Too Small to Succeed?

Three common fallacies in American business in general and in Colorado’s economy in particular are: (A) most jobs are in small business, (B) most new jobs will be in small business, and, (C) we need to support small business as a key to renewed economic success. Within this set of assumptions are several fundamental errors, some of which are embedded in the field of economics, and the rest of which are part of modern American economic folklore.

To begin with, most small businesses are single proprietorships, including many consultants, real estate brokers, truck drivers, cab drivers, farmers and ranchers. This group is reinforced with armies of accountants, attorneys, therapists and multi-level marketing personnel swelling the cohorts of small business enterprises, but not contributing to the economy in substantive productivity gains and unable to supply new jobs with meaningful benefits. Unfortunately, these jobs are all in the service sector; they cannot significantly add to their current level of productivity, and as sole proprietorships, they are unlikely to add employees.

Nevertheless, the myth persists of small business as a major engine of our economy. Why? Small business appeals to our pioneer spirit. From the solo mountain trapper and the cow poke on the cattle drive, to the inventor tinkering in his garage, we see ourselves as a collection of independent spirits, each one boldly striking off into new territory in energetic creative efforts. This mythology conveniently forget the thousands of combined hands that it has taken to build mills, mines, railroads, highways and farms. We like the first version of the story much better, but what we are missing here is the understanding is that in order for a small business to have a meaningful impact on the economy, it needs to grow into a large business, adding to it’s efficiency and performance and it’s payroll.

Small businesses that remain small are not going to make any of this happen. Service businesses are frequently unable to grow and create the excess value needed for long term economic growth. There are of course examples of services businesses that are growing, but they have done so by outsourcing jobs to India, the Philippines and elsewhere; hardly a formula for long-term job growth in the United States. As a rule of thumb, if a sole proprietor is billing on an hourly basis, they cannot contribute to productivity increases; they can only increase their billing rate – or add to their billable hours, generally on a temporary basis.

Further, small businesses are unable to afford the health care, 401k plans and other benefits that are generally within the capabilities of larger businesses. Without sufficient profits and efficiency for providing these benefits, Colorado’s reliance on ‘small business’ brings a hollow benefit to the state with employment, but without benefits. Absent the jobs with benefits, these workers are left on their own to find benefits from the public sector or on their own, or to do without them.


Large business development requires a big business attitude, beginning with an environment that attracts investment capital and knowledgeable investors. This will not happen as long as we deceive ourselves into believing that Colorado has a sufficiently effective business approach. At the moment, Colorado is generally twelfth out of 50 states in attracting venture capital; according to the latest Price Waterhouse survey, at the end of the 3rd quarter of last year, Colorado had attracted just 1% of all the new venture capital expended in the entire United States.

In order for job growth and productivity to converge, Colorado needs to make renewed efforts to increase manufacturing and simultaneously increase investment attraction and management. Manufacturing is a clear source of increased productivity; investment infrastructure is the critical tool for propagating that productivity. None of this critical investment will be drawn to Colorado as long as the state has an approach that fails to recognize the need for large business.

Colorado is mired in the small business mythology, and it is time to get real, and to get serious, about what constitutes an effective business for the state. It is not a non-profit, and it is not small business. It is big business; sophisticated, complex, and competent large business firms.

Colorado Demographics - From 5 to 7.3 million - in 20 years

Economists love crunching numbers, so it seemed like a good time to get a few out there for discussion. The implications for Denver and for the State of Colorado could fill a few books, so in this post I’m just putting up the numbers and references from the DOLA fact sheet. The demographic statistics contained here are conveniently available from the Colorado State Demography Office at: http://www.dola.state.co.us/dlg/demog/components.html

In future posts I will refer back to these numbers and URLs as a shorthand reference for discussion purposes.

The population of Colorado was estimated to have reached 5 million in June of 2008. Colorado’s population has been growing at 2% per year since 2005 which translates to between 92-95,000 new residents each year. Colorado’s recent growth is the result approximately 40,000 in natural increase (births minus deaths) and 55,000 in net migration. Growth in the state varies dramatically by county with some counties growing as fast as 5.9% per year and other counties losing population.

Denver, Colorado’s most populated county, was estimated to have a population of 593,000 in July of 2007. The seven county (Adams, Arapahoe, Boulder, Broomfield, Denver, Douglas and Jefferson) metropolitan area population is estimated at 2.7 million and is home to 55% of Colorado’s population. Denver and the metro area have been growing around 2% per year since 2005. However, Douglas County in the southern metro area is Colorado’s fastest growing county reaching annual average growth rates above 6% since
the mid 1990s. www.dola.state.co.us/dlg/demog/pop_colo_estimates.html

Colorado is forecast to grow to 6.2 million by 2020 and 7.3 million by 2030 (see forecasts www.dola.state.co.us/dlg/demog/pop_colo_forecasts.html) This translates to an annual average growth rate of 2.0 through 2010 slowing slightly to 1.9 percent per year through 2020 and then 1.5 percent per year through 2030.

The Western Slope continues to be the fastest growing region in the state with expected annual growth rates averaging 2.8% between 2005 and 2010. This is compared to the 1.9% growth rate expected statewide. The North Front Range and Central Mountains are also expected to have above average growth rates, while the Eastern Plains and San Luis Valley are expected to continue growing at rates near 1% (similar to the Nation).

Denver County is forecast to grow to 606,000 by 2010 and 660,000 by 2020, an annual average rate of approximately .9% which is slower than the state rate. The entire Denver Metropolitan area is forecast to grow to 2.8 million by 2010 and 3.3 million by 2020, an annual average growth rate of 1.6%, slightly lower than the growth rate expected statewide.

The largest single factor affecting the demographic trends in Colorado is the aging of the “Baby Boomers” (those born between 1946 and 1964)
Between 2000 and 2010, Colorado’s population 55 – 64 will grow at 5.9% per year vs. 3.9% for this U.S. age group, and 1.8% for Colorado total population, increasing by over 75% from 342,000 in 2000 to 607,000 in 2010.

Between 2000 and 2030 the population over 65 is forecast to triple from 400,000 to 1.2 million.