Frontlist | ‘New Builders’ Authors Discuss How Businesses Could Rebound From Pandemic
Finally today, what will life be like after the pandemic? That’s a question on many people’s minds right now. This weekend, we’ve been focusing specifically on the way forward for small businesses, which have been hit so hard over the past year.
To talk about this, we called Seth Levine and Elizabeth MacBride. Levine is a co-founder and partner at Foundry Group, a Colorado-based venture capital firm. MacBride is a writer and the founder of Times of Entrepreneurship, a journal covering entrepreneurship and finance. They are the co-authors of the forthcoming book, “The New Builders: Face To Face With The Future of Business.”
SETH LEVINE: So we described new builders as really the next generation of entrepreneurs. When you look at the data, increasingly, the people who are starting businesses are Black, brown and female. Many of them are immigrants, and many of them are older than sort of the typical view of someone who’s starting a business.
And so we put the label new builders on them because we wanted to describe them as different than the people that most folks have in their heads when they think of an entrepreneur because really, entrepreneurship has been somewhat taken over – at least our view of it has been taken over by the white male technology founder building a business in Silicon Valley or one of the big tech hubs. That’s not really reflective of entrepreneurship, broadly speaking, in America. We think of new builders as that next generation of entrepreneurs.
MARTIN: When you got into the reporting, some of the things you found really surprised you. Tell me one of those things – in fact, that entrepreneurship is declining. Is that right?
ELIZABETH MACBRIDE: Yeah, that’s right. So we had the perception, based on our careers as a venture capitalist and a business journalist working for a lot of the big publications, that entrepreneurship was growing and thriving. But what we found when we looked at the numbers is that it’s actually been slowly declining for the past 40 years.
MARTIN: Why is that?
MACBRIDE: There are many different theories about exactly why it’s declining, and obviously it’s a nuanced answer. But I think what Seth and I believe is that it’s declining because our finance system for small businesses is really in a state of collapse. Money, cash, finance is, like, lifeblood to entrepreneurs. And when they don’t get it, they really can’t build a thriving business.
MARTIN: And talk about how that specifically affects women and people of color, entrepreneurs of color.
MACBRIDE: What we found in our reporting is that the finance system is obviously very dominated by white men. And because today’s entrepreneurs are women and people of color, immigrants – as they’ve always been – but generally not people who are plugged into those kind of white male networks of financial power, there’s a big disconnect when it comes to getting money to small businesses.
MARTIN: You know, you are – you started this project before this crisis hit because you had a vision of what needs to happen in the future. And then in the middle of that, this crisis has hit, which has really devastated, you know, small businesses across the country. Now, what’s interesting is, obviously, that there’s some bifurcated existence where some businesses are doing extremely well and others are absolutely devastated. So I’m just wondering how – what are the learnings going forward?
LEVINE: I think that’s absolutely right, Michel. And I think that what we’re seeing in COVID – we talk about the acceleration of many business trends. And what we had learned when we did the research for the book was that there were a number of trends that were really alarming. And then COVID hit, and it accelerated those alarming trends.
A significant portion of businesses that are run by new builders didn’t have the option to go virtual, as you described some larger businesses being able to do. They rely more on people being face to face. We’re talking about businesses that are restaurants or bakeries or corner stores or, you know, involve people being physically inside your shop and not being able to perform at a distance. You can’t give a haircut over Zoom, for example.
And so it really alarmed us as COVID hit to realize just how tenuous the situation was for many of these new builder businesses. The average business in the United States had two to four weeks’ worth of working capital on its balance sheet when the crisis hit, so it didn’t give a lot of buffer for these businesses to figure out how to react to COVID.
And I think it’s also important to note that it’s not just the economic power of small businesses, which is significant, but there’s also a certain sort of community fabric that’s created by small businesses. And we’d already been seeing an increasing number of new shops that were being opened as simply just branches of larger shops. In fact, there were twice as many shops that were just simply another branch of a larger organization being opened in 2018 as there were in the mid-’70s.
And it’s not that we think that big is bad. There’s a lot of advantage that comes from being able to order, let’s say, from Amazon if you live in a rural or outlying location. But it’s that the – our economy has always thrived in a certain balance between big and small, and our view was that this balance was already being upset before we even got into the pandemic. And the pandemic has only accelerated that imbalance.
MARTIN: So what needs to happen now?
MACBRIDE: It’s kind of interesting, right? I feel like Milton Friedman really did us a disservice by telling us that the free markets worked very well because they – in many ways, they don’t. And I think we’re now coming to that realization after a couple, two, three, four decades of kind of following his doctrine.
And so there’s a couple things. I mean, one is that we need to recreate our finance system so that it does a better job of getting financing to the new builders. And that means rebuilding community banks, which the number of them has shrunk. We’ve now got less than 5,000 banks across the whole country, and the biggest decline has been among community banks. So really looking hard at regulations to help that finance system – that’s one thing.
Another thing is that I feel like there is an opportunity for people to not only buy local, but to be kinder to small business owners. There are a lot of ways to support small businesses if you work at a big business, right? You can pay your vendors faster. You can direct money to small businesses. You can be conscious, kind of, of the fact that you might have a lot of weekend days free. You might have vacation time. Well, that small business owner doesn’t. So there are a lot of ways, I think, that people in their day-to-day lives can help support small businesses.
MARTIN: Elizabeth MacBride and Seth Levine are co-authors of the forthcoming book “The New Builders: Face To Face With The Future Of Business.” It’s due out in May.
Seth Levine, Elizabeth MacBride, thank you so much for talking with us.