy is going great,'' but the average 
middle class family is not feeling that. In fact, they are 
feeling quite the opposite. And they are really the customer 
base. I mean, two-thirds of the United States economy is based 
on consumer spending.
    Am I analyzing that correctly, Mr. Clifton?
    Mr. CLIFTON. I think that is accurate. I mean, if you look 
at kind of the root of what is happening here, is the fact that 
real household incomes have not increased. And when we look at 
the data, the data very clearly suggests that most would-be 
entrepreneurs or small businesses do start their businesses 
with their own money or capital from friends and family.
    Mr. RICE. I am not even talking about business owners; I am 
talking about their customers. Their customers are broke.
    Mr. CLIFTON. I do not disagree with that analysis.
    Mr. RICE. All right, now, Ms. Kay, you talked about 
uncertainty. It pains me when you look at some of the things we 
do here in Congress, for example, with the tax extenders, the 
179 deduction. That is designed to be an incentive for small 
businesses to invest, to grow the economy, to spend money to 
grow the economy, to make their business more productive to 
grow the economy. How can it act as an incentive when we pass 
it two weeks before the end of the year? People do not know it 
even is there, so how is that an effective incentive? That is 
not a very good job by Congress, is it, Ms. Kay?
    Ms. KAY. Well, it certainly is not helpful. And I think 
when I talk about certainty, I am not talking about next week 
or next month or two months down the road. I am talking about 
long-term certainty. I am talking about the ability for us to 
plan a year out. And you are absolutely correct. When you wait 
until the last two weeks of a year, there are a number of 
people who are astute enough that they are going to take 
advantage of it, but for many small business owners, it is too 
late. And I think that what we are really looking for--and you 
talk about winners and losers. We understand that there are 
going to be some winners and some losers. I think what we are 
looking for is we are looking for some fairness, and we are 
looking for some long-term certainty so we know what the rules 
are so we can make some plans. And then I think you will find 
that people will invest in their companies. When I talked 
about----
    Mr. RICE. I only have 40 seconds, so I just want to----
    Ms. KAY. Okay.
    Mr. RICE. You know, tax extenders. We talk about tax 
extenders when we should be talking about tax reform.
    Ms. KAY. We should be.
    Mr. RICE. We talk about repealing Obamacare when we should 
be talking about how we are going to replace it. We talk 
about--and then we have things like the Highway Trust Fund that 
is running out of money, and we do not know how we are going to 
build our infrastructure and we put Band-Aids on it every nine 
months. We talk about the Social Security Trust Fund and the 
Medicare Trust Fund. All these things create uncertainty to the 
economy, and how does that affect consumer spending, Mr. 
Clifton? It hurts it, does it not?
    Mr. CLIFTON. Absolutely.
    Mr. RICE. It hurts business investment, does it not?
    So I am glad that we here in Congress are not doctors or 
lawyers because I think we would be sued for malpractice before 
it was over with.
    Finally, Ms. Fine, you said that----
    Chairman CHABOT. The gentleman's time is expired but the 
chair will extend an additional minute if there is no 
objection.
    Mr. RICE. Thank you. Thank you, Mr. Chair. Thank you.
    You said that we needed to do more to help entrepreneurs. 
And if you mean more government programs and more government 
regulation, I think you can see the effect of this on the 
economy already. I think the best thing we can do to help new 
entrepreneurs is in fact do less. Thank you very much.
    Chairman CHABOT. Thank you.
    The gentleman from New York, Mr. Gibson, is recognized for 
five minutes.
    Mr. GIBSON. Well, thanks, Mr. Chairman. I appreciate the 
panelists. I think this has been a very informative hearing. I 
appreciate a lot of what has been discussed here this morning.
    I would tell you that a lot of it, as Mr. Rice mentioned, 
jives with what I hear back home. Concerns with taxes, levels 
of taxes, complexity of the code, concern with certainty, in 
particular the expensing piece of it. I have heard this morning 
also concerns about the regulatory state and expression of 
desire of reform and relief. I have heard access to credit 
mentioned, all these things. Every time I visit a small 
business and listen to the owners and their employees--lower 
healthcare costs and energy costs, particularly for the 
Northeast, the energy costs are a concern. All of this if we 
are competing. Even our small businesses may be competing 
nationally or possibly even internationally. And so all this 
