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Jan. 15, 2021 - Epoch Times
22:22
Inside California’s Constrictive Entrepreneurship Environment | Serial Entrepreneur Mark Bowles
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How's the environment now for entrepreneurs in California?
More taxes, more laws, more labor laws, just more general impedance on building a company and hiring people and firing people and getting things done.
Tell me about the regulation side.
I think there's this underlying assumption that businesses are bad, we'll just tax them and it'll come out of their hide and it doesn't work that way.
It doesn't work that way, and it gets passed on.
It just makes it harder.
More impedance, more barnacles on the hall.
Why do you think this perception exists?
As soon as you have a modicum of success, and there's money to be had if you get sued, contingency attorneys come out of the woodwork and will take any employee and then tell them to just sue for discrimination.
So the government officials need to be worried about the fact that you guys are not starting companies.
Yeah, I mean, a lot of people are leaving California, right?
It's still a great place.
Like I said, the ecosystem that's built up around it, and it's still flourishing.
But where it's flourishing, it's also being strangled a little bit.
And I think that that balance has to be found.
And, you know, people just leave.
California is home to one of the largest economies in the world.
This is in part due to its flourishing entrepreneurship environment.
The startup ecosystem is robust with a large number of young entrepreneurs funding and needed resources.
However, the regulatory environment discourages successful entrepreneurs from starting new companies.
My guest today is Mark Bowles.
He has founded seven startups, including EcoATM.
Today we will discuss how California's well-intended regulatory environment is constricting entrepreneurship.
Welcome to California Insider.
Thank you.
Nice to be here.
We want to talk to you about entrepreneurship in California.
You've been an entrepreneur for 25 years, right?
Yeah, at least, yeah.
And how's the environment now for entrepreneurs in California?
Well, that's a complicated question, but in general, there's two parts that I'll juxtapose.
One is, when I first started my first startup venture-backed in Silicon Valley, I've done seven or eight venture-backed startups.
I've done more than that.
I just didn't get funded on some of them, and so we won't talk about those, but eight that got off the ground and I've either exited or still going.
So eight companies in 25 years?
Yeah.
Wow.
That got funding.
Yeah, and about $300 million in venture capital raised through 25 or so rounds for those companies.
So I've done a lot of it and left some big smoking holes in the ground and had some nice successes.
It's a numbers game.
You just have to go back and try again if you fail.
So in the mid-90s when I started my first startup when I was in Silicon Valley, I was there for about 17 years.
The whole ecosystem for entrepreneurship and entrepreneurs was you and the VCs.
There was a couple of angel groups, the band of angels, and a couple of networking groups.
But really it was just this thing that...
And I would guess there was hundreds of venture-backed startups there at that time.
I would guess now there's thousands.
There's now dozens and dozens of networking groups and incubators and accelerators.
And there's this massive ecosystem and business plan competitions and mentorship.
And so it's now this ubiquitous thing.
Somewhere around, I don't know, 2000 or so, A little bit after that, it became really vogue to be a rock star entrepreneur.
It came into pop culture, and so everybody wanted to do it, right?
Particularly around 2007, 2008, when that downturn happened, all these kids getting out of school, Lean Startup book comes out, the...
Bark Zuckerberg is, you know, this cut, dropout, making all those things.
So everybody wanted to be a rock star entrepreneur.
And then all of these ecosystems sort of flourished around it.
And so it's really been great.
It's a much easier on-ramp now to become an entrepreneur wherever you're coming from to do that.
And that part of it is awesome.
I would say that the other part of it that's been the opposite direction is the government, you know, stuff.
You know, more taxes, more laws, more labor laws, just more general impedance.
On building a company and hiring people and firing people and getting things done.
And so one's worked really well and the other one sort of worked against it.
And it's easier to build a hall and launch a company.
On the other side of it, there's just barnacles they put on in the beginning to make it harder to make that thing launch and go.
So this ecosystem, is it spread out geographically?
