The sad state of small business

The real problem isn't regulation. It's that owners can no longer compete with the big dogs.

By Jim Cramer Jun 28, 2013 11:49AM

thestreet logoDigital Vision, Getty ImagesYou want depressing? You want to know the real problem with the American economy? Go listen to the conference call hosted by Paychex (PAYX), the excellent payroll-processing company, which reported earnings Thursday.


This one was a real gut-puncher -- and not because of Paychex itself, which is an excellent company and a known best-of-breed payroll processor. It was tough to listen to because an undercurrent weaved through the call that said, basically, "We didn't deliver what you wanted because the country didn't deliver what we expected."


The company went out of its way to not blame the economy. The chief financial officer, Efrain Rivera point blank said, "Now, we're not using that as an excuse." He said that, in order to get to the growth people are expecting in their payroll-processing business, "You need a slightly different environment in terms of new business formation than the one we have," because right now the nation "basically shows no growth whatsoever in new business formation."


Three years out of the worst downturn since the Great Depression, and we have no new businesses formed of the type at which Paychex excels? I'm talking about the small businesses that are responsible for so much of the job creation in the country. How can that be?


Now the conservatives in this country blame the government for getting in the way of new business. As someone who has started a half-dozen businesses, I am not going to apologize for the government, as the local, state and federal minefields can be impossible to navigate. The liberals are seemingly willing to excuse the government at every turn, particularly the federal government, citing lack of demand as an issue.

It is true that this government in Washington seems incapable of coming up with something as bold as the interstate-highway system build-out that President Eisenhower did, in a feat of brilliance, in order to shut down a possible recession in the 1950s. However, that's still a relatively simplistic analysis. You almost begin to think that those who espouse this line of thought have never had to navigate a local hearing, a state regulation about safety or a federal mandate about mandatory healthcare for workers. Of course, their view never seems to encompass the taxes at every level, including absurd ones that could keep anyone from starting a business.


But I actually think both sides miss the point -- one that I learned this week by speaking to five CEOs of five gigantic companies: Jim McNerney at Boeing (BA), Ellen Kullman at DuPont (DD), Alan Mulally from Ford (F), Terry Lundgren from Macy's (M) and Howard Schultz from Starbucks (SBUX). That point is: You can't compete effectively against the big dogs anymore.


You want to start a small business against Starbucks? You want a coffee shop, a restaurant, a place to grab lunch? You'll have to wind your way through the thicket of regulation, and at the same time you'll need to tackle a company that can figure out pretty much everything that needs to be figured out and has the staying power to go through downturns. You will be going up against a company that has the best supply-chain management, the lowest costs, dedicated employees and a CEO on a mission to run the best company on Earth.


Macy's has the systems, the wherewithal, the talent and the clout to beat up on suppliers. You want to open a retailer and try to compete with that, while at the same time retaining the local touch that had been the edge a small business person could have had? Good luck with that.


You want to be a supplier to Ford or Boeing or DuPont? They can demand whatever they want of you and get it. This is demonstrated daily by Boeing's Partnering for Success program, the one where they put you on the "no-fly list" if you don't play ball.


That's right. What's happened in America is that the huge corporations with lobbyists in Washington and tentacles throughout the country -- the ones with the best balance sheets and, yes, the best leadership -- simply can't be beaten by small businesspeople. I think that, more than anything else, is the reason behind the lack of small­-business creation -- and, judging by the execs with whom I spent time this week, it's not rational or economic to start one. Until that's dealt with, and it is behind me to figure out how to do it, get used to the new norm and what might be a permanently lower-job-growth environment.

 

 cramer

Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust and is long DD and F.

 



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10Comments
Jun 28, 2013 12:55PM
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In micro-business start-ups (sole proprietorships), the bureaucracy of complying with the mountain of  rules, regulations, taxes, accounting, permits and all that, takes time; a LOT of time, and it's ongoing. To make a run at starting business for the average small-time entrepreneur,  110% of the proprietor's time, money and focus on the actual product is required. Many cannot afford a lawyer, bookkeeper or adviser, and must not only learn the hoops, but jump through them as well while battling the logistics of the core business. All levels of government combine to discourage or negate the viability of even getting the doors open, let alone keep them open. Been there, done that, and will never again try, even with a proven product.
Jun 28, 2013 2:23PM
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All of the posts say the same thing...  The impediments to starting a business and the TIME and COSTS keep going up...

