Reid Hoffman: Let Our Start-Ups Bail Us Out

The analogy I used was of balancing preservation of forests with reforestation efforts. The stimulus plan has largely been about preserving forests that have a lot of very big old trees. It's an admirable effort in that an entire ecosystem revolves around a forest and for it to suddenly disappear would result in acute turmoil. But at some point, despite efforts to the contrary, that forest is just going to burn, resulting in the acute turmoil that past "avoidance" efforts have simply deferred. In fact, the longer you try to preserve the forest, the likelier that it is to be devastated by fire.

We really do need to make economic reforestation a priority. As this author points out, encouraging small business loans is definitely a part of the process. But before small businesses are even credit worthy enough to apply for a loan, they have a few hurdles that need to be overcome. These hurdles don't seem to be very big until you're a one- or two-person startup without much revenue coming in.

1. The founders need to cover their own health insurance costs or go without. Living in Canada, I don't have to worry about monthly premiums. That's money I can use for other things. It's true, that I eventually have to worry about paying this cost via taxes. But taxes aren't usually initially high (or at least weren't for me) when starting a very small business. I'm not sure how this works in the U.S., but I imagine most startup founders simply go without and take a gamble. This is probably a good bet for younger founders but is discouraging to older ones and those with families.

2. Simply setting up the proper structure for a business, its accounting books, and taking care of any legalities can be a tremendous burden for a startup. I bootstrapped my company and I remember my frustration one day when I realized I would probably need to spend a few thousand dollars and several days of my time to get all of this stuff sorted out by professionals. That was money that I desperately needed for rent and food, and time I needed to do actual work. It does not seem like much if you live on a salary, because it isn't, unless you're a startup trying to bootstrap yourself.

Governments should offer cookie-cutter small business tax and accounting structures that offer founders the ability to clearly understand the repercussions to their bottom line. This will help founders better project cash flow a year out when taxes are due. You shouldn't need to hire a professional in order to get the benefit of not paying taxes that you don't really owe in the first place. I'd have gladly exchanged my 100% professionally optimized solution for a cookie cutter solution that was 80% of what I needed but took me 20% of the time to take care of than dealing with all those professionals. Of course, these professionals have a vested interest in ensuring the process as complicated as possible, and probably lobby governments to keep them that way...

3. Up here, the government just created tax free savings accounts for individuals (http://www.budget.gc.ca/2008/pdf/pamphlet-depliant4-eng.pdf). I think a similar account should exist for startups for their initial few years of existence and the limit should be $20K per year. Again, it does not sound like a lot of money, until you're a bootstrapped startup delicately balancing your cash flow. One of my stresses, to this day, is ensuring I have enough money in the bank to pay the government and creditors. The amount I owe the latter is always easily known and so it might be large, but it isn't surprising. The amount I owe the former is always a big damn question mark until I enlist the help of a professional. Tax season often feels like awaiting a tsunami. This means my spending on other things (equipment, contract workers/employees) is temporarily depressed until I figure out I have enough money to get through that stage.