Author Archives: whmacken2013

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Turning unemployment into self-employment

By Bill MacKenzie

Ronald Reagan once wisecracked, “The nine most terrifying words in the English language are, ‘I’m from the government and I’m here to help.’”

But sometimes, the government gets it right.

Julie Thomas knows that. Thomas recalls with sadness when her beloved black lab, Barney, had cancer. Wanting desperately to ease Barney’s pain, Thomas, an employee at Intel’s Hillsboro site, studied small animal massage and began treating her pet. When Thomas learned she was going to be let go by Intel, she decided to take a risk and change careers to work in canine water therapy.

But how could she get the business off the ground while unemployed? Oregon’s Self Employment Assistance Program (SEAP) came to her rescue.

The regular Unemployment Compensation program requires unemployed workers to be actively seeking work to get benefits. SEAP allows unemployed people to collect allowances equal to their benefits while devoting all their time to starting a business, rather than looking for another job.

The program was created in 1993 after passage of federal legislation championed by then-U.S. Rep. Ron Wyden. SEAP is now active in seven states, including Oregon. In 2012, legislation sponsored by Wyden — now Oregon’s senior U.S. Senator — provided for $35 million in grants to states to improve administration and promotion of the program.

With the economy still struggling, SEAP offers a lifeline to some entrepreneurs.

“It seemed a perfect fit for me,” Thomas said.

Thomas opened her business, Doggie Paddle, in Portland in October 2010.

“I’m not making the money I made working in a corporation,” she said, “but I’m doing something with animals, something of service, something for which I have a passion.”

Thomas is just one of several thousand Oregonians who have taken advantage of SEAP, including 55 now enrolled from Washington County, with seven of those from Hillsboro.

With SEAP support, Dave Crosswhite of Tigard started Oregon Backflow Testing, which tests backflow prevention devices that help to prevent hazardous materials from entering drinking water. He said SEAP was a huge factor.

“It took the pressure off of needing to produce an income right away and allowed me to focus on building the business and not having to job search in order to receive benefits,” he explained.

Glen Wagner and Steve Bauer signed up after they both lost their technology jobs. They decided to start a company called Open Lore in Beaverton that would deliver assisting technology to people having difficulty reading English, primarily those with dyslexia.

“Unfortunately, with multiple kids in college and still relatively young, at least at heart, we did not have the complete means to meet our family obligations and the capital expenses of starting a new technology business,” Wagner said. “With SEAP, we could put our heart and soul into the business.”

But SEAP is not without its weaknesses.

Key SEAP performance data is based only on surveys returned by program participants, but a lot of participants don’t return the surveys. For example, a recent Oregon survey sent out to 356 SEAP participants got only 78 replies — a 22 percent return.

So the state doesn’t know how many people sign up for SEAP, exhaust their benefits and end up with no business and no job. Some of those missing may be in worse shape than when they started.

Another glaring weakness is, success in Oregon hasn’t been determined on the basis of how many SEAP participants start and maintain a successful business. Rather, success has been judged by how well the state promotes SEAP and how much money is distributed to participants. Only government could think that way.

In addition, although SEAP requires that potential participants fill out an application scored to determine the feasibility of their proposed business, there’s no real follow-up. That means no assurance participants will take advantage of the array of support programs available to help grow and sustain a business. Failure may too often be the consequence.

Only about half of all new businesses survive five years or more, and only about one-third survive 10 years or more. To improve their odds, SEAP-related businesses need continuing guidance. After all, although new businesses create new jobs, it’s only when they succeed and expand that real job growth occurs.

Bill MacKenzie is a former congressional staff member, newspaper reporter and communications manager for a Hillsboro company.

Originally published in the Hillsboro Tribune,  Sept. 13, 2013

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Interns ought to be paid

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By Bill MacKenzie

Ahhh, it’s summertime in the city, with baseball, concerts in the park, day camps, outdoor festivals … and unpaid interns.

