The Entrepreneurial Mind

What a facinating time to be in Nashville! The music industry is in a period of continuous change and uncertainty. Just what every entrepreneur looks for!

Will this be a time when the wrath of music business entrepreneurs that have been beating a path to my door begin to emerge from the turmoil as the creators of the new industry structure? This is a common pattern as seen in Adam Hanft's article in Inc. Or will this be a time when an industry re-invents itself, as advocated by Fred Goldring in his provocative essay on the current state of the industry? The process of change and entrepreneurship is a difficult one for any large company, so these are indeed interesting times.

Posted by Jeff Cornwall at 11:44 PM | Permalink

There is an article in the Minneapolis Star Trib that speaks to the issue of young entrepreneurs and experience. It features several alumni of my old program at St. Thomas.

Posted by Jeff Cornwall at 07:53 PM | Permalink

The host this week is The Noble Pundit . Carnival of the Capitalists main page is located here for those who are interested.

Send all entries for next week's installment to capitalists -at- elhide.com if you want them included. The subjects can range from economics to management to political economy and so on. Next week's host is Insults Unpublished.

Posted by Jeff Cornwall at 03:43 PM | Permalink

Sorry, but I get a little nervous when I see corporations like Disney sticking their noses into the Entrepreneurship tent. Seems that Disney is setting up an Entrepreneurship Center with the SBA. Does this make anyone else a little nervous, or I am just getting too paranoid??

Posted by Jeff Cornwall at 01:32 PM | Permalink

Cash flow, as they say, is king. We tell entrepreneurs this truism all the time. So why is it so true? Here are my top Six reasons for focusing on strong cash flow:

1. Strong cash flow can smooth out the effects short-term fluctuations in cash outflows. One of the most stressful aspects of cash flow management is the weekly cash flow crisis that so many entrepreneurs face. By enhancing inflows of cash, a short-term buffer can be created that can eliminate many of these crises.

2. Strong cash flow can create a rainy day fund. Every business will face a time when they face a more significant cash flow issue. For example, a major customer may stop doing business with you or may cut back their ordering. Or, this major customer may for some reason slow down their payments. I usually recommend at least a thirty day cushion for such events. That is, build up cash reserves (or highly liquid short term investments that can be converted quickly) equal to about thirty days worth of normal expenses. Businesses that followed this practice found that they weathered the economic backlash of 9-11. I have also seen this help for other unforeseen events such as hurricanes, floods, etc., etc. While we can never plan for such events, we sure can prepare for events like this. In one twelve month period our business had a hurricane (talk about rainy days!!) and an ice storm that both effectively shut us down for over a week!

3. Strong cash flow can create a war chest. Investments in new equipment or facilities, acquisitions of smaller competitors, or buying out a partner or investor can become easier with a strong cash position. Build an additional cash reserve beyond the thirty day rainy day fund for financing your own business.

4. Strong cash makes talking to bankers easy. Bankers love cash flow...enough said!

5. Strong cash flow makes periods of rapid growth less perilous. One of the most dangerous periods for any business is times of rapid growth. And one of causes of failure during growth is poorly managed or inadequate cash flow. Building strong cash flow going into periods of rapid growth can make these times much less dangerous for the business' survival.

6. Strong cash flow creates value in the business. When it comes down to it, cash flow is what is used to value most businesses. EBITDA, which is basically a measure of cash profits, is still the basis of most business valuations. The better the EBITDA, the more value your business has in the market when the time comes to exit.

Posted by Jeff Cornwall at 12:14 PM | Permalink

The repeal of the death tax, which is a major issue for most entrepreneurs due to the nature of most small business incorporations, is scheduled to sunset in 2011. It is important to keep this issue alive (no pun intended) so that this tax is permanently repealed, and does not rear its ugly and unfair head. The NFIB can help you contact your senator about this critical tax policy issue.

Posted by Jeff Cornwall at 05:07 PM | Permalink | Comments (1)

One of the biggest challenges I see with techies who have a good, well researched opportunity is to effectively communicate their idea in a business plan format. Marcie Milletary captures the key advice that I usually share with entrepreneurs-in-waiting in her recent article in the TechyVent Pittsburg on line newsletter. Her advice echoes my top six words of wisdom (I know I should have 10 or 7, but these are my biggies, and 6 is an underused number anyway) that I share with the entrepreneurs I work with time and time again:

1. Focus. Keep only those things in your plan that directly support your message.

2. Concise. Most plans I read are too long not because they contain too much information, but because the writer takes too many words to make each point. There seems to be an insecurity that pushes the entrepreneurs to try and sound smarter by adding lots of long words, adjectives, adverbs, and general unneeded hyperbole.

