State Policymakers

Dedicate a small percentage of current funding to new entrepreneurs and young businesses, and track the impact.

5% of Government Contracts:
Redirect 5% of government procurement dollars to businesses under 5 years old.

• Government contracting is increasingly biased against new entrants. State-level data is rare, but federal data shows that the number of small businesses entering the federal procurement marketplace as new entrants declined by 79% from 2005 to 2019.

• Research suggests that government procurement practices – particularly basing decisions on past performance – may hinder new businesses.

• Ways to lower barriers for entrepreneurs include: faster approvals and certifications, faster payment terms, lower costs of entry, broader outreach marketing, prioritizing innovation as a selection factor, measuring past performance based on other customers, giving a pricing advantage, establishing set-asides, and/or providing concierge services.

• Policymakers can give new entrepreneurs direct assistance to navigate procurement bureaucracy and get paid faster, such as in Washington, DC or with private financing vendors like Now.

• States can create a Small Business Procurement Scorecard, similar to what the Small Business Administration does at the federal level but also including the tracking of businesses under 5 years old by age.

5% of Workforce Development:
Redirect 5% of workforce training funding into helping Americans start businesses through local and online entrepreneurial support organizations.

• The Workforce Innovation and Opportunity Act (WIOA) of 2014 made “microenterprise and entrepreneurial training and support programs” allowable activities, but insufficient metrics and incentives have resulted in little uptake. Some of the few early innovators in this space include Make Startups (Georgia), City Startup Lab REEP program (North Carolina), and the Wisconsin Division of Vocational Rehabilitation. Workforce boards should allocate at least 5% of their WIOA funds to train and support people starting and growing their own businesses.

• Local organizations that deliver strong support programming for entrepreneurs (through mentoring, networking, training, educating, incubating, and investing) include past Kauffman Foundation grantees nationwide, here and here.

5% of Economic Development: Redirect 5% of economic development funding to bottom-up efforts that build entrepreneurial ecosystems.

• Traditional economic development incentives do not lead to desired jobs and growth. They are often focused on attracting larger companies, rather than growing new businesses.

• Existing economic development programs, including Community Development Block Grants, can incorporate new practices for building entrepreneurial ecosystems from Startup Champions Network, SourceLink, Kauffman Foundation Ecosystem Building Playbook, and the International Economic Development Council.

• Rural entrepreneurial economies can learn from resources such as e2 Entrepreneurial Ecosystems, Rural Rise, and Center on Rural Innovation.

“Entrepreneurship Czar”: Designate a lead coordinator on policies affecting entrepreneurs across the entire government. Serves as official liaison to voice the concerns and needs of entrepreneurs throughout government and facilitate the removal of barriers.

• Track data on new business creation and growth and the lowering of barriers for entrepreneurs. Governments are generally poor at measuring entrepreneurial activity.

One-Stop Shop: Provide a single “customer service desk” for entrepreneurs to navigate government red tape.

• An array of state agencies intersect with and influence the entrepreneurial process in ways that are often opaque to entrepreneurs. Entrepreneurs need a single place to go.

• One-stop shops can help entrepreneurs overcome the complexity of navigating bureaucracy, avoid delays in opening a business, and create a more supportive environment for new business creation.

• Pennsylvania launched a one-stop shop for young businesses.

Entrepreneurial Support: Work with stakeholders, communities, and entrepreneur support organizations to provide information, support, and access to entrepreneurs.

Reduce or eliminate registration costs and fees for new businesses in their crucial early years.

The average cost to start a business in the U.S. is $725, according to the most recent measure. That's far more than Canada ($166), UK ($17), China ($137), Denmark ($110), Chile ($16), Ireland ($86), S. Korea ($46), Brazil ($212).

Reduce or eliminate occupational licensing burdens and permits for businesses, including home-based ones.

Over the past 60 years, the percentage of the workforce subject to licensing requirements has risen from 4-5% to over 25%, as the economy shifted from manufacturing to services.

States across the country have acted to rollback unnecessary occupational licenses and reduce the burden of remaining licenses. Florida repealed or reformed more than 30 licenses in 2020, and Idaho exempted hair braiders from the state’s cosmetology laws in 2022, for example.

More than a dozen states now recognize licenses earned in another state. Universal license recognition improves labor mobility and removes barriers to starting a business when moving across state lines.

All states have “cottage food” laws that allow entrepreneurs to sell food made in their home kitchens, but many restrictions still burden small-scale food makers. A report by the Institute for Justice grades and ranks nearly 70 different homemade food programs in all states.

