Let the old trees die

While the global finance crisis might be showing some signs of improvement, the outlook for the entrepreneur is still bleak. Without easy access to capital, entrepreneurs cannot grow. A forest without new growth will age quickly just like an economy without new growth will fall. While governments around the world are busy propping up old businesses in order to save jobs, they might just be missing an important point. Old forests are supposed to die in order to make way for the new.

This weekend I read about Joseph Schumpeter, a Czech economist who was a professor at Harvard for over 30 years. His theory was that there is a process he called Creative Destruction, in which after a long period of growth, a crisis must arise. Each crisis creates its own new dynamics and as a result, new technologies will emerge or be used in a new manner. As a result of this, entrepreneur activities will increase, new companies will start and some of the old companies will die off. The old professor believed that this is a natural cleaning process, especially after long periods of sustained growth, and it is necessary because it creates a capacity for new growth.

Early-stage entrepreneurs must have access to capital in order to survive. During the internet boom of the early 1990's we learned that giving huge amounts of money to young and inexperienced entrepreneurs is like inviting the local Hell's Angels group to your house for an all-you-can-drink free beer bash. They will probably drink you dry and trash your house in the process. Even if in small amounts, early-stage entrepreneurs must have access to capital in order to keep their dreams alive and to meet simple milestones for solid growth.

For the representatives from local government who are reading this article, please keep the programs alive that give small loans and grants to early-stage entrepreneurs. Make it easier for them. You can also encourage companies that assist startups by offering them tax breaks and incentives. Make certain your local new growth economy is getting help so that it does not wither and die. When your big old trees come crashing to the ground, it is only the new growth that will sustain you.

For the entrepreneurs who are reading this article, don't give up. This crisis will also pass. They all do. Whether it takes 6 months or 2 years, if you keep your dream alive, you will be positioned for rapid growth when the smoke clears. Get help from companies that promote meetings between local governments, entrepreneurs and venture capital. Keep the faith. Help is on the way.