The Entrepreneurial Mind

Inc.com has a service to estimate the value of a small business. It is important to keep up with the value of any business. Valuation is a key part of exit planning, which should be a process that begins the first day you open your doors. This is even true if you plan to hold your business for twenty years. Even with that long a time frame, your plans for exiting your business (and everyone eventually does in some way or other) can affect many decisions you are facing today. In fact, once you are within five years of exiting your business, it really becomes short-term planning.

In addition to keeping up with its value, here are issues to keep in mind about exit planning for your business:

- Frequently re-examine your aspirations from the business through self-assessment

- Evaluate timing issues for your exit periodically to make certain the market will support your time frame. Sometimes exits must be moved ahead if market conditions warrant.

- Consider the ethical issues of exit plans. What do you want for your employees, customers and other stakeholders after you exit the business?

- Set specific financial goals, and the timeframe to achieve these goals, based on your aspirations related to wealth. Then establish a specific plan to meet these financial goals. This plan should be both strategic, but also tactical making clear commitments to action to meet your goal for exiting the business.

- Begin external audit or review process as any buyer will want your books verified. Three years is the minimum most will want to see.

- Evaluate the various exit options that make sense for your business and understand the implications for your decision making and planning for the next several years.

Posted by Jeff Cornwall at 08:37 AM | Permalink | TrackBacks (1)

In a small business everybody is really part of the sales team, since most employees will have some interaction with customers. And yet, many small businesses overlook this in their training as shown at this entry at An Entrepreneurs Life.

Posted by Jeff Cornwall at 08:30 AM | Permalink

What if? There has been a lot of discussion among the politicians, political pundits and bloggers about this question as it relates to the possibility of another attack on America. In fact, many of the discussions sound more like "when", not "if". How would it impact the election? Should we postpone the election if the terrorists strike again? What would our response be this time and toward what country? All important questions to think about, and to talk about, right now as cooler heads prevail.

So why should a business blogger be talking about this? Well, I think that entrepreneurs should be asking similar questions. And, they should be asking them now. Not in terms of any lofty public policy issues, but in terms of how it would affect their businesses. Entrepreneurs I talk with certainly are thinking about this, at least in the back of their minds, but any discussion tends to always end up like they are whistling past a graveyard. Maybe we'll get lucky and nothing significant will happen, but the probability is high enough to warrant attention by any business owner.

How do you start thinking about the unthinkable? I would suggest the best place to start is with hard data. Examine what happened to your business and your industry after 9/11. History is never a perfect predictor of the future. If another attack happens to our country it could be worse, or we as citizens might not respond in the same way. But, history offers the best data we have to plan from. So the place to start is with your experience from 2001. And if you were not in business then, talk with those who were. Learn from those who weathered the last attack.

Here are some suggestions on how entrepreneurs can be preparing:

1. I would suggest for any business that the cliche' "Cash is King" has never been more true. After 9/11, there was a prolonged period where many businesses almost ground to a halt. Having cash reserves will allow businesses to make it through the initial economic paralysis that will likely occur. Thirty days cash reserves (enough cash to cover essential and fixed expenses) would be my minimum recommendation. Even ninety days of reserve would not be too much to have at this period of time.

2. Good advice any time, but certainly now, is to manage overhead carefully. Overhead pushes the breakeven point of any business higher. If sales suddenly drop off for an extended period of time, a lower breakeven point that results from lower overhead expenses can soften the impact of any economic shock.

3. Whenever possible, avoid fixed, long-term commitments that are part of a static business model. Any major shock on a market may require new business tactics, strategies or even models going forward. One reason that the American auto industry reacted so poorly to the oil shock in the 1970s is that they had built their businesses assuming a very static business model. It literally took them years to undo this model and adjust to the new reality that they faced. They had to be able to react much more quickly to changing customer preferences, and operate in a market with many new competitors where there used to be only three.

4. Build in flexibility in all decisions. Understand that you may need to quickly undo some decisions that now make sense. Make this as easy as possible for you to accomplish.

5. Watch and manage your inventories carefully. Although the current economic expansion is being somewhat hampered by tight inventories, I now believe that this is a prudent strategy. Certainly you should not choke your business growth, but don't go overboard with purchasing either. Purchasing raw materials or other inventory using volume discounts may not be wise. Be as "just in time" with your inventory as possible.

6. Think through the 'what ifs' and create contingency plans. These need to be major plans for how your operations will be handled given a variety of scenarios, and minor plans that deal with the day-to-day safety and security of your employees and customers.

7. Critically important is for all of us to look beyond any single event. After 9/11 we suffered economically in part because there was a collective "hunkering down" due to the shock of what had happened and the complete uncertainty of what was yet to come. Now we have experience, and we need to use it to envision what we can accomplish in the days, weeks, months beyond the inevitable initial shock and horror created by another attack on our land. Believe in your business and believe in the system that makes it possible. We will need bold leaders, not just at the political level, but within the grassroots of our economic system. Be strong, be brave and be confident and others will follow.

I am not trying to contribute to any public panic. To the contrary, I just want to advocate prudent preparedness. This is one of the most important lessons of 9/11. Part of how the terrorists win is determined by how we react in the aftermath. The economic collapse of America is one of their fundamental goals. And as I have written previously at this site, I truly believe that given the entrepreneurial economy in which we now live, entrepreneurs will be the economic foot soldiers in the aftermath of any future attacks. Winning the current war against this evil will be measured in large part by how resilient we are as a culture and as an economic system, since they are at the heart of what the terrorists are trying to destroy.

Posted by Jeff Cornwall at 06:54 AM | Permalink | TrackBacks (6)

The National Dialogue on Entrepreneurship summarizes a report issued by the National Venture Capital Association (full report must be ordered through the NVCA site):

"The venture capital (VC) business seems to be following larger entrepreneurship trends as recent data from the National Venture Capital Association (NVCA) suggest that the VC business is looking up. First, new data on VC performance in the first quarter of 2004 show that VC investments posted a one-year return of 15.4%---the first double-digit rise since 2000. Returns over a three-year period are still negative (-13.3%), but the long term picture is pretty good. Over a 20-year period, VC investments return an average of 15.7 percent (compared to S&P 500 returns of 13.1%). NVCA has also released a new study (by Global Insight) that examines the performance of VC-backed companies during the 2000-2003 downturn. The study finds that firms receiving VC investments between 1970 and 2003 performed quite well, even in tough economic times. Between 2000 and 2003, these firms grew jobs (by 6.5%) and revenue (11.6%) at a rate that far outpaced the overall performance of the US economy."

