Why Entrepreneurs Cannot Get Businesses Off the Ground

burdensome regulation

Why is it that lawmakers don’t recognize the impact of their burdensome regulation on job creation and hiring?

There’s a lot of talk at the Federal government level here in the United States about government creating jobs.  Of course, anyone who thinks government can create jobs doesn’t really understand how jobs in the private sector are created.

Government cannot create jobs. I should say, government can’t create jobs unless they are civil service jobs.

And in that case, it means the rest of us have to pay more taxes to pay government workers’ salaries.  That leaves less money left over to hire non-government workers. In the end, that merely reduces private sector hiring.

What government can do is make an environment that encourages businesses to do more hiring.  This is typically by lawmakers doing less — not more. Government needs to stay out of the way of businesses unless it’s absolutely necessary. And when regulation is necessary, government needs to streamline the process. This is what it means to be “small business friendly.”

Unfortunately, too often government is the opposite.  In a need to justify their existence and show they are doing something, government tends to get in the way of starting new businesses and the employees they may hire.  Despite good intentions, they hassle small businesses with unnecessary requirements and inefficient processes.

Lawmakers end up passing laws and ordinances that become known as the dreaded “burdensome regulation”.

Local Government is the Biggest Culprit of Burdensome Regulation

Federal is not the biggest culprit when it comes to regulating small business.  No, it’s the state, county and city law bodies.

An increasing trend is state and local governments imposing licensing and testing requirements. Individually none of these may seem burdensome.  Taken together, it’s death by a thousand cuts.

And the worst part is, it’s not easy for a business owner to figure out what requirements apply.  How can you be sure you’re in compliance, if the rules are a mystery?

One example I wrote about: getting a home-based business license.  Despite the size of our company, our headquarters is literally in my home. Everyone works virtually.

One day I discovered I needed to get a business license.  So I dutifully applied.

I didn’t object to the license fee.  It was nominal.

The biggest issues were time and uncertainty:

  • (a) It took research to even figure out I needed a license in the first place.
  • (b) The process to get the license was unnecessarily time consuming.

I had to take a half day out of my week to get this license.  Consequently, I had to make up the time on Saturday.  To civil servants who get a steady paycheck, that impact probably never entered their heads.

Why not allow entrepreneurs to click a couple of buttons online, enter a credit card number, pay our fee, and get on with our lives 15 minutes later? Did the process really need to be so inefficient?

That’s why I say, if you want to encourage entrepreneurs and small businesses that actually do the hiring, Federal is not the biggest culprit.  Look at state and local levels when it comes to burdensome regulation.  Local ballot initiatives, state regulations and city council actions — these are what hit small businesses most.

Regulation Affects More Than Cost and Time

Aside from fees and inefficient processes that suck up your time, there’s a bigger problem with regulation.  In many cases that benign-sounding requirement is actually quite restrictive.  You simply may not be allowed to start or operate your business.

That dream business you have?  Forget it, if you happen to be in an area with heavy regulations and ordinances.

All too often the rules are designed to protect competitors or trade associations. Despite what lawmakers claim, the rules may do more to keep out newcomers than protect the public. Or the regulations tend to be overly broad for no good reason.

To offset this impact, some governments try to show how much they support small businesses by touting grant programs and other help.  What they don’t realize is, business owners may not want that kind of help.  Programs have a temporary limited impact — and usually help only a small number of businesses.  Owners would rather be left alone to focus on longer-lasting ways to strengthen their businesses.

According to a series of reports by the Institute of Justice:

” … one of the principal obstacles to creating new jobs and entrepreneurial activity in cities across the country is the complex maze of regulations cities and states impose on small businesses.  IJ’s “city study” reports are filled with real-world examples of specific restrictions that often make it impossible for entrepreneurs to create jobs for themselves, let alone for others.”

A video from the Institute of Justice gives examples of the maze of burdensome regulation that hinders entrepreneurship and by extension, job creation. Too often regulation is baffling and inexplicable.

Jump over to YouTube and watch the 5-minute video, “Why Chuck Can’t Get His Business Off the Ground”. You’ll see some silly and outrageous examples of burdensome regulation.

Image: screenshot from IJ video


Anita Campbell Anita Campbell is the Founder, CEO and Publisher of Small Business Trends and has been following trends in small businesses since 2003. She is the owner of BizSugar, a social media site for small businesses.

20 Reactions
  1. That is nonsense – regulations are not why businesses don’t get off the ground – certainly not the main reason anyway. This is just a right wing talking point. Any “entrepreneur” who said that would just be making an excuse.

    • John Herschelman

      Rob – what world do you live in? Certainly you do not live in reality, because government regulation discourages start-ups, continuation, and transfers of business. Government regulation does not achieve the intended results, but that does not seem to matter to people on the left like you.

  2. Anita- You “get it”. The Federal government will never create long term employment, but they can hinder it. On the local level, I have heard lots of horror stories, but one Cleveland area business owner, who expanded his company overseas, confided in my that “it was easier to build a plant in China, than put an addition on his current facility here in Ohio.” We have a lot to learn.

    Thanks for the great article.

