On this week’s episode of Inside Outside Innovation, we sit down with Seth Levine and Elizabeth Macbride, authors of the new book, The New Builders: Face to Face with the True Future of Business. We talk about the current and future state of entrepreneurship and hear some stories about new builders making an impact in their local communities.
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Interview Transcript with Seth Levine and Elizabeth Macbride, Authors of The New Builders
Brian Ardinger: Welcome to another episode of Inside Outside Innovation. I’m your host, Brian Ardinger. And as always, we have some amazing guests. Today, we have Seth Levine and Elizabeth Macbride, authors of the new book, The New Builders: Face to Face with the True Future of Business. Welcome to the show.
Elizabeth Macbride: Thank you very much.
Brian Ardinger: I’m excited to have you on. Let me start out with a little background and bios for our audience. Among other things, Seth, you are the co-founder of the venture capital firm Foundry Group and Pledge 1%, which is a global network of companies that have pledged equity and time and product back to local communities.
And Elizabeth, you are an award-winning business journalist, and founder of Times of Entrepreneurship, which is a new publication covering entrepreneurs beyond Silicon Valley, which is a topic near and dear to our heart. So welcome to the show. The first question I want to start with is what’s the current state of entrepreneurship and what led you to write this book?
Elizabeth Macbride: So, the current state of entrepreneurship in the United States is not nearly as good as people think it is. We concluded after our two years of working on the book, that entrepreneurship in the US is in this, in a state of profound decline. It’s been declining over the past 40 years for a whole host of reasons. And I know we’ll get into that some more.
But I’ll just answer the question as well about how we came to write the book, which is that I’m the original, like overlooked, not the original one, but an overlooked founder myself. Right. So I got a divorce seven years ago and had to reinvent my career pretty fast as a business journalist to feed my two kids.
In doing that, I ended up founding this publication times of entrepreneurship. And along that journey met Seth, who has, a side specialty to being a venture capitalist, which is really supporting overlooked entrepreneurs. And so, we bonded over that and decided to write a book two years ago. That’s how it came about.
Seth Levine: Brian, I guess I’d add to that. We knew that there were really interesting stories, right? You tell many of them on your podcast of people building businesses that were for starters outside of Silicon Valley, and the big tech hubs. But also, really interesting businesses, but that weren’t necessarily these sort of high growth tech focused businesses.
And we wanted to tell their stories. Frankly, we thought it’d be kind of a lighthearted book. Interesting look at some founders that maybe were a little bit different than what people think of when they think of founders. But as we did all the research, we realized for starters, what Elizabeth just described, which is that entrepreneurship in the US is actually dying.
And then we also learned that the types of people that are starting new businesses are very different than those people realize. Specifically, that the majority of new business owners are black, brown, female, and also quite a bit older than most people realize. And that, we realized as we came across these data, that these stories really need to be told.
That it sort of went from a lighthearted, Hey, this will be fun. And we’ll tell some interesting stories of people doing things out of the mainstream media eye. To, oh wow, there are some critical stories that we need to be telling here because we have a window here to change the trajectory of entrepreneurship in the us, and we’d act on it.
Brian Ardinger: You know, and I think that’s one of the things that we obviously talk about, you know, Tech Crunch and you hear the stories of the unicorns and things along those lines. And obviously that’s important and that. But can you define, like, what is entrepreneurship to you? It’s not just the tech giants that we’re hearing about. How do you define a new builder? And what’s the difference that you saw out there?
Elizabeth Macbride: The way entrepreneurship traditionally has been defined is broader than the way it’s currently defined. And so, when we looked at it and really, there’s no reason why we should think of entrepreneurship as only the tech founders of Silicon Valley. They’re part of the universe. They’re not really the center of the universe. And definitely not the entire universe right. They’re maybe 1% of all businesses in the US get venture capital funding.
So, the fact that we’re so consumed by that is sort of crazy. Because the other 99% are in fact, the drivers of a lot of jobs, they’re actually drivers of innovation, we would argue as well. And they support and are part of our communities in just a host of important, different ways. And as the economy transitions, I think they’re going to be even more important. So we define entrepreneurs as a very fundamental basic thing, right. They’re people starting businesses.