39 years ago I exited the Army and started a small business in a garage I rented.  My bank laughed at me when I applied for a loan.  So I asked them what I needed to do, and they were helpful in getting in a position to start, without the loan.   I started the business because I was unhappy with an employer in the same business.

Today I employee 175 people.  I doubt that can be done today.  The paperwork and regulation compliance would prevent it.   There is an old saying when you own a business that you can choose your hours to work... Its true any 80 per week...  Especially under Obama starting a new business is near impossible, especially for the average guy (or gal).  

Maybe this is why business start ups have reached an 100 year low?
Jun 30, 2013 8:14AM
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Jim

 

Splitting Hairs are we? What's worse for small companies? Big companies have always been a problem for small companies. In the early 1060s my dad's Photofinishing business was squashed because Korvette's Department Store sold film cheaper than my Dad could buy it from Eastman Kodak. And now Korvettes and Eastman are gone, crushed by larger businesses, maybe, but even more so by innovation.

 

I watch & read you, But, perhaps you: Jim Krammer are too big and removed from the paper work to realize the extent of the Government Regulation problems for small businesses. When's the last time you completed all the monthly, quarterly and annual forms required to run a business?

 

Clearly, the bigger & growing problem is Government regulation. After 42 years serving small businesses, doing taxes and accounting I sold my CPA business and retired. No small business can keep up with all the forms and crushing penalties if they don't comply. And now. with a Socialist POTUS we are just digging the hole deeper and it appears to me we haven't stopped digging!!!.     

Jun 28, 2013 4:40PM
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Its tough to make things up down here, we call it as we see it folks...Like we said earlier, we were trying to hang in there but when manipulators start doing their thing, there is nothing anyone can do about it....Everyone saw it, from 30 points down to 114 in a matter of minutes; why? Because they can and because they know they will get away with all their manipulating and cheating...Oh well, that's life here on Wall Street....We will see what are they going to pull next week....Have a great weekend all.
Jun 28, 2013 12:07PM
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no one ever thought a small start up business could directly supply Ford or Boeing.  but on a town size, there is no reason a small coffee shop couldn't start up.  the cost is in the building and the labor, not the coffee or water. 

 

what i noticed in my own small business is one needs to have a $150,000 idea before actually going anywhere.  the coporation yearly fees, the accounting fees to keep the IRS paper straight.  the advertizing fees, the minimum buy quantity prices for key parts of your product, the fees from the bank for your monthly statement and for taking visa or any credit card, any necessary trade shows one needs to be attending or in, all wipe up the "profits" quickly if you have smaller gross sales.

 

 

Jun 28, 2013 12:54PM
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They did not come out with guns blazing yesterday like we thought but they certainly did this morning; selling on anything and everything, they  had us down almost triple digits and then as usual, a sucker's rally was called, the Dow and S&P went positive for a bit and at 1200 hrs the call to resume the selling came so, down we go again.....Be very cautious the rest of the day folks, manipulators are once again in control after 3 bad days for them....Be careful...More later.
Jun 28, 2013 3:53PM
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We've been trying to hang in there but sadly at 1545 hrs scumbags called to accelerate the selling so down we go again....They will keep manipulating this market as long as they know they can get away with it....Too bad.
Jun 28, 2013 3:18PM
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Mirage to be real honest, I really don't think a lot of small business entrepreneurs have had the money to invest since 2007....Not really an Obama thing.

All businesses have suffered since that downturn, AND we knew it was going to happen...

You like others should hope things get better and quit worrying about Politics..

It's not really a President thing, quit the blame game..

And think about America for a change..

Or put the blame where it belongs...ON CONGRESS.

Obama didn't cause or allow the Great Recession to happen...

Jun 28, 2013 3:04PM
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Any small business is tough to start...Or another pitfall is "growing it."

I think it's almost half, that fail in the first year...

And only about 1 out of 5 that make it after 5 years..

Nothing easy about the process...And competition can be ferocious.

Many fail because of under capitalization, lack of money to go on...Or just go broke trying.

Having a viable product, filling a need or the "only game in town" helps.

Good help, good product and maybe good location all help..Location,location,location.

Going all in can be dangerous, having some type of back-up; Can mean success or failure.

I was the Back-up to my wife's Commercial Venture..Until she got everything going and on her feet.

The Government, taxes,WC,U/E, wages,Lawyers and Accountants, fees, zoning, etc, and Incorporating are other pitfalls, but by then you have a pretty good idea whether you will fail or not.

Jun 28, 2013 3:49PM
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Well I got my Cramer fix, time to move on to Merryday for one last remark.
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