bearing on the problem. I appreciate being added to this 
Committee to allow a voice for my people.
    And so I do have an initial question here, and I just want 
to again reiterate, I appreciate what has been said already. 
Why I say that is I think you have given us more data points of 
where the Committee is already thinking about going in terms of 
legislation, and so we appreciate your time, and I think it is 
meaningful.
    Mr. Burton, you mentioned 97 points. I have this one 
situation in our district where I have got a small business, 
about 200 actually, so more in the upper end of the small 
business. But sterling credit. And they have a tremendous 
relationship with a community bank. Sterling record. And they 
had a very exciting project to expand, and they could not make 
it happen because of Dodd-Frank. And so among your 97 points, 
do any of them address explicitly that situation and other 
magnification on issues of access to credit?
    Mr. BURTON. Absolutely. There is a number of things. Some 
of it is credit, but also, they could seek equity investment. 
There are lot of things in my testimony about equity 
investment. There are things about eliminating the artificial 
limitation of credit unions' ability, which would give them 
another financial institution they could go to. I do not go a 
lot into it because I did not think it was sufficiently small 
business oriented, more financial services, but there is a lot 
of interest on the part of the House Financial Services 
Committee on a bipartisan basis in terms of trying to reduce 
the restrictions on community banks which might help. Peer-to-
peer lending is another opportunity, and there are two 
different ways to do that. Either fix Title 3 of the 
Crowdfunding Act with respect to debt securities, or create a 
new regulatory regime so organizations like Prosper and Lending 
Club can lend to small businesses without having to use banks 
as intermediaries, and in fact, go around the banks. So there 
are a lot of things that could be done.
    Mr. GIBSON. Well, thank you. And we are listening. And I 
think some of these things we are already looking to move on, 
but that is helpful.
    Last question here, and it is really one I am curious of 
your feedback. Last Congress, we worked together and enacted a 
bipartisan piece of legislation that helped with job training, 
and explicitly, I am now thinking about my small business 
owners who are especially manufacturers that were very 
frustrated with their new recruits and their lack of 
preparation for some of the work that they want them to do. So 
the intention of the new bill was to try to address that; bring 
closer this activity that often leads to either a degree or 
certification in individuals who are going to start working. 
Because we know there is going to be activity to get a degree 
or certification. We want it to actually be meaningful. So more 
internships. Is there any feedback for us yet on this new law 
or is it too early?
    Mr. BURTON. I am not sure, personally.
    Mr. CLIFTON. I mean, from our data, that would suggest that 
that is the right direction because you have such a large 
percentage of would-be entrepreneurs that are asking for help 
in terms of how to get started.
    But I think it is also the signal of another thing. And so 
when we look at what is crossed in terms of business deaths and 
business births, another thing that might be happening is sort 
of this decline in the spirit of free enterprise. And there are 
a number of conversations in terms of leadership within the 
government that are looking to young people, such as forgiving 
their school debts, their loans, if they come to work for the 
government. And so there is nothing wrong by that because what 
we are doing is celebrating the heroes and the sheroes that 
want to get into the government. But what it fails to do is we 
are not sending the strong enough signals that there are those 
heroes and sheroes that will start the big next businesses that 
will create the jobs that will restart this economy.
    Mr. GIBSON. That is a good point. And my time is expired. 
And so I will yield back. Thank you.
    Mr. RICE. Thank you to the gentleman.
    Now, I yield to the ranking member, Ms. Velaazquez. She has 
a couple of additional questions.
    Ms. VELAAZQUEZ. Just two more questions.
    Mr. Clifton, I would like to ask, what percentage of survey 
respondents are would-be entrepreneurs? What percentage are 
startups in businesses less than three years, and what 
percentage are existing businesses older than three years?
    Mr. CLIFTON. Those data are available from the Small 
Business Administration, but I think I might be able to provide 
a data point that is more helpful.
    Ms. VELAAZQUEZ. For the survey, the Gallup Survey.
    Mr. CLIFTON. We interview 600 small businesses per quarter 
with Wells Fargo. We pull the list from Dunn and Bradstreet and 
