Opportunities from destruction

I have a saying I'm fond of: "when you see economically irrational behavior, look for the regulator." In that context would a sane small business owner pay $99,000 a year to avoid hiring a part time employee? You'd think not, but you'd be wrong - and if you're selling IT, that could be your $99K in revenue.
Written by Paul Murphy, Contributor

One of the provisions in the recently passed American health care bill requires companies with more than 50 employees to choose between paying for employee health care or paying the government a $2,000 annual penalty per employee.

There are a few years of grace on this, but because qualifying health plans cost more than that many larger businesses are already working on plans to phase out employee health care in favor of paying the fines - while many small businesses are trying to see how staying smaller than 50FTEs (full time equivalents) can fit into their plans.

The bottom line on this, however, is that if you've been trying to sell a system justified on manpower savings to a business approaching that 50 employee mark, then the government has just given your pitch a $102,000 a year boost.

Imagine, for example, that you have been trying to sell a system you promise will save the business one 1FTE, but the owner's been telling you it's too expensive - that he can hire someone for less than the cost of your "solution." That just changed: even if the company only has twenty or thirty employees now, every new body brought in brings it closer to a $2,000 per employee tax increase and, correspondingly, makes your solution that much more attractive.

This is going to hit hardest at the businesses that historically create most of the new and entry level jobs in the United States: service and retail industry franchisers - from gas stations and pizza places to branded fashion, these guys pretty much all of teams working to figure out how to beat this.

Their problems spell opportunity for IT service retailers - just don't be too successful, or you'll face penalties too.

The first opportunity is the obvious one: if you can provide hardware, software, and support having the net effect of helping your customer avoid tripping that 50 FTE catchwire you're going to draw an attentive audience - and not least because most will prefer spending money with you to sending it to Washington.

The second opportunity is more subtle: when the IRS inevitably claims that some of the changes coming to franchise and related operating agreements are shams intended to avoid the tax cap on growth, what they're going to be claiming is that some assemblage of small businesses is really operating as a single business entity - and they're going to be pointing at things like integrated supply management to support that thesis.

Traditionally, of course, the only way to get a fully integrated resource management system (i.e. incorporating supply chain, financials, and intelligence) working across a franchise relationship was to have headquarters pick something and "share" it to everyone - but that's not true anymore. On the contrary, if everyone agrees on a set of open standards, people can pick whatever local software they want and, particularly if it's open source, expect the composite to work with little more than a centrally operated messaging service to tie things together.

And, of course, when the IRS tries to declare it a single integrated system whose existence demonstrates that the legal separation between operating entities is a sham, the answer is that the messaging service is centrally provided, but everyone else just follows open, international, standards -meaning that the absence of centrally standardized hardware and software demonstrates that the operating entities really are independent businesses and shields them all from the tax man.

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