Seth Levine: And that’s always been the case in the US. And really, if you look back, I mean, certainly the US was founded by entrepreneurs. I mean, in some cases, quite literally, right? The Massachusetts Bay Companies, you know, all of these initial settlers that came over were essentially entrepreneurs, right? Who are in business ventures to go and settle new land and send raw goods and other materials back to Europe?
And still, we have this long history of entrepreneurship and something changed in the last maybe 30 years or so, where the concept of entrepreneurship, use to be very broadly defined a shopkeeper is an entrepreneur, a local business owner was an entrepreneur.
It got eaten up by the tech narrative, right? And this idea that the only entrepreneurs that were worth talking about were technology, business founders, and frankly, the only businesses that were worth talking about in the entrepreneurship context are businesses that are, have this aspiration for growth. Right?
You referenced unicorns. And we think that that’s incredibly dangerous to the overall dinosaur and frankly just the health of the US economy, because it really only describes such a small number of businesses. And frankly, and I say this from inside the world of venture capital, I’m not convinced that venture is a very good model for creating.
Certainly, it’s not a good model for creating broad-based economic development. Right. I mean, we know it can create some really big companies. And by the way, those companies are incredibly important. And other businesses end up being built on those companies. So Shopify or Google, like those are incredible innovations that help other small businesses, but it’s just, it’s not the only thing. And I think we’ve sort of lost sight of that.
So it’s, we don’t argue in the book that, you know, that big is bad, for example, and small is good. We argue that there should be a balance just like we don’t argue that venture capital should go away or anything crazy like that venture is great.
But we talk about needing to create not just unicorns, but camels. So much more party actually real and not mythical, you know, animals that, you know, businesses that are sustainable and, and, you know, really are the drivers of our economy.
Brian Ardinger: So you mentioned in the book, the research and that, around entrepreneurship and that it’s going down and there’s challenges around that. What is hindering the rise of new builders?
Elizabeth Macbride: There’s a lot, that’s hindering a rise of new builders. You know, what we focused on in the book is really finance and that’s the world that Seth and I both come from. So, we felt like we had a lot to say about it. And it’s probably, I think it’s deeply woven with the question of networks, but right, businesses need capital to grow. They just do.
Like, we’ve also gotten consumed by this myth that what you need is grit, or perseverance in that, yes, that’s all true. But we found so much grit and so much perseverance in the new builders that we interviewed. What they were missing was access to capital. And that is happening for a whole bunch of reasons.
But maybe the clearest thing to say is that our system of community banking is really broken down. And I think that’s the most direct tie. The other kind of pervasive issue is that the new builders reflect the increasing diversity of our country. So, they’re women and people of color, immigrants, as they always have been, and older people. And they’re really disconnected from the networks that also lead to that access to capital
Brian Ardinger: In the book, you talk about something that resonates. The idea of a ghost startup or these companies that will never come to be because of the lack of access to capital and things like that. Can you talk and explain a little bit more about that topic and the impact of that?
Seth Levine: Hard for us to understand sometimes as Americans. Or really it’s just humans, the thing that doesn’t exist, right. We can look at the company that’s true and see it was successful or it failed. Right. But what we struggle with is understanding businesses that just never got off the ground. And there’s actually been some research that has studied this.
And it sounds so simplistic. But it’s not right. I mean, Elizabeth describes capital is a key asset for starting businesses. And there have been some studies that looked at businesses that had more or less access to capital. And what they found is that there was no real difference in the innate qualities, right? The talent, the grit, those things that, that will make someone successful for people who had access to capital. And who didn’t have access to capital in their businesses.
But of course, there was a huge gap in terms of the success of those businesses. Companies that have access to capital, are more likely to be successful. And I think that’s something that we really need to address. And then Elizabeth talked about 1% of businesses receiving money from formalized institutional capital, like venture, which surprises most people.
I think most people in our world think that it’s a much larger, I mean, it’s a big dollar amount, but it’s a small number of companies. Which just goes to show you just how many more mainstream companies are actually being started out there. But only about 17% of businesses take money from banks.
And so Elizabeth talked about a community banking system. We clearly need to bolster that system and increase the 17%. But we also need to recognize that a large number of businesses never take any formalized capital. They raise money from friends, family, you know, aunts, uncles, or they use a home equity line.
And what’s happening is that unfortunately people who don’t have access to capital and don’t have wealth built up over generations are struggling to start businesses. And this is diametrically opposed now to the people who are starting businesses, because the wealth gap in the United States, as many listeners may realize is 10 X between, the average white family, the average black family. That’s true across every income level. That’s true across every educational level as well.
