The Entrepreneurial Mind

From the Congressional Joint Economic Committee:

"The Bureau of Economic Analysis (BEA) announced today that the gross domestic product (GDP) grew at a seasonally-adjusted annual rate of 3.7 percent during the 3rd quarter of 2004. Major contributors to growth during the 3rd quarter were consumer spending and business investment. Over the past year, average quarterly growth was nearly 4 percent. The economy has now expanded for 12 consecutive quarters.

* Despite rising oil prices, inflationary pressures remained relatively low. The personal consumption expenditures deflator - the Federal Reserve's preferred measure of inflation - increased at an annual rate of 1.1 percent during the 3rd quarter."

The full report can be seen here.

Posted by Jeff Cornwall at 09:27 AM | Permalink

Check 21. Sounds like the beginning of a long-count on third down by Brett Favre. Instead, it is a new law that went into effect yesterday that may cause severe heartburn for small business folks for the next few months. I first posted about Check 21 last summer.

The initial reports about this new law focused on that fact that by speeding up check processing, it would be the end of "float" as we have known it. As NFIB reports:

"Under the law, banks can now transmit electronic images of a check rather than wait for the original paper checks to make their way through the banking system. As a result, float times -- which gave business owners and consumers a day or two to ensure that funds were available in their accounts to cover checks -- are gone."

Cash flow in this country was effectively sped up by few days yesterday as Check 21 went into effect. Given its timing right before the end of the month, it could catch many small businesses by surprise over the next couple of weeks, as the time just before and just after the beginning of each month can be a time of creative cash management for many entrepreneurs. Float can become a way of life (I hope all of you parents of college-age children are paying attention to this new law!!).

Although checks are getting processed at the speed of light, deposits are not, which will only add to the problem for many cash-strapped entrepreneurs (and college juniors).

"Unfortunately, though, banks don't have to make your funds available any sooner when you deposit checks. 'Money's leaving your account faster than before, but it's probably coming into your account at the same rate if your bank applies a hold. And that's what creates the new risk,' said Gail K. Hillebrand, a senior attorney with the Consumers Union."

However, there is another outcome of this new law that could have an even more far reaching long-term impact on how we engage in transactions. The hassle created by implementing this new law is leading many businesses to just stop accepting paper checks. Signs reading, "We will no longer accept checks beginning 10/28/04," are popping up on store counters across the country. The end of the paper check may be a lot closer than we all thought.

"Because Check 21 makes use of electronic transactions that occur faster than the old process of physically moving checks from bank to bank, there's the possibility that mistakes can be made....The law also eliminates the return of original checks. Banks no longer have to hold onto them....Instead, they will issue 'substitute checks,' which are paper reproductions of original checks that contain an image of the front and back of the check....However, one of the limitations of substitute checks is that they make it more difficult to detect forgeries and check alterations since there often is no original check to compare with the substitute check."

A footnote: Having lived for a few years in Minneso-cold I believe that because of Check 21 the economy up there could come to an abrupt stand still! Why? Well, they seem to write checks for everything and anything up there. When we first moved there I was astonished to watch a women write a check for $2 to pay for a beer. And nobody at our table even blinked an eye, as that is the socio-economic norm up there. However, check writing as a way of life in Minneso-cold may have just come to an end....

Posted by Jeff Cornwall at 06:13 AM | Permalink

Anita at Small Business Trends linked to a survey by Capital One and Consumer Action that found that 40% of Americans dream of starting their own business. Interestingly, that is the same percentage of college students (from annual survey by Chronicle of Higher Educations) who say that their desire to start their own business is one of the main reasons they are attending college. This result has been fairly constant for at least the last eight years.

I hope my Dean reads this...its time to hire another professor to teach entrepreneurship with me!

Posted by Jeff Cornwall at 05:48 AM | Permalink

Posted by Jeff Cornwall at 05:31 PM | Permalink | TrackBacks (1)

A couple of students in one of my entrepreneurship classes this fall have had surprising outcomes from their foray into this topic. Through the process of self-assessment and self-reflection they realized that entrepreneurship is just not the path they want to take in life after all. And this is good.