With improved performance comes more money invested in these funds. This increase in available capital will increase the deal flow from VCs. It is important to note that last year VCs only invested in about 2500-2700 deals. This is a small niche in the overall entrepreneurial economy, but an important one as these are the companies that can have significant impact and can build momentum in a market that all participants can benefit from over the next several years.

Indeed, here in Nashville I am hearing of stronger level of deal interest and improving deal flow among VCs, as seen in this article from the Tennessean.

As funds grow, they will also start to invest in earlier stage ventures. We have seen a very conservative posture on the part of VCs over the past three to four years. They have favored later stage deals with lower return potential and lower risk, that is, more conservative investments.

A MoneyTree report issued this week reported $5.6 billion invested in 761 companies in the second quarter of 2004. This is a 12% increase from the first quarter, which was also strong. More importantly, deal flow is now starting to go to earlier stage ventures, a sign of increasing VC optimism for the economic outlook of the next three to five years.

Posted by Jeff Cornwall at 06:04 AM | Permalink | TrackBacks (1)

The Kauffman Foundation has released its latest report on entrepreneurship that is part of its Global Entrepreneurship Monitoring project. United States Global Entrepreneurship Monitor 2003 Report, by Maria Minitti and William D. Bygrave, offers more evidence of the robust nature of our entrepreneurial economic recovery. "Entrepreneurship in the United States continues to thrive at very high levels and seems to be moving ahead of the general economic recovery of the country." The full report is available on-line (44 page pdf file).

Here are some of the highlights of this report:

-Almost one out of every eight Americans (11.9%) is engaged in entrepreneurial activity. This is one of the highest rates in the world and the highest rate of the largest, most developed economies. Our culture remains the strongest force driving entrepreneurial activity that differentiates us from other nations studied. America outranks the rest of the world in all of the key entrepreneurial indexes.

-One myth that the cynics like to perpetuate is that these are mostly people out of work who cannot find a job. This study found that 76% of new start-ups were created to pursue opportunities their founders saw in the market, while only 24% were folks looking to create some income between jobs, typically as self-employed consultants.

-Another myth is that these businesses do not really create jobs. This study found that 70% of new start-ups already employ at least one person, and 80% plan to hire at least one more employee in the next year, and 20% plan to add at least 19 new employees in the next few years.

-Who are these American entrepreneurs? They tend to be young, as the study found the highest rate of entrepreneurship (17.3%) in 25-34 year olds. African Americans and Hispanics have the highest rates overall, and men are almost twice as likely to be new entrepreneurs as are women.

-Where is the money coming from to finance these ventures? Everywhere! The study estimated that 5% of the adult American population had invested in someone else's start-up business. In contrast, only 2500 businesses received venture capital funding, and very few of these were start-ups.

There are many voices, especially in Boston this week, that are still looking to the old economy to move us ahead. This report offers more evidence that this is a new economic age. The new economy will require leadership that understands that the old strategies of duplicity between big government and big corporations no longer will create growth or progress. An age of entrepreneurship requires a strategy of truly free markets, and not a managed economy using tax policy and governmental corporate largess to pick winners and losers.

Posted by Jeff Cornwall at 06:49 AM | Permalink | TrackBacks (8)

Carnival of the Capitalists this week is at one of my regular stops. Take a visit to Business Opportunities to see what's posted.

Posted by Jeff Cornwall at 10:28 AM | Permalink

Privatization of governmental programs has provided more effective and lower cost alternatives in services such as garbage collection, health care and prisons. The latest government program to turn to the private sector for better service at a lower cost is public libraries. Here in Tennessee, Germantown has followed such a strategy as reported in the Germantown News Online.

"The County, faced with severe money problems dating back several years, has decided to phase out its annual $5.6 million contribution to the Public Library and Information Center. In response, Germantown hired Library Systems and Services (LSSI), a Maryland-based firm, to run the branch at Farmington and Exeter....Germantown officials determined that hiring LSSI - which will cost about $1.1 million annually ($1.3 million for overall library operations as a City department) - would be cheaper than paying $1.5 million per year to stay in the county system. Also, services will be increased - including new Sunday hours, an expanded collection and a closer relationship with local schools. In contrast, the County was planning to reduce services."

Having been part of the wave of privatization in public health care in a past venture, I can say that some of these initiatives only take things half way or do not pursue these strategies with pure intentions.

In some cases, they keep large bureaucracies in place to "oversee" the private firms they contact with. This tends to minimize the cost reduction that could be created and constrain innovation. I have seen some privatization efforts clearly be set up to fail by disgruntled governmental employees who set up a system of oppressive micro-management.

Some privatization initiatives merely take the inefficient and ineffective systems already in place and make them a private entity. In addition to the obvious "feathering of nests" by contracting with former governmental employees, no real innovative changes will likely take place to save money or improve service.

The initiative in Germantown appears to be one that is not falling into these traps. While they do have oversight (which any contract should have), it looks to be of a reasonable scale. They are also letting the private firm improve services and use their existing systems.

Thanks to Ben Cunningham for passing this article along.

Posted by Jeff Cornwall at 06:58 AM | Permalink

Anita Campbell writes about the impact e-Bay is having on small business at Small Business Trends. This same trend was featured in a three part series written by Gerry Blackwell. Part I looks at operating an e-Bay store. Part II examines how to do it right and not get scammed, which is a real but preventable problem. Part III explores how e-Bay can save money for small business serving as a source to find vendors for supplies, equipment and even inventory.

Belmont's own student run business, reverb media, bought all of their equipment and furnishings and inventory through e-Bay, saving thousands of dollars.

This is really just the first wave of what is a transition in how goods and services will be bought and sold in the future. Who knows how far this technological shift will take us, especially as we have the much anticipated convergence of electronic devices. Soon, everything from your fridge to your bathroom mirror will be integrated through an information network that will include computing, web-connectivity, television, and other media.

