Too Big to Fail
The one concept I have had the biggest problem with in the last year or so of economic downturn is the concept of “Too Big to Fail”. Seriously, what the heck is up with that. As a small business owner and an individual who is always thinking up new business ideas (some serious, most just plain hilarious), I really have a hard time understanding that some businesses are “Too big to fail”.
The beauty of a free market system is that anyone can open their own business. They may succeed or they may fail but there is reward for the risk. Just like in Las Vegas, when you take a larger risk you receive a larger reward. That is the whole reason that entrepreneurs take the risk, because they anticipate a huge reward.
If we did not have businesses taking risk each day we would have no innovation. It is the innovation of businesses that has given us all of the technological advances that we enjoy each day. If nobody was willing to take risk then we would have no new products, no new businesses, and no advances in current business practices.
It seems to me that small business is the backbone of our economy. Small business creates jobs and creates innovation. If you consider all of the mass layoffs by major corporation, you could say that small businesses have created 100% of all job growth in the last two years. Small business is putting people to work and deserves more respect for what it has done to keep the economy rolling.
Now lets talk about those too big to fail. The companies that were declared too big to fail were huge banks and huge auto manufacturers. The banks caused the problem to begin with by taking on unnecessary risk in the form of bad loans. These banks are also guilty of making credit too easy which let some small businesses bite off more than they could chew which ultimately led to their failure. The auto manufacturers are in trouble because they haven’t been making a product that people want to buy. Foreign auto makers are making better quality cars with better gas mileage. The American auto makers would not have had a problem if they had been manufacturing a product that people wanted to buy.
If you declare a company “Too Big to Fail” then there is no reason for them to consider risks and make calculated decisions. The banks can continue making bad loans and over paying executives and the suto makers can make clunkers. They have nothing to lose.
So what does that say to you and me. We need to calculate the risk involved before we get into business and make wise business decisions (until we grow large enough where we can just do whatever we want).
I don’t know about you, but I have decided to be a part of the solution not the problem. Calculating risk and growing a small business is the most rewarding thing you will ever do.