Eager young interns are plugging away this summer at businesses across Hillsboro, learning about the world of work. Some are being paid, but others are working for free.

The Hillsboro Hops baseball team, for example, has five interns working for them. On game and non-game days they do such things as promotional work, helping with preparations for entertainment during the games, assisting front-office employees and taking ticket orders. Some of the interns are getting college credit for their work.

But none of them are being paid. Not one thin dime. Not one red cent.

Come on now. Legal issues aside, do you really think the Hops, operating in a $15.6 million ballpark subsidized by the city, can’t afford it?

It’s a good thing the Hops and other local businesses are offering internship opportunities to young people, but they are treading on thin ice by not paying them.

Federal law is clear that most interns should be paid at least the minimum wage plus overtime after 40 hours a week. Under the Fair Labor Standards Act(FLSA), covered and non-exempt individuals who are “suffered or permitted” to work must be compensated for the services they perform for an employer. According to the U.S. Department of Labor, internships in the “for-profit” private sector will most often be viewed as employment.

In June, federal District Court Judge William H. Pauley III of New York ruled that Fox Searchlight Pictures broke the law when it didn’t pay production interns working on the movie “Black Swan” because they were essentially regular employees. “Searchlight received the benefits of their unpaid work, which otherwise would have required paid employees,” the judge said.

Pauley said unpaid internships should be permitted only in very limited circumstances. He added that whether an intern is receiving college credit for the work matters little in determining whether an intern should be paid.

Pauley’s ruling isn’t a departure from precedent. There’ve been other cases, too, in which courts have ruled that interns must be paid.

You’d think companies would have learned by now and stopped trying to get free labor from interns, but many persist.

“In some industries, especially media, the unpaid internship is the risk many companies are willing to take,” Ed Reeves, a labor and employment attorney atStoel Rives LLP, told me. “Less so in other businesses. We counsel against that risk, but not every company asks.”

Some businesses that bring on interns without paying them may think it’s enough that they get experience, do some networking and get to hang around the fascinating people who do the “real work.”

But aside from the legal issues, that means students from well-off families can afford to take a career-building unpaid internship, but not the kid from an average family struggling to deal with potentially crippling college loan debt. That perpetuates inequality.

Fortunately, there are local models to copy. All the 259 interns placed so far this year by Beaverton-based Business Education Compact (BEC), are paid, according to Darrin Marks, BEC’s director of student services. There are varying rates based on their education level as well as what the company that places them would like to start them out at. Typical rates are $10 an hour for high school students and $12 to $14 an hour for college students.

Paid internships tend to pay off more for students too. According to the National Association of Colleges & Employers, class of 2013 graduates who had done paid internships outpaced their unpaid peers in job offers and salaries.

Among 2013 graduates who had applied for a job, those who took part in paid internships enjoyed a distinct advantage over their peers who undertook an unpaid experience or who didn’t do an internship.

An association survey showed that 63.1 percent of paid interns received at least one job offer. In comparison, only 37 percent of unpaid interns got an offer; that’s not much better than results for those with no internship — 35.2 percent received at least one job offer.

In terms of starting salary, too, paid interns did significantly better than other job applicants: The median starting salary for new grads with paid internship experience was $51,930 — far outdistancing their counterparts with an unpaid internship ($35,721) or no internship experience ($37,087).

So what should local businesses offering internships do? First, check with an attorney and/or the Oregon Bureau of Labor & Industries for guidance. Then do the right thing: Pay your interns. You’ll both be the better for it.

Bill MacKenzie is a former congressional staff member, newspaper reporter and communications manager for a Hillsboro company.

Originally published in the Hillsboro Tribune,  Aug. 12, 2013

 

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Hillsboro reaches too far with investments

By Bill MacKenzie

When others are playing with bright and shiny things, it can be tempting to bend the rules to join the game.

A case in point — the city of Hillsboro’s decision to succumb to the allure of venture capital investment.