I believe that in thirty years we (hopefully I'll still be around to be part of this "we") will look back on the e-Bay era like we now look back at the revolutionary impact that Ford Motor Company had on our economy and society. The information age has been at work for a long time, but innovations like e-Bay are what really will take its power to the masses.

In the short run, tools like e-Bay are part of the fuel for this entrepreneurial economic boom, facilitating quicker and cheaper start-up strategies for many small businesses. It is creating new opportunities that did not exist just a couple of years ago.

Posted by Jeff Cornwall at 06:52 AM | Permalink | TrackBacks (1)

There is a new service available for those of you with business ideas at TJ's Weblog.

"The 'Business Plan Surgery' is designed to give expert feedback for your very own business idea - for free.

Here is how it works:

* What does it cost? Nothing.

* Isn't it risky to give my "secret idea" to other people? - Not really as Seth Godin would say "...an idea needs light and oxygen much like a plant" to survive. You should feed it, ideas in the dark basement will most likely die.

* What do I have to do? Please send your executive summary to my mail adress mail@tjacobi.com and we take it from there."

Posted by Jeff Cornwall at 06:42 AM | Permalink

Here is an interesting report on the facts surrounding the pay rate of new jobs being created in the current entrepreneurial economic expansion (sent by Sean M. Davis, Policy Analyst for the Joint Congressional Economic Committee). It looks like newly created jobs are not low-paying jobs with no benefits after all. Chairman Greenspan backed this up in his recent visit to Capital Hill.

Posted by Jeff Cornwall at 02:43 PM | Permalink

Entrepreneur.com has two articles at their on-line magazine on marketing. One deals with techniques to optimize the latest in web-based sales. The other stresses that we should never stray too far from time tested sales techniques.

"Setting Sale" by Chris Penttila walks us through the five basics of building sales in a business. For Penttila's take on these five I recommend you take a careful look at his article. Here are my takes on these five sales fundamentals:

1. Make sales contacts more effective. This is true from every aspect of sales from advertising to direct selling. It all costs money, which is generally a scarce resource for most entrepreneurs, so make sure your efforts have maximum impact on getting orders in the door.

2. Increase market share. In a competitive market, remember that most of your sales come from competitors. Know how customers make their decisions on who to buy from, know how well each competitor stacks up on these criteria, and know what you need to do better to take these customers away. Most of us think we know how our customers make decisions. Do some simple research to make sure you really know. It is often quite surprising.

3. Increase customer loyalty. It is easier and cheaper to keep a customer you have than to chase a new one. Don't just worry about getting more folks "in the front door", make sure you "close the back door" so you don't lose the ones you already have.

4. Increase margins. The real goal is profits, not sales.

5. Reduce sales cycle. Know your sales cycle (first contact through closing the sale). Measure you progress along the sales cycle, as this is probably the only measure you will have of where you are headed (financial statements only look backwards). Make sure your accounting system gives you this information consistently.

And now for the new. Catherine Seda gives advice on how to increase sales through more effective use of Internet search engines in her article "In the Click". It has gotten much more complex, so you may need to get professional help to make the Internet work for your business. Here are a few tips from Seda's article on to get effective help:

-Find the experts. Read articles and books, and attend conferences to identify the companies with strong industry visibility. Even if they're not good matches for you, they could recommend other reputable firms.

-Outsource. Some companies manage their own paid placement campaigns in-house while other companies manage SEO. Find out what your options are.

Posted by Jeff Cornwall at 06:03 AM | Permalink

It is amazing to watch markets at work. The health care industry (where I used to hang my hat as an entrepreneur) has been the source of much hand-wringing the past several years due to dramatically increasing costs. Unfortunately, politicians on both sides have been drifting toward the old familiar cries of "Let the Government Save You!" or worse yet, "National Health Care!!", just as we heard in the 1990s.

Both in the 1990s and today we have seen the power of the market. In the 1990s we saw entrepreneurs create all kinds of amazing solutions that not only made health care more efficient, but most often more effective as well.

Here is today's latest marvel of the marketplace: health care kiosks. It is a fast, efficient mini-clinic that specializes in common health problems. These kiosks operate out of Target and other retail stores. People were "sick" of sitting and waiting for hours in doctors' offices, emergency rooms, or urgent care centers for simple health issues. These new clinics are popping up across the country. They go by the names such as MinuteClinic and Quick Care. They are being widely touted by health care plans due to their high patient satisfaction and moderate prices.

These companies reduce overhead through the application of the kiosk model from retailing. They keep their operating costs down by staffing with nurse practitioners, who are fully trained to provide care at this level. Because of their efficiency, health care plans are encouraging their use by offering lower co-pays (often as little as $5).

So next time some politician suggests the need for expanded government intervention into health care, tell 'em to go to a MinuteCare and get a chill pill.

(Thanks to Ben Cunningham for this suggestion).

Posted by Jeff Cornwall at 06:25 AM | Permalink | TrackBacks (1)

State-by-State Employment Data released today:

"Highlights:

"The latest state-by-state data are consistent with recent job growth nationwide. Since last August, over 1.5 million new payroll jobs have been created. Nearly 1.3 million new jobs have been created in 2004 alone. If the current pace of job growth for 2004 continues, over 2.5 million jobs will be created this year. In addition, the current national unemployment rate is 5.6 percent, well below its recent peak of 6.3 percent and below the average unemployment rates of the 1970s, 1980s, and 1990s."

(Source: Joint Economic Committee).

Posted by Jeff Cornwall at 10:16 AM | Permalink

I was watching more highlights of the British Open this morning on the Golf Channel, and I was struck by another lesson golf offers entrepreneurs. Even after all of the preparation and planning, sometimes the Open comes down to one or two unlucky bounces. The links courses are infamous for their quirky landscapes that create quite unpredictable outcomes from perfectly executed shots.

There is a certain randomness that we can never completely prepare for in golf, just as in business. I saw several well struck shots hit a mound just wrong and go in directions the players never imagined. The same is true in business. No matter how much we plan and no matter how much data we gather, random acts happen. We had a business that was providing vocational assessment and training for workman's comp cases that was growing quite nicely until one day we woke up and found out that the state legislature had added language to a bill that basically took away most of our funding from workman's comp insurance. It was a bad bounce from which we could not recover. Nobody saw it coming. It was as if we were playing our way around the course flawlessly, but on the final hole we caught a bounce that sent our ball out of bounds to cost us the championship.