the waiting scheme that we do is based on their revenue and 
their location.
    Ms. VELAAZQUEZ. So you do not have a breakdown in terms of 
would-be entrepreneurs, which percentage are startups in 
business less than three years and which percentage are those 
older than three years?
    Mr. CLIFTON. Correct. We do not collect those data. They 
are available from the SBA. But I think a data point that is 
even more helpful is our analytics suggest that the percentage 
of people that have the rare talent to be that sort of 
incredible Wayne Huizenga-type that can start three global 
Fortune 500 companies, we believe it is somewhere three in 
1,000 people that have that inherent talent.
    Ms. VELAAZQUEZ. So none of the businesses--in your survey, 
none of the 600 are would-be entrepreneurs?
    Mr. CLIFTON. Correct. That is a separate survey that we do.
    Ms. VELAAZQUEZ. Okay.
    Mr. CLIFTON. So 25 percent of Americans said that they have 
seriously considered----
    Ms. VELAAZQUEZ. I am confused, because the focus of the 
hearing is on would-be entrepreneurs and what hinders business 
creation. So I do not know if my next question has any basis, 
but in your opinion, is the Gallup Poll a good measure of the 
top challenges for startups, or more challenges facing existing 
businesses?
    Mr. CLIFTON. In my opening remarks, I addressed both. And 
they----
    Ms. VELAAZQUEZ. But yet, in your sample, you do not have 
any would-be entrepreneurs.
    Mr. CLIFTON. No, that is not--so in my opening statement, I 
addressed that we interviewed 25 percent of Americans that said 
they were would-be entrepreneurs. And they faced three 
significant barriers in order to start a business. So yes, I 
addressed both separately.
    Ms. VELAAZQUEZ. So, Ms. Fine, in your work with 
entrepreneurs, how much do you hear that regulations like those 
from EPA, OSHA, factor into the decision of whether an 
entrepreneur starts a new business?
    Ms. FINE. Like I mentioned before, I mean, we work with 
startups, entrepreneurs, at such an early stage of their 
business. Like we would tell anyone, these are all regulatory 
forces that they have to investigate, and I think it is more of 
understanding if the business models works, given those 
regulations. So they have to go look at those and understand 
it. And that is a part of the discovery they need to do. And I 
would count that as part of them starting as entrepreneurs. It 
does not keep them from starting that process necessarily, but 
it might keep them, based on what they find, from figuring out 
if they have a viable business model.
    Ms. VELAAZQUEZ. Thank you. Thank you, Mr. Chairman.
    Mr. RICE. Thank you, Ms. Velaazquez.
    Mr. Burton, I want to ask you--maybe you are not the right 
person on the panel to ask this question, but do you think that 
the Dodd-Frank banking law prevents a community bank from 
making loans to small businesses that they would otherwise 
make?
    Mr. BURTON. I think aspects of the Dodd-Frank Act clearly 
reduce community bank lending to small businesses. But I am not 
sure that is the central problem.
    Mr. RICE. Okay. Ms. Kay, same question to you.
    Ms. VELAAZQUEZ. Will you yield just for a second? It is on 
the community banks and Dodd-Frank.
    Mr. RICE. Sure.
    Ms. VELAAZQUEZ. I serve on the Financial Services 
Committee, and I was there when we were working on the 
legislation. Do you know that community banks who have assets 
of $10 billion or less are exempted?
    Mr. BURTON. Yes. And that is one of the reasons why I said 
it was not necessarily the central problem. There are other 
aspects of Dodd-Frank that are problematic, but again, in terms 
of small business capital formation, I am not sure Dodd-Frank 
is the biggest problem we have on access to capital.
    Mr. RICE. Ms. Kay, do you think Dodd-Frank prevents 
community banks from making loans to small businesses that they 
would otherwise make that they deem an acceptable risk but they 
would not make it with the Dodd-Frank banking regulation?
    Ms. KAY. I would love to answer that question, but I am 
really not qualified to do that.
    Mr. RICE. Okay. Same question to you, Mr. Clifton.
    Mr. CLIFTON. We do not have data on that specifically.
    Mr. RICE. Okay. All right. Thank you very much.
    Look, this has been a wonderful hearing. You all have done 
a great job of educating me. Thank you so much for taking your 
time to come here to Washington to explain your perspective on 
the challenges facing small businesses today. I really cannot 
thank you enough.
    And with that, I ask unanimous consent that members have 
five legislative days to submit statements and supporting 
materials for the record.
    Without objection, so ordered.
    This hearing is now adjourned.
    [Whereupon, at 12:33 p.m., the Committee was adjourned.]
                            A P P E N D I X