Montana, North Dakota, Oklahoma, Utah, and Wyoming have enacted “food freedom” laws to allow residents to sell almost any homemade food without a license or permit.

Reduce tax hassles by allowing businesses to defer state income tax deadlines and/or skip filing income taxes for a year if net income is below $5,000.

A 2021 NFIB survey found that 91% of small business owners use a tax professional to prepare and submit their taxes. Small business owners said “compliance” and “complexity” were the top two reasons for using a tax professional.

Tax preparation fees can exceed $900 for a business, which can comprise a significant percentage of net income for new businesses.

Provide relief for young businesses in their crucial first 5 years.

Reducing tax burden helps emerging businesses keep more of their hard-earned money to reinvest in growing and creating jobs.

Unleash entrepreneurs who want to create new jobs by freeing them from unfair bans and noncompete restrictions.

About 1 out of 5 Americans is held back by noncompete agreements, especially younger workers.

More than a dozen state attorneys general support reforming noncompete agreements.

Numerous states have enacted new laws to ban or limit the impact of noncompete agreements by prohibiting them for workers earning less than a certain amount (see Illinois or Oregon, for example) and requiring employers to disclose the requirement that a worker sign a noncompete (see Maine, for example).

Research from EIG on the impact of noncompetes on firm creation, mobility, and wages. Guidance from EIG for state policymakers.

Research from AEI on how noncompete reform can benefit workers and boost economic dynamism.

Clarify the impact of new laws and regulations on young businesses starting and growing in their critical first 5 years.

Studies have found regulations disproportionately burden new and small businesses. One study, for example, found that regulations reduce the number of small and medium-size businesses but are associated with an increase in the number of large businesses.

Entrepreneurs and aspiring entrepreneurs identify regulations and legal issues as substantial challenges.

Support transparent disclosure of online loan terms. Reform “confession of judgment” laws.

1 out of 5 small businesses borrow online.

78% of small business owners agree high interest, high fee products are a problem. 8 in 10 small business owners are in favor of regulating online lenders to ensure clear disclosure and reduce predatory lending.

California and New York have enacted laws to apply the same protections to small business lending as currently apply to consumer lending.

Provide portable healthcare benefits for workers in transition who want to start new businesses.

Prior to the Affordable Care Act (ACA), self-employed workers were twice as likely to be uninsured, and those with employer health insurance were 2.5 to 3.9% less likely to create a new business. The ACA has led to a 3% to 4% increase in self-employment.

Among those who have seriously considered entrepreneurship but ultimately decided against starting a new business, 20% cited the need for health care coverage as a reason.

States can upgrade unemployment insurance systems to provide portable benefits for workers in transition, along the lines of a federal proposal.

Create Entrepreneurial Capital Catalyst Grants to invest in starting and restarting businesses underserved by the capital marketplace.

The revamped State Small Business Credit Initiative (SSBCI) makes $10B available to states to help meet the capital needs of new businesses. Resources on best practices for states to design funds are available at Cromwell Schmisseur.

Over 4 out of 5 entrepreneurs don’t access venture capital or banking when starting a business, so they need alternative capital mechanisms.

Funds using innovative investment models – such as revenue-based investing or profit-sharing – can reach more underserved entrepreneurs. Examples include Collab Capital (Atlanta), 1863 Fund (D.C.), Founders First (San Diego), Novel Growth Partners (Kansas City), Calm Company, Lighter Capital (Seattle), Capacity Capital (Tennessee), MainVest (online), LocalStake (online), and StreetShares (online).

Nonprofit evergreen funding models that invest in new enterprises and recycle funds continuously include Fountain Innovation Fund (Kansas City), MassVentures (Massachusetts), JumpStart Evergreen Fund (Ohio), and Vested for Growth (New Hampshire).

Nonprofit lenders can sell loan portfolios to commercial banks, thereby freeing up money to invest into more entrepreneurs. Examples include the Entrepreneur Backed Assets Fund, inspired by the work of Revolve Capital with success in places like Minnesota.

Funds that invest in catalyzing new fund formation can generate amplified impact. Examples include the Capital Access Lab (Kauffman Foundation), Renaissance Venture Capital (Michigan), Yozma Fund (Israel), and Multilateral Investment Fund (Latin America).

Offer Self-Employment Assistance programs to help displaced workers use unemployment benefits to start their own businesses.

The North American Free Trade Agreement Implementation Act of 1993 (P.L. 103-182) created the Self-Employment Assistance program, which allows qualified unemployed workers to create their own jobs by starting new businesses.

State participation is voluntary and only a handful of states have taken advantage of this program.

Well-designed programs generate higher benefits than costs.