I never view my job as being a cheerleader. Certainly I will give them encouragement when appropriate, but my goal is never to create the most entrepreneurs I can. Rather, it is to create the highest number of successful entrepreneurs I can. And if their hearts and heads are not suited for this journey, then it is good that they find out before they start a business. It is surprising how many entrepreneurs don't think about these issues and end up feeling trapped and unhappy.

Beyond understanding if entrepreneurship is the right path, self-assessment helps entrepreneurs better define the ideal size and scope of the business before it even begins, by integrating their personal financial, family and other personal goals into the mix.

I even find that successful entrepreneurs with multi-million dollar companies benefit from self-assessment and self-reflection. Often they have lost track of their own goals and aspirations as the business takes on a life of its own. Many talk about becoming servants of the business rather than the business serving their needs.

Here are some of the questions that I encourage all potential and all active entrepreneurs to think about from time to time.

What gets you excited, gives you energy, and motivates you to excel?
What do you like to do with your time?
What drains energy from you in your work and in your personal relationships?
How do you measure success in your personal life?
What do you consider success in your business/career?
What are your specific goals for your personal life?
What are your goals for your business/career, including income, wealth, recognition and impact on your community?
What do you want to be doing in one year? In five years? In ten years? At retirement?

I feel very strongly that examining one's core values is essential in planning a business and consciously developing its culture as it grows. I ask entrepreneurs to list their core personal values that they intend to bring to their business (for example, treating people fairly, giving something back to the community, etc.). Where does each of these core values come from (religious faith, family, etc.)? Why is each of these important to them? How will they put them into active day-to-day?

Here are some more questions that I have folks who are planning to become entrepreneurs reflect on before getting too far into their planning.

What are the major reasons you want to start a business?
How many hours are you willing and able to put into your new venture?
How would you describe your tolerance for uncertainty and risk?
Do you easily trust other people working with you on a common activity? Why or why not?
How much financial risk are you willing to take with your new venture (personal assets, personal debt, etc.)?
Assume you decide not to start your business. A short time later, you see that someone has started the same business and is doing well. How would you feel? Why?
What are the non-financial risks for you in starting a new business?
How do you react to failure?
How do you react in times of personal stress? How do you deal with stress in your life?
How much income do you need with your current lifestyle?
How long could you survive without a paycheck?
How much money do you have available to start your business?
Which of your personal assets would you be willing to borrow against, or sell, to start your business?
Whose support (non-financial) is important for you to have before starting your business (family, spouse, etc.)?

Posted by Jeff Cornwall at 07:25 AM | Permalink | TrackBacks (1)

StartupJournal looks at the growing trend of young mothers combining a stay-at-home lifestyle with entrepreneurial endeavors.

"For many women who leave the work force to care for children, motherhood is making invention a necessity. The daily routine of child-care presents such a minefield of little problems that they turn to tinkering, and then market their brainstorms."

I am seeing this path in more and more of the self-assessments that my students are writing about in my classes. Many are saying that entrepreneurship gives them the freedom to be at home while still pursuing their business aspirations. It will be interesting to see how well these mothers can balance parenting both a new business and young children at the same time.

Anita over at Small Business Trends had more to say about this last week when this article was at the Wall Street Journal's main site. Check out her post and the comments it produced.

Posted by Jeff Cornwall at 05:43 AM | Permalink

Universities across the country, as told in this story in the Chronicle of Higher Education, are beginning to train non-profit managers in business skills, particularly entrepreneurial management skills.

"Around the country, business schools are creating and expanding programs that help nonprofit managers...apply bottom-line business skills to mission-driven projects. Courses in nonprofit management and related fields like social entrepreneurship are booming."

There are several trends behind the growth in these programs.

"Several factors account for the surge of interest from students. First, turned off by stories of corporate greed, students are eager to find ways to make a contribution to a post-9/11 world. Second, with 1.4 million nonprofit organizations in the United States competing for government and philanthropic funds, charities need skilled fund raisers and administrators. In addition, their leaders are worried that scandals like those at United Way and other charities have shaken public confidence. They want to reaffirm it."

