That’s speculative. What drives a company out of business can seldom be determined, because many factors contribute to such a situation.
Well, you can determine it by asking the owner(s). :-)
Ken Langone has been very clear, when asked, that he does not believe that he and his partners could have built Home Depot under today’s regulatory environment. Others have said the same. I know it’s common practice on the American Left to believe that any businessperson who says that regulation is putting them out of business is lying, but I don’t think it’s a particularly wise strategy to do so.
But, of course there are many variables in a business failure equation. The failed businessperson, however, generally can cut through the crap for you and tell you what THEIR particular issue was.
But the most important factor to consider here is competition. A new regulation hits EVERYBODY at the same time. Sure, it raises the costs of doing business — but it does so for every business.
Mmmmm……it raises the cost of business for everyone, but doesn’t always do so as a percentage of revenue. The cost of complying with a particular regulation might be a significant percentage of revenue for a small business, while the cost for the larger competitor might be a rounding error on their much larger revenue line.
Keep in mind what a bootstrapping entrepreneur is trying to do: in general, they’re trying to get a business off the ground AND provide his family food and shelter. Their business plan might have them on Easy Street in a dozen years, but for that first year or two, they’re working 24x7 for less money than they used to make in pursuit of their goals. They are VERY sensitive to anything which depresses their first-couple-of-years income, which is why the ACA (and the fact that it banned the high deductible health care plans that were popular with small business owners and entrepreneurs) flipped a lot of those business plans on their heads.
The established competitor just accepts a temporary decrease in retained earnings, knowing they can recover their profit margins later by swizzling things like raises, fringe benefits, and other types of shenanigans on his wage/salary/compensation line.
I am not the first one to notice that the cost of regulation hits small business — and thus depresses entrepreneurship — much harder than it does the larger competitor. It’s been noted many times (cynically) that the larger businesses sometimes welcome regulation, knowing that it depresses their smaller (and potentially more innovative) competitors.
It goes without saying that if we’re depressing entrepeneurship and small business development, we’re cutting our own throats into the future.
This has been noted, btw, as one of the reasons why Europe has comparatively low levels of entrepreneurship compared to the US. So, yea, I am extremely sensitive to some of our new politicians who want to recreate european problems here in the US.
A rational business owner would simply raise prices to cover the additional costs, knowing that competitors will be forced to do the same.
Assuming you have the pricing power to do so. Again, an untested small business without a reputation or partners is much less likely to have that pricing power than the larger competitor. If I’m Pepsico, I just raise prices on potato chips a dime a bag; if I’m Joe’s All Natural Kettle Cooked Millennial Potato Chip Company trying to find shelf space so I can carve out a fraction of Lay’s market share……not so much pricing power.
The big guys have economies of scale on their side. Not present on the small side, in many/most cases.
All in all, I don’t think that the economic case against government regulations can be supported with evidence.
Well, I’ve given you five cited articles and two professional research papers that provide plenty, both anecdotal (Langone et al) and statistical.
Enjoy. :-)
