The Entrepreneurial Mind

The Office of Advocacy of the SBA reports on another positive development in the fight to get government out of the way of entrepreneurs.

"Small businesses will find it easier to comply with complex and confusing federal regulations, if a bill recently introduced by Senator Olympia Snowe (R-ME) becomes law.

"The Small Business Compliance Assistance Enhancement Act of 2004 (S. 2834) amends the 1996 Small Business Regulatory Enforcement Fairness Act, a law that bolsters the Office of Advocacy's ability to reduce regulatory barriers that can stifle entrepreneurial growth. S. 2834 places new emphasis on compliance guides that agencies are required to write so that small businesses can better understand complex rules and regulations."

Posted by Jeff Cornwall at 06:59 AM | Permalink

This morniing I had finished cleaning up the usual porno SPAM on my blog site when what do I read? SPIT is now on the way!! From Law & Entrepreneurship:

"SPIT means Spam over Internet Telephony. It is expected to be the next move of Spammers who have already made the jump from email to instant messaging. As hundreds of thousands of users switch from traditional telephone service to VoIP internet calling, Spammers may see a new opportunity to target a critical mass. SPIT is essentially the equivalent of telemarketing, except that a single 'caller' will be able to send out a thousand messages per minute to VoIP voice mailboxes."

But, just as free markets can create evil, they can also create good to come to our rescue.

"Everyone seems to agree that SPIT must be stopped before it starts, and Qovia Inc. is the first company to come forward with a solution. Qovia announced yesterday that it has filed a patent application on the technology entitled, 'System and Method for Broadcasting VoIP Messages.' The technology is claimed to be capable of identifying unsolicited and unwanted messages and differentiating these messages from those that recipients desire to receive."

Hope it works better than the filters on my blog software and the "Do Not Call" programs for traditional telephone lines! If not, even this die-hard, free market entrepreneur may long for the days of Ma Bell.

Posted by Jeff Cornwall at 06:41 AM | Permalink

The Bureau of Economic Analysis (BEA) announced today that GDP grew at a seasonally-adjusted annual rate of 3.3 percent during the 2nd quarter, up from a previous estimate of 2.8 percent growth. Major contributors to the growth in GDP were business investment, consumer spending, and private inventory investment. Business investment, the lack of which drove the economy into recession in 2001, increased by 12.5 percent in the 2nd quarter and has now increased for five consecutive quarters. GDP has increased for eleven consecutive quarters.

Highlights:

* During the 2nd quarter of 2004, GDP grew at a seasonally-adjusted annual rate of 3.3 percent. Over the past year, GDP has increased by 4.8 percent.

* Business investment was stronger than expected, growing at a robust 12.5 percent annualized pace in the 2nd quarter.

* Export growth was strong and the revised 2nd quarter trade deficit was slightly smaller than previously estimated.

* Residential investment, primarily home building, was also revised up and is now estimated to have grown at a very strong 16.5 percent annualized rate. This is the second strongest quarterly growth in home building in eight years.

Source: Congressional Joint Economic Committee

Posted by Jeff Cornwall at 12:18 PM | Permalink

Entrepreneur.com has a great article on selling a business. They offer several suggestions and a few issues to be aware of as you enter into this potentially exciting, always stressful and often frustrating time for you and your business. As I tell me students, I had a full head of hair before we began the process that finally resulted in the sale of our business (see picture on this blog site to see the humor in this joke!). We went way down the road toward a sale twice before it finally occurred on the third attempt.

Here are the main suggestions that David Worrell offers in this article:

1- "It's never too early to start thinking about selling. 'The day you start building a business is the day you should start designing your exit,' says Minor, who has counseled thousands of business owners through the process."

I tell folks that if you are planning to sell your business in five to ten years, you should consider this short-term planning when it comes to an exit. Decisions you make today can have a huge impact on the options for selling your business and the price you get for its sale years from now.

2- "A business will fetch the best price only when buyers believe they can take advantage of significant future growth potential."

Most businesses are valued based on some multiple of current cash flow. The size of the multiple is, in part, on growth potential for the business. The more future growth that is anticipated from the business, the higher the multiple and therefore your price.

3- "(H)aving a Plan B is a vital step in the sale process....Having a strong and visible alternative makes any acquirer sit up and take notice."

As my father, the wise entrepreneur, always reminded me, "Never sit down to negotiate unless you are willing to walk away from the table".

4- "A strong team, clear policies and procedures, and a broad customer base are the underpinnings of value. The business should not just run without you, but be positioned to grow without you."

Most entrepreneurs want to leave their business sometime soon after a sale. And most of those who do not think they will want to leave, end up leaving fairly soon after the sale any way.

5- "While you've been focused on selling the company, who's been making sure the company stays focused on selling your product?... Many deals have been quashed when financial results from the last month or the last quarter are off target. Even if the buyer doesn't walk away, the price is likely to take a last-minute tumble."

Also, the majority of deals never make it to closing and as many as half that do get to closing, actually never close. Since you may end up keeping your business much longer than you anticipated, make sure it is running well.

6- "The amount of disclosure that buyers require can be mind-boggling. Putting it all together in a reasonable fashion is just one reason to consider hiring outside help. An intermediary, such as a business broker or an investment banker, can relieve you of some of the work while also keeping the buyer engaged."