I am seeing growing interest in our programs here at Belmont among both MBA students and undergraduate business students. Many of these students are also strong advocates that the private sector is the best answer to many of society's problems, rather than relying on government programs.

Posted by Jeff Cornwall at 05:21 AM | Permalink

If you have an interest in invention or patents you should take a look at Bob Shaver's blog called Patent Pending. There are some fascinating posts.

Posted by Jeff Cornwall at 01:13 PM | Permalink

MSNBC offers its list of the "History's 10 Greatest Entrepreneurs". Its list:

1. King Croesus
2. Pope Sixtus IV
3. Benjamin Franklin
4. P.T. Barnum
5. Thomas Edison
6. Henry Ford
7. Benjamin Siegel
8. Ray Kroc
9. H. Ross Perot
10. Jobs & Wozniak

This list includes a few good choices, but several of their picks were included because they were really good con-men, sleazy businessmen, or even gangsters. YIKES! What were they thinking?! Let's try a list of those who build wealth and did good deeds for society as they made their wealth.

What are your picks??

(Thanks to Erin Anderson for passing this along).

Posted by Jeff Cornwall at 06:29 AM | Permalink | Comments (1) | TrackBacks (3)

National Dialogue on Entrepreneurship reports on a study by the World Economic Forum that seems to have found that socialism is winning out on global competitiveness.

"Which nations are the world's most competitive? If you picked the high-tax, heavily regulated economies of Scandinavia, you'd be right. The latest study from the World Economic Forum, The Global Competitiveness Report 2004-2005."

But wait. Not so fast! The devil, it appears, is in the details. One of the major categories that is used to measure "global competitiveness" includes a whole array of measures that relate to the size of government in that country. It seems that the World Economic Forum is a big fan of socialism and international control of sovereign nations.

Their logic? Only countries that have a large centralized government can be competitive. Why?

"To remain prosperous, the industrialized world must make a serious commitment to addressing poverty - of both resources and opportunity - throughout society. The private sector is a major force in this endeavor, particularly via the wealth it creates through its activities, its problem-solving capability and by delivering ways to ensure that business practices are environmentally sustainable and corporate governance systems are responsible."

So competitiveness is defined in large part by government transferring the wealth created by entrepreneurs to help support a large socialistic state. Hmmmm....no wonder the Scandinavians where on top of this list. I bet if they use the same methodology on the US states, California and Minnesota might finally move up from the bottom of entrepreneurial climate rankings.

Posted by Jeff Cornwall at 05:09 AM | Permalink

Barry Ritholtz at The Big Picture is hosting Carnival of the Capitalists this week. There is a full plate of postings to choose from this week.

Posted by Jeff Cornwall at 12:43 PM | Permalink

An article at Business Week offers several recommended television shows for entrepreneurs. Some good suggestions, but I will probably stick to my regular "Law and Order" and "CSI" viewing habits. I have always looked to TV as an escape when I watch it. Thanks to Rob at BusinessPundit for suggesting this link.

Posted by Jeff Cornwall at 06:30 AM | Permalink

One entrepreneur is being a civic leader by encouraging his employees to register to vote. As reported by NFIB:

"Charlie Birney...general partner of Atlantic Golf, an Annapolis, Md.-based owner, developer and manager of three golf courses, started his own get-out-the-vote effort at work. Aptly named Drive the Vote (www.drivethevote.com), Birney’s GOTV effort, in conjunction with the Maryland Golf Course Owners Association, emphasizes voter registration, voter participation and voter awareness."

Birney goes all out to make sure that his employees have the information they need to make an informed decision.

"(H)e has compiled information on the candidates running, personalized it for each employee and delivered it by hand. Each personalized manila folder lists the employees' representatives in the Maryland General Assembly and their voting records, one from NFIB and the other from Maryland Business for Responsive Government."

He encourages voting by creating a raffle that awards one paid vacation day off to one lucky employee who votes on or before election day.

Why does Birney go through all of this effort?

"'I really think it's every citizen's privilege, right and responsibility to vote.'"

Well said!

