Friday, November 14, 2008

How I See It

Entrepreneurs need to be doing it for themselves

Last weekend, while catching up on my piles of past due reading, I had the chance to re-read the mid-October MHT op-ed written by Jeff Solomon (“Focus needed on state tax incentive for angel funding,” Oct. 10-16, 2008), a good friend of mine and even better accountant. In this editorial, Jeff does the right thing and demands that the Massachusetts Legislature, in its oxymoronic wisdom, “needs to invest in the future of the state and young entrepreneurs” by increasing the state tax incentive. Jeff goes on to compare our state to that of Hawaii and its aggressive tax credits that focus on angel investors. All of which is a very nice suggestion and just the type of article that makes everyone feel warm and fuzzy and not having to do anything themselves but to wait for the Legislature to make the first move.

Welcome to the new economy. It ain’t going to happen for a long, long while. The only reason that Hawaii can afford its tax credits is because it has one of the lowest debt ratios as a percentage of GDP and is sitting on a ton of cash, while Massachusetts, with a current budget gap of $2.6 billion, is ranked at the wrong end of 50 with the highest level of debt-per-capita and debt-to-GDP rates in the country.

We will now get to see what our governor is really made of since he will not be able to stem the fiscal bleeding with merely a stitch or two. The current financials of the state will require massive triage and surgery if the patient is to survive. Probably not the best time to think about asking for another handout in the shape of a tax credit.

In this economic crisis, ever since Washington opened up the floodgates of the federal coffers and shored up the borrowing base, most of us have had to watch our portfolios slide and recalibrate the strategies of our businesses along with our savings and retirement plans. As a serial entrepreneur, a director at a number of venture-backed companies and at the Associated Industries of Massachusetts, as well as being an active member of CommonAngels, one of the largest angel groups in the country, no one hopes more than I do that Massachusetts would adopt a new investment tax credit. But what I also have learned from my 20 years of entrepreneurship is that hope is not a very successful business strategy. Taking action by one’s self is, which I think is at the very core of entrepreneurship.

Since Massachusetts, and most of the Northeast, is a hotbed of entrepreneurship, the historical stats point out that in prior economic downturns, ingenuity and hard work won out and new businesses flourished even in the worst of times. Add to this the fact that capital from both venture firms and angel groups has not gone away in this crisis. Different from the burst of the 2000 bubble, there’s still plenty of cash sitting on the sidelines.

Since most of us who are entrepreneurs do not have the time or the sit-on-your-hands mentality to wait for a tax credit, this is the time when all of us need to be rethinking our current business models, assessing new revenue opportunities and pushing one another to think in much more innovative ways. Given the depth of what this recession will bring, there’s simply no way to save our way to profitability or wait for a bailout.

In a new technological world of diverse opportunities, this is exactly the time when we need to become even more creative, even more outside the box, and more focused on growth, since this is what entrepreneurship is really about.
 

Jack Derby is the founder of Derby Management, a Boston-based management coaching organization for the venture community.