In 2009, some local investors began advocating a city of Portland fund that would make venture capital investments in local startups.

Portland Mayor Sam Adams and the Portland Development Commission(PDC) were enthused by the idea, but the Oregon constitution prohibits cities

and counties from investing directly in for-profit companies. As the saying goes, however, “where there’s a will there’s a way.”

The PDC came up with an end-run — have Portland’s contribution go to a fund created by the non-profit Oregon Entrepreneurs Network (OEN). Then pick a firm to manage the money as the Portland Seed Fund and make OEN a limited partner in the fund. That way, any return on investment in startups would go back to OEN, not the city of Portland. In 2010, Portland announced it would make an initial contribution of $500,000 — later expanded to $700,000 — and a search began for additional donations and investments. One target — the city of Hillsboro.

In January 2011, officials with the Hillsboro’s Economic Development Department brought the concept to the Hillsboro City Council. The fund would provide seed capital to entrepreneurs, they said, helping to fill early funding gaps for new companies and increasing the job creation prospects for startups.

The officials said their department had already budgeted $250,000 for the seed fund, with the money to come from fees generated by the city’s Enterprise Zone program.

Because Hillsboro was subject to the same prohibition on investing in for-profit companies as Portland, Hillsboro would follow the same circuitous route. Its money would go to the Portland Seed Fund and investment decisions would be left to the fund managers.

“The city of Hillsboro is interested in supporting entrepreneurship and business growth in the Portland region and in Hillsboro specifically,” the officials told the city council. “We anticipate that the proposed seed fund will ultimately generate considerable business investment and job creation in Hillsboro.”

The city council approved the seed fund donation without public discussion.

Venture capital has played a major positive role in innovation, but if its intent in this case was the fertilization of some startups in Hillsboro, the results have been dismal. Of the 36 startups receiving money from the seed fund so far, only one was located in Hillsboro.

That company, Good Works Now, Inc., was developing Cloud-based tools for non-profits to modernize how they manage fundraising, boards and online reputation. In late 2012, the company collapsed, and the seed fund wrote off its investment.

Looking forward, there are no guarantees Hillsboro will see any direct benefits from the seed fund. That’s because no investment recipient is obligated to invest in Hillsboro, and there is no guarantee that any startup supported by the fund in the future will do so.

Hillsboro also won’t get a payoff if a startup becomes wildly successful.

A venture capital fund stands to make money by owning equity in the companies it invests in when the companies are sold or go public. But Hillsboro’s $250,000 was a donation, not an investment in the fund.

Other American cities, including New York and Philadelphia, are heading down the same venture capital route, but not to universal acclaim. Critics assert that private venture capital firms will find promising startups without government interference.

“The question is whether it’s justifiable for government to be involved,” Gary Kunkle, founder and CEO of Outlier, a research firm focusing on innovative approaches to nurturing and retaining high-growth companies, told Inc. Magazine recently. “Markets take care of themselves much more efficiently than governments want to give them credit for.”

Portland economist Bill Conerly agrees.

“Portland would do best creating a good business environment for all companies, big or small, startup or established …” he recently told me. “The idea of city money for seed capital is simply corporate welfare done in small pieces.”

In 2009, Brad Jones, an executive of the Redpoint Ventures investment firm, wrote to President Barack Obama’s economic adviser, Lawrence H. Summers, questioning the wisdom of the government’s $535 million loan guarantee to Solyndra, a solar cell manufacturer.

“I can’t imagine it’s a good way for the government to use taxpayer money.” Jones said.

“I relate well to your view that gov. is a crappy v.c.” (venture capital investor),” Summers wrote back.

In 2011, Solyndra went bankrupt.

The Portland Seed Fund is now raising money for a second round of startup investments. The city of Hillsboro should sit this one out.

Bill MacKenzie is a former congressional staff member, newspaper reporter and communications manager for a Hillsboro company.

Originally published in the Hillsboro Tribune,  May 3, 2013