Selling your business is not a time to cut corners in costs. It is a complex process that can come back to haunt you long after any sale due to the warranties that you will have to provide. Hire good help!

Posted by Jeff Cornwall at 05:52 AM | Permalink

Okay, I will admit it. I am a bit of a Luddite at heart. I think I was one of the last business owners to install a fax machine back in the 1980s. That same decade saw me holding out for vinyl when everyone else was building up their CD collection. In the 1990s I held out putting in an e-mail system in our business and launching a website as long as I could. And I still use video tapes rather than TiVo.

Well, the next wave of technology is about to crash over me. It seems that IM, that annoying messaging system that my kids used as teenagers, is now fast becoming a major mode of communication in businesses across the country. Red Herring reports on the IM boom as a business communication application.

"Instant messaging may be regarded as a waste of time in many corporate offices, but new studies suggesting that it can increase productivity may open the door for widespread adoption at work. But whether it's a drain on human resources or a boon to the bottom line, for some, instant messaging means a clear path to big profits."

Why? Because it is fast and cheap. And now there are new applications of IM being developed just for business use by some entrepreneurial communications companies.

"While that may seem like pocket change to the likes of MSN, AOL, and Yahoo -- all dominant IM portals -- it's quite a profit for smaller, IM-focused companies like Jabber, Akonix, and FaceTime. These new companies are developing customized IM programs for companies who see the benefits of real-time communication."

This is a classic example of a niche strategy that could allow some small companies to sneak up and grab some significant market share from the communications giants if they are not paying attention or able to adapt.

Posted by Jeff Cornwall at 07:25 AM | Permalink

It is interesting to watch how eBay has been leading to new business development. There are any number of start-ups that have been using eBay's infrastructure to create local retail operations, such as SnappyAuctions.com based here out of Nashville. These retail sites offer a place to drop off goods that customers want to sell on eBay. Snappy Auctions takes care of the rest. They deal with all of the hassle and confusion of setting things up with eBay.

Well, today I learned of another new business called NashvilleBids.com, which is trying to create a localized version of eBay here in middle Tennessee.

Their pitch:

"NashvilleBids.com is a down home idea whose time has come; a big boy auction alternative for Middle Tennessee buyers and sellers.

"Unlike the big boy auction sites, the staff of NashvilleBids are local people who are just as frustrated as most of us when it comes to browsing hundreds of listings before finding one or two that are close enough that we can afford the shipping charges. 'Try paying the shipping charges for an antique piano you won on eBay from someone in California', says NashvilleBids founder, Tracy Layne, 'and if you do decide to pay it, you just cross your fingers and hope the person you bought it from will actually send it. NashvilleBids.com serves the entire Middle Tennessee area, so you can avoid the hassles and costs associated with nationwide or statewide auction sites and arrange to pick up your item.'"

The next few years could be very interesting times for this new eBay inspired industry. I plan to pay attention to see what works and what is next!

Posted by Jeff Cornwall at 08:37 AM | Permalink

The Carnival of the Capitalists has set up its tents this week at Crossroads Dispatches. Evelyn Rodriguez does a particularly nice job of putting this week's edition together for your reading enjoyment!

Posted by Jeff Cornwall at 08:15 AM | Permalink

Ever since I returned to academics, I have gotten frequent calls from people wanted someone to write their business plan. Not help writing it. They just want someone to write it for them.

Those who are looking for a bargain ask if our students would write a plan for a class project of some sort. There was a time several years ago, when we might be able to find a few students with an interest to do such a project. But not any more. Students today want to start their own ventures as soon as they can, and express no interest in doing free consulting for someone else.

A few of these callers explore my interest in consulting (which I do very little of any more no matter what the project--too much to do helping our students and alumni). When they ask how much I might charge, I give a really high figure that they'd be nuts to pay me. (No takers so far, but even I can be bought in this situation).

When I'm asked why I won't help or prefer that my students don't either, I offer my advice to all aspiring entrepreneurs about business plans:

1. Business plans should be the last thing you do, not the first. The common wisdom seems to go like this: "I've got a great idea, so I guess I better write a business plan". Wrong.

2. Figure out how much you need to make in income and look at all of the non-financial factors that are important in your life. That becomes the standard you use to evaluate each feasible business that you identify. If it can't meet your needs, go on to the next idea.

3. Research the market to make sure that there is really a market. Try to figure out what a customer might pay for what you want to sell. And look carefully at all of the competition to see if that market is already being nicely taken care of. And by the way, there is always competition, no matter what you try to tell me to the contrary. If the market potential is marginal, go on to your next idea.

4. Examine what it will cost to provide the service or make the product. Compare this cost to what you figured out you think you can charge in the previous step. If there is enough profit, keep going forward. Enough can be a difficult standard to nail down. But I like to see at least a 50% profit margin at this early stage. (Of you can't calculate profit margin, take an accounting class somewhere to learn how--you need to know the "language of business"). If there is not enough margin in your idea, give it up and go on to your next one.

5. Make sure you know what you're getting into. Lifestyle issues matter. Know the hours and the investment a business requires before jumping in. Make sure it is something that builds from your experiences in some way, and is something you can be passionate about. There will be some long days and weeks and even months, so do something that excites you and can carry you through these low points. If your hear can't be in this deal, go on to your next idea.

