The basic underpinnings of the economic model are such that businesses start off small as a simple idea and, if successful, grow to typically become larger, incorporated businesses that are either private or public in nature with the residual benefit accruing to the owners (not necessarily the founders.) Moreover, at various stages of development when seed or growth capital is needed in excess of a company’s revenue, the option exists to attract capital via the private or public markets (most deals are done in the private markets ). Yet, it is the aforementioned structure in and of itself that can stifle job creation and innovation.
As previously stated, the underlying structure is not always beneficial to founders of a business as the founders 1) Exchange their ownership for money to investors who manage risk; 2) The money from investors is utilized to pay vendors who provide services with little relative upside to the founders because ideologies are not aligned and/or 3) Investors often impose their mandates (whom typically have unrealistic, too many, or competing expectations) onto the founders resulting in lofty forecasts to achieve ROI which then in turn leads to unsustainability. Of note, many VC’s do not earn their cost of capital, relying on unicorns to keep them afloat, while some companies will purchase a company with the sole purpose of mitigating competition. There are also Government Secrecy Orders on patents. Yet, collectively, these factors can hamper innovation.
This is particularly important because businesses are 1) Not only the backbone of any economy but 2) Technically innovations in and of themselves via the emergent properties of markets. While undue focus is placed on large corporations as job creators this is inherently untrue as labor is viewed as an invariable cost in a competitive, global, knowledge, and service-based economy.
More importantly, when there is not any incentive for founders to create businesses due to vendors and/or investors receiving a greater proportion of the economic pie, this bottleneck negatively impacts innovation and business/job creation. The net/net between small business bankruptcies and new small business licenses/creation is, to a degree, the barometer of the limitations that exist within the current structure.