Posted by Jeff Cornwall at 06:03 AM | Permalink

Entrepreneur magazine presents their annual Young Millionaires feature. What is particularly inspiring is how these young people worked to build businesses with value with a variety of products and services including manufacturing makeup and body creams, a specialty medical school, furniture retailing, comic books, wine shops, retail clothing, and a large number of profitable on-line or web related businesses.

Posted by Jeff Cornwall at 05:47 AM | Permalink

This study from Wharton reports on the challenge of intergenerational succession in family businesses.

"Despite the lack of independent directors on their boards and voting power for minority shareholders, family-run companies are still the better bet for all stakeholders as long as the founder of the firm is involved as chief executive officer or chairman. If the descendent of a founder runs the company, value is lost."

Other studies show that third generation transfers are even more tenuous.

Posted by Jeff Cornwall at 06:33 AM | Permalink

The recent decision to change the way the SBA loan program was greeted by cries of doom and gloom from those who love to leave such things in the hands of the state (see my recent post on this). On the contrary, I have been a strong advocate that the privatization of much of the SBA 7(a) loan programs was one of the most important and courageous domestic initiatives of the Bush administration this past term.

( Inc.com reported today) that the program is alive and well and helping more than ever to support this entrepreneurial economic recovery. And the SBA Administrator, Hector Barreto, believes that with the changes made in how SBA is funded, its best days are yet to come.

"According to its results for fiscal year 2004, which ended on Sept. 30, the SBA backed 74,825 7(a) loans totaling $12.5 billion to small businesses, and 8,168 loans worth $3.9 billion under its 504, or Certified Development Company, program. The SBA reported that the number of loans made under each program represented a new high, as did the combined total of the two programs, which was more than double the 41,552 loans the SBA backed in 2001."

Mr. Barreto put it best:

"Small business is the economic engine that drives our economy....Our record year is proof that the economy is expanding and creating new jobs, evident by the low unemployment rate of 5.4%."

Posted by Jeff Cornwall at 05:15 PM | Permalink

Convergence is all the rage in media/electronics/computers these days. And we are beginning to see the marvels that this new generation of electronic gizmos will bring us.

The author of the blog site called A VC tell us what this may look like, including the notion that we can now download video just like we have been doing with audio through a process called Bit Torrent.

"If my family room is driven by a PC with a DVR, set top box, and web browser built into it, connected to cable for both programming and high speed data, and then connected to a nice big flat panel display, the option to watch a show via live TV, VOD, DVR, or Bit Torrent is just a click of the remote. And when its that easy, why will my girl's choose to watch One Tree Hill via DVR when they can just as easily get it via Bit Torrent?"

Yikes! Techno-speak can sure make head hurt. So where will all of this lead us?

"I believe 'digital television' will play out largely like digital music. At first the content owners (like the musicians) will be held back out of loyalties to the cable MSOs (like the record labels). Content owners will not make their content available for download legally. But consumers will want to get their TV truly 'on demand' and they will use Bit Torrent or whatever other technology becomes available just like Napster, Morpheus, and Kazaa were used to get music on demand."

As I write this post, I am sitting on my living room couch, watching the lights blink on my VHS. I am such a Luddite....

Thanks to Law and Entrepreneurship News for blogging this and brining it to our attention.

Posted by Jeff Cornwall at 07:21 AM | Permalink

One of the more inspirational student entrepreneurs I have worked with in recent years was a woman (due to confidentiality I cannot use her name) who had come back to school to support a very personal cause.

One of her children was hearing impaired. In her own research into the possible causes and treatments for hearing impairment in young children, she learned that in many situations the outcome for the child could be significantly improved with very early screening, preferable while they were still infants. And while in many larger hospitals such screening was routine, smaller community hospitals rarely screened for hearing loss in infants.

She took it upon herself to use her previous medical training to begin a service of going to regional hospitals throughout the upper mid-west to offer hearing screening for infants. About the same time, she also decided to finish her bachelor degree. That is where we met.