6. Now it is time to write your plan, but first you need to figure out why you need a plan. A plan you write for yourself is very different from a plan you write for an investor. Know the audience of the plan. You probably will need to write a couple of different versions for different uses: one for you, one for your investors, and one for creditors. If the plan starts to break down financially or in your ability to make it happen, give it up and go on to your next idea.

As you can see, a business plan starts with you and your needs. And equally important, it provides a process that helps you learn about the business. It is a process with many exit points that you need to pay attention to so you don't get in too far too fast.

You'll need to intimately know all the details and nuances that are discovered. And when it comes time to use the plan to raise funding, the banker, creditor or investor will expect you to know the plan inside and out. Only the person who writes it will have that knowledge. And it would not look good for you to drag me or some group of college students along to explain everything for you.

Posted by Jeff Cornwall at 07:59 PM | Permalink | TrackBacks (3)

Entrepreneurship is beginning to find its way into many professional programs, including engineering, medicine and other health sciences, and so forth. This piece in Entrepreneur.com looks at how these professionals are beginning to think and act more like entrepreneurs every day. It also offers some practical advice for professionals on what they can learn from successful entrepreneurs.

Posted by Jeff Cornwall at 05:01 AM | Permalink

Entrepreneur.com tells of three entrepreneurs who measure success by more than their bottom line. In their commitment to make a difference in their communities they are examples of truly "good entrepreneurs".

"The role of businesses in civic responsibility--actively working in communities for positive change--blows past charity donations and in-house recycling programs as businesses take an aggressive, hands-on approach to making change happen in their communities. Despite the tarnished image some business leaders have sustained in recent years, there are shining examples of those who work to build successful communities as well as successful businesses."

The first was Kowalski's Markets in Woodbury, MN.

"The Kowalskis had an opportunity to flex their civic muscle when they purchased four store locations in 2002. One of the stores was located in Minneapolis' Camden neighborhood, a lower- to middle-class community unlike their typical upscale customer demographic. Rather than sell the property, the Kowalskis decided they had an obligation to provide a neighborhood grocery store to that community since the former tenant had failed to do so, and the civic experiment began."

James Tufenkian uses his carpet business to make a difference in Armenia, his ancestral homeland.

"(H)e brought several Tibetan craftsmen and revived ancient Armenian carpet weaving through his business, which now employs more than 2,000 people in Armenia and nearly 10,000 in Nepal. Tufenkian also started the Tufenkian Foundation, with about 15 different programs to benefit Armenian society; Armenian Forests, a nongovernmental organization to stop deforestation; and Tufenkian Heritage Hotels, with three locations open so far, to drive tourism to Armenia."

Michelle Rathman is the owner of a St. Charles, Illinois-based marketing/PR firm.

"Her mother abandoned her and her three sisters when Rathman was 4 years old. Rathman left her home and her abusive, alcoholic father and lived on the streets at a young age....(S)he shares her story with inner-city youths. She provides insight and advice in hopes of enabling them to make good choices."

Posted by Jeff Cornwall at 06:20 AM | Permalink

Not only do growing companies have to worry about a tax increase, but now the IRS has decided to target small businesses for an increase in audits. And many entrepreneurs don't have a clue.

"The survey...revealed that more than 60% of the CEOs weren't aware that the IRS is beefing up staff in order to target companies with assets valued between $10 million and $250 million. In March, IRS Commissioner Mark Everson requested a 5% budget increase and 5,000 additional agents for 2005."

Read about it at Inc.com. And remember, they let some of these accountants carry guns!

Posted by Jeff Cornwall at 06:39 AM | Permalink

StartupJournal offers some follow-up advice to yesterday's post that touched on the fundamental risks of franchising. It offers some ways to reduce this risk.

Posted by Jeff Cornwall at 06:35 AM | Permalink

Small Business Trends reports on a study by the International Franchise Association (IFA) Educational Foundation and PricewaterhouseCooper, which reports that franchised businesses make up 9.5% of our economy (they provide a direct link to this study, but beware that it is a 181 page pdf file).

It is important to keep in mind that the IFA is an advocate of franchising. These figures reflect the very broadest definition of franchising, which includes distribution companies such as car dealers, bottlers, and gas stations. It is not just the small retail business, such as a bagel shop, that most think of when the term franchise is used.

Franchising is often not the happy partnership that the marketing packages franchisors send out to interested parties. Franchisees will often band together in an almost union-like manner. In fact, one of the most common seminars for franchisors done within this industry addresses the litigation issues they face with their franchisees. Broken promises, unmet expectations, and a perception of little value for the often high monthly fees paid to the franchisor lead to these legal battles.

So although franchising can be a good entry into entrepreneurship, do your homework and go in with your eyes wide open.

Posted by Jeff Cornwall at 07:00 AM | Permalink

The National Dialoge on Entrepreneurship has provided a link to a new report from the World Bank, Doing Business in 2005, which offers some dramatic evidence of the need to get government out of the way of business start-up.