And the wealth gap as well for people from Hispanic origin is not quite as bad, but it’s seven to one. So, at the same time that we’re really relying on people’s own capital sources to get them going, we’re also the type of person who starting a business is shifting to the group of people that are less likely to have those personal capital resources.
We need to address that. And we talk about in the book about a number of ways that we might, adapt, change, augment, help, better support our existing systems of finance to do a better job of supporting these new builders.
Brian Ardinger: Are you seeing particular communities or particular areas of the US doing better when it comes to this fostering, this new builder?
Elizabeth Macbride: That’s a good and interesting question, actually. So, we did focus in the book on one particular community. We just ended up telling some woven stories about Stanton, Virginia. Which in a holistic way, I think did a ton to rejuvenate their community by entrepreneurship. So they started a community loan fund. They have an angel network for that is like wealthy people in the community investing small sums in companies aren’t necessarily tech businesses, but it could be like a pie company or whatever.
They have both of those things going on. And then there’s like, just a bunch of other community support. There’s a maker-space there that I went down and visited. And it turned itself around that way. Right. On the foundation of some revitalization efforts that started in the eighties where some visionary business leaders downtown said, Whoa, we are not going to like destroy our historic downtown. Instead, we’re going to, push really hard to preserve it. And on that foundation, the community was really able to rebuild itself economically.
And its population is rising, which is kind of like the most basic measure, of community’s health. Right. And actually, like super inspiring things during the pandemic. I mean, it ended up, of course it was suffering along with small, with communities everywhere, where small businesses were hurt so badly. And it also had a terrible flood in August that had like a storm cell just park over it and dump like eight inches.
So enormous amount of rain washed out the downtown. You know, there were like cars floating around and as we reported it, we wrote about it for CNBC as well. And it’s in the book as well. The community really came together. And there were people like digging out mud from storefronts to get their small businesses back up and running. It’s inspiring what is happening in communities across the country that are pulling together.
Seth Levine: So that’s a story that sort of a physical, like a geographic community coming together. And it’s a really good example of one. They took a long-term view. Lots of people got involved. There was a lot of buy-in.
And, you know, a lot of what, like my partner, Brad Feld wrote the book, Startup Communities, a lot of what Brad and Ian his coauthor talk about in Startup Communities, I think was true in Stanton, but the other types of communities that we talk about a lot in the book are these sort of communities of like-minded people, right? And especially in this day and age, those don’t need to be bounded by geography.
Certainly the book is a hopeful book, Brian, and we talk about ways in which we believe that entrepreneurship can be revitalized. But we talk about some of these communities systibiz in Denver or Ohub or digital and divided. EforAll we talk a ton about them. That, you know, these are all various communities of people that come together to help support new builder businesses.
Some of them are place-based E for all works in certain locations. We talk about some of those, cause we, one of the entrepreneurs we highlight went through their program in Lawrence, Massachusetts. Others are a little bit more virtual, right? Where they might help people all over the place or bring people in together.
But Silicon Valley has always been great at that. Right. And you know, there’s so many stories of, I mean, how many accelerators are there in the world? Right? The Foundry, my venture firm, my day job, is the biggest investor in Techstars, which is one of the larger ones.
And that’s a great model, but how do we bring that. The network and the help that comes from being surrounded by a community of people that want to see you be successful? How do we bring that to new builders? And I think one of the things that we learned that scared us is that many people starting businesses feel like they’re out on an Island and they’re alone and they don’t have resources to help them out.
And that’s why the community banking system that Elizabeth alluded to earlier is so important. We, it turned out, we were not seeking out community banking stories, but it turned out a number of the new builders that we talked to, their business trajectories were totally changed by, you know, what’s in many cases, seemed like a chance meeting with a community banker who really spent some time to understand the business and then help them figure out how to finance it.
Brian Ardinger: Well, and it comes back to capital is more than just the cash and the actual dollars that you put into it. It’s capital of that network. Like you said, the ability to actually even find a, a banker in your backyard that you can form a relationship with and build that trust. And, you know, eventually leads to the, the capital capital you need to build a business.
