Good Thing Lots of Star CEOs Choose to Work Rather than Play

Just finished reading the first 66 pages of “Onward: How Starbucks Fought for It’s Life without Losing It’s Soul”, by Starbucks founder and CEO Howard Schultz, which I recently picked up during a rare visit to Starbucks (a non-coffee-drinker, I). As an entrepreneur trying to break out of the little leagues and into the minor leagues (the major leagues are a far-off dream), I figured plopping down $25 for the book couldn’t hurt. I’m always open to helpful insights on how folks built their business.

And one thing I’ve definitely picked up as a struggling entrepreneur is newfound respect, nay awe, for anyone who’s started a business and made it into the major – and even minor – leagues. Believe me, those guys and gals are smart (in their field – not always in other fields).

People, especially politicians who always talk about jobs job jobs, take entrepreneurs and business people for granted. It’s as if they consider jobs an entitlement – something that just should be there for everyone, with benefits. But they have no idea about the work, smarts, risk, sweat, emotional hardship, financial hardship, worry, and liability exposure that just goes into creating a single job.

To create a job, the business owner has to make sure the company is generating enough revenue in order to pay that employee. Finding a product to enable you to do that is extremely challenging. You have to: ensure that the employee pays for him or herself — i.e. generates enough additional revenue to pay him or her the straight salary or wage; pay the Social Security and Medicare taxes, pay the benefits, and pay yourself (the owner) a little something – because if you’re paying the employee more than you’re generating in revenue, then that defeats the whole purpose of going into business. You’re losing money, which isn’t sustainable unless you’re confident that there will be a payoff down the road.

So the politicians depend on all of these entrepreneurs to take all of these risks in starting a business and hiring employees in order to fulfill their demand for jobs jobs jobs, but at the same time they overburden the entrepreneur with taxes and fees and regulations and paperwork and fines and disincentives and, very often, vilification – especially when the entrepreneur makes it into the major leagues and becomes a millionaire.

For a better idea of how tough it is to run a business, see this recent WSJ article about running a restaurant. As the last line of the article states, “That’s also why we admire successful restaurateurs so much.”

That’s why I admire people like Starbucks founder Howard Schultz so much. Talk about the difficulty of hiring just one employee – this guy has hired tens of thousands of them! All I can say is: genius.

In reading his book, one thing about him really stands out. Here’s a guy who could have retired a zillionaire a decade or two ago, to live a life of whatever – travel, writing books, starting nonprofits, public speaking, kicking back on the beach. But no. His passion and concern for his enterprise is so overwhelming that he continues to run the day-to-day operations of it. He writes about stepping down as CEO some years ago in order to run the international operations of the business, and then getting so concerned about the direction of the company that he re-took the reins as CEO. That’s no Sunday school picnic. Do you realize how hard it must be to manage tens, hundreds, thousands of people? It’s tough enough to manage one employee! And the emotional impact it must have on you – to have to fire, lay off, promote, demote, pass over. And all the other things and constituencies in running a big business. It would be hard for anyone not to lose sleep over things like that. “…I felt paralyzed,” he writes. “I couldn’t eat breakfast. I could barely enjoy my family. I could barely move.” This is coming from a guy who could have been done with all of that years ago to enjoy a life of leisure! But instead he chooses to solder on.

Now that’s dedication. It’s people like that who make America and the world great.

Many if not most of our great companies consist of people who get rich and could retire millionaires but instead keep working to make their companies greater – to the benefit of society. (I.e., jobs and products and services that sustain the population, without which we’d all be in poverty, for you corporation-haters who may be reading this.) Who knows – maybe that’s what makes them happy and they couldn’t imagine doing anything else. Maybe for all of the emotional lows, their are as many emotional highs. Maybe they thrive on interaction with, and direction of, all of the people involved in a large organization.

Actually that definitely is true. I recall reading about an entrepreneur who retired a millionaire at about age 30 to live a life of leisure, but couldn’t handle it – his life went downhill from there. So he knew he had to get back into the action, and started a new business. So for lots of folks it’s in their blood.

And of course, there are heads of state and other political leaders who more often than not choose to stay in office and hold onto their power rather than step down. So maybe that’s another motivating factor prompting CEOs to hold onto their jobs – the love of power over thousands of employees and shareholders. After all, Kissinger did say that power is the ultimate aphrodisiac.