She enrolled in one of my entrepreneurship courses to learn how to manage this small business. Her original model was one of making sure the fees she charged were enough to cover her basic costs. She had no real intent of even drawing a salary for herself, as her husband was a successful contractor. She just wanted to do good work for others.

The class she was in was a special section I set up for students who had actual businesses up and running. The other students began to challenge her on her assumption that she would never personally be able to make a salary from this venture. We all worked with her on her pricing models, on the efficiency of her routes, how to fill up trips with more hospitals, and how to leverage a part-time clerical employee to increase her billable hours.

Her business is now providing infant hearing screening throughout the upper mid-west, and while still making the services affordable to maximize the families she serves, she is also drawing a reasonable salary for her time and expertise.

I love to see entrepreneurs do well while doing good work. Inc.com's blog site has a similar story about a woman who actually made it to their Inc 500 list making and selling prosthetists. Read more about her story here.

Posted by Jeff Cornwall at 06:54 AM | Permalink

I am working with over two dozen students who own businesses while in college. Is this unique to my school? Absolutely not! StartupJournal has a profile on student entrepreneurs. College can be a great environment for yound entrepreneurs to get their careers started.

"Students intuitively understand the attractive youth market, can find cheap labor in the form of other students, can tap freely into databases of information that would be very costly to nonstudents and get lots of free advice from professors and other on-campus advisers."

In fact, more and more schools are building in support systems for their student entrepreneurs, similar to our Student Business Hatchery Program here at Belmont.

Kenneth Brown, a Belmont Student Entrepreneur, describes the benefits of such a program this way:

"I love the Hatchery. It is a great accomplishment and show of support from the university to those who own a business. All of my classes are in Massey and I love the fact that in between classes I can send faxes and e-mails or even hold a meeting in the conference room. I enjoy being around others who share an interest in the spirit of entrepreneurship and even plan to collaborate on some ventures with others who use the hatchery."

Integrating learning and doing is a powerful experience for many of these students.

"Student entrepreneurs often stress what they see as synergy between their classroom studies and their after-hours businesses. Brett Klasko publishes an online investment newsletter, Investors Alley, while taking junior-year business classes at Emory. The 21-year-old from Cherry Hill, N.J., says that his GPA -- currently 3.0 -- has improved as he's completed general-education classes required to graduate and begun studying management and marketing. 'Now I'm past the introductory business courses and more into the thinking courses where my real-world knowledge and experience comes into play,' Mr. Klasko says. 'I can really contribute things.'"

Posted by Jeff Cornwall at 08:14 AM | Permalink

It seems that California is trying hard to improve upon their reputation as one of, or in some rankings the worst, state for entrepreneurs. The Small Business and Entrepreneurship Council reports on several ballot initiatives that could hurt small businesses.

Posted by Jeff Cornwall at 08:08 AM | Permalink

Two weeks from today is Election Day. The National Dialogue on Entrepreneurship has offered a comparison of the two candidates on issues related to small business and entrepreneurs. Here is my annotated version.

Taxes

Sen. Kerry's "nuanced" approach to policy comes through loud and clear when it comes to taxes. Any tax cuts will be surgical at best. Such an approach is no more than incremental governmental meddling, and is what has created the current tax code that is no longer measured in pages, but in pounds. Pres. Bush, on the other hand, wants to cut taxes for all and simplify our system. I hope that he would even go farther and just throw the current system out the window.

"Kerry...proposes to pay for (his programs) by rolling back all Bush Administration tax cuts that assist those making more than $200,000 per year....Unlike President Bush, who seeks a permanent repeal of the estate tax, Kerry would raise current exemptions so that individuals with less than $4 million in assets and small businesses with less than $10 million in assets would remain exempt from this tax."

"President Bush...(plans) on making permanent the tax cuts that he pushed in 2001 and 2003. Other priorities include restructuring and simplifying the tax code and providing tax breaks to encourage private investment in lower-income communities."

Regulatory Policy

Cutting governmental regulation that strangles small business is, in my opinion, Pres. Bush's single most important domestic policy initiative to date. Getting government out of the way of entrepreneurs has proven, by study after study after study, to help foster more entrepreneurial activity.