  3. John Seiffer, Business Advisor

    This is ridiculous. I’m not saying that government regulations aren’t sometimes stupid, obsessive or coutner productive. I’m just saying that the idea that they are the major hindrance to entrepreneurship is just not true. It’s an excuse.

    The hard part is developing something people want to buy and enough demand for it. Anyone smart and dedicated enough to do that can surely figure out how to get through the government regs. I know – I consult with and invest in companies that do this all the time.

    The idea that Chuck could make computers in his garage cheaper than Dell and the companies that product in China?!?!

    Sure our government should be doing things to help guys like Chuck – but not by imagining the balloon regulation in Houston is the problem.

    Chuck’s problem is not regulation – unless you mean the regulation that allows companies over there to pay slave wages, not have healthy working conditions, and pollute the environment. No wonder Chuck can’t compete.

    Oh and the fact that when American companies move jobs overseas, they can get tax benefits for it? That means our government is using our tax money to subsidize those lax conditions. But that’s not what the film was talking about. And the solution would be for government to get more hands-on not less.

    Another thing that I’ve seen which does keep people from leaving their jobs is that their health care is tied to employment. That’s a very big disincentive. No other industrialized country has that situation. Why do we? Because it’s an area where government has NOT gotten involved in the right way.

    I’m all for people like Chuck – but let’s get serious and work on the real problems that hinder entrepreneurship, and not just sling slogans around.

  4. Many of these regulations came out of direct requests of the public. The book store example is due to the bookstore being regulated like a pawn shop. Unregulated pawn shops become simple fencing operations. Street vendors can cause many problems for large cities. I know there is a lot of regulation and some of it redundant, but its part of the price of living in a governed society.

  5. It’s not an entirely American phenomenon. They’ll make you jump through hoops here in the UK too.

  6. Luckily, most entrepreneurs aren’t looking for excuses to fail.

    But there is a position here that needs to be considered — and one that businesspeople lament. That’s why I raise it. The more difficult and expensive you make doing business, the harder it is to create businesses — and more importantly, stay in business profitably.

    Maybe we should stop looking to the Federal government to “create” jobs and instead focus on less government in our backyards.

  7. @Adam, I have no doubt that many regulations are well intentioned. But I remember what a fellow business owner once said, calling to mind the old Paul Simon song: “One man’s ceiling is another man’s floor.”

    When you try to help one group, it can have unintended consequences on another group. I recall to mind the ill-conceived steel tariffs that President Bush put into effect several years ago. They protected steel manufacturers, at the expense of manufacturers and other businesses that use steel.

    I’m not one of those who rails against ALL regulation. On balance, the rule of law helps society AND it helps business. It’s equally difficult to conduct business in a lawless environment — who is going to invest in a business if they are afraid it will go up in smoke because the law isn’t there to protect their interests? But anything can be taken to extremes, and I think we really need to ask ourselves (and our governments) how much regulation is necessary and whether we go too far.

  8. Wow. That video raises some good points to think about, as do you, Anita. I hear the other comments point of view as well, but in my work with local business owners I have heard this lament many times recently. Solid, real businesses or opportunities are squelched by silly regulations.

    Agreed that many biz owners and entrepreneurs can’t be stopped by some barriers, but it can cause them to move or change the idea so that its not as valuable to the community. It’s complicated, I realize, and I hear the point of jobs going overseas, too, but I don’t know if that’s as much by small biz as it is by big biz. Agree on the healthcare point, for sure.

    Removing antiquated or silly laws/regs that penalize or stifle new ventures — those should be fixed.

  9. Many policies are in response to a specific negative experience and the policy becomes scar tissue that affects future businesses. Many of the policies arise from the litigious nature of American culture, where lawsuits determine fault instead of people taking responsibility for their actions.

  10. As much as this post helps me Anita, I am young and from a place whwere you do not find Entrepreneurial people or talk. If you where to share something like how young adults can get their start ups off the ground, i would have loved it. I’ve read and learnt a lot from your articles. Thanks for your support.

  11. The frustrating thing about this issue is that the regulations that are truly an impediment to the small business person (the interior design regulations in D.C. for example) were put in place at the behest of existing businesses. On Monday they lobby the government for unnecessary regulations that work for their self interests and then on Tuesday they join the Chamber Of Commerce so they can whine about excessive government regulations.

    Yes, sometimes well intentioned government regulations go too far and wind up having a negative effect on businesses. But this video sheds no light on the issue. It merely cherry-picked a couple of examples and then misrepresented them in order to get people riled up.

    I use to sell cars in Houston and I can tell you that the balloon regulation was put in place only because the very well heeled automobile dealers wanted it put in place. This is the perfect example of very big business throwing it

  12. @Pat — thanks for your comments.

    However, I don’t see how regulations that limit what can be done as a street vendor or in a home business help big businesses.

    I do think on reflection that I should have titled the article better, to focus on regulations that make it more expensive to do business — rather than focusing on keeping entrepreneurs from going into business. I focused more on tracking the title of the video (which focused on starting a business), when the real issue is costs of operating a business, rather than the decision to go into business. So I agree with those comments that chided me on that point.