3. Talk to the Audience. B-plans have a variety of purposes. They can be for an internal audience, an investor, a banker, a landlord, etc. Know who you are talking to and what they really want to know. Bankers, for example, generally like numbers with only a brief summary of the plan itself up front. Investors will want more on the industry and the marketing plan as they will want to understand what they are investing in. No matter who is the audience, use language that non-technical readers can understand. Have someone not in the industry read the plan to make sure it is completely understandable.

4. Lead with your Strengths. Different plans have different things going for them. It may be the founders, it may be the product, it may be the marketing plan, it may be an undiscovered industry trend, but what ever the key essence of your plan is should be placed up front and used to structure the rest of the plan.

5. Create a Strong Backbone. The backbone of a strong business plan is the logical link between the industry analysis and marketing plan with the revenue forecasts. That is where an experienced reader will look to see if the entrepreneur has really done his/her homework!

6. Be Honest. A business plan is not a marketing brochure!! Share the risks throughout the plan and be honest on what can be done to address those risks. Don't make your competition sound like a bunch of idiots. Be realistic about their competitiveness and you own ability to compete in that marketplace.

Posted by Jeff Cornwall at 02:00 PM | Permalink

Forbes is now celebrating their latest entrepreneur of the year. In the middle of celebrating all of the success of this year's "winner" is an article about how many of their recent past choices are on hard times. Maybe they ought to change their criteria for success! (see article in their Oct 17 issue--sorry you have to pay to view...).

Posted by Jeff Cornwall at 12:16 AM | Permalink

A pervasive myth about entrepreneurial success is that it is related somehow to experience in a corporate setting. That is, young people have been told that before they go out and start a business they should get a "real job" for a few years. Young entrepreneurs are finding more success than ever.

The fallacy of this myth came to mind grading a paper today. A student was telling about an encounter with a fellow student who was twenty years her senior. The older student had spent her entire career in human resources in the corporate setting. When the younger student told her about the entrepreneurship class she was taking, the older student said something like this: "If I knew leaving college what I know now, I would have started my own business and never looked back. Now it's too late. My life is too complicated to even think about such a thing."

Certainly, sometimes it makes sense to gain some experience. A student with a passion for the restaurant industry needs to have had experience in running such a business, for example. But much of this experience can be realized even during the time that these young people are pursuing their education. The key is to choose experience that directly supports the entrepreneurial path desired. And, there should be a clear time frame, with specific milestones of experiences gained, and with a defined "exit strategy" to allow transition into the entrepreneur's own venture.

It should be noted that there is some research that supports the role that experience that the entrepreneur has had plays in predicting the success of a venture. However, the strongest predictor is experience in another entrepreneurial venture. This is even stronger support, in my mind, for getting started in an entrepreneurial career sooner rather than later. Also, caution must be taken with how these studies actually measure "doing better". They tend to focus on growth rates of the business, which may or may not even be what the entrepreneurs themselves even consider as part of their success. Bigger, faster may not lead to longer term viability and success.

More and more educational institutions are now preparing their graduates to begin careers as entrepreneurs. Success rates of students graduating from these programs often exceed 80% measured after several years in business. This is critically important, since we are now in an entrepreneurially driven economy.

Posted by Jeff Cornwall at 06:18 PM | Permalink | Comments (6)

In an earlier entry, I highlighted the on-going debate regarding the role of the market versus the state in defining ethics in business. ProfessorBainbridge.com offers an interesting perspective from the Catholic Social Tradition on this debate.

What Professor Bainbridge misses in this discussion is the role that culture plays in shaping ethics, values and ultimately virtue in a society. The role of faith in shaping culture, and culture in turn shaping ethics is a well-founded principle of Catholic Social Thought (see Pieper's classic writing on this topic). The argument should not be constrained by whether and how religious institutions can influence the two forces of market and state, but rather how faith and religion shape culture, which then should serve as the foundational base guiding both corporations and state. Michael Naughton's work is noteworthy, as he builds a practical model to integrate ethics and values into one's work from this perspective.

Posted by Jeff Cornwall at 02:23 PM | Permalink | Comments (4)

The latest INC 500 list of fast growing companies is almost ready to be published, and it shows a more diverse group of businesses than we've seen on that list in years (i.e., no longer dominated by tech companies). It also shows a remarkably upbeat picture for the economy as seen by these entrepreneurs.

