25 September 2009

Fairness in Funding? Tesla vs. Ford and Nissan

CNN Announcement of USG Grant to Tesla Motors

A tweet highlighted this small business predicament.
RT @timoreilly: Tesla gets $465M DOE loan to build "model S" - Ford got $4.9B and Nissan $1.6B under same program.
It's generally accepted that a different set of rules applies for extremely large firms, yet a core tenet of capitalist Herbert Spencer's Survival of the Fittest suggests a different policy. What about firms smaller than Tesla? Shouldn't better ideas receive the larger share of funding?

14 June 2009

Pay More to Get Less Health Care: Rural Small Biz Realities

While much as been written about the financial burden of health benefits for General Motors and Chrysler retirees, less attention has been given to health insurance for small businesses. Howard Berkes' NPR story on the current situation facing many small businesses, especially in rural America, reminds listeners of an April 2009 research finding by the Center for Rural Affairs that being a small business owner or an employee of a small business were the two biggest factors in predicting non-insurance.

For ranchers and farmers, the problem is perhaps worse because they must depend on individual insurance plans (33 percent of them, according to this report). That same study found that 1/3 of this group depend on individual insurance, which is four times the rate for any other group. Further, among those with insurance, high-deductible policies mean that outlays for health costs -- taking premiums and out of pocket costs together -- are also high for agriculture's small business community. And while this story did not deal with health care access or quality, the number of available practitioners and facilities is also lower in rural areas. It could be said that rural America is paying more to get less health care.

The NPR story is accompanied by an excellent fast-facts table. Perhaps the most significant fact suggests that problem is a larger one than most people think. Fully 25 percent of the U.S. population is defined as rural.

10 June 2009

Head Count as Value Metric: IBM's Understated Impact

IBM Watson Portal in 2015
The value of a company can be measured in several ways. Market capitalization is one, but that metric often misses the economic impact of a firm. As General Motors and Chrysler enter bankruptcy reorganizations, shedding thousands of jobs in the process, some comment that in other sectors, U.S. industry remains strong. This may be true when market cap is considered, but the head count for Google vs. General Motors shows the weakness in a metric that only looks are market value. Even after the BK, GM is expected by some to keep 23,000 salaried workers, where as Google today only has 20,000 employees. As Pingdom (May 2009) noted, at 400,000 workers, "IBM has more employees than Microsoft, Intel, Dell, Cisco, Apple, Amazon and Google all put together."

Contrast this with profit per head count, which says little about a firm's indirect contribution to employment, or to the societies where those workers spend, raise children and diffuse IBM's corporate culture into local customs and practices. Consider the possible impact that IBM's current game-based Tivoli promotion might have in places where games may be seen as a leisure time activity for decadent Western teens.

17 May 2009

Size Matters: Inefficiencies of Scale

NPR Analysis about Foreclosure Rates in 2009
As discussed in the context of U.S. mortgage loan servicers, bigger firms proved less able to adapt to the new way of operating after the collapse of credit markets and inflated real estate values.

In one analysis of inefficiencies of scale in physician practices, it was shown that efficiencies of scope are possible, but efficiencies of scale did not result.

Scale efficiencies should be contrasted with scale elasticity.

Investopedia refers to scale inefficiencies as "Diseconomies of Scale," clarified in a Wikipedia entry.

Inefficiencies of scale affect government, IT, media -- all shapes and sizes of organizations. Supply chain considerations may drive size up, but quality objectives may at times exert an opposite effect.

14 January 2009

What about TARPs for small business?

Marketplace Story (2009)
Today's Marketplace radio report on an SBA program originally intended to help disadvantaged and woman-owned small businesses highlights the need to look beyond Citibank and AIG. The small business engine is sputtering too, but it's not getting the attention it deserves.

The SBA's Office of Advocacy (as reported by about.com) stated in 2005 that:
Small businesses are job creators. Office of Advocacy funded data and research shows that small businesses represent 99.7 percent of all firms, they create more than half of the private non-farm gross domestic product, and they create 60 to 80 percent of the net new jobs. In 2004, there were an estimated 23,974,500 businesses in the U.S. Of the 5,683,700 firms with employees, 5,666,600 were small firms.
Loans provided to small businesses arguably have a faster track to the real economy. TARP funds have been used for banks to acquire other banks, to prop up pension funds, to increase reserves against future losses, and to pay attorneys to develop plans that never come to fruition. Loans to big business potentially affect more employees and indirectly a broad network of suppliers and communities, but huge sums lend to large firms represent a small number of huge bets.
A similar analysis was provided by an AllBusiness.com story that appeared around the time of this post.