Luckily for us, this was a small part of our total operation, but it taught us an important lesson. Although we could manage our risk by careful planning and solid execution, we could never eliminate the random outcomes that arise from uncertainty. Bad luck can happen at any time and without warning.

Depending how bad the bounce is, the golfer either plays on from where they are, or if the bounce is bad enough, knows that he will be able to play again tomorrow and hope that the golf gods will be kinder. A good lesson for entrepreneurs, too.

Posted by Jeff Cornwall at 08:30 AM | Permalink

Matt Homann asked me to contribute to a feauture called "Five-by-Five" that he uses at his blog the [non]billable hour. He asks five experts to contribute five comments each about a particular topic. This week he asked for advice that we would offer lawyers on how to work effectively with entrepreneurs.

Posted by Jeff Cornwall at 08:26 AM | Permalink | TrackBacks (1)

One of the most difficult moments for entrepreneurs can be the point when they realize that they can no longer effectively manage the companies they created. This is not an unusual event, but it is most often met with complete denial.

The StartupJournal has an article that shows the struggles that one entrepreneur faced when he owned up to his limitations related to his growing company.

"Mr. Reeve wants to remove himself from all aspects of management and become the company's chief designer and inventor. This transition is proving easier said than done. The company needs to find a strong manufacturing manager with the ability to satisfy the founder, maintain quality and build profitability. Two managers who were hired in the past three years weren't up to the task.

Both Mr. Reeve and his wife, Anne, who co-founded and helps run the company, agree something needs to happen quickly. Mr. Reeve is burned out from doing work he doesn't enjoy."

There are the lessons that the author of this article, Perri Capell, arrived at from interviewing this entrepreneur:

-Entrepreneurs can be a mismatch for a mature business.

-Management skill cannot always be learned.

-Hiring a successor can be a very difficult task.

Although all of these can be true in many cases, my experience is that if dealt with early enough, many of these challenges can be avoided. I have seen many entrepreneurs make such a transition successfully. It is not easy and the entrepreneur will need to commit to a long term plan not only for the business, but for him or herself. I stress to entrepreneurs that they need to understand that it is not just their businesses in transition, but they need to transition, as well.

One of the best books I have even read on this topic is Growing Pains. It was my Bible during this transition period in our business. The good news for young entrepreneurs is that many are learning about managing growth in their formal education on entrepreneurship. The rest of us old dogs will need to try to learn this on the fly.

Posted by Jeff Cornwall at 06:17 AM | Permalink

WomensWallStreet.com has some more advice on starting a business out of your home that goes along with a recent post at this site.

"Begin by deciding if a home-based business is really right for you by making an honest assessment of yourself and your needs and availability. It's harder than pointing and clicking, but it's where the real work begins. Talk to your family about how much time you want to devote to work, and research every option thoroughly - you'll learn a lot and avoid a bad match. If you're determined to keep your weekends free, for example, avoid retail and real estate.

Be sure working at home suits your temperament. If being cooped up in the house doesn't sound appealing or if you're easily distracted, think twice...."

Successful home-based workers I have talked with all say the you need to set some clear boundaries of place and time that define your working at home. Set aside a "work place" in your home such as a designated office, but only go there during predetermined working hours. This may even require getting two computers and two phone lines--one for working at home and one for family use--to make sure the boundaries are kept clear and consistent. This can help with distractions.

Posted by Jeff Cornwall at 06:00 AM | Permalink

The current trend of young people embracing free enterprise and yearning to become entrepreneurs when they grow up seems to be part of an even bigger social shift. Tech Central Station has posted an article written by James K. Glassman reporting on a study on "the mood of American youth". (Glassman's commentary has been published in many newspapers throughout the country over the past week or two).

"Violence, drug use and teen sex have declined. Kids are becoming more conservative politically and socially. They want to get married and have large families. And, get this, they adore their parents.

"'In the history of polling, we've never seen tweens and teens get along with their parents this well,' says William Strauss, referring to kids born since 1982. Strauss is author, with Neil Howe, of 'Millenials Rising: The Next Great Generation.'"

What is behind this radical shift? Glassman quotes an article by Kay S. Hymowitz, in which she believes that is has four root causes:

"1) a 'rewrite of the boomer years,' with young people reacting critically to the world of sexual experimentation and family breakup and 'earnestly knitting up their unraveled culture,' 2) the trauma of 9/11, which has made kids more patriotic and turned them inward toward the comfort of family, 3) the information economy, which has given young people greater faith in their own chances to succeed, especially through self-reliance and entrepreneurship, and 4) immigration, which has produced what she calls a 'fervent work ethic, which can raise the bar for slacker American kids, as any higher schooler with more than three Asian students in his algebra class can attest.'"

I was talking with one of my colleagues just this past week about how different the young people we see in college are compared to those of just five years ago. They are more serious and more diligent. They are more self-reliant and ready to learn for the sake of learning. And they have a very different meaning of success. It includes more balance between economic measures of success and the successes achieved through becoming a spouse and a parent.

Although Democrats should be shaking in their boots about how this could change things for the next decade or so, traditional Republicans cannot take these young people for granted either. They do not trust institutions that abuse power, whether it be governments or large corporations. But they do embrace the system of free enterprise and they long to build stronger families that will last. The Republican shift back toward moderation may not resonate with this group for very long.

Maybe I've been understating things when I've talked about the entrepreneurial economy today. It may be that this is a cultural shift that goes well beyond simple economics. Maybe the entrepreneurial economy is but just one part of a fundamental change that may alter America as radically as did the 1960s generation.

Posted by Jeff Cornwall at 08:16 AM | Permalink | TrackBacks (3)

This week's Carnival of the Capitalists is posted at The RFID Weblog. It is a great and varied collection of posts this week.

Posted by Jeff Cornwall at 08:08 AM | Permalink

Something that is often overlooked is the need for home based businesses to secure business insurance. This article at NFIB outlines how to evaluate your needs.

