The Decline of Small Business Is a Five-Alarm Fire Leaders Are Ignoring

Please don’t tell me that the American economy is moving in the right direction, however slowly, which I hear from politicians and commentators all the time. It isn’t. Not even close.

Key economic metrics offer no encouragement at all -- the two big ones, GDP and unemployment, are both woefully inadequate, regardless of what people say. Sure, unemployment as measured by the Department of Labor has gone down, but this is only because the denominator of how many are in the workforce has decreased and is really low as a percent of the population. Meanwhile, GDP will have grown only 1.9% in 2012, which is pathetic. After a serious recession, the economy historically gets one big bounce. It hasn’t happened yet.

The reason the U.S. economy is stalled like this, in my view, is that our elected officials, from the president, to Congress, to governors and mayors, are focused on the wrong things. They’re concerned about government spending on infrastructure, schools, police, firemen, and the military -- on government jobs and projects of all types. They’re fixated on pensions and benefits -- on how to spend money, not how to create wealth.

What they should be focused on is revving up the engine that fuels most of the American economy: small business. And right now, small business desperately needs a jump-start. U.S. small-business owners are pulling back on how much they invest in their businesses, with their net capital spending intentions for the next 12 months now at the lowest level in more than two years, according to the Wells Fargo/Gallup Small Business Index. Small-business owners are also increasingly pessimistic and plan to hire less in the next 12 months.

What’s more, in my estimation, we need a minimum of 2 million startups per year to keep our economy pumping and creating new jobs, but we're currently running at roughly 400,000 annually. This doesn’t bode well for the future of the U.S. economy, which depends on a thriving small-business sector for most of its employment and GDP growth.

It’s clear to me and to millions of other executives that when small business slows, America slows. And if small business goes the way of the bison -- slowly but surely dying out -- the country’s economy will die with it. But I’m not sure the president, Congress, governors, or mayors really know this, or they’d be responding to the decline of small business like the five-alarm fire that it is. Yet they’re not.

Now, imagine if President Barack Obama took the podium and said, “From this day forward, I am first and foremost the President of the United States of Small Business.” Sure, he alienated many businesspeople with the “you didn’t build that” line during the campaign. But he’s smart and could easily recover from that remark, by pledging his allegiance to small businesses and by telling them, in one of his trademark stirring speeches, “I will do everything in my power to help you succeed, to remove any barrier you may face, and to help you once again become the great American, job-creating powerhouse we know you can be.” I think this is the only way he can save the country.

And what if every governor and mayor followed suit and held a press conference in which they said, “Today my primary role has changed to Governor or Mayor of Small Business”?

If small-business owners’ capital spending intentions are in decline, it’s because they probably believe they’re in trouble. They may feel that way because they don’t believe national and local leaders honestly respect them for the role they play as the engine of the U.S. economy. That has to change now.

Political Leaders: Treat Your Citizens Like Customers -- or Go Broke

Here are four anecdotes with a similar message. They should seriously alarm city, state, and country leaders everywhere:

• A CEO of a multibillion dollar California company, and lifelong resident of the Golden State, told me at a dinner that he was moving his business from California to the Rocky Mountains. He wanted to be a “customer” of the state of Colorado, not the state of California anymore. His needs as a customer overrode his love of the Southern California lifestyle.
• I just read this week that between 2010 and 2011, England’s total number of taxpayers with an annual income of over 1 million pounds suddenly went from 16,000 to 6,000. That’s right -- in one year. The British press is going nuts because a certain percentage of those 10,000 taxpayers flat-out left the country. It means that their own personal finances, and possibly small-business ownership, are more precious to them than their national loyalty or patriotism.
• A young American CEO here in Washington informed me that he had just moved the headquarters and business operations of his building supply company to St. Thomas. He said he could no longer survive the taxes and regulations as a “customer” of the United States, so his business became a customer of St. Thomas.
• Another friend told me last week that he was keeping his home in Washington, but bought a new primary residence in Florida because it favored his tax and business interests to migrate there. 

There’s an obvious pattern here. Many individuals, and businesses of all sizes -- especially those in technology -- can be headquartered anywhere. And wealthy people can pretty much live wherever they want. These businesses and individuals will migrate to cities, states, and countries where they can be most productive and enjoy tax rates and regulations that help them become highly profitable with few limits to growth.