Seth Levine: Here’s a statistic that should scare everyone. 25 years ago, there were 14,000 banks in the United States. Today there are 4,800. Most of that consolidation has happened in the smaller end of the scale, as we’ve created, essentially these utilities out of banks, by the regulations that we put on top of the banking system.
And so obviously some of those regulations were warranted. There were banks that were, you know, engaging in predatory lending behavior or behaviors and you know, needed to be curbed. But, it perhaps went a little bit too far. And the result of that is what we’re seeing in terms of the consolidation of banking, which is not good for anyone.
Brian Ardinger: So, you mentioned the pandemic and obviously that’s had an effect, but some of those trends were happening before the pandemic. How do you see the pandemic affecting entrepreneurship, both good and bad?
Elizabeth Macbride: Well, traditionally, there’s a surge in entrepreneurship after a big economic downturn, right. Because people lose their jobs. And so, they like to start businesses because they’re trying to pay the bills. And we’ve seen evidence that that’s happening right. There was a huge surge in new business applications in the fall. So September, October.
I think, you know, that’s on one hand, a hopeful sign. On the other hand, we think those people will have a harder time starting businesses than say they would have 20 or 30 years ago, because of all the changes that we described in the book.
There’s a huge number of people that are entrepreneurial in the United States and want to be entrepreneurial as evidenced by the participation in the gig economy, which is 60 million people in 2019. But making the leap from that to becoming a business owner and a small business owner, and there are so many benefits to making that leap.
That’s what’s become much more difficult, right? Is formalizing yourself into a business. And I just want to add here, because I think your listeners might be really interested to think about exactly how that word entrepreneurship was co-opted because when we looked into the research and of course I’m a wordsmith and Seth is a word lover, too.
We discovered that it was Ronald Reagan. Right. Who figured out that he could sort of marry the ideas that were coming out of Silicon Valley, this vision of the aggressive sort of free thinking, innovative entrepreneur from the tech world. And he used the word entrepreneur to describe only those people and use that as sort of like a push for global democracy and capitalism.
You know, he just synthesized all these ideas into that word. Silicon Valley, the marketing genius’s took it and ran with it. And an important thread in that was this libertarian idea. That I think is really holding back some of the things that we could do to support the broader world of entrepreneurship.
Because if you buy into that myth, that entrepreneurs grew up, that they’re libertarians. That it is a concept. It’s the free market. Then you don’t invest in some of the social safety net programs or the government support. You don’t pay that much attention to government regulation. I mean, so many CEOs in Silicon Valley have said to me, government’s always behind, right? We don’t need to worry about it. Like we’ll just succeed despite them. And that is really not reflecting the true history of Silicon Valley at all.
Brian Ardinger: Yeah, it’s quite ironic because a lot of obviously Silicon Valley came from the rise of government dollars going into defense and other things that were, that provided that R and D and original push to start some of this amazing stuff.
Elizabeth Macbride: Yeah, exactly. Right. And it’s just disturbing the extent to which that piece of the story is left out. Right. And it looks like a very convenient retelling of the history.
Seth Levine: And I think it’s also important to note that, you know, the government, we’ve talked about this a little bit, not a lot in the book. But government spending is not bad right on research and development. And in fact, there’s some quite a bit of evidence that companies are not always great at spending on R and D, especially as they get larger, right. A lot of innovation comes smaller companies, but then when companies get larger than they don’t necessarily invest in R and D.
And a great example of just that inaction was the, the tax cuts that were enacted a couple of years ago, where, you know, the deal was that we were going to give companies a trillion-dollar tax cut, and they would then invest in their businesses. Right in R and D. And the exact opposite happened. They didn’t. And they instead really bought their stock back. Which for any individual business that was looking to increase its share value, that might’ve been the right thing to do.
But it suggests that the people running those businesses certainly felt like investing in buying their stock back was a better bet than invest in R & D because they just simply didn’t know where to put it.
Brian Ardinger: So, let’s talk a bit about some of your favorite stories in the book. Who are some of the entrepreneurs? And what are some of the positive, hopeful things that you found through the journey?
Seth Levine: There are amazing stories in the book, and I certainly hope that your, that the listeners will go and pick up a copy and really read it. Because I think we really tried to write a book that was balanced in terms of storytelling, but also facts. And hopefully that’s coming through on this podcast as well.
You know, punctuating the facts with real stories. So, you can get a sense for those facts and action. You know, we think is a really good way for people to understand what’s really going on the ground. So one thing that I would probably point out is Isaac Collin, who owns series of Yogurtini businesses in Kansas City.
