Conclusion
in this chapter, i have identified three theoretical differences in characteristics and traits of Main Street entrepreneurs vs. Silicon Valley entrepreneurs in order to explain how these differences may impact the practical application of certain regulations.
The group characteristic differences are as follows: (1) Silicon Valley entrepreneurs have a high-growth and innovation focus and only “stay small” for a very short period of time, whereas Main street entrepreneurial ventures tend to exist for a long period of time as a small business, and they are rarely innovation and growth focused. (2) Silicon Valley tends to exist in the “virtual” space, in terms of their products and often their offices, while Main Street entrepreneurs tend provide more tangible products and services and typically have “storefronts.” (3) Silicon Valley entrepreneurs tend to employ more high-skilled labor and more contractor labor, whereas Main Street entrepreneurs tend to employ more low-skilled labor and do not rely as much on contractors as do the Silicon Valley entrepreneurs.Drawing from these group characteristic differences, there are three main channels by which regulations may impact Main Street and Silicon Valley entrepreneurial ventures in different ways. (1) Regulatory burden: Federal and state regulations on labor may impact Silicon Valley entrepreneurs less because they tend to use more high-skilled labor and contractor labor, which is out of the purview of employment law and labor regulations. (2) Regulatory compliance: The incentives to comply with existing regulations are lower in Silicon Valley startups than in their Main Street counterparts, thus Silicon Valley entrepreneurs may tend to avoid compliance and continue with their business activities, whereas the Main Street small businesses are be impacted by having to comply with various regulations.
(3) Regulatory Entrepreneurship: Silicon Valley startups are engaged in the business of changing regulations and operate despite the industry-specific regulations that may otherwise burden Main Street entrepreneurs.This discussion does not imply that Silicon Valley entrepreneurs are not impacted by regulations. They surely are. There are also regulations that impact Silicon Valley entrepreneurs but not Main Street entrepreneurs. For example, because startup financing relies on investor funds, startups are required to meet a set of Securities and Exchanges Commission (SEC) requirements. Furthermore, there are industry-specific regulations that hamper startup entrepreneurs more because of the industries that they operate in—for example, few Main Street entrepreneurs are in the business of medical technology development, but this is one of the most regulated industries that impacts startups, and one where startups cannot just “fly under the radar” when innovating. This means that Silicon Valley entrepreneurs are greatly impacted by the industry-specific regulations in their abilities to innovate and grow.
Thus, I do not aim to conclude that Silicon Valley entrepreneurial ventures are not impacted by regulations. Instead, I argue that to the extent that Main Street entrepreneurs have been hampered by specific regulations in different ways and with greater burden because of them being mostly “small businesses,” these same regulations may not hinder in the same way a particular type of small business: a small technology startup. I further provide this discussion as way to illustrate that while the impact of regulations may have contributed to a decline in Main Street entrepreneurial ventures in the last few decades, the Silicon Valley entrepreneurs were not impacted in the same way—thus allowing them to continue proliferating amidst this general backdrop. Future research is needed to empirically test this claim. My paper merely outlines the important considerations and mechanisms by which the negative impact of regulations may have a greater “weight” on “Main Street” entrepreneurs than on the “Silicon Valley” entrepreneurs.
Thus, just as the literature on regulation has shown that the negative impact of regulations on small businesses is greater than on larger businesses, this paper provides theoretical insight into how negative impact of regulations may have a greater “weight” on “Main Street” businesses than on the “Silicon Valley” businesses.
Acknowledgements I thank my co-principal investigators Seth Oranburg and Richard Epstein. I also thank Solomon Stein and the participants of the Mercatus Center’s Colloquium on ‘Applied Research in Political Economy’ for their valuable comments. This publication was made possible through the support of a grant from the John Templeton Foundation. The opinions expressed in this publication are those of the author and do not necessarily reflect the views of the John Templeton Foundation.