"Every owner of a home-based business should consult with an agent experienced in insuring small businesses. Normally, your homeowner's policy will cover some business-equipment coverage costs in the case of losses due to fire or theft, but if you're not completely familiar with the details of your homeowner's policy, snags could develop when making a claim. You may find, for example, that business equipment is excluded from coverage or that the policy's deductible for computer equipment is higher than the replacement cost. Even worse, you might find that simply having a business in your home voids your homeowner's coverage."

Too many small business people seem to want to ignore issues such as insurance needs and employee legal issues. Even if your business is a home based business, it is a business. Don't cut corners on matters such as these. The odds are very good that it will catch up with you.

Posted by Jeff Cornwall at 07:24 AM | Permalink | TrackBacks (1)

Jay Ebben (former colleague of mine from St. Thomas) talks about the impact of bank mergers on small business in his commentary over at Inc.com.

Posted by Jeff Cornwall at 07:06 AM | Permalink

We have talked about the growing number of aging baby boomers becoming entrepreneurs later in life. This article at Entrepreneur.com reports that many of my comrades are choosing franchising as their entry strategy. This is not a bad approach, as many of these folks have spent their lives in the corporate environment. Franchises can help provide structure and systems to help with this sometimes difficult transition.

Posted by Jeff Cornwall at 06:52 AM | Permalink

Well, that's it for this stop of the Business Book Blog Tour. It's been an enjoyable day!

Thanks to Tom Ehrenfeld for sharing his insights from his book The Start-up Garden.

Thanks, as always, to Todd at A Penny For for putting all of the BBBT's together.

Join in the discussion with Tom tomorrow as the Business Book Blog Tour moves on to The Small Business Blog.

Posted by Jeff Cornwall at 07:46 PM | Permalink

Question: Many entrepreneurs like to talk about a culture of “family” in their businesses. Yet, you talk about the importance of setting boundaries when relating to employees. Is it unwise to build a business with a sense of family as the basis of its culture?

Answer: First of all, the answer depends to some extent whether you are talking about the Partridge family, or the Manson family. In other words, a happy family or an unhappy one? Hint: the former tends to be better than the latter. Because everyone has a different sense of family, I’d state instead what seems to me an ideal to strive for in terms of creating a healthy culture at work.

In terms of startups, I think the key issue has to do with setting boundaries and being extremely clear about mutual expectations and agreements in the present and evolving future. Because the roles and responsibilities of individuals often cross functions, exceed traditional working hours or settings, and change on the fly, it’s critical that issues such as compensation, responsibility, and authority are explicitly discussed at the beginning, and revisited over time. Moreover, individuals must have some set of goals that are defined in a manner that supports and grows the company. None of these conversations need to be excessively formal or bound in absurdly overdone legal terms. The point is, however, that the people who run the company and do the work must establish a process of managing people that is perfectly transparent and never prey to personal fiddling. This means establishing a formal way of establishing goals, reviewing performance, sharing the upside, and putting so-called undiscussable issues on the table. Anything less essentially invites confusion and conflict down the road.

Posted by Jeff Cornwall at 05:35 PM | Permalink

Question: What are some of the ethical challenges that can be created when building a business through bootstrapping and how best can an entrepreneur avoid them?

Answer: Do the right thing, always. I find it very difficult to discuss ethics in a generalized way. Starting a business can push individuals to stretch the truth for competitive advantage. This can come in any number of ways. Owners might claim to be bigger and more established to lure investors or clients. They could attract employees or customers with exaggerated tales of prospects. They might claim to have certain key elements in place before they are locked down simply to calm key players. The opportunities for fudging will only multiply as a company gains traction. Founder/owners can justify their extreme behavior by saying its all for the company—that it’s business, not personal. But of course it really is all personal, to someone.

So I think the real issue is quite simple. Do the right thing always. Be honest to people. Practice the golden rule. And always do what you say you will do. I truly believe that a culture of openness and honesty foments more of the same, while one that sanctions untruths will inevitably create more lies.

Posted by Jeff Cornwall at 05:09 PM | Permalink

Question: Why do think it is so important to know how much money you will make before you try to figure out how much money you will need to raise?

Answer: The real issue is fit, in this case financial fit. Different types of companies have very different types of needs, in terms of people, resources, and capital, and you simply need to be clear about what your particular needs will be ahead of time, or run the risk of wasting time chasing the wrong capital, getting too much capital (a problem), too little capital (another problem,) capital that comes with onerous requirements, capital that comes with destructive investor/partners, capital that drives individuals to do foolish and counterproductive things, and so on.

I hate to sound simplistic on this point. Maybe the real point is this: choosing a source and type of finance is essentially a strategic choice that has great bearing on the future of your company. And it’s not just that you need the right fuel in the tank, as it were (whether gas, diesel, or rocket fuel.) Choosing the right financial backing means vetting everything that comes with the funds: are you using this process to learn more about your company’s health? Are you seeking backing from people with industry experience or terrific contacts? Do you see this as a process in which securing the capital is a crucial part of a larger process that moves your company forward?

Posted by Jeff Cornwall at 03:56 PM | Permalink

Question: The difference between business plans and business planning is one that you highlight in your book. Can you give an example of why this distinction is important?

Answer: Recently a really smart guy referred to business plans with what I consider the perfect word: currency. Business plans serve as a form of currency—a fluid and temporary repository of information (and imagination) that fuels conversations between the players and potential players in any venture. Business plans have two fundamental purposes: to engender meaningful dialogue among participants about how to move the venture forward, and to foster real learning about how to achieve the goals.

Oh yeah, a slick and credible business plan can help someone raise money, which is a good thing. But again, this usually generally benefits individuals who were already well-positioned to receive funding in the first place.

Posted by Jeff Cornwall at 02:40 PM | Permalink

Question: You begin your book with the importance of conducting a self-assessment before beginning a business. How can entrepreneurs avoid losing sight of the insights they gain from this self-discovery as their businesses grow?

Answer: Ideally, the insights become embedded in their actions. That is, realizing what you care about and are good at should get you started on the entrepreneurial path. Given that success is invariably an iterative process, based on where you are rather than where you aspire to be, the ability to accurately assess your potential venture will situate you in the most fecund ground. (Pardon the flowery jargon here…) I guess what I’m saying is that the self-assessment should include a realistic stock-taking of what you know (i.e. the copper pipe market or the legal profession) as a way of spotting opportunity. It also includes what you care about, who you know, what you’re good at—but not for the sake of achieving enlightenment (which is not a bad thing of course) but as a way of forming an entrepreneurial vehicle with a realistic chance of health and success.