GALLUP

                              Testimony of


                           Jon Clifton, J.D.


                       Partner, Managing Director


                           Gallup Government


                               Before the


                     U.S. House of Representatives


                      Committee on Small Business


                               Hearing on


     Building an Opportunity Economy: State of Small Business and 
                            Entrepreneurship


                             March 4, 2015


    Good morning, Mr. Chairman and Members of the Committee. It 
is a pleasure to be here to discuss Gallup's analytics on the 
state of the U.S. economy, the attitudes of small-business 
owners and the current barriers to job growth and startups.

    The Importance of Jobs and Gallup's Tracking of the Job 
Situation

    Gallup completed its first nationally representative survey 
of the world in 2006. Our biggest finding from this study was 
that what the whole world wants is a good job. This finding 
compelled us to more thoroughly study the global jobs 
situation. Gallup now quantifies the prevalence and quality of 
jobs in more than 140 countries each year. Gallup also tracks 
employment daily in the United States, surveying roughly 30,000 
adults per month and more than 350,000 people per year.

    The State of the U.S. Economy

    There are a number of signs from Gallup's data that the 
U.S. economy has been improving since the recession: Americans' 
attitudes toward the economy are improving, self-reported 
discretionary spending is steadily increasing and people are 
reporting that hiring is outpacing firing in their workplaces. 
Despite this encouraging news, job creation remains a problem.

    While official unemployment has fallen from roughly 10% in 
2010 to roughly 6% today, using this metric to represent the 
total jobs picture could be misleading. Traditional 
unemployment includes only people who are looking for work, who 
are available for work and who have not worked a single hour in 
the past week. This means that if a person has given up looking 
for work or if a person has worked only a single hour in the 
past week, that person is not considered unemployed. A 
different metric offered by Gallup quantifies the number of 
people employed full time for an employer--often referred to as 
a ``good job--as a percentage of the total adult population. 
Known as Payroll to Population (P2P), this metric stands at 
44.3% today and has not meaningfully increased since early 
2010, when Gallup started tracking this daily.

    Barriers to Job Growth

    One of the main reasons that the jobs situation has yet to 
recover is that, according to the U.S. Census, the number of 
business deaths now exceeds the number of business births among 
employer firms for the first time since 1977, when this 
measurement began.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    The Current State of the Small Business Economy

    This leads us to the importance of small businesses and 
startups in this country. They contribute roughly 70% of all 
new jobs created in a single year. Considering their 
importance, Gallup works with Wells Fargo to track the opinions 
and behaviors of small-business owners quarterly.

    The good news is that the attitudes of small-business 
owners are steadily improving. The Wells Fargo/Gallup Small 
Business Index stands at +71, which is the highest index score 
since the onset of the recession. Sixty-four percent of small-
business owners report that their company's current financial 
situation is good and 71% expect their company's financial 
situation to be good 12 months from now.