"The report's premise is compelling: poor countries worsen their economic situations through heavy regulation and weak property rights. Poor nations desperately need new businesses, but cumbersome rules and regulations make it almost impossible for residents to legally start new ventures. In rich countries, starting a new business takes an average of 27 days, and requires six procedures and 8% of average annual per capita income. In poor countries, aspiring entrepreneurs must take an average of 59 days to leap through 11 procedures and invest an average of 129% of annual per capital income. The report also notes that regulatory reform generates quick and extensive payoffs. Countries that improve business regulation see significant increases in business starts and overall economic activity."

The expense, confusing processes and wasted time created by government regulations is a world-wide problem. It inhibits entrepreneurial aspirations from the very poorest countries to the very largest. It is no surprise that the US, which is one of the most entrepreneurial countries, has much fewer governmental barriers. From the World Bank report:

"Entrepreneurs (in the United States) can expect to go through 5 steps to launch a business over 5 days on average, at a cost equal to 0.6% of gross national income (GNI) per capita. There is no minimum deposit requirement to obtain a business registration number, compared with the regional average of 44.1% of GNI and the OECD average of 44.1% of GNI."

Posted by Jeff Cornwall at 06:22 AM | Permalink

Carnival of the Capitalists is posted at VoluntaryXchange. Another great collection of blog postings on free enterprise and capitalism.

Posted by Jeff Cornwall at 03:25 PM | Permalink

"The natural progress of things is for liberty to yield and government to gain."

These prophetic words of Thomas Jefferson were quoted by Jordan Ballor in his commentary "Addition by Subtraction: Placing Limits on Government" posted at the Acton Institute's web site. He reinforces his point using this graph from John Stossel's book, Give Me a Break, as illustration of government's recent exponential growth.

Why does this matter to entrepreneurs and those interested in supporting their efforts? Because getting government out of the way of the entrepreneurial process, through such efforts as streamlining regulations and simplifying taxes, have proven to be very powerful tools to spur entrepreneurial economic growth.

As entrepreneurship is beginning to get on the radar screen of politicians, I fear that it may become a new playground for legislative mischief. Creating new programs, no matter how well intentioned or seemingly logical they may be, will not help entrepreneurs. Spend this time and effort cleaning up all of the unnecessary legislation that just gets in the way.

This, too, will take political action. As Ballor concludes in his commentary:

"We should all understand that getting rid of bad or superfluous laws is just as central to the role of legislator as making new ones. And for this to occur, voters will need to pressure lawmakers. As Lord Acton reminded us: 'Everybody likes to get as much power as circumstances allow, and nobody will vote for a self-denying ordinance.'"

For as another great statesman, Ronald Reagan liked to remind us, "Government is not the solution, it's the problem."

Posted by Jeff Cornwall at 06:17 AM | Permalink

Entrepreneurship education has even found its way to the rain forest of Costa Rica. This article from the Chronicle of Higher Education examines Earth Universtiy, a program that integrates entrepreneurship and conservation.

"For decades environmentalists have warned that destructive farming techniques and cattle ranching were destroying the world's rain forests. But it was not until the late 1980s that a group of entrepreneurs and officials in Costa Rica -- a country known for its progressive approach to conservation -- joined forces to create a new university to teach sustainable agriculture in the 'humid tropics.'

One of the measures we like to use to assess the effectiveness of entrepreneurship programs is to look at the economic impact created by their graduates.

"Of the more than 900 students who have graduated from Earth University, 75 percent are working in the for-profit private sector. Of those, a quarter own their own agribusinesses, says Mr. Breve. The remaining 25 percent are working for nongovernmental organizations or in government, helping to shape environmental policy."

Markets even work in the rain forest.

Posted by Jeff Cornwall at 01:05 PM | Permalink

From the Congressional Joint Economic Committee:

* "Over the past year (since August 2003), the unemployment rate has fallen in 45 states. 34 states have unemployment rates at or below the national unemployment rate of 5.4 percent.

* Non-farm payroll employment increased in 30 states in August. The states with the largest payroll job gains during July were Florida (+16,600), Georgia (+15,000), Texas (+14,400), Arizona (+10,200), and Colorado (+8,200)."

Posted by Jeff Cornwall at 12:45 PM | Permalink

It seems that the increase in entrepreneurial aspirations among baby boomers that I wrote about just yesterday is creating another trend within small business.

Anita Campbell at Small Business Trends writes about the increase in small business acquisitions. She rightly cautions against assuming that acquiring a business will greatly reduce risk. "(B)uying a business can bring risks of different kinds. As the article points out, failure to do due diligence can lead to nasty surprises. A business may turn out not to be as attractive or profitable as the buyer expected."

Quite true. And a more significant risk can actually occur if the purchased business is turned around and begins to improve. The growth of a business is the stage that creates the most risk and is the stage where failure is more likely to occur and most costly to the entrepreneur (just ask any banker).

Posted by Jeff Cornwall at 06:50 AM | Permalink

The trend toward more entrepreneurial careers for young adults finds a parallel with those of us in the "baby boomer-s" generation (as discussed earlier at this site). StartupJournal cites a study by AARP finding that "16% of those over age 50 are self-employed, compared to 10% of the general work force. About a third of the self-employed seniors also are first-time entrepreneurs who had previously always worked for others."

The stories of two "seasoned" first time entrepreneurs are told in this article written by Mark Henricks. Each found the path to entrepreneurship in different ways. For some it is life circumstances, while for others it is a choice to take a new direction in life.