So get the insights right from the start. As you proceed down the path, remaining open to what you learn, you will continue to expand what you know, and continue to becoming truer to the insights. AND if you business begins to falter, it could be that you don’t have enough cash or customers (generally a bad thing.) But it could also be a function of straying from your source of value (i.e. what you know, care about, are good at, and control)—or never realized what that source of value was. So take the time to reassess.

Posted by Jeff Cornwall at 12:08 PM | Permalink

Welcome to this stop of the current edition of the Business Blog Book Tour. Our guest today is Tom Ehrenfeld, author of The Start-up Garden.

Throughout the day I will be posting my questions to Tom and his responses. Stop by often and join the in the discussion. The author will be checking in to see the comments and questions that you post and will offer additional insights based on what you have to say. As I mentioned earlier this week, we did have a few glitches after we upgraded our software, but the comments feature is now working flawlessly. Jump into the discussion any time!

Question: I like your metaphor of a garden for the entrepreneurial process. Are there any values or personal characteristics common to “successful” gardeners that also would be useful for entrepreneurs to think about?

Answer: The core idea of my book is that there are essential skills for individuals to master in order to realize entrepreneurial success. That is, simply to get in the game you need to become financially literate, to understand the principle of boundaries and goals when employing people or dealing with professional colleagues, to get the notion of a customer at a fundamental level, for starters. I think that when you develop these skills you have more of an opportunity to leverage your personal passions, skills, and beliefs.

*an ability to learn and grow—and most of all, a reflective capacity. That is, an ability to learn from experience! To do, to take chances, and learn from mistakes. And to learn from experience above all, rather than from simple argument or intellect or emotion.

Posted by Jeff Cornwall at 05:42 AM | Permalink

Thanks to Bill Hobbs for bringing the golf picture back to my site! Public pressure is a powerful weapon, sometimes.

Speaking of golf, while I was out this morning I was thinking about how my swing had been going so well for the past few rounds. But, now it was once again starting to fall apart this week. It reminded me of my days as an entrepreneur. When things started to run smoothly I would find myself relaxing just a bit too much. I would start to take my mind off the little things--not paying attention to details like I should. I would not pay attention to A/R like I should. I would not keep my eye on managers that needed me keeping an eye on them. And then, bit by bit things would start to get off track.

That is like my swing, I'm afraid. When I finally get it worked out I stop thinking about the little things that keep me hitting the ball straight and solid. I forget to keep my head still. I get off plane on my back swing. I tighten up my grip too much.

Certainly one can over analyze a business or a golf swing. But neither can completely take care of themselves. Even golfers with "natural swings" have to focus on what they are doing. And even the best business opportunity requires careful implementation and management. They really both come down to one thing: execution.

Posted by Jeff Cornwall at 12:25 PM | Permalink | TrackBacks (1)

My site sure looked different when I checked in on it yesterday. Bill Hobbs and the IT crew here at Belmont have helped with the transition to upgraded software. So we are playing with some new layouts and features. Hope you like it. I do, except I do miss my golf picture....I always like to point at it when I tell entrepreneurs they need to FOCUS. Although I like to use lots of different metaphors, I can think of no better one for entrepreneurship than the game of golf.

Well, I'm off to my tee time....

Posted by Jeff Cornwall at 07:03 AM | Permalink

Tomorrow, this site will host the Business Blog Book Tour. As I mentioned yesterday, the book is The Start-up Garden by Tom Ehrenfeld. And even if you haven't read it I know you will find the discussion quite interesting and insightful.

I will be posting a question and the author's response every few hours throughout the day. So stop by often and join the in the discussion. The author will be checking in to see the comments and questions that you post and will offer additional insights based on what you the visitors have to say. Although we had a few glitches earlier this week after we upgraded our software, the comments feature should now be working smoothly. So join in!

Thanks, once again, to Todd at A Penny For for putting this together. Here is the schedule of this tour, which has already begun this morning at re:invention.

Posted by Jeff Cornwall at 06:54 AM | Permalink

If someone is ready to invest in your business you should take the money. Right? Not necessarily! As flattering as it may seem, and as many times as you may hear about the advantages of using other people’s money, taking on equity investors should be done with great caution.

Dilution of Ownership

Each new equity investor reduces your share of ownership, which is known as dilution (think of that glass of ice tea as the ice melts). The argument is that with the additional money, you will create a bigger pie for all to share. Well, maybe. Investors will talk of very high expectations for their rates of returns. Venture capitalists often look for deals that can create 70-100% annualized returns. This is because they recognize that your business is a huge risk for their investment. Failure of any given deal is always a real possibility. Just because they are willing to invest does not mean that they assume that your deal is a safe bet. That is why they want a seat on the board for each investor and to maintain the rights to take over the company (which they often do). So, a bigger pie is not a “given” when it comes to adding more equity shareholders in your business. You may just have less of the same pie, or even less of a smaller pie. Remember, these investors expect you to grow quickly, which increases the overall risk of your business.

The Risk of Sharks

Some investors are best described as predatory. They are looking for deals, not partners they want to be in business with. Although it is not true of most investors, there are a certain number who intend on taking over your company at the first opportunity. The language in the contracts they insist on, give them quite a bit of power to put in “new management” if performance criteria are not met. And they will do it the first time you give them a chance. Again, most investors are not sharks, but there are a few circling out there, and they can always smell blood in the water.

Dynamics of Adding on New Partners

You and your partners have been through all of the excitement and stress of getting things up and going. Hopefully you have chosen each other with a great deal of forethought. Take on an investor and those dynamics change forever. It is like a nice stable family that suddenly has a long lost relative who moves in to stay. There are new relationships that have to be established, rules change, the culture can even begin to change, and certainly the dynamics between the original founders will never be the same. You always have to consider “that person who now sleeps in the bedroom down the hall” in every decision.

There are instances when equity investment makes sense. Start-ups that take a great deal of time to reach cash flow and require large capital investments often have no choice but to bring on investors. Some expansions, especially rapid ones, may need such funding. But, just because you can raise equity does not necessarily mean you should. Be flattered when investors come calling, but think it all through very carefully. If you can reach your goals with your own money, a little more debt, or through slower organic growth it may be a better option for many businesses.

