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Entrepreneur's insight on government proves eye-opening

Neil Blumenthal, 31, one of the founders of Warby Parker, which sells discounted designer eyeglass frames online, recently returned to New York after a visit to Capitol Hill. He says politicians and bureaucrats don’t understand business and understand technology even less.

New York Times

Neil Blumenthal, 31, one of the founders of Warby Parker, which sells discounted designer eyeglass frames online, recently returned to New York after a visit to Capitol Hill. He says politicians and bureaucrats don’t understand business and understand technology even less.

One day last month, Neil Blumenthal, who is a young entrepreneur, found himself in an ornate room on Capitol Hill listening to a parade of politicians — Sen. Charles E. Schumer, Sen. Kirsten Gillibrand and Sen. John McCain, among others — talk about how important young entrepreneurs were to the economy. Blumenthal, 31, one of the founders of Warby Parker, an online eyewear company that sells designer frames for less than $100, was among 150 young chief executives invited to Washington by Our Time, a youth advocacy group, to help start Buy Young, an initiative that encourages consumers to support companies owned by members of the millennial generation.

Blumenthal said he made the trip to learn more about how the federal government viewed entrepreneurship.

Like a lot of founders of startups, he has little interest in hiring a lobbying firm, but he is all too aware of the effect government and politics can have on business.

For one thing, his New York-based company, which he says has 40 employees and produced more than $1 million in revenue in its first six months, is subject to regulations that vary widely from state to state.

The following is a condensed version of a recent conversation in which Blumenthal spoke, among other things, about what politicians don't understand about business and what he had to promise the Small Business Administration he wouldn't do with his borrowed money.

What was it like trying to get an SBA loan?

Finding a bank that did SBA-term loans was a challenge. We were surprised that they needed two years (tax returns) and that banks had absolutely no flexibility. Many of the loan officers said we had a reputable business that was cash-flow positive and we had the most sophisticated business plan they'd ever seen, but they can't provide loans to people who don't have two years of tax returns.

Isn't that a reasonable request when you're talking about using taxpayer dollars to guarantee a loan to a private company?

I understand where the banks are coming from. It probably was necessary to implement hard and fast rules to stop the bleeding when the crisis hit, but they should be looking at the policies and thinking: Does this make sense now?

Was the application process difficult?

We had to sign so many documents that my hand hurt after I was done. I had to pledge not to open a zoo, swimming pool or aquarium. It struck me as strange. Yes, it's the bank's duty to do due diligence, but this was just a silly restriction.

But there was a happy ending, right?

Yes, after being turned down by 15 banks, it was a personal relationship that introduced us to a regional bank in New Jersey that gave us a $200,000 loan.

What reasons did the 15 banks give for turning you down?

They didn't have the authority to bypass the rule that you have to have two years of tax returns.

Was your company profitable at the time?

Yes, we were profitable and we had a ton of traction. We had higher customer satisfaction scores than Zappos or Apple. A rational bank should have wanted to support us, even though we were a more risky bet than a company that had been around longer.

What did the bank that lent you money do differently? Did it demand collateral?

We came through a personal relationship at a very high level at a regional bank in New Jersey that didn't have the draconian guidelines because their management was empowered to make decisions. For the $200,000 SBA-backed loan that we got, the bank wanted $100,000 in collateral in either cash or marketable products. The reason they wanted so much collateral was that if we default, the regional bank is not going to go through the process of getting the money from the SBA because it's so onerous.

What could Washington do to help?

The first is streamlining regulation. The rules of optical dispensing vary from state to state. Dispensing eyeglasses is not that complicated and even if it were complicated, there should be uniform rules. I'd also do something about the dearth of technical talent — it is really difficult to hire Web developers and engineers. We aren't educating enough of these people. It was refreshing to hear the politicians talk about the STEM — science, technology, engineering and math — subjects, but come on, let's get some of the smart engineers into the country by granting them their H-1B visas.

Are you involved in the political process?

We have never met with politicians. I don't know the first thing about how to get heard. My suspicion is that it's to donate a lot of money.

You mentioned that some members of Congress didn't seem comfortable talking about technology. One senator, for example, didn't know what a Web developer is. Do you think members of Congress should be required to go to a class to get up to speed?

Who would design that class? I hope not members of Congress. I was pretty surprised at the lack of mastery.

Do you think the government is doing enough to encourage entrepreneurship?

I was recently told a statistic that the majority of entrepreneurs are foreign-born or haven't graduated from college — which means the best and the brightest and the most educated are not pursuing entrepreneurial paths. For whatever reason, we aren't encouraging these people to start their own business.

Why do you think consumers should be encouraged to buy from young entrepreneurs?

I think consumers should buy whatever they want. I personally try to buy the best-quality items at the best price that do the least harm and from companies that are striving to do good — many of those companies are run by young entrepreneurs. Still, I think it would be strange to be encouraging people to buy based on people's age rather than the strength of their product.

Entrepreneur's insight on government proves eye-opening 08/28/11 [Last modified: Sunday, August 28, 2011 5:30am]

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