"Janice Taylor is an example of an older American who chose to become an entrepreneur largely for the fun of it. Not long after she turned 50 last year Ms. Taylor gave up an investor relations position at a New York City media company to pursue a venture that mixes weight control with art."

"Mary Rooney Sheahen lost her job as a Chicago hospital CEO in 2000, but eventually opted to start her own company rather than seek another position in health-care administration. 'It gave me an opportunity to step back and say, 'Do I want to keep doing this?' Ms. Rooney Sheahen recalls."

Posted by Jeff Cornwall at 07:43 AM | Permalink

The Office of Advocacy of the SBA reports that the state of Rhode Island has taken a major step forward in assuring that regulations do not unfairly burden small business. This is consistent with evidence that shows the importance of a two-pronged approach to supporting entrepreneurial economic development: education and getting government out of the way.

"'Rhode Island's small business owners now have a seat at the table when regulatory decisions are made,' said Thomas M. Sullivan, Chief Counsel for Advocacy. 'When their voice is heard, better decisions are made, and that means more jobs and growth for Rhode Island.'"

Rhode Island is the latest state to move in this important direction. The Office of Advocacy reports that legislation is "pending in 11 states. In the past year, small business regulatory flexibility has been implemented in six other states, most recently in Missouri and Kentucky."

All of these states are following the model legislation written about earlier at this site.

Posted by Jeff Cornwall at 07:12 AM | Permalink

From the Congressional Joint Economic Committee:

"The economic expansion has regained traction following the soft patch of late spring. Payroll employment growth picked up in August and consumer spending appears to have rebounded in July and August. Business investment spending continues to grow and employment and output in manufacturing are on the rise. Levels of activity in housing markets and new construction remain strong. Exports rebounded in July while imports declined, leading to an improvement in the trade balance. Inflation, inflation expectations, energy prices and long-term interest rates have recently eased. Forecasters see strong growth in the gross domestic product (GDP) for the second half of the year."

Find the full report here.

Posted by Jeff Cornwall at 02:51 PM | Permalink

While manufacturing is, and will remain, a vital part of our economy, we have heard for years about the transformation to a service/information economy. And yet, up until now, the government did very little to track this major part of our economy--on that is dominated by entrepreneurs. On Monday (gee, I missed it in the papers and the evening news, too) the Census Bureau issued its first full report on this sector's economic health. Any fears that service and information are still hurting were completely smashed by this report.

Here is a summary of this report for Q2 2004 from Inc.com:

"The report showed that information services revenue rose 4.4% in the second quarter of 2004 to $230.1 billion. Revenue from administrative and support services, as well as waste management and remediation services, totaled $121.9 billion, up 5.6% from the first quarter. Revenue from professional, scientific, and technical services posted the largest gain, rising 6.3% to $241.6 billion."

How important is this sector?

"According to the Census Bureau, the three sectors constitute approximately 15% of U.S. gross domestic product, with service industries in general accounting for nearly 55% of the nation's economic activity, excluding retail and wholesale trade."

Note that this is excluding retail and wholesale. So these are not just burger flipping jobs. This report certainly helps support the strong employment data we have seen recently from the household employment numbers.

Posted by Jeff Cornwall at 06:17 AM | Permalink

Competition in domains that were once thought to be permanent governmental monopolies is proving to be effective in many arenas. Certainly schools have been one of the modern success stories of privatization. In today's Tennessean it seems that public school teachers in Nashville (yes, those same public school teachers who fight the creation of charter schools and lobby for more and more and more money without any accountability) agree that competition and markets really do work.

"More than one out of every four Metro teachers, or 28.6%, send their children to private school, according to a study released last week."

So, how does this compare to the overall population in Nashville? Teachers are twice as likely to send their kids to private schools as the average family in Nashville.

What could possibly be the reason behind this startling statistic?

Well, School board Vice Chairwoman Kathy Nevill thinks it must be racism. "A lot of it stems back to the same reason the community left the school system — they are scared to death of busing. To some degree they are still scared to death of diversity."

The Director of Nashville Pedro Garcia "had not seen the report and questioned its accuracy." He has gathered his own data. "'I talk to lots of teachers, and I know where they send their kids. I don't believe it's anywhere that high.'" But if the data proves to be true, isn't that a call to action, Dr. Garcia?

"If the report holds up, Garcia said, he is not overly concerned. 'Teachers can send their kids wherever they choose,' he said."

Well, maybe we should go to the teachers and find out the real reason.

"Attempts to interview Metro teachers whose children attend private schools were not successful."

I'll go out on a limb and posit my own explanation. The private schools are better and the teachers know it. Gee, maybe if we all had real choice in schools it might just push public schools a little harder to improve and compete.

Posted by Jeff Cornwall at 08:32 AM | Permalink

While many shoe manufacturers long ago gave up on making shoes in the US, FastCompany tells about one entrepreneur who hasn't followed that trend. John Stollenwerk, president, chief executive, and owner of Allen-Edmonds Shoe Corp., is among the last remaining shoe manufacturers in America. He employees about 700 people in his company, which located in Wisconsin (see Packers beat Carolina in opening MNF).