Posted by Jeff Cornwall at 06:21 AM | Permalink

This Thursday it will be my pleasure to host the current Business Blog Book Tour that is making its rounds through your favorite sites. The book is The Start-up Garden by Tom Ehrenfeld. It is a great book. But, even if you haven't read it I know you will enjoy what its author has to say.

I will be posting a question and the author's response every few hours throughout the day. So stop by often and join the in the discussion. The author will be checking in to see the comments and questions that you post and will offer additional insights based on what you the visitors have to say.

Thanks, once again, to Todd at A Penny For for putting this together. It should be great. Here is the schedule of this tour, which begins tomorrow.

Posted by Jeff Cornwall at 08:01 AM | Permalink

There is a movement afoot to standardize entrepreneurship education. While there are some benefits to setting standards and even to accreditation, I hope that the traditional academics can keep their hands off entrepreneurship education for at least a while longer.

Certainly part of what has made entrepreneurship education flourish has been the creative juices that flow in many of its pioneers. We seem to be hung-up on finding legitimacy with our peers in the academy, so we fret about developing a theory base. The truth is, business education itself is in its infancy. We have only been teaching business education since the 1950's (Authors note: I believe that anything developed within my life time should be considered relatively new, or even down right modern. It may be denial, but that is my premise and I'm sticking to it!).

When I compare my own business education which began about thirty years ago to today, much has changed. Why? Some is from new knowledge, but much of it is because we live in a changing world. Business operates within a complex context. Governmental policy can drastically change major parts of what we once knew to be true. The Finance and Banking text I studied from is no longer even close to today's understanding. Deregulation of banking and financial services transformed this sector beyond recognition from what we learned in my MBA program in the late 1970's. Social trends have had a tremendous impact. My wife was part of the first major wave of women going into the traditionally male work world. Human Resources texts are now full of discussion on sexual harassment and gender bias in the workplace. Amazing new theories have fundamentally changed the fields of finance and economics. And entrepreneurship? It wasn't even a word that we learned. Now it is everywhere in business curricula.

So relax! Entrepreneurship is a fundamentally part of our current economic transformation. Let the creativity that is so much a part of entrepreneurship do its work. Let the market judge what programs and what knowledge work for entrepreneurs. Let us continue to play with the concepts and tools and how to teach them. I continually change my courses, and advocate that we reinvent our whole curriculum every few years. Just as entrepreneurs find that their businesses look very little like they envisioned in their business plans, I imagine that how we teach entrepreneurship will continue to evolve and improve. After all, entrepreneurship education is really still in its start-up phase and the world around us is in a period of amazing change. Give it time.

Posted by Jeff Cornwall at 07:34 AM | Permalink | TrackBacks (1)

Tax policy as a form of economic engineering usually doesn't work, and even if it does, it is not very efficient. Here is an example from the St. Louis Post Dispatch.

"The Missouri Certified Capital Company Tax Credit program was designed to create jobs by funding promising small businesses. Instead, it has flushed many millions into companies that went belly up, according to Ms. McCaskill's recent audit. Missouri taxpayers may be forking over $470,000 for every job actually created."

The best way for government to support economic growth is to reduce barriers facing entrepreneurs and to stop trying to micro-manage the economy through tax schemes. Rather than targeting tax cuts or credits, simply reduce taxes. Entrepreneurs can then use the money to grow their businesses and create more jobs based on their understanding of their own companies and the markets they do business in.

Posted by Jeff Cornwall at 11:22 AM | Permalink

Carnival of the Capitalists is up and running for this week. Check it out at Outsourcing Weblog.

Posted by Jeff Cornwall at 11:17 AM | Permalink

Sorry for being off-line for a couple of days. We upgraded our server and software and it took a little longer than planned...

Posted by Jeff Cornwall at 11:15 AM | Permalink

I continue to be amazed at the trend toward more and more new business formation. Even as the economy picks up, we see experienced executives moving into the entrepreneurial ranks, as seen in this post by Anita Campbell at Small Business Trends. The biggest challenge these executives face is to understand that they are not forming a small, "big business".

Most of these folks find that to survive in the entrepreneurial realm they must unlearn many things they know from their big business experiences, and more importantly develop many new habits. I had an entrepreneur in my MBA class last night who stressed what a challenge this can be. He began his career moving up the ranks of a large corporation. Then he caught the bug, and decided to strike out on his own.

One day, he needed some Post-it notes, and was ready to tell someone to get them for him. That's how it worked in his old job, after all. But, wait! There was no one but he and his partner. So, he did what every entrepreneur does: he got in his car and drove down to Office Depot. He also found that he began to write notes on the back of used paper, rather than pull out a clean sheet of letter head as he did when in a big company. He started to stay in Microtels and fly Southwest, rather than stay in the best hotels and fly first class.

Another challenge is that some big business converts find that raising money can be relatively easy. This actually can be a mistake if it is too easy. Too much money is almost as bad as not enough. These new entrepreneurs find it easy to spend this "extra" money on overhead and "lifestyle" expenses. This can burden on a young business by creating too much fixed overhead, which will eventually catch-up with these entrepreneurs. The business cannot grow large enough, quickly enough to cover these fixed expenses. And when they do realize the problem they created, it is often already too late for their business to recover.

But many do make the transition and are now filling the ranks of this growing army.

Posted by Jeff Cornwall at 07:41 AM | Permalink | TrackBacks (1)

Productivity continues to improve in the US, but as Arnold Kling asserts, don't give credit to policy makers in Washington.

"As far as I know, President Bush has not claimed credit for the phenomenal productivity growth that has occurred during his Administration. Nor should he. As Dick Cheney said when asked during the Vice-Presidential debate whether he was better off in 2000 than he was four years ago, 'Yes, but government had nothing to do with it.' ....The most likely explanation for the faster productivity growth of recent years is the gradual diffusion and exploitation of computer technology."

I might go a little further and suggest that there is one government policy that increases productivity: A policy of governmental "hands-off" in relation to economic development. The more government tries to steer, cajole, or otherwise manipulate economic activity, the more it tends to stifle productivity and entrepreneurial economic development.

