Thursday, July 31, 2008

Pulling out of recession

Most of the developed economies are facing a slow down if not a recession. Mark Cuban has described his method for pulling an economy out of recession. I broadly agree with his idea but I think that with an addition it address the biggest issues facing startups.

Startups (and small business as well) face two major hurdles or barriers to entry. The first is regulatory and the second is capital. Mark Cuban's plan address the regulatory barrier to entry and some of the capital issues (not paying taxes improves a companies cashflow). But it only goes so far. Not paying taxes is moot point if you don't have any revenue to support yourself.

To address the capital barrier, governments should implement a HELP-style business loan scheme. In this case the government would provide an initial loan that covers a single person's wage for a year. The loan could be renewed for a 1 year extension. The idea is that the load allows a small company to meet salary for initial employees during the launch phase when little to no revenue is available and other sources of funding are not useful.

The loan is then paid back through the tax system. The scheme would have several limits such as being limited to the average yearly wage and a company would only be allowed to ever have 5 employees use the scheme. Individuals would also need to be limited in the number of these loans that could be taken out within a time period (say once in a 5 year period).

The scheme is designed to allow people to take the plunge and spend that all important first year to get of the ground. It is very similar in intent to Ycombinator fund.

With Mark Cuban's plan addressing the regulatory burden faced by startups and small business the loan scheme addressing the initial capital requirements, people will find it easier to start a business and get it through that all important first year.

Economy, Mark Cuban, Finance, Policy