Starting a business has always been a risky financial undertaking. With the huge rise in health insurance costs over the last decade, I’m increasingly worried we have created an enormous new obstacle that discourages and slows down the growth trajectory of new businesses.

This post is not about rehashing the debates over the federal healthcare reform known as the Patient Protection and Affordable Care Act (PPACA), though there is much for entrepreneurs to learn about this new law. Instead, I hope to offer a practical view of the issues health insurance costs pose to entrepreneurs.

I am CEO of my own company, Biotech Stock Research, LLC, founded in 1999. So this is an issue I face personally as I try to build this company along with my business partner Alan Leong. We’ve also spent more than 10 years together teaching entrepreneurship to students at the University of Washington Bothell, and encouraging them to think hard about all the various risks and benefits that go with creating their own companies. We helped these students launch more than 90 companies in the decade we ran the program, making it one of the most successful undergraduate programs in the nation at company formation.

The program we created evolved with our students’ needs. A decade ago, everyone was looking for the prototypical $100 million-in-5-years VC-backed idea. More recently, we saw businesses focused on launching via bootstraps and/or with small amounts of seed funding from friends and family members. These more recent ideas were the kinds of small businesses that form the backbone of economic activity in America.

What really worries me is how many of today’s entrepreneurs might never get a chance to pursue their dreams at a startup company, because they just can’t afford health insurance.

I’m 44 and in very good health. I’ve never smoked a day in my life and have no particular familial or genetic health risks. My insurer, Regence Blue Cross, nevertheless charges me some $6,000 a year for health insurance. This is three times what they charged me a decade ago. My deductible for this expensive plan is five times higher than it was a decade ago, plus it comes with a substantial copay that wasn’t present previously.

For a bootstrapped company, this insurance cost is a huge barrier to starting a business. As I mentioned above, this article is not about the new federal healthcare reform law, and the reason for this cost increase has nothing to do with that historic piece of legislation.

Given the state of health insurance, let’s do the math on what this means to startups. A three-person startup will need to find cash from savings, credit cards, friends, or rapid revenues of some $15-18,000/year just for health insurance. That’s not a ton of money in a venture-backed business model, but my experience is the VC-backed business is not what most entrepreneurs today are shooting for. They’re looking for a bootstrapped model they can fund themselves.

I am worried healthcare costs are proving to be a big barrier to anyone considering launching their own business. In addition to salaries, legal costs, and product development costs, that $18,000 is a big bite out of a startup budget.

Entrepreneurs, as a species, are inherently adaptable. I’ve seen some … Next Page »

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Biotechnology companies who’ve taken time to focus on politics over the last few years have focused most of their attention on national-level issues. That’s understandable given the renewal of the Prescription Drug User Fee Act that controls FDA deadlines for reviewing new drug applications, legislation that would make it possible for makers of cheaper “biosimilar” drugs to compete with innovative companies, and now proposals to extend healthcare coverage to all Americans.

Each of these issues has an obvious impact on future business and biotech executives have significant lobbying support on these issues. National and state-level business organizations like the Biotechnology Industry Organization (BIO) have identified key issues, provided access to key lawmakers, and created plug-and-play messaging suitable to their respective issues.

That sort of assistance crumbles when the focus shifts closer to home, at the city level. Most biotech executives don’t spend any significant time concentrating on local issues, and I happen to think this is a dangerous trend that must be reversed.

Here in Seattle, city leaders have extolled the virtues of biotech. Seattle’s South Lake Union neighborhood has been given particular attention, with goals of creating a hub for scientific research, biotech companies, and global health to compete with other such clusters across the country.

That sounds great, until you look at the specifics. Local developers have done a good job of building and/or planning buildings for this purpose. However, the city is behind on infrastructure spending and there is not enough electrical power infrastructure in place to support all the lab space being created. That’s an obvious operational problem that Seattle’s city hall missed, but not all local issues so clearly affect biotech companies.

Here in the greater Seattle area we haven’t figured out how to fund and operate convenient transit service, even within the city limits. Traffic in the main east/west arterial (Mercer Street) in our future biotech center is miserable and has been miserable for decades. The current plan to address this will make the streetscape more attractive, which is a good thing since drivers will be spending more time looking at it. The current plan actually increases east/west traffic time on the corridor. Seattle schools perhaps can no longer be termed in “disarray,” but nobody is satisfied with the quality of education, particularly science education, across the system.

These issues are important because if biotech executives want their companies to grow, they have to be able to attract and retain great people. Seattle already has a recruiting handicap … Next Page »

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