Capital-less Capitalism

Capital – noun – wealth in the form of money or other assets owned by a person or organization or available or contributed for a particular purpose such as starting a company or investing.

As a business and IT consultant I advise and assist companies with their expansion plans during their transition from a start-up to an enterprise size company.  It’s a difficult process because shortcuts taken during the start-up phase to get to market and start turning a profit quickly often have to be corrected in order to support enterprise level operations and services.  I try to accomplish this as inexpensively as possible without a large infusion of capital so the founders do not have to dilute their share of the company by taking on additional investors or take on a large amount of debt.  The goal is to maintain a budget that can be supported by the existing profit margin and expand incrementally as the increase in profit margins permit.  But this obviously limits what we can do and how quickly the expansion plans can be accomplished.

Recently I had two different conversations with small business entrepreneurs where we discussed their struggles to launch and expand their businesses.  They launched with little to no capital and it took years to build the business enough for them to be self-supporting and sustaining.  But it was still difficult to generate enough capital to expand at anything but a snails pace.  Also the smallest setback could cost them dearly and setback the growth in their business by years if not shut it down completely.  Taking on additional debt for expansion is tough in the current environment of tight credit for small businesses despite their proven track records.  They are were hesitant to do so anyway as the interest payments would eat into their already thin margins and the credit-worthy price for default has become much more punitive and ruinous.  These are proven entrepreneurs that are being held back from a much-needed expanded contribution to our currently sluggish economic growth.

There is not an issue with a lack of capital in the market.  The issue seems to be a lack of access to the capital on what the capital-less would describe as favorable or even reasonable terms.  The increasing concentration of capital in the hands of a decreasing percentage of the population seems to be causing a serious bottleneck in the flow of capital which is essential for greasing the wheels of capitalism.  The more monopolistic the concentration of capital becomes the more unfavorable the terms for the transfer of capital become.  This is not an issue of the 1% vs. the 99% and stagnant wages holding back growth in consumer spending, although they exist on similar supply and demand principles.  This is an issue of the 1% vs. the 2% vs. the 5% vs. the 10%.  It’s a serious problem that’s affecting the top quintile of the population who drive small to mid-size business creation and expansion in first-world economies.

When I was developing my consulting skills during the dot-com boom there was no shortage of capital on incredibly favorable terms that can only be described as “Please take my money”.  The presence of easy money contributed to reckless spending and a high burn rate, and many investors were left holding a a tattered and empty bag when it all fell apart.  These are the lessons I noted and why I am cautious and prudent with the limited capital my clients have at their disposable.  But my clients always want to accomplish more than their profit based budgets will allow.  These are proven entrepreneurs who, by refusing to accept capital infusions on unfavorable terms, are demonstrating their prudence and business acumen.  The capital owners have plenty of places to park their money and earn minor returns but those who could use the capital have proven they can get by without it.  This standoff hasn’t seized up the engine of capitalism but it’s not running as smoothly as it could be.