Is it across the state?
Yeah, I mean, I think Silicon Valley, I would say this.
I'm in San Diego.
I live in San Diego.
I've been there for 17 years and started three or four companies there.
And so San Diego now, I think, today has more startups, venture backed and more incubators, accelerators and ecosystem than Silicon Valley had.
15 years ago.
And LA's got even more.
And you can find this ecosystem growing in even small towns and cities in California and across the country.
So it's become this pop culture thing.
And a lot of people got into it that shouldn't because it's a really harsh life.
If you're doing a startup, you really have to run really fast and work really hard and inspire a bunch of other people or you're not going to be successful here.
And does it cost a lot less to start now because of the tools?
Yeah.
So, yes.
You know, a startup in the mid-90s, you had to develop everything from scratch, right?
There was not many things you could buy off the shelf, accounting software for a startup or a CRM or, you know, things that just are not...
Core to your business, your innovation is something, some value proposition, product or service you're making for customers, but you also have to spend 90% of your time just building the infrastructure to run a startup around you and doing all that stuff.
And so now there's just tons of resources and applications and software packages and 3PL, third-party logistics and all sorts of stuff you can hire.
That aren't your peripheral, you know, they're peripheral to your core, you know, value proposition.
So now you can focus much easier.
And software development, there's so many platforms.
I mean, you can, you know, you can build stuff very quickly and very cheaply where, you know, back in the day it was not that way.
But then again, on the other side, there's more impedance from, you know, I think on the regulation side, taxes.
Tell me about the regulation side.
Well, there's a lot of stuff there.
I mean, I think there's this underlying assumption that's creeped into every part of government regulation that has this assumption that Capitalism is sort of bad.
Capitalists are bad.
Employees need to be protected, which they do.
And, you know, labor laws and so forth, where it's skewed with the assumption that employers are bad and employees need to be protected.
You know, a few examples, I guess, and we're looking at a few in this election that's happening today.
Prop 15.
Prop 15, I think, is a terrible idea.
And it just has this assumption that, you know, businesses are bad.
We'll just tax them and it'll come out of their hide.
And it doesn't work that way.
It doesn't work that way.
And it gets passed on.
It just makes it harder, more impedance, more barnacles on the whole, you know, to launch a business.
Why do you think this perception exists?
I don't know.
I think it's the small guy.
It comes from, I think, a noble place, but it gets exaggerated.
I've hired thousands of employees in the companies I've started in California.
We've created jobs.
We've done environmental stuff, cleaned up We've created lots of wealth.
Half of it ends up backing taxes into the coffers of the state and the federal government.
And I can't help still feeling like the system...
And nobody wants to hear the successful entrepreneur, wealthy guy complain about taxes or about the system that he's benefited from so much.
But it's...
It is true.
You feel sort of maligned.
You're always the bad guy.
What makes you feel that way?
Has there been cases?
Getting sued over and over by frivolous labor law.
There's giant holes in our labor law stuff.
It leans so far to the employee that it's hard to fire without getting sued.
I've been sued by people who I didn't show up to work very much for six months and morning after morning.
I'm white, a white guy, you know, a birthday within a year of mine, and I get sued for gender and age discrimination.
From another white guy that's here?
Yeah, yeah, yeah.
This has happened multiple times.
Everybody knows it's frivolous, it's nonsense, but you can't throw that stuff out.
Another huge hole is, as soon as you have a modicum of success, and there's some money to be had if you get sued, contingency attorneys come out of the woodwork and will take any employee.
Even a same age, same gender, same race person and tell them to sue for discrimination, right?
But one of the other huge holes that they exploit, and I've been hit with this a few times, is A verbal contract in California, even if you've written a written agreement, a verbal contract supersedes it.
So, and all you have to do is claim it was me and the other person, and he told me, you know, he was going to pay me for life at $250,000 a year, and he was going to invest all my options, and And he just told me in the copy room one day.