While many have held him up as a true patriot, Stollenwerk is just responding to his market. Customers have come to appreciate the quality that Allen-Edmonds produces and the service they can provide to their customers. Take as, an example, banking. Predictions that soon there might only be two or three mega-banks have proven wrong. The market has needs not being met by the mega-banks and entrepreneurs are responding with many new (and successful I might add) banks for us to choose from. It takes vision and commitment to that vision, but like those worms and shrimp that were discovered living off the gas vents in the bottom of the ocean, entrepreneurs can flourish in remarkably hostile environments.

"This unassuming leader isn't refusing to go overseas because of some abstract principle. It's all about the shoes, and he still believes that Allen-Edmonds can make them better -- and serve customers faster -- in the United States."

What is most remarkable to me is the courage that Stollenwerk has shown in sticking to his vision for the company that he purchased in 1980. "'John could take this all offshore tomorrow, and we could probably double -- maybe even triple -- our profits,' says Mark Birmingham, Allen-Edmonds's COO. 'But he knows that's probably shortsighted'....That philosophy -- built around a willingness to sacrifice short-term gains for the long-term good of his organization -- is what defines Stollenwerk's quiet kind of courage."

Posted by Jeff Cornwall at 06:42 AM | Permalink

Josh Cohen has done a wonderful job of compiling this week's edition of Carnival of the Capitalists at his site d-42.com. Check out what's new in the world of free enterprise.

Posted by Jeff Cornwall at 06:36 AM | Permalink

Academic types, and I'm talking about the purists among my colleagues, have long been enamored with high growth companies (they call them gazelles, always with a whimsical tone in their voices) rather than small businesses (which they call life-style businesses, always with bit of a condescending tone). And if you read their text books and research articles on entrepreneurial finance, you would think that all entrepreneurs are funded through venture capital. The facts are that VCs have always played a very small part in entrepreneurial financing.

In a report in Inc.com on Kauffman's GEM (Global Entrepreneurship Monitor) study, this bias comes through loud and clear. The article sounds alarm bells even in its headline "VC Money for Start-ups Continues to Dry Up: Report shows amount of investments in early-stage companies hit lowest level since 1980." Is this evidence that our entrepreneurial economy is collapsing? The shrill tone of Inc.com's report leads one to conclude that it may be true (I won't go so far as to claim this is politically motivated by journalists or academics -- I'll leave that to the reader to decide).

"Small business owners looking for investors would do better with their time than to seek venture capital. According to a study by Global Entrepreneurship Monitor, of the $18.2 billion in venture capital invested in 2003, only $304 million was invested in seed- or start-up-stage companies, the lowest level since 1980."

"Lowest level since 1980"?? It must be a crisis in the making! But to understand this data, we need to understand that venture capital has been evolving over the past twenty five years. Venture capital in 1980 was nothing like venture capital today. As the venture capital market became larger, more complex, and more specialized, the investment strategies pursued by its managers has changed in focus from start-up to later stage investment.

In its wake there came a growth in angel investment. Wealthy individuals who preferred investing in start-ups pursued these opportunities directly, while the venture capital funds attracted investors interested in lower risk second and third stage investments (that is, established companies with a track record needing capital for growth rather than start-up).

In fact, the GEM data shows this trend as reported by Inc.com at the very end of the article.

"The Center for Venture Research estimated that angels invested $18.1 billion in start-ups last year, up from $15.7 billion in 2002, and that there are between 250,000 and 400,000 angel investors in the country, as well as 1 million to 5 million potential angels."

Markets work and markets evolve, even if they are capital markets. Venture Capitalists are, in fact, very busy doing what they have done for years: investing in growing ventures. And they are doing so, as this web log has reported, at a brisk pace in 2004. If small businesses are fruitlessly chasing VC funds, we can probably thank academics and the media who continue to give too much focus on venture capital and lead them down this blind alley. VC money is important, but has become specialized and focuses on a very small part of the entrepreneurial economy. Keep it in perspective and put it in context.

Posted by Jeff Cornwall at 06:33 AM | Permalink

The Congressional Joint Economic Committee has issued a report on household debt and our economy that has some interesting and rather complex findings:

"Many analysts have expressed concern about the growth of consumer debt and its effect on the U.S. economy. Some fear that the combination of increasing debt and higher interest rates will impair the ability of households to meet their monthly financial obligations. However, interest payments as a percentage of disposable income have actually fallen since the end of the recession in 2001. Total household debt has increased since the end of the recession, but the vast majority of the increase can be attributed to the growth of home mortgage debt spurred by historically low mortgage interest rates.

* Total household assets are more than five times larger than total household liabilities."

Posted by Jeff Cornwall at 08:36 AM | Permalink

Anita Campbell has a list of the "hot businesses are for not for those who want get-rich-quick schemes. Rather, they're for entrepreneurs serious about operating a business." The list includes examples of folks who create significant income from a sustainable business. Too bad the government only counts these people as "employed" in the household survey!

Posted by Jeff Cornwall at 06:39 AM | Permalink

Red Herring reports that IPOs will increase significantly and it will happen much earlier than it normally does in the fall season.

"In past years, Wall Street's investment bankers and IPO investors rarely saw the new-issue ball start rolling this soon after the Labor Day weekend. Over the last few years, the kickoff for IPOs occurred any time from mid-September to early October."