    However, despite this positive trajectory, small-business 
owners face clear challenges. When asked to name their most 
important challenge, the No. 1 issue they report is finding or 
attracting new customers (15%). This is followed by mentions of 
the economy in general (12%) and government regulations (10%). 
However, if we add those who cite healthcare/Obamacare (8%), 
our just government in general (6%), fully 24% of small-
business owners say the government is in some way their biggest 
challenge. Also worth noting, while many small-business owners 
believe available credit is a major issue, only 3% say it is 
their most important challenge.

    Barriers to Startups

    In addition to the barriers faced by current small-business 
owners, there are also barriers facing would-be entrepreneurs. 
One in four Americans have thought about starting a business, 
but have abandoned the idea. For an economy with a negative net 
number of startups each year since 2008, this represents a 
missed opportunity to engage would-be entrepreneurs that could 
result in business startups. Three major barriers are keeping 
these would-be entrepreneurs from taking the plunge: 1) they 
prefer the security of a stable income, 2) they do not have 
enough money to start a business and 3) they lack the knowledge 
on how to start a business. Because the majority of business 
owners fund their early-stage businesses through personal 
savings, a steadily declining personal savings rate in the 
United States has negatively affected prospective 
entrepreneurs' ability to finance new businesses. Moreover, if 
they lack insight on where and how to begin, starting a 
business is even more difficult, and these prospective 
entrepreneurs are more likely to be more risk averse.

    Conclusions

    Creating good jobs and subsequently rebuilding America's 
middle class hinges on the success and failure of small 
businesses and startups. Existing small businesses are 
experiencing headwinds caused primarily by challenging business 
realities, the overall economy and a concern about government 
regulations. Would-be entrepreneurs face barriers such as not 
having enough money to start a business and lacking knowledge 
about starting a business. It would be wise for Congress and 
American leadership to consider all options to unlocking this 
invaluable economic institution. The American public would be 
behind them. Other than the military, there is no other 
institution in the United States that the public has more 
confidence in than small businesses.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Testimony of Elana Fine, Managing Director, Dingman Center 
for Entrepreneurship, University of Maryland's Robert H. Smith 
School of Business Before the U.S. House of Representatives 
Committee on Small Business

    March 4, 2015

    Chairman Chabot, Ranking Member Velazquez and members of 
the committee,

    Thank you for inviting me to testify before you today. I'm 
Elana Fine, managing director of the Dingman Center for 
Entrepreneurship at University of Maryland's Robert H. Smith 
School of Business. I have a bachelor's degree in finance from 
the University of Maryland and an MBA from University of 
Chicago's Booth School of Business. Throughout my career in 
technology consulting and investment banking, I've worked with 
hundreds of startups and venture-backed companies and am 
therefore well versed in understanding the challenges and 
opportunities facing startup companies.

    To provide a little context, the Dingman Center is one of 
the nation's preeminent institutions where the research, 
education and practice of entrepreneurship are pursued 
vigorously. We develop and execute curricular and extra 
curricular programs to inspire and equip the next generation of 
entrepreneurs. Twenty-eight years ago, before entrepreneurship 
was as en vogue as it is now, a visionary dean named Rudy 
Lamone, partnered with Michael Dingman, founder of Signal 
Corporation to establish the Dingman Center. As one of the 
first university-based entrepreneurship centers in the country, 
the Dingman Center has consistently been the gold standard for 
teaching entrepreneurship. This past fall, the Global 
Consortium for Entrepreneurship, a member organization of more 
than 200 entrepreneurship centers worldwide, awarded the 
Dingman Center its 2014 NASDAQ award for Entrepreneurial 
Excellence, for our unique breadth of campus, regional, 
national and international programs.

    My role at the Dingman Center includes oversight of our 
student venture incubator, the Dingman Center Angels investor 
network, business competitions and integration with the Smith 
School entrepreneurship curriculum. I'm responsible for 
developing relationships with the broader community of 
entrepreneurs, alumni and corporate partners to build a bridge 
between our campus and the local startup ecosystem. I also 
serve as an adjunct faculty member of the Smith School.