And so in the eyes of California labor law, that verbal contract supersedes the written agreement, which this particular person actually wrote his own agreement, his words, and signed it.
And doesn't want to honor that, you know.
And then that actually has to go in California.
Can't be dismissed, summarily dismissed by the judge because he doesn't believe.
It has to go to a jury trial.
And a jury trial for that kind of stuff can cost you a million plus in California.
So the whole idea is it leaves this giant hole where I can go torture the company with a fallacious claim and get them to settle for something less than the million or plus that's going to cost them.
And they want you to settle, right?
Get a few hundred grand.
And that just snowballs.
You end up with more of it.
And again, Those laws are generally well-meaning, but it's just the pendulum is so far over that it makes it...
I've spent Probably 20% of my time, my last couple of years at my company I started, that I was just sitting in depositions and looking through every email at thousands of emails that I'd written or received over years and trying to defend ourselves from a frivolous lawsuit, multiple ones at a time.
And it's no fun.
You're trying to run this business and create jobs.
And you've got a couple of employees who are, this system allows them to just torture you for no reason.
Does that make you not want to start any more companies?
Yeah, it's no fun.
I like building products and services and things that people want and will willingly separate their hard-earned money for.
I don't like sitting in depositions or going through emails from four years ago and doing 20% of my time that way.
I'm not building value for anybody.
I'm being tortured for no reason, right?
And I have a lot of friends, entrepreneurs who just won't do it anymore.
And it's a shame because it's that perpetual, how you get this perpetual engine to recycle capital and to get more people involved in it and to build things that the world needs, noble things that are good products.
You need people with experience that have made the mistakes like I have amid plenty.
But now I'm actually finally pretty good at this, but I will not start another one, at least not in California.
I'm getting older, but I also, I just don't like the inherent unfairness in the abuse that happens in so many different ways.
Labor laws, the taxes.
Let me tell you a story.
One of these employees, we speculate it was one of them, but we're sitting in our office.
We had 13, 14 people at the time.
It was probably 2011.
And...
This person from the EDD, California EDD, walks in and says, I want to see the CEO. And the CEO wasn't there.
And so, you know, we didn't have an admin.
It was one of the software engineers, you know, noticed somebody at the door and walked up and said...
And she said, well, I'm from the California EDD, you know, Labor Commission, whatever it is.
I need to see the CEO right now.
And so, well, the CFO is here.
So she came, you know...
Walked back to see if the CFO was available, and the lady followed, without permission, just followed, and walked into his office.
I'm going to need to take a couple hours.
I'm going to have to see the files on all the employees.
I'm going to have to interview employees separate from you.
Like Gestapo, I don't even think this is legal, right?
How do you get to just walk in and demand this?
So my CFO complied.
Pulled out the files of employees and started showing.
And the first thing she said was, who's Insperity?
Insperity, if you don't know, is the second largest employer in California behind the government.
And they are an outsourced payroll company.
They pay...
Almost everybody uses them to do payroll and outsource to HR. And here's a person...
Disrupting our day.
Doesn't know.
Who thinks it's some kind of sweatshop.
We were all engineers.
These people are making $100,000 to $175,000 a year.
And we've got food.
And she goes around and interviews me like, are you getting breaks?
How often do you get to take a break?
And they're totally confused, right?
But she's looking at the file and then says, who's in sparity?
And why are you guys paying through them?
This doesn't seem right.
And we looked at it like, Insperity is the second largest employer in color.
I don't believe that.
Doesn't know this, and we're getting interrogated by this person.
And then so we pull it up on the internet and spare it.
Well, I'm going to have to go back and check that out, you know, whatever.
And so we're from the government.
We're here to help, right?
This is the kind of harassment that we withstood.
And then she leaves.
Everybody's confused.
Of course, we're not a sweatshop.
Nobody, no engineers work for sweatshops.
Anyway, so it was just so mind-boggling and, you know, But that's the kind of abuse, right?