This signals a significant surge in IPOs and economic growth from the entrepreneurial firms they finance.

"So far, the IPO pipeline has 160 companies hoping to go public, according to available records. They expect to raise $33 billion. On January 2, the IPO pipeline had 49 companies planning to go public. At that point, the expectation was to raise a total of $8.9 billion."

Posted by Jeff Cornwall at 07:44 AM | Permalink

The National Dialogue on Entrepreneurship reports on a study by the Community Development Venture Capital Association that tax incentives for equity investments in start-up and emerging ventures has grown significantly over the past decade.

"A new study from the Community Development Venture Capital Association (CDVCA), State Tax Credit Incentives for Equity Investments: A Review of Current Practices, highlights this progress. Eighteen states now offer tax credits to equity investors, with most of these programs coming on line in the past five years. These credits typically fall in the range of 20-40% of the value of each investment."

While any tax breaks are welcome, too often these end up becoming programs of social and economic engineering. Take for example Hawaii, which has a "program for technology financing, provide a 100% credit."

Also, such programs have strict requirements that generate many hours of time from your investor's CPA to assure compliance. (See my earlier post on the growth of the tax compliance industry). I saw this first hand in our business when we had an infusion of equity investment.

Let's pull the current tax system out by its roots. A program such as Rep. Linder's FairTax would lead to a dramatic increase in investments in emerging business and more reinvestment by entrepreneurs into their own ventures without government agencies and politicians trying to decide winners and losers. That is for the market to sort out.

While programs like equity investment tax credits may be created with good intentions, we all know where the road that is paved with good intentions leads to....

Posted by Jeff Cornwall at 07:12 AM | Permalink

Too often I hear pitches from entrepreneurs only to be left less clear on what their business is all about afterward than I was before they began. Presentations to potential investors or even customers can be filled with too many technical buzz words. These entrepreneurs also use language that is intended to impress, but ends up confusing the intended audience. An article in StartupJournal offers some good advice for making a presentation about your business to any audience, but particularly to investors or customers.

"The ability to speak and write concisely and with clarity is fast becoming a competitive advantage for entrepreneurs and small-business owners….Articulating clearly what your business is, what kind of goods or services you sell and how much they cost helps the bottom line. Potential customers or clients appreciate clear and meaningful information. It even can make the difference between success and failure."

Technology start-ups are some of the worst offenders. "Using plain English is crucial when seeking funding to start or grow a business. Venture capitalists and bankers have little tolerance for gobbledygook. If small-business owners can't cut to the chase with answers to their questions, their chances of securing funds are basically zilch."

I was once asked by a friend of mine (a former U.S. Senator) to help him with his struggling consulting business. I started my conversation with my usual question, "So, tell me about your business." Twenty five minutes later, I finally had to ask him to "Stop!" (I found out from his reaction that Senators are not used to people cutting them off no matter how long they go on). However, I had no idea what he was providing through his consulting services even after his twenty five minute pitch.

So, like any professor worth his salt, I gave him an assignment (he was not used to getting assignments from people either). I told him to go away and develop a twenty five word, not minute, description of what he did in his consulting. I wanted his to be prepared so that when asked at a cocktail party in Washington about what he was doing now that he longer held elected office, he would be ready with a clear and concise answer.

He did it, and it worked. Soon he had a steady flow of business because people knew what kind of work he could perform for them. Good business communication should always be clear and concise, but especially when you are an entrepreneur trying to get the attention of badly needed investment money or customers.

Posted by Jeff Cornwall at 06:07 AM | Permalink

The state of small business in the U.S. remained healthy in Q2 of 2004. Entrepreneur's income and optimism were both strong according to a report issued last week by the Office of Advocacy of the Small Business Administration.

"Economic conditions for small business improved in the second quarter of 2004 according to the recently released Quarterly Indicators: The Economy And Small Business. The report, issued by the Office of Advocacy, shows proprietors' income increased at an annualized rate of 14.8 percent and the National Federation of Independent Business (NFIB) optimism index remained in record high territory."

There seems to be good reasons for the positive reports on the state of small business heading into the fall.

"The report notes that interest rates remained low with the prime rate at 4.0 percent while the rate for small business loans of less than $100,000 averaged 4.2 percent. Worker productivity remained strong with a 4.6 percent increase in nonfarm business output per hour. And, the 2.8 percent increase in Gross Domestic Product (GDP) marked the eleventh consecutive quarter of positive real output growth since the recession of 2001."

Posted by Jeff Cornwall at 11:01 AM | Permalink

Carnival of the Capitalists is up for the week of Labor Day. The host, Joe Grossberg, finds a certain irony in hosting on Labor Day. "Now let's go celebrate the most socialist holiday in the US!"

From the number of great posts, it looks like the capitalists are hard at work today on Labor Day. And why not!

