01-02 Births and Deaths

During the 1987 International Small Business Congress in Nagoya, Japan, I had an opportunity to do a little site-seeing. And I noticed a small firm with a large sign in Japanese leaning against the store window. I made some inquiries, and found a local bank manager that could speak English.
Apparently, the bank manager was joined with several other suppliers and even a local competitor, who together were trying to prevent the firm from closing. They were offering advice, financing and other arrangements. Failure would be seen as a disgrace. It was a story of how small firms and communities are so entwined.
At the time, business births and deaths in Japan were in the order of about four percent of all businesses. In the US and Canada, this number is closer to eight percent.
Few appreciate the cultural nature of business closures and business openings. The freedom to fail is very much part of American culture and signals a very entrepreneurial culture. Societies in Asia and Europe focus on business efficiency to reduce business failures.
And something else few appreciate is that although about 4 of 5 new ventures fail within the first five years, the majority of those who start a second venture are successful.
Today, in 2020, all the economies of the world are dealing with large numbers of business failures, all related to the Coronavirus which has shut economies down. Today, we are not dealing with closures linked to inexperience or bad judgement.
It would be my educated guess that despite all efforts by governments to help small firms, about 15% will shut down. Even experienced entrepreneurs and managers are closing their doors. Governments want to give them loans, but what they need are equity infusions. Unfortunately, this is a complex process.
What is so particular about small business, is not just that they employ half of the workforce, but that they reflect local culture and history. People want to save local companies because they reflect who they are.
The big issue for societies, is not the high number of bankruptcies. And that will hit the banking industry hard. The issue is the pace of new start-ups.
I have stumbled on stories of start-ups all focusing on the application of e-commerce. So many people living and working from home during the pandemic have become addicted to online services for bloody everything. The photo is of a women providing online services for owners of pets. Not a lot of up-front capital needed here.
But normally, when we get to the issue of financing new small scale ventures, we get to the most difficult challenge facing small firms everywhere. It’s financing, and why? Well, it is just not profitable lending or investing in small amounts.
It was my goal when I started the Canadian Federation of Independent Business back in 1971, to use the tax system to help energize the non-institutional equity market, so that it would be economical to invest in small firms.
And we were successful. Now we now have in Canada tax-free capital gains on the sale of small business shares. And we have a special business loss provision, where losses on investments in small business can be halved.
An online learning company I started using these provisions, was funded by 17 friends and family members who provided a total of $1.4 million.
Small firms put half the world back to work after the Great Depression and WW2. And they will do the same after the Coronavirus.