LinkedIn CEO: Let Our Start-ups Bail Us Out

A great article from Reid Hoffman, founder and CEO of LinkedIn...

Let Our Start-Ups Bail Us Out

By Reid Hoffman

Tuesday, March 3, 2009; Page A13 - Wall Street Journal

President Obama noted last week that "we have lived through an era where, too often, short-term gains were prized over long-term prosperity." As the $787 billion stimulus is sorted out, we should consider not only what's there but also what's missing. Unless lawmakers move to jump-start key elements of sustainable economic growth, we may find ourselves worse off in a few years.

The stimulus finances important development of infrastructure, renewable energy and scientific research, which is great for jobs in the short term but doesn't guarantee the vibrant economic ecosystem required for sustainability. The credit meltdown, the mortgage crisis and the collapse of automakers have created a climate of fear around investment at precisely the time that new ventures -- not merely new technologies -- need to be championed as the course to stability. Products and services drive a healthy economy. To translate the stimulus into sustainable growth, we need incentives for business innovators.

Entrepreneurs are the fertile soil for job growth and recovery. Small companies represent 99.7 percent of all employer firms, Commerce Department data show. They pay nearly 45 percent of U.S. private payroll and have generated 60 to 80 percent of net new jobs annually over the past decade.

Consider a few start-ups from the past century: Microsoft, MTV, CNN, FedEx, Intel, Hewlett-Packard, Burger King. Each opened during a period of economic downturn. Today, these brands employ hundreds of thousands of people worldwide. We need to prepare for the next Burger King. By empowering individuals and small businesses, an innovation stimulus can help germinate stable industry players for the long term.

Venture capitalists are biding their time -- not for want of good ideas, solid management or stable capital but to ensure that they can get the most bang for their buck. Similarly, venture capital firms are waiting for the slide to stop and the recovery to begin before investing.
The government should improve the situation by offering incentives for entrepreneurship and innovation. How to get started?

First, encourage small business with loans. Apply to the United States the micro-lending model that has proved successful in developing countries, extending credit lines of up to $50,000. Help small businesses invest and grow, reimagine their products and services, and assess their strengths. Localized innovation develops the economy from the ground up.

Second, welcome foreign innovators. Harvard research fellow Vivek Wadhwa reports that immigrants have founded more than half of all Silicon Valley start-ups in the past decade. These immigrant-led, American tech companies employed more than 450,000 workers and grossed $52 billion in 2005. For U.S. companies to employ a highly specialized foreign worker, the employee must hold an H-1B visa, but current law allows for the issuing of only 65,000 H-1B visas per year.

The H-1B cap was established to prevent foreigners from taking American jobs, but, in fact, an education gap frequently leaves American candidates less qualified for these positions. Lawmakers could improve the situation all around by removing the cap on H-1B visas while imposing a 10 percent payroll tax above and beyond the benchmark salary for any position being filled by holders of such visas. The proceeds of the payroll tax could be channeled into U.S. reeducation programs. This compromise would bring the best innovators to work here while subsidizing the continued education of American talent.

Finally, match funds for venture capital and angel investments. Venture firms and investors need financial incentives to invest in companies that create U.S. jobs. What if firms with credible histories could receive as much as $100 million in federal matching funds if their investments create jobs in the United States? Investors could keep their normal return plus 50 percent of the returns on the matching funds, while the other half goes back to the government to revitalize further investment. This would give individuals an incentive to double down on investments they would make anyway, but sooner rather than later.

Having invested in more than 60 start-ups since 2000, I know that financing strategy is key in keeping new ventures afloat. For start-ups, the difference between being a dollar profitable or a dollar unprofitable is life or death. Stable financing lets companies develop good product strategies and become self-sustaining -- and that, on the micro level, is what we need to do with the economy.

This is the time for President Obama to take a page from his campaign playbook. Why stop at tapping the grass roots to debate the stimulus? He should seek to fund innovation at the grass-roots level. Obama is familiar with using YouTube and social networks -- products of start-ups and tools of the people. His administration should make it a point not only to avoid propping up failing, overleveraged institutions but to finance new businesses, back promising ventures, welcome the best foreign minds and nurture native talent. By providing incentives to American ingenuity, we can innovate our way out of this recession.

Interview with LogoTournament Founder Tyler Quinn

A month ago I posted a link to a great start-up resource, LogoTournament, a crowd-sourcing site that instantly connects you with hundreds of logo designers. The site allows business owners (you) to post logo projects, set a price, and receive hundreds of entries from logo designers all over the world competing for your business. I’ve used the site twice with great results – 100 unique designs for $250-500 in a matter of days. The best part? The site allows you to interact directly with the designers, giving them feedback on colors and design.