As for me, if I ever made it big, I have to admit that I’d be inclined to quit and do something else, like write books. Actually that was my whole reason for going into business in the first place – to start it up and then put it on autopilot while I focus on other things. But someone forgot to tell me that my plane doesn’t come equipped with autopilot. That’s probably what most entrepreneurs come to find out.

Decidedly Unhealthy for Entrepreneurship

(A previous version of this article appeared in The Christian Science Monitor.)

Small business creation is probably the single best thing for the economy. Most jobs come from small businesses. And nearly every big business started out that way, when someone decided to take the plunge and become self-employed. But now, a lot less business creation goes on than could be going on. The culprit? The government subsidy (via the tax code) for employer-provided health insurance.

And President Obama has no plans to change that. In fact, if he gets his way on health care redesign, he’d exacerbate it.

Lots of people decide not to become self-employed because it would mean losing their employer-provided health insurance. Although I know of no studies that estimate the extent to which this happens, anecdotal evidence indicates that it is very common.

And it is totally unacceptable. Traditional barriers to starting a business include taxes and regulations. But health insurance? People should not have to pay more for this when starting a business, just as they do not have to pay more for their car insurance, groceries, or any number of other personal expenses when starting a business.

The problem stems from the bizarre tradition of getting health insurance through one’s employer, thanks (or rather, no thanks) to a quirk in the tax code. Just as people do not get their car insurance through their employer, they should not have to get their health insurance through their employer. Sure, they can try to buy it on their own, but that would mean paying anywhere from a couple hundred to a couple thousand dollars a month. The institution of employer-provided health insurance has practically destroyed the market for individual health insurance.

Because employers are the main purchasers of health insurance, the marketplace is a lot less competitive than would otherwise be the case. By contrast, if everyone had to buy health insurance on their own, health care providers and insurance companies would be forced to compete much more aggressively based on price and quality. A diversity of plans would sprout up tailored to a diversity of individual needs. Many people, for example, would opt for high deductibles and pay out-of-pocket for smaller expenses.

Right now, health care providers are not so incentivized to charge lower prices because they know that patients’ insurance companies will pick up the tab, even for check-ups and other minor procedures. (This is like your car insurance paying for oil changes.) If, on the other hand, there were a large population of out-of-pocket-paying people shopping around based on price and quality, the price of health care would plummet.

The market for veterinary care provides a valuable insight. Columnist James Freeman, writing in a few years ago, points out that the same surgeries performed on humans can be performed on our canine friends for about one-tenth the price. This is mainly because veterinary care providers are forced to aggressively compete for cost-conscious customers. Were the same to happen with human health care, prices probably would not be as low as those of veterinary care, but they still would fall considerably.

So if everyone obtained their health insurance directly rather than through employers, not only would health care be a lot less expensive, but it would play no role in a would-be entrepreneur’s decision to quit a regular job in order to start a business.

The peculiar institution of employer-provided health insurance stems from – what else? – government intervention in the marketplace. During World War II, when government-imposed wage and price controls prevented salaries from being raised, employers started to offer health insurance to attract workers. Politicians and IRS officials then instituted a generous tax break for it. It is essentially a disguised government subsidy favoring employers and employees, at the expense of the self-employed, the non-employed, and those who work for companies that do not offer health insurance. (Note: A subsidy is when a certain group of people gets a government handout paid for by higher taxes on everyone else. A tax break is another way to do the same thing. Taxes on everyone else have to be higher in order to make up for the government’s lost revenue.)

To help correct the wildly distorted health insurance market and achieve a level playing field for the employed, the self-employed, and the non-employed alike, the tax break for employer-provided health insurance should be abolished. Or as a second-best remedy, there should be an equivalent tax break for individuals when buying health insurance.

Incredibly, President Obama and the Left would further burden businesses by requiring them to pay a new payroll tax if they don’t already provide health insurance. They want to start a huge new government program to try to correct the ill effects of another government program, and would only make things a lot worse.

You’d think that if they’re going to socialize healthcare, they at least could decouple it from employment.

A far better solution is to eliminate that original government program – i.e., the tax subsidy. Then, businesses would get out of the business of providing health insurance to their employees (and spend the savings on higher salaries), people would shop around for it on their own, health care prices would plummet, more people would opt for self-employment, and a lot more businesses would be created.

Patrick Chisholm is editor of PolicyDynamics.