Posted by Jeff Cornwall at 04:46 PM | Permalink

There is a nice summary of key start-up issues and concerns at Forbes.com.

Full disclosure: OK, so they quoted me in this article. But, its a good one anyway.....

Posted by Jeff Cornwall at 04:15 PM | Permalink | TrackBacks (2)

I visited an interesting weblog this morning called the [non]billable hour. It is written by an attorney named Matt Homann who is trying to change the practice of law--for the good--as he puts it, "one lawyer at a time". An interesting site for entrepreneurs, as well.

It took me a few tries to find an attorney for our business who really understood entrepreneurs, how we work, and how we need them to work. Don't give up if you are trying to find a new attorney.

Here are some tips on choosing and working with an attorney that I talk about with entrepreneurs that is based on a great book, The Entrepreneur's Guide to Business Law by Constance E. Bagley, Craig E. Dauchy:

Choosing an Attorney

1. Understand the advantages and disadvantages of large vs. small firms. Large firms have specialized expertise that can become critical as you grow. Small firms can offer a more personal touch and can be more efficient. Most entrepreneurs need something in between. Understand your needs (e.g., intellectual property, environmental law, employment law, etc.) and make sure they have an expert that can address your needs as these issues arise.

2. Get at least three referrals from people you trust. Your best source is other entrepreneurs.

3. Interview each firm carefully. Think about things such as: personality (you may need to spend a lot of time with these folks during stressful times in your life), how compatible you think the working relationship would be with these folks, their use of technology to make things more efficient (and cheaper) for you as a client, the timeliness in returning phone calls (they will never be more responsive than when they are trying to get your business--so if they are slow now....), knowledge of your industry (not essential, but helpful), do they add networking potential to sources of funding or new business, and finally find out how much they cost and how sensitive they are to your limited budget (be honest and direct--if they are defensive about their rates, run for the hills!).

Working With an Attorney Effectively

1. Talk openly about fee structure for any project and be honest about your budget. Their are more than one way for them to bill, and they should be willing to work with you, especially if you are a newer venture. If not, go to the list above and find a new attorney. Some attorneys will reduce the fees for working with a promising entrepreneur with the hope that as you grow, they will reap the benefits of more business when you can better afford to pay for it. Ask about this!!

2. Your attorney should be willing to let you preparing your own drafts on documents. This can save a lot of money and will result in documents that better reflect your business and your strategies.

3. Organize your meetings with your attorney. Batch issues so you have fewer, more efficient meetings that can cover several issues at once.

4. Be proactive. If you think you might need to talk to your attorney, you probably do. They should let you send a quick e-mail to see if they really need to talk with you about an issue as a regular practice.

5. If you have questions about your bill from them, ask them about it! If they get defensive, you may want to start shopping for a new attorney.

By the way, make sure to get your lawyers to visit Matt's site. Then talk with them about it--OFF THE CLOCK!

Posted by Jeff Cornwall at 06:18 AM | Permalink | TrackBacks (4)

Rob at BusinessPundit suggested a post at The Occupational Adventure about failure. It is worth a look. Failure, or the fear of failure, is what has kept many a potential entrepreneur on the sidelines. Failure is something we all have learned from along the way if we let ourselves take some risks. It reminds me of the first time I really got tackled hard in Junior High football. I was really afraid of how it would feel, and although it really did hurt (the guy was the star line backer of the eighth grade team), I learned from it (stay away from his side the rest of the game and go out for cross country next fall).

We can all learn from our own failures. That is an important part of entrepreneurial learning. We can also learn from the failures and mistakes of others (I picked that up and a young age being the youngest of four boys--thanks for all the lessons on what not to do Tom, Scot and Steve). Some of my best lectures center around mistakes and failures I had in business and how I tried to learn from them going forward.

Posted by Jeff Cornwall at 07:00 AM | Permalink | TrackBacks (2)

Market power is something that can be easily abused by larger corporations often at the expense of smaller businesses. There are several examples from the software industry discussed in this article from Wired News.

Posted by Jeff Cornwall at 11:53 AM | Permalink

William M. Gentry of Williams College and R. Glenn Hubbard of Columbia University have released a ground breaking study (this is a site that asks you to purchase the study--hopefully, you get the point from my summary) on the power of tax policy to effect entrepreneurial behavior.

Their study is based on over 50,000 observations. They found that progressive marginal tax rates (rates that increase at higher levels of income) reduce the likelihood that people will engage in entrepreneurial activity. While this makes common sense to many of us, this study provides compelling evidence on how changing our tax policy as proposed by Sen. Kerry could damage or even reverse our current expansion.

"We found robust results that progressive marginal tax rates discourage entry into self-employment and business ownership. Those effects are large: The Omnibus Budget Reconciliation Act of 1993, which raised the top marginal individual income tax rate, was estimated to have reduced the probability of entry into self-employment for upper middle income households by as much as 20 percent. Moreover, those estimated effects were robust to controlling for differences in family structure, spousal income, and measures of transitory income."

The implications of this study cannot be overstated. We face the possibility of a shift of policy at the national level that could result in higher marginal progressive tax rates. Sen. Kerry has made it clear he plans to raise the tax rates of what he calls "the rich". Many of them are entrepreneurs who pay personal taxes on their businesses due to their S-corp, LLC, or partnership status.

Why does tax policy have such an impact? Entrepreneurs who are considering expanding an existing business or starting another may think twice. Each expansion or new business carries risk. And if the rewards are reduced with each new initiative the entrepreneur undertakes, there comes a point when it just isn't worth the risk. So progressive marginal taxes create the most significant disincentives for the very entrepreneurs we want to encourage--those who have already succeeded with other ventures. When I was an entrepreneur in health care we started multiple ventures. We built off our previous success to go into new lines of business and new markets. But each success brought higher taxes and lower after tax returns for those of us taking the risk. We found ourselves thinking twice about deals that we normally would have eagerly pursued as the risk return ratio turned more and more against us.

This site and many others have shown how dependent this economy has become on entrepreneurial growth. Entrepreneurs are not just leading this recovery, they are transforming this economy. The changes being planned by the democrats could act like a cold, wet blanket on our economic future.

Thanks to Ben Cunningham who e-mailed this study to me.

Posted by Jeff Cornwall at 06:31 AM | Permalink | TrackBacks (4)