TechStars represents the most social justice I’ve seen in my lifetime on the question of whether the U.S. is a meritocracy. Granted it’s extremely competitive and the bulk of the startup funds are debt terms. However, hear me out.
TechStars is a startup accelerator in Boulder, Colorado (and now other cities around the world). If you’re accepted they give you up to $120,000 in seed capital ($100k of that is convertible debt) to start your business, coach you on how to pitch to other investors by the end, and most importantly rigorously try to prepare you to be successful in your business. They connect you with mentors and an ecosystem of entrepreneurs trying/failing/succeeding just like you.
I feel you cannot get enough lift bootstrapping it alone. My friend who was the largest chocolate distributor in North America until he sold his company said to me once: “When I was a young man I wanted 100% ownership. Now I’d much rather be sitting at the table with very bright minds and own a smaller piece of a bigger pie.”
So last year I explored the Small Business Administration. They offer loans for small businesses. On the surface this seems like great access to capital, except that you have to personally guarantee the loan. That means if your business fails you lose your house. And while they give some lip service to preparation and training, mostly it’s business plan writing courses. It is 1/1000th of the fierce reality TechStars is putting on the table. Mentoring requires so much more than learning to write a business plan: networking, hiring, fiercely guarding cash, working quickly, grooming yourself to be a leader.
The whole point of separating corporate entities from private individuals in the US is that if a corporate entity fails one can close it down. If you then also get wiped out personally you can suffer irreparable harm depending on your age. That’s why the IRS watches closely any commingling of business and personal funds; you pierce the veil of corporate protection by doing so. Given the SBA themselves tells you something like 80% of restaurants fail, for example, one has to question how personally-guaranteed-loans by the middle and lower classes is good for society. It just seems like a transferring of wealth to me, in the wrong direction, from the weak to the strong. It’s an unintended consequence of the harsh reality.
In the Venture Capital world, on the other hand, you sign Term Sheets, that yes, repay the investors first upon a sale of the business. And yes, there are some predatory VCs. However if you choose carefully the investors have some real skin in the game too. If you fail, they fail with you. You close the corporate entity, they lose money. That portion of the portfolio was non-producing and the Fund Managers get paid to make money. Since they don’t want you to fail, a mentor is put on your board. You get mentoring. They beat the heck out of you to consider your shortcomings and risks. They pick carefully and they pick few, sharing the risk with those who can afford some risk. To me this is more just than handing out loans to small businesses that are likely to fail, much like the housing mortgage bubble.
In March of 2014 I went to Cuba with a group from the Museum of Contemporary Art Denver. On the plane there I was reading a German book and was moved by this one line:
“In the US the focus is on equality of opportunities while in Cuba the focus is on equality of outcomes.”
I reflected on that so much. Indeed my observation was that the Cuban Revolution has achieved equality of outcomes. The tour guide and the brain surgeon make the same amount of money. However that’s also created a situation that one senior historian there kept calling “absurdo” (absurd) because no one wants to study the difficult careers if they will make the same or less than others. Today, in reality, our tour guide operator was making $2,000 a month compared to my cousin’s friend who is a retired engineer making $12/month. The fact is society needs surgeons and we compensate differently because it’s damn hard work.
As I was there I thought about my high school years. I was in the top few in my class of about 450. I had nearly perfect SAT scores (1560/1600). I had a 4.4 GPA on a scale of 4. I volunteered hundreds of hours around town at a homeless shelter, in a facility for developmentally disabled adults, a single parent childcare facility. I busted my butt. And I remember one of my peers said to me: “you’re so lucky, you’ll definitely get a scholarship because you’re a minority.”
I felt so mad at that statement. If I got a scholarship I wanted it to be based on merit. Indeed I did get merit-based scholarships.
What I understood more profoundly, though, was that OPPORTUNITY without PREPARATION is no opportunity at all. In fact it’s a formula for failure and feeling like a loser the rest of your life. If you get accepted because you’re a minority but aren’t prepared for the situation into which you’re thrust (emotionally, mentally, academically) you will suffer greatly. Perhaps you’ll even suffer twice as much as the person who didn’t have the chance because you feel the burden of being one of the few. I was preparing myself.
TechStars is the first model I’ve seen that actively tries to form you, to PREPARE YOU, for the difficult road ahead. I’ve been going to their “8 Weeks of Awesome” series and it’s been very formative even without applying to the program. It’s the most profoundly “right” model I’ve seen in my lifetime.
In the end, if I had to say what I concluded on my Cuban visit, I would say that neither Equality of Outcomes (Cuba) nor Equality of Opportunity (US) is the right answer.
OPPORTUNITY + PREPARATION is the answer.