Gallup’s World Poll asks this question across 160 countries: “Ideally, if you had the opportunity, would you like to move permanently to another country, or would you prefer to continue living in this country?” A less scientific way of wording this would be: Do you want to get the hell out of Dodge? One striking result: 28% of adults in the United Kingdom told Gallup they would like to leave the country permanently. This compares with 11% of Americans who say they would like to leave the United States permanently if they could.

I raise this issue now, because as the U.S. president and Congress work on a wide variety of new rules and regulations for this country, they should consider the people who live and work in America as customers rather than simply taking them for granted as trapped citizens. U.S. small businesses in particular are increasingly pessimistic about their future here in the United States. Basically, they’re not satisfied customers. Many American businesses can move out of the United States just as surely as they can move out of California or Detroit.

Note to mayors, governors, prime ministers, and presidents worldwide: You could learn a thing or two from some once-great U.S. companies, like the big auto makers, who went broke and needed a federal bailout to survive because they took their customers for granted. It’s time to start treating your citizens like customers. Find out what they want and start engaging them, not to mention appreciating them, rather than acting like they have nowhere to go. They have plenty of places to go -- and you’ll go broke without them.

How HR Executives Can Prevent World Revolution

The world economy isn’t growing fast enough and this is starting to cause some serious problems. One issue in particular that comes to mind is revolution. Any number of countries suffering from low economic growth and high unemployment could explode in the next few years.

So how can a human resources executive help save the world -- or at least his or her country? The answer starts right in their own workplace. HR executives can save their countries by building stronger companies. That means helping their businesses get new customers -- or building out the current ones they have.

And there will be plenty of new potential customers in the coming decades. Right now, the world’s GDP is $60 trillion and that figure will grow to $200 trillion in the next 30 years. Simply put, the global economy will have $140 trillion worth of new customers. Competing for those customers will be the “World Cup” for world economic dominance. The winners will enjoy thriving economies and workplaces. The losers will face unrest and revolution.

Countries that double the number of engaged employees in every company will be best positioned to win the World Cup for a lion’s share of the $140 trillion in new customers.

Doing so starts with you, HR executive, in your company. And it spreads around the country from there.  When and if your company, and then country, doubles its workforce engagement, only great things will follow: an economic boom, an explosion of innovative ideas, and a surge in entrepreneurship. No country can ramp up ideas and entrepreneurship high enough right now. There are literally trillions of dollars in customer revenue waiting to be won.

Hiring and developing great managers and building up and leveraging the strengths of every individual employee are the two keys to doubling employee engagement. How employees feel about their jobs starts and ends with their direct supervisor. If employees feel, among other things, that their supervisor takes a real interest in their development, or offers frequent praise and recognition, they are very likely to be engaged. Hiring the right managers is absolutely essential to building an engaged workforce. If companies throughout your country hire the right people to lead and actively encourage the engagement of their workforces, economic dominance will be sure to follow.

And great managers already know what decades of Gallup research has revealed: Trying to get employees to fix their weaknesses -- through “360-degree feedback” and “competency models” -- doesn’t work. Weaknesses can’t be developed much at all -- but employees’ strengths can be developed infinitely. The problem is, too many companies focus on fixing weaknesses, and this only breeds non-engagement or worse, active disengagement. No company or country will win the economic World Cup with this approach.

Great managers build development plans around every single employee’s strengths. When employees work from strengths, nothing motivates to them to achieve more -- not money, not love, not vacations, not good benefits, not company volleyball games, not motivational speakers. And employees working from their strengths do win new customers.

There are many tests and assessments out there that help companies uncover their employees’ talents and strengths. The best and most famous in the world is Gallup’s own Clifton StrengthsFinder, an online assessment that reveals an individual’s “top five” talent themes out of a total of 34. Talent themes include Achiever, Competition, Learner, Strategic, and Relator, among others. As an HR executive, you play an essential role in doubling your company’s employee engagement. Only HR can hardwire strengths-based thinking throughout the organization and ensure that your business hires the right people to be managers. Do your job right, and you’ll save not only your company, but help your country to thrive -- and win the World Cup for $140 trillion in new customers.