    Our programs are focused on guiding student entrepreneurs 
through the venture creation process. We listen to their 
initial ideas, match them with experienced advisors and 
mentors, provide a toolset to conduct customer research and 
develop new business models, suggest ways to prove their 
concept in small ways and provide access to seed capital. In 
our 28-year history, thousands of students have walked through 
our doors to start a business or just to be exposed to 
entrepreneurship in a small way.

    I've been asked to give an overview of entrepreneurial 
activity from a university perspective. I recognize that the 
macro level of activity can be hard to quantify and assess 
whether we are headed in right direction. Based on the pop 
culture success of television shows like ``Shark Tank'' and 
``Silicon Valley,'' the proliferation of technology incubators, 
co-working spaces, and downtown innovation hubs, and the 
newsworthy valuations of companies such as Uber, SnapChat and 
WhatsApp, we might believe that everyone is working on a 
startup. Then we look at statistics like the Kauffman Index on 
Entrepreneurial Activity, which showed a decline from 2011 to 
2013 and wonder if we are doing enough. Or we look at 2013 
statistics from the Global Entrepreneurship Monitor and see 
that Sub-Saharan Africa has more than double the early stage 
entrepreneurial activity of North America. However, this 
activity is more ne4cessity driven than innovation driven due 
to lack of other job prospects. From this perspective, a 
decline in entrepreneurial activity might also be seen as an 
indicator of an improving economy as employees have better job 
prospects and don't have to spend their life savings to hang 
their own shingle. The data is hard to analyze because we don't 
know the right level of entrepreneurial activity. As we would 
say in startup terms, we still don't know the metric that 
matters. So, I'm here today to give you a more grassroots 
perspective on what I see as leading indictors for the future 
of entrepreneurship.

    At the Dingman Center, we separate our students into three 
categories and focus on creating programs that will make the 
most significant impact on these various groups. The first 
category is the one that has created the ``Social Network'' 
misconception--the belief that there are thousands of Mark 
Zuckerbergs in dorm rooms across campus who will launch the 
next Facebook. Students, venture capitalists, entrepreneurship 
centers and policy makers must recognize that Facebook is an 
outlier. We would never be successful if we were trying to pick 
the next Facebook, so we spend more of our time on the other 
groups.

    The next category we think about are the students starting 
businesses while in school. Every year we see panoply of new 
apparel companies, mobile applications, tutoring services, 
dating platforms, and food concepts. We have seen university 
support increase to match student interest and demand in these 
venture creation activities. Although a small sample, the data 
from the Dingman Center shows interest in our venture creation 
programs grew from 161 students in 2012/2013 to almost 400 
students in 2014/2015. Students run these businesses for two to 
three years until graduation where they often decide that this 
isn't the right business to pursue after graduation. The 
company might not be a success in standard terms, but as 
educators we have provided a skill set that we expect will be 
used for a startup now or 10 years from now.

    Our best example of this category is University of Maryland 
alumnus Kevin Plank, who ran a campus flower delivery service 
called Cupid's Valentine. After graduation, instead of solving 
the problem of expensive flowers, Plank decided to solve the 
problem of soggy cotton t-shirts and turned his savings from 
Cupid's Valentine into the seed money for Under Armour. In the 
many times I have heard Plank tell his story, he has cited the 
lessons he learned from his first student business and the 
courage that business gave him to start Under Armour when he 
had the idea for a stretchy performance t-shirt. Although we 
hope to have many Kevin Planks walk through the doors of the 
Dingman Center, we would also like to see more of them stick 
with their student businesses, which I'll address later.

    The last category of student entrepreneurs feed the 
entrepreneurial labor pool. These students might work on their 
own businesses or hold internships at local startup companies. 
The challenge for these students in that startups can rarely 
pay market rates, so they often have to forego opportunities to 
take higher paying internships or even summer jobs at pizza 
shops. We've created several programs to subsidize these 
students to work at startups to try to replicate the Silicon 
Valley culture where employees often spin out their own 
startups. We believe it is the cycle and culture of 
entrepreneurship that creates innovation hubs, rather than any 
one specific program.