The Public Forum Institute has released a preview in its latest email newsletter. This year shows a real geographic diversity of states and cities that are home to these high growth ventures. What is important to keep in mind is that this is a self-selected group. There are many equally successful ventures that choose, for a variety of reasons, not to apply to this survey.

Posted by Jeff Cornwall at 04:52 PM | Permalink

Many would-be entrepreneurs tell me that they are certain that if they could only raise a certain amount of money, everything would be perfect for their start-up. In fact, many say that money is the only thing holding them back. This is one of entrepreneurship's most common myths. As the classic article in INC illustrates, many a good idea was started with very little money.

One issue often overlooked in start-ups is the art of bootstrapping. With prudent management, entrepreneurs can often get a business started with very little capital. And for good opportunities, the money that is needed will usually find its way to these start-ups.

The INC 500 list for 2003 will show that these high growth companies started with very little funding:

"It does not take much money to start an INC 500 firm. Sixty-one percent of CEOs started their business with less than $50,000 in start-up capital. Where does the money come from? The majority (53%) derives from personal assets. Overall, 80% of start up funds came from personal assets or assets of other firm founders, friends, and family. Bank loans accounted for 8% of start-up capital, while government-backed loans (2%) or formal venture capital (2%) accounted for tiny portions of these early stage funds. " (Source: The National Dialogue on Entrepreneurship published by The Public Forum Institute, 10/13/03).

It is amazing that only 2% of the highest growth firms in the country are backed by VC's, and 80% of the funding is from founders, friends and family!!

Posted by Jeff Cornwall at 03:05 PM | Permalink | Comments (10)

The economy is clearly moving into a recovery, as can be seen by confidence of CEO's and small business owners.

The time for entrepreneurs to start planning for this coming expansion is now. Too many wait until the challenges of growth and expansion begin to show up in various symptoms in their businesses. It is not too soon to begin to update financial forecasts, staffing plans, exit plans, and financing plans. Entrepreneurs should begin to share these plans with their bankers and investors to begin to lay the ground work for any future capital needs. It may not be time for the "ask" quite yet, but communication about such plans can make raising capital somewhat easier when the time actually comes.

Posted by Jeff Cornwall at 02:38 PM | Permalink

The Business Pundit has a link to an article in Forbes highlighting the academic pedegree of Forture 500 CEO's. Phil's comment on this article hits the nail squarely on the head. I would go further, however. Let's look at the contribution of these firms to economic growth. They can't hold a candle the entrepreneurs in our economy, who have contributed real job growth and wealth over the past decade!! The Fortune 500 saw no real growth in employment even during the expansion of the 1990's.

Posted by Jeff Cornwall at 04:08 PM | Permalink

Good article on need for a network of support for growing companies.

Posted by Jeff Cornwall at 03:46 PM | Permalink | Comments (3)

Laura Dunham's research on the importance of building social networks supports the importance of shared ethics in building these social networks. It is interesting that such social networks lead to improved performance for entrepreneurs. But, it is even more interesting that Dunham's work supports the notion of community development through shared values as this may help integrate entrepreneurship as a mechanism for building and strengthening communities. Clearly of interest for those who adhere to communitarianism or entrepreneurship as a means for economic development.

Posted by Jeff Cornwall at 02:22 PM | Permalink

Inc. magazine has an intriguing feature that highlights the meaning of success for 12 entrepreneurs.

Posted by Jeff Cornwall at 07:13 PM | Permalink

The SBA has released a study on the credit patterns of small business. 80% of small businesses reported using credit of some sort for their businesses. 56% of credit outstanding was through banks. This stresses the importance of understanding how to secure a loan and how to manage a banking relationship.

An interesting finding is that women and minority entrepreneurs were more likely to fund their businesses with credit cards. This is a high risk strategy, as this creates a high rate of interest and personal exposure to any failure. It is an important policy question to examine why the pattern of borrowing is different for these groups.

Posted by Jeff Cornwall at 07:05 PM | Permalink

A study sponsored by MassMutual and the Raymond Institute on women in family-owned businesses reports that women CEO's of family businesses give a higher proportion of their company resources to charity than their male counterparts. Much of their giving is targeted on community and educational charities.

Posted by Jeff Cornwall at 02:56 PM | Permalink | Comments (1)