What is the value that entrepreneurs like you and people in your community provide when you start a company?
I started a company called EcoATM.
It's still running.
We sold it.
And I left about five years ago.
It collects used mobile phones and pays cash for it on the spot, like an ATM. It uses machine vision and so forth to tell what the phone is and what the price is and offer you a price and it pumps out cash and it dumps it inside.
That company has created 5,000 man years plus of jobs and still counting and growing.
It has collected 25 million phones, more than that by now, and recycled them.
It's paid out over a billion dollars to people who are recycling their phones as an incentive.
It's a big stimulus package going back and it's basically converting what would have been toxic waste otherwise going into our landfills, converting it into cash in people's hands, and then using those things to get reused by people who need them.
I think it's a pretty noble thing.
And it's also created all these jobs and wealth.
We sold it for $350 million.
And a bunch of employees made money.
All the investors made money.
And then the government made a bunch of money because most of us had to pay half of it back in taxes.
Some of my earnings were taxed at 53.5%.
So there was no loser in this.
Everybody's a winner.
But the whole time I was being tortured.
The story I just told you was at that company.
And there's just so much impedance at every level.
And then they get half when it exits.
So we create jobs.
We create wealth.
We create products that the world needs.
We help clean up the planet.
Not every enterprise is, you know, completely noble that way, but for the most part, most of the vast majority are noble things that, you know, nobody will work for an enterprise that doesn't, you know, do the right thing, or not many.
So, yeah, it's the engine that creates jobs and wealth and products, services that the world needs.
And now, what do you recommend to the state to keep entrepreneurs like you make companies like EcoATM and other companies?
I don't know, reverse the trajectory of the barnacles that they put on the hull to create drag.
And don't assume that, you know, at every angle that the employers are bad.
Yeah, there's bad employers out there, but the vast majority are...
I think they should change the...
I'm not exactly sure how to do that, but they certainly shouldn't leave a hole where it's so easy to torture a company and try to get two, three, four hundred grand just to go away.
So the lawyers being able to just sue on a success base...
Yeah, and I thought about that question a lot, how you would actually fix that.
And I don't have a specific suggestion, but it is clearly, clearly broken.
And it makes me not want to go start another company.
A bunch of entrepreneurs I know that it's just gotten to a point where it's...
It's not worth the heartache to do that, or the risk.
So the government officials need to be worried about the fact that you guys are not starting companies.
Yeah, I mean, a lot of people are leaving California, right?
That's in the news, right?
It's still a great place, and it's still a great, like I said, the ecosystem that's built up around it, and it's still flourishing.
But it's more delicate than I think people think, this entrepreneur thing.
It doesn't flourish in a lot of parts of the world, even in a lot of parts of the US. But where it's flourishing...
It's also being strangled a little bit.
And I think that that balance has to be found.
And, you know, people just leave.
And I think that's what's happening.
And I think in one way, the diaspora of, you know, Silicon Valley is now sort of spread out and COVID has helped.
And, you know, people can work remote and more and more of it's software.
So you don't have to be crowded in a building area.
But it's being dispersed and more democratized, and I think that's a good thing.
But the overlay of the federal and the California stuff on entrepreneurship, I think, on entrepreneurs is getting stiffer and stiffer, and it makes it less and less interesting.
And there's not like a...
A black and white line is just a degrading curve that's going to discourage more and more people out.
And then if you do too much of it, that flywheel, that recycling of knowledge and mentorship and capital, it leaves the state.
It goes somewhere else.
And so I think that they need to be careful.
I think there's a tipping point that's already starting to happen, right?
Do you have any other remarks?
No, I think that covers the general thesis.
I love California.
I started many businesses here.
I've had great success.
But I worry about the future of that and the things that are being done that create more impedance and more disruptions and more reason to just not Go back and do it again.
And I'm a perfect example of that.
And I think there's more.
I know there's more.
And they're leaving the state.
Well, thank you, Mark.
Yeah, you're welcome.
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