Posted by Jeff Cornwall at 12:37 PM | Permalink

The Household Survey on employment, which is the most accurate measure of employment including small businesses and entrepreneurs, continues to be strong in August. Here is the latest report from the Congressional Joint Economic Committee:

"The Bureau of Labor Statistics (BLS) announced today that 144,000 new payroll jobs were created during the month of August. According to the household survey, which is used to calculate the unemployment rate, employment increased by 21,000 and unemployment fell by 174,000. The unemployment rate fell to 5.4 percent. Payroll employment gains for July and June were also revised upward by a total of 59,000. Manufacturing added 22,000 payroll jobs in August. Over the past year, nearly 1.7 million new payroll jobs have been created; over 1.4 million new payroll jobs have been created thus far in 2004.

* Payroll jobs gains over the past year have been broad-based, with 9 out of 10 major private sector industries adding new jobs since August 2003."

Posted by Jeff Cornwall at 07:39 AM | Permalink

Anita Campbell over at Small Business Trends reports on eBay's growing global presense through acquisitions in Germany, India, China and and Korea.

"If you want to see where the next hot eCommerce markets are across the globe, just watch where eBay is expanding. Everywhere eBay goes, opportunity for small businesses follows. Millions of eBay sellers in these countries will benefit, not to mention the myriad of businesses that inevitably pop up to service and support eBay sellers."

It's a small world, indeed!

Posted by Jeff Cornwall at 06:42 AM | Permalink

We've all read the obituaries of organized labor in the U.S. But, there is one segment that has seen a growth in unionized workers: service businesses. And who is leading the way in growth in service industries? That's right, entrepreneurs. Inc. tells of the growth of organized labor in small service businesses in this article by Amy Gunderson.

"True, union membership as a whole continues to decline. But groups active in professional and service industries are booming, their ranks swelled by workers who fear increased health insurance costs and the outsourcing of jobs to Asia. IT staffers, graphic designers, and engineers -- this is the new face of labor. And guess where many of them work? The average workplace organized last year had just 53 workers. 'More attention is being paid to smaller workplaces,' says Bob Bruno, a labor and industrial relations professor at the University of Illinois at Chicago, who adds that 'organized labor has a higher success rate in small businesses.' There are several reasons for this. Labor activists have discovered that unlike large corporations, small businesses often lack the resources and the know-how to fight unionization. Plus, their employees are are often more receptive to organization because union reps can make a personal, individual appeal for their support.

And unlike the large old economy companies that they populated over the past century, unions are behaving rather entrepreneurially.

"Old-school union bosses, sensing a rare opportunity to grow, are devoting more resources to small-company campaigns. For example, the International Association of Machinists and Aerospace Workers, whose members have traditionally come from the likes of Boeing and General Electric, recently launched a Web-based effort to organize technology workers. Other established unions have made inroads in a variety of traditionally nonunionized sectors, ranging from restaurants to nonprofits to health care, where even doctors are now pursuing collective bargaining with HMOs. But it is tech workers who are, without question, the group that unions are focusing on with the most intensity."

There are two old adages that I used to teach about in Management classes twenty years ago:

1. Poor management practices are the biggest single cause of worker unionization.

2. You get the union you deserve.

Probably still good words for today's managers of small businesses to think about.

Posted by Jeff Cornwall at 02:38 PM | Permalink

A survey of Silicon Valley Venture Capitalists released by the University of San Francisco shows continued optimism from this recently embattled group. This follows a similarly positive survey of these venture capitalists from Q1 of 2004.

"Primarily positive comments from the venture capitalists surveyed indicate a continued upbeat sentiment for venture capital investment in the coming months and bodes well for a continued growth in entrepreneurial activity and new company formation in the San Francisco Bay Area for the remainder of 2004."

If the folks that just recently were still licking their self-inflicted wounds from the dot.com fiasco are now feeling that there is hope for continued growth, things are really looking up!

Posted by Jeff Cornwall at 06:18 AM | Permalink

Professor Gordon Smith (you may know him from his site called Venturpreneur) has launched an innovative new blog site on Law & Entrepreneurship. This is a collaborative effort in which Prof. Smith works with student editors to compile entries on a variety of topics related to, what else, but law and entrepreneurship. It is a great new site that I strongly recommend. It shows great promise to build quite an archive of useful information.

Posted by Jeff Cornwall at 08:49 AM | Permalink

Sometimes you have to say "no", even if it is to a potential customer. While most entrepreneurs, desperate for sales, want to say "yes" to anyone who wants to business with them, bringing the wrong customer into your business can actually hurt your profitability. Jay Ebben highlights this in his latest column at Inc.com.

"A common trap that many new and growing small firms run into is attempting to take on business from both sides of the aisle. For example, a manufacturer of standard-sized pallets in the Midwest began getting requests from customers for unique pallet sizes. Seeing an opportunity for growth through higher-margin sales, the manufacturer jumped on this opportunity. The problem was that the firm was not set up for custom offerings: It had a generally unskilled labor force trained to operate standard machinery, and these workers could not effectively produce custom pallets. It also had to interrupt its normal production processes to produce custom pallets, which reduced efficiency. The company did hire some skilled labor, but found that at different times they would either have skilled labor working on unskilled projects or unskilled labor working on skilled projects. The basic result was that the company was not able to effectively maintain a low-cost position or effectively meet end-customer needs, and returns suffered."

Matching market strategy with your operational model is critical, particularly during growth. Adding more and more of the wrong customers only adds to your growing pains, and may actually lead to decreasing profitability. Focus.

Posted by Jeff Cornwall at 05:24 AM | Permalink