And he’s just an incredibly compelling guy. And it’s a story of someone who really, you know, with both, persevered and had a lot of grit, but also was helped by others. So he got into business because he won a business plan competition. And by winning that business plan competition, he actually won both the monetary help as well as business helped by this very successful relatively well-known in that area, businessman.
He got to start a Rocky Mountain Chocolate Factory with this guy. And, and ultimately that was a successful business because he’s just a good business person. And he was able to sell that business, use the money, the proceeds from that sale, then to buy his first Yogurtini business.
What I really love about Isaac and this is true of really all the new builders we talked to is his connection to community. And just how important it was for him. He now has three, I think the fourth was not quite open, he’s about to open a fourth location of his Yogurtini businesses around the KC area.
And, you know, community for him, isn’t even just KC, it’s like the individual neighborhoods where those businesses are located. He has that deep sense of community. And, and it comes through in his business in the way that, you know, people who work at the businesses, open the door for their customers. So, they welcome them in and kids are welcomed to come in and do their book club and, and earn free yogurt.
And he’s just a great example of a quintessential new builder who is hardworking and has reached out and figured out how to build a network around himself. And has other things going on. He and, and two other women started a yoga series that goes into inner city schools and helps teach kids how to calm and center themselves through yoga. Just as one example, I mean, he’s just someone who’s constantly giving back. So he really stands out for me as just the quintessential rebuilder.
Elizabeth Macbride: I’m so glad you talked about Isaac, because we haven’t, we haven’t actually talked about him in our interviews so far. I would highlight the entrepreneur who is sort of the center of the book. Her story is woven throughout and that’s Danaris Mazara who started her bakery in Lawrence, Massachusetts, literally with $37 in food stamps.
You know, she just has this amazing story of lying on her couch. Her husband had lost a job. This was in the great recession. She had a newborn baby. She was like, I don’t have enough money to feed my family here. With that $37 in food stamps, she bought the ingredients to make blond sold it at the break table at the Samsung factory where she was working.
And it went from there and she was lucky enough in the process of developing her company. So she did those early couple of years with, by herself and with the help of her friends in the community, and then happened on EforAll which Seth referenced earlier.
And I love the EforAll story. And we tell Danaris’s story in the context of the founder of EforAll which is Desh Deshpande who was a telecom entrepreneur in the 1990s and made loads and loads of money and gives it back to the world in many different ways. But one of the things he did was found EforAll and he really has some interesting insights that we report in the book about the differences between encouraging entrepreneurs in the main street world and encouraging them in like an MIT or Stanford.
Because at MIT or Stanford, there’s all these smart people in search of a problem to solve. On the main streets of America and elsewhere, there are million problems in search of a solver. And he really talks in a compelling way about how you encourage both of those communities. We end the book with Dinaris’s as well, and her optimism looking toward the recovery post pandemic. And so, she’s incredibly inspiring.
For More Information
Brian Ardinger: Well, it’s definitely exciting to hear those stories and it’ll be exciting to see how this plays out as the world changes in front of us. Elizabeth and Seth, if people want to find out more about the book and more about yourselves, what’s the best way to do that?
Seth Levine: We set up a book website. We’ll put it in the show notes, but it’s www.thenewbuilders.com. And that’s a great place to find out a little bit more about the book. You can read a little bit about us, and most importantly, you can buy the book there. We have links to a number of local booksellers. We’re certainly encourage people to consider buying from local independent bookstores, whether it’s the handful that we have listed on the site or their own independent bookstore.
We do have links to Amazon, to Barnes & Noble of course they’re bigger platforms. And those are also great ways to buy the book. There’s a Kindle version. It’ll be out by the time this show airs and there will also be an audio book that should be out right around the same time that the show airs as well.
Brian Ardinger: Well, Elizabeth and Seth, thank you again for being on Inside Outside Innovation, sharing these stories very much like to continue the conversation and have you back on in the years to come as, as the world evolves. So, appreciate your time.
Seth Levine: Thank you, Brian.
Brian Ardinger: That’s it for another episode of Inside Outside Innovation. If you want to learn more about our team, our content, our services, check out InsideOutside.io or follow us on Twitter @theIOpodcast or @Ardinger. Until next time, go out and innovate.
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