    I can tell you that I have run into at least two state-level regulations that raise my costs. So to completely dismiss the regulatory burden concern would be to deny my own first-hand experience (and the money I’ve had to spend).

    And I am also very very upset at the new 1099 rule at the Federal level. So, my sending Office Max a 1099 to tell them I bought $650 in office supplies is somehow going to stop tax fraud? Hardly. All it does it add to my costs and paperwork burden.

    Also, there’s a big issue going on in my community right now about use of large inflatables. It’s driving to distraction a long-time small business car dealer that has supported the local community for years now. While I recognize that there are two sides to every story, in my opinion the inflatables are less offensive to the eye than the huge lighted signs that the big businesses seem to get approved with no problem — the motels, the chain restaurants, etc. Yet, the solo car dealer can’t put his inflatable on the roof — even though he has the full support of the local chamber of commerce. And they’re in the midst of a commercial area, miles from any houses. And lest you think I don’t understand about zoning issues, I do. I’ve been the Chairman of a Zoning Board in a local small city and had to make tough judgment calls. So I understand the competing concerns about avoiding eyesores. I just think common sense ought to prevail, when you’re comparing a temporary inflatable with a glaring 40-ft permanent lighted sign.

    I respect your opinions, Pat, and I’d very glad you shared them — thank you! 🙂 So I don’t mean anything personal. But I feel this regulatory-burden issue cannot be dismissed easily.

    – Anita

  13. While I respect the IJ and agree that there are a lot of stupid regulations out there, the assumption behind this video is that the ONLY (or at least major) reason behind lack of growth in the economy, esp. job growth, is regulation. On its face, that’s kind of absurd. While there is some fear of “regime uncertainty”, I think that’s kind of overblown. The amount of regulation and “anti-business rhetoric” that the GOP and tea party claims Obama has done is WAY overblown. Besides, didn’t George Bush and his Cabinet increase gov’t size and regulations a lot more than THEIR predecessors??

    Yet we had a big housing bubble and booming economy (3 million net jobs notwithstanding) for 5-6 years! Fairly strong GDP growth as well. The regulations didn’t seem to hinder the economic strength then, and we had TREMENDOUS growth in the 1990s under Clinton, who, for all his New Democrat and Third Way cred, was still far from a laissez-faire Republican. I think the whole “regime uncertainty” thing is just an excuse by many tea partiers, GOPers and libertarians because they can’t come up with any better solutions or alternatives.

    Plus, I’m willing to bet that the vast majority of these regulations the IJ is referring to did not happen in the last 2 years. Rather, they accumulated over DECADES of bureaucracy and big government.

    • @Brandon, this article is mostly about regulation at the state and local level, not Federal.

      I for one certainly am not blaming President Obama’s administration for state and local regulatory abuse. I do blame his administration for the 1099 fiasco being included in the healthcare bill, but I also acknowledge that the President’s had the good sense to publicly come out and express disapproval of that provision (which didn’t have a thing to do with healthcare and never should have been tacked onto the bill, anyway).

      The only ones turning this into an election issue/tea party issue/Democrats-vs-Republicans issue are the commenters on this post.

      And I agree with you that these regulations have been creeping up on us for years, maybe decades — far more than the past 2 years. That doesn’t make them any less burdensome.

      – Anita

  14. There are basically four major pieces of federal regulation that the GOP claims (or seems to claim) Obama has sought that are the MAIN OBSTALCES TO GROWTH: cap and trade, new credit card regulations, financial reform, and the healthcare law. Of course, the only case they even have is with the healthcare law. THAT perhaps could raise small business costs substantially, but I’m not an economist or incredible expert on the bill. Financial reform MAY impact small businesses in the financial sector in a massively harmful way, but that remains to be seen. Credit card regulations? Honestly? Growth is hindered because credit card companies are hindered in what rates they can charge and terms they can negotiate?

    And last but not least is cap and trade. Now, cap and trade WILL impose some costs, no doubt, but then again, I’ve also seen and heard of countless studies that show that with all the refunds, credits, etc., a lot of people may end up back in the black. It’s not so black and white. PLUS, there have been plenty of successful cap and trade programs in the past, including the S02 program which was implemented in the early 90s. The whole POINT of cap and trade is to move away from inflexible command-and-control pollution regulations to a more FLEXIBLE system that allows big businesses that can afford to innovate to do so and cut costs and then SELL the permits to smaller businesses that can’t afford to reduce emissions quite so much.

    Plus, cap-and-trade still is not law when it comes to CO2. There’s also the FDA tobacco regulation, but how many tobacco companies are small businesses in this country? Not many, I’d assume.

  15. I feel like there are many in experienced or uneducated people commenting here and I wanted to put in my 2 cents.

    If government regulation truly has ZERO effect on the private sector than answer this question for me, how come America is so great ? If Goverment had 0 influence the wouldn’t every country in the world follow suite?

    The answer is, regulation has absolutely EVERYTHING to do with the success of most business. The more regulation, the lesser the success…that doesn’t mean it isn’t possible, by much much harder.

    I’m Adam Wyson, and I own a successful business.

  16. Sorry about spelling, I posted without proofing 🙁