I’ve become so intrigued by the business model and the incredible value the site delivers to the average entrepreneur, that I reached out to LogoTournament founder, Tyler Quinn, to get his story.

Elizabeth: So tell us more about you. Where are you from? What do you do? Is this the first company you’ve started?
Tyler: I’m based in Calgary, Canada and my education is in marketing and management information systems. I have been involved with the web on a professional level for well over a decade now. I consulted as a web developer to help fund my education and world travel. Currently I am a partner in a number of Canadian online niche shops. My first business was a law mowing service when I was 12 years old. I was fortunate enough to grow up around successful entrepreneurs, so I saw at a fairly early age what was possible. I have been involved in multiple internet ventures, some have been successful, some not.

Elizabeth: How did you come up with the idea for LogoTournament?
Tyler: I had seen design contests taking place on various internet forums and freelancing sites. They were only used by tech savvy people and were very cumbersome and unlikely to be used by a mainstream business person. I built LogoTournament with my end clients in mind so any businessperson regardless of marketing of technical would experience success with the site.

Elizabeth: How long did it take you to get the site up and running once you thought of it?
Tyler: I spent way too long trying to decide on a direction, but once that was fleshed out it took about 5 months to get the site launched. It should have only been about 3 months, but I kept adding to the scope of the project which was a mistake. If I could do it all again, I would reduce the scope to bare essentials and cut development time to less than 8 weeks. Then I would start adding features after launch.

Elizabeth: Did you recruit others to help or is this something you’re doing all on your own?
Tyler: Although I have experience programming small web applications, I did enlist an expert programmer. We worked together to develop the site based on my prototypes and specifications. I also employ a part-time infrastructure person who is in charge of server administration and performance. Just recently LogoTournament has hired a customer service person to help out with emails and community management.

Elizabeth: Did you seek venture capital, and if so, what was your experience?
Tyler: I did not seek venture capital, and LogoTournament was self-sustaining within in a matter of months. A couple of VCs have expressed interest in LogoTournament, but that hasn’t gone any further than the conversation level at this point. One of them that I spoke with was fairly famous in certain circles so it was very flattering. Although with the web I think there is a lot of opportunity to build profitable niche companies without really needing much money.

Elizabeth: In starting your company, what were the key resources that you used to help you get started?
Tyler: The key resources have been open source technology like Linux/Apache/MySQL/PHP, economical web hosting platforms, PPC marketing, readily available global talent, and international payment systems like Paypal.

One of my main inspirations is the book “Getting Real” by 37Signals, and is a must read for anyone building an internet business. I am in agreement with their philosophy of building simple, self-serve, easy to use web applications that do not require a big team to build or run.

I also practice GTD (Gettings Things Done by David Allen) which helps me greatly with keeping a lot of balls in the air without going crazy.

Elizabeth: What makes LogoTournament so special? Why are designers using it? Why are customers using it?
Tyler: Other than the obvious dollar factor, I think designers choose LogoTournament for the sense of community, fairness, competition, and recognition. I believe customers are using it because they can get the logo that the really want with 50-250+ choices, instead of settling on a handful that they might receive from a traditional design firm.

Elizabeth: How many countries are represented among your designers/customers? How did you get the word out - and so globally? What marketing/PR tools and techniques have you used?
Tyler: Our design community is represented by designers from almost one hundred different countries. Our customers hail from over 30 different countries and here are some recent examples browsing through the contests page: the US, Canada, France, Germany, Italy, Kuwait, Israel, Poland, Denmark, Lebanon, Greece, United Kingdom, The Netherlands, Sweden, Austria, and the Dominican Republic. Quite a diverse global crowd, which I think is fantastic. I’ve always been fascinated with entrepreneurship, so I always enjoy browsing through our customer base to see what they all do.

I’ve only done some basic Pay-Per-Click marketing to get things started. I’ve really done my best to offer excellent value and service to customers, which is leading to a significant number of repeat and referrals. Most of the growth now is from word of mouth.

Elizabeth: What’s next for LogoTournament and for Tyler Quinn?
Tyler: My primary focus right now is improving LogoTournament every day for both clients and designers, and increasing the site exposure.

Elizabeth: What lessons have you learned?
Tyler: Launch as quickly as possible. Trim down your concept to the bare essentials. Flesh it out, build it, and get it out there to see how people respond. Stop thinking about it and get going. Test it out before you mortgage your house and quit your day job.

Kudos to LogoTournament and all the web resources that make starting up even easier today. You can check out contests going on now and examples of the great design work at http://www.logotournament.com/.