    All of these buckets of students represent the future 
entrepreneurs, but I caution focusing too much on the first 
category. Instead, there are a number of initiatives than can 
increase exposure and odds for success of the last two 
categories. For example, the National Science Foundation's 
ICorps program is a perfect example of federally funded 
programs that can increase the odds of success among early 
stage university spinouts. ICorps is designed to help federally 
funded academic researchers with ground-breaking innovations 
determine the commercial viability of their innovations. This 
same approach, based on Silicon Valley-tested startup best 
practices, is now being implemented across many agencies. While 
it started at NSF, NIH, DOE and other agencies are embracing 
the process. This program has the potential to fundamentally 
change the way we transfer technology from our world-class 
universities and federal labs. Furthermore, the same program 
has potential to greatly improve the highly regarded SBIR/STTR 
programs that were created to support small business 
innovation.

    However, programs like ICorps focus on innovation that 
leads to entrepreneurship. On campuses, we need similar 
programs that increase the entrepreneurship that leads to 
innovation--those the encourage students to test the waters on 
identifying a problem in the market and designing and testing a 
solution. We know there are more than enough problems to solve. 
Sample programs might provide scholarships to students pursuing 
entrepreneurial activities or loan forgiveness so students can 
choose to work at startup firms. As we seed more entrepreneurs, 
we will also need more funding mechanisms to substitute for 
what we often call a friends-and-family round of financing. 
Without an initial $10,000 to $100,000 it is nearly impossible 
for a young entrepreneur, who is burdened by student loans and 
has no savings or credit, to build a product and test customer 
acquisition. Banks, angel investors and even granting 
institutions do not have vehicles to fund the typical student 
businesses. Corporations, like Capital One recognize this need 
and are leading the way for local entrepreneurs by providing 
$500 to $2,500 seed grants for our student entrepreneurs.

    In addition to exposing young people to the entrepreneurial 
process, matching them with experienced mentors and increasing 
their access to funding, we also need to be creative about how 
to limit downside risk. The success and wealth of Bill Gates, 
Steve Jobs and Mark Zuckerbergs of the world certainly attracts 
entrepreneurs, but the downside risk keeps many capable 
operators on the sidelines. We characterize and celebrate 
entrepreneurs for their ability to take risks, but there could 
be innovations that never get to market because the perceived 
risk to someone's family might be seen as too high. I'd 
encourage the committee to consider policies that limit 
downside risk along with those that encourage the upside risk.

    Therefore, as you embark on your committee's activities, 
I'd encourage you to consider the following thoughts and 
recommendations:

           Few of us are stock pickers. Instead of 
        picking winners and hoping for short-term rewards, we 
        need to seed programs that expose more students to 
        entrepreneurial activities and equip them with the 
        tools to vet ideas early and increase the odds of 
        success.

           Recognize that failure rates will always be 
        high and that success in entrepreneurship can also be 
        viewed by total births and deaths because it means 
        there are more companies in the field.

           Consider programs that provide non-dilutive 
        funding substitutes to friends-and-family funding and 
        angel funding for a broader spectrum of businesses. 
        Keep in mind that entrepreneurs are like marathon 
        runners and come in all shapes and sizes.

           Think creatively about ``apprentice''-like 
        programs in high growth startups that might increase 
        the entrepreneurial labor pool.

           Consider how to limit downside risk that 
        might keep capable entrepreneurs on the sidelines.

    In a Washington Post article, I wrote that teaching 
entrepreneurship is like teaching a child to drive. You give 
them a little taste off the side in a shallower waters and if 
it takes, they feel comfortable to take the risk off the higher 
diving board. This is how we teach entrepreneurship - we expose 
our students to a non-linear way of thinking and problem 
solving. Our challenge, as outlined above, is no transition 
these students from the safe risk-taking environment of an 
academic institution, to the business world. I look forward to 
working with you to create policies to build on the momentum we 
are seeing on campuses nationwide.

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