A version of this post first appeared in HRM Asia.

Forget Washington -- Cities Will Win or Lose America

Throughout this year’s long election season, I was often asked: “Who will be better for jobs and the economy, President Obama or Governor Romney?” My reply most surely disappointed partisans from both sides: The president of the United States doesn’t make as much difference in terms of creating economic energy as you’d think, according to Gallup data.

In fact, if the president mattered that much, why is it that cities and states have such extreme variation in their local GDP and job growth? Shouldn’t they all go up or down together with each president?

Instead, Austin, Texas, and Nashville, Tenn., are booming, while Albany, N.Y., and Stockton, Calif., are failing. Texas is prospering while California is almost surely going broke. Austin’s jobless rate is around 5%, while the unemployment rate in Stockton is above 13%.

The reality is, when it comes to creating economic growth and good jobs, local leadership trumps national leadership. For instance, Austin and Albany are both capital cities in big American states. Neither city is located by a port or a natural tourist attraction with beaches or mountains. They’re pretty much alike, except that Austin wins big and Albany loses big.

The difference, in my view, is that Austin has deeply caring, highly engaged business, political, and philanthropic leaders with principles, policies, beliefs, and values about human nature that work. They understand how to build a thriving, growing economy -- one that welcomes business and entrepreneurship. Albany has the opposite, as I see it: Leaders with principles, policies, values, and beliefs that discourage business and entrepreneurship, if not outright scaring them away.

Cities across the country with great leadership are filled with booming startup companies, and those cities have thriving economies that create authentic, organically grown good jobs. These cities are saving America, while the others are letting the country down.

Great city leadership has never been so needed. Nationally, business startups are currently growing at under 400,000 annually. If this rate doesn’t double soon, in my view, absolutely nothing will fix our current nightmare of joblessness.

And this just isn’t a problem that Washington can fix, regardless of who is president. Of course good policy for small businesses is better than bad policy, but in my opinion, the estimated 10,000 business, political, and philanthropic leaders of all shapes and sizes who drive the performance of America’s top 100 cities are the most important people in our country right now. Nothing can be more important to these essential American leaders than turning their towns into roaring economic engines that encourage entrepreneurs to thrive. When it comes to building and sustaining economic energy, frankly, they matter more than the president.

The United States is at a critical juncture in its economic history. Whether the country makes a historic comeback or slowly goes broke, it will do so one city at a time.

How America, Inc. Can Rise Again

One way to look at America is as one big company with about 100 million full-time employees and sales (GDP) of about $15 trillion. So that is America, Inc. -- a huge enterprise that competes with the rest of the world for the best customers and the best jobs. When this workplace is juiced and its employees inspired, only good things happen because thrilled employees create more customers worldwide.

The problem is that only about 30 million, or 30%, in America, Inc.’s workforce are engaged. Another 50 million or so, about half, are not engaged -- they’re just showing up. The remaining roughly 20 million, or 20%, are actively disengaged: These are super-negative employees who not only bring their lousy attitudes to work, but wander the halls spreading them around.

Now, just imagine how strong America, Inc. could become if its managers everywhere worked to double the number of engaged employees, from 30 million to 60 million. This would double the productivity of America, Inc. The enterprise would create new customers all around the world. The national economy would not only recover, but boom. Hiring would explode everywhere. America, Inc. would return as a corporate colossus.

But to significantly boost engagement of America, Inc.’s employees, its managers at all levels must understand what’s happening with the 30 million engaged employees that isn’t happening with the remaining 70 million. Simply put, the 30 million probably have great jobs, where the others maybe have good jobs or OK jobs.

What makes a job great? My answer may surprise you. The 30 million aren’t necessarily making more money than the rest. In fact, after $75,000 in annual income, researchers don’t find that happiness increases as income does. Bluntly, it’s not about money.

No, what differentiates a great job from a mere good one is when a worker answers yes to two questions that Gallup has asked of millions of people around the world. The first is: “Is there someone at work who encourages my development?” The second is: “At work, do you have the opportunity to do what you do best every day?” -- or, put another way -- do you get to use your strengths at work daily?

If employers make it so that twice as many employees can answer a strong yes to those two questions, America, Inc. will not only rise up again, but it will re-win the world economy.