"By many measures, the Bush Administration has developed an impressive record in terms of reducing regulatory burdens on small businesses. The Small Business Administration's (SBA) Office of Advocacy has expanded its role in reviewing new government regulations that might create burdens for small firms, and the President has eliminated many regulations, such as new ergonomics rules, that were especially disliked by business owners."

"Kerry appears more open to new government regulations than is President Bush...."

Small Business Assistance

This is where Pres. Bush has taken a huge political risk. He believes that the free market can help small business much better and much more efficiently than governmental programs. And the recent experience with the SBA has proven him right. The critics have cried that Bush abandoned small business. On the contrary, he has helped them by privatizing programs to assist them.

On the other hand, Sen. Kerry wants to expand government involvement...in everything.

"Kerry has regularly supported full funding and funding increases for programs such as Small Business Development Centers, the Manufacturing Extension Partnerships (MEP), and the Advanced Technology Program (ATP). In contrast, President Bush had proposed elimination of both the MEP and the ATP. And despite a 25% cut in its budget, SBA has succeeded in expanding many of its key programs. For example, the 7(a) loan program has been making record numbers of loans in the past two years."

Health Care

Again, Bush favors free market solutions, while Kerry believes that government can do everything better for us.

"Bush's approach emphasizes the use of newly created Medical Savings Accounts (MSAs), which permit employers to set aside funds that employees can use for health care expenses. Bush also proposes that small firms be allowed to band together and buy insurance through trade associations. By pooling funds and spreading risk, these Association Health Plans (AHPs) could help reduce overall health care costs."

"Kerry's health care plan would provide refundable tax credit to small businesses that could cover up to 90% of the cost of providing employee health insurance. Kerry would also expand Washington's role in assisting those who must pay for catastrophic health coverage. This initiative would pick up 75% of total costs when an individual's health care expenses exceed $50,000 a year."

Pres. Bush has been more like a free spending liberal than a true conservative in most areas of domestic policy. However, imagine what a Pres. Kerry would do to us. We would shift from a gentle stroll toward socialism under Bsuh, to a full sprint under a Kerry presidency!

Posted by Jeff Cornwall at 07:50 AM | Permalink

The University of San Francisco has just released Q3 results for their Silicon Valley Venture Capitalist Confidence Index. While down slightly from Q1 of 2004, the "Index level of 4.05 in this latest quarter is still very favorable and portends a continued strong Bay Area entrepreneurial environment."

Previous higher index values were based primarily on optimism about a potential recovery. And while the recovery is not quite as robust as the VCs had hoped for, the relatively high index this quarter is based on hard figures that they seem to really like.

"In the previous two quarters confidence appears to have stemmed mainly come from high expectations of an impending recovery which would include the opening up of IPO markets, better macro economic numbers, increased corporate spending, and the rise of many innovative technologies that were not funded during the previous year. In the current quarter, however, investor confidence appears primarily based on the assessment of real business factors such as strong M&A momentum, low overhead costs, and an increasing number of start-up activities."

These "real business" factors are much more reliable indicators of actual economic growth.

Posted by Jeff Cornwall at 01:54 PM | Permalink

Carnival of the Caplitalists can be found at Accidental Verbosity. While you are there you will also get a chance to meet Sadie! Congratulations, Jay!!

Posted by Jeff Cornwall at 07:50 AM | Permalink

When assessing possible opportunities, entrepreneurs should avoid the pitfall of getting too rigid in their plans. I challenge all entrepreneurs to really understand the fundamental sources of the opportunity they are pursuing. What are the macro forces and the industry trends that have created the potential opportunity?

Macro forces can go all the way up to economic, social, cultural, political, technological issues that are shaping the industry. This may require some additional research, but will pay off over time. Often the reason there is a new opportunity in the first place is a result of these forces being in constant flux and change. As Peter Vaill calls it, a state of perpetual white water. So, the very changes that created your opportunity can move past you and make your business obsolete if you do not continue to adapt, evolve and innovate.

Entrepreneurship should be an on-going process, not a one-time event.

Posted by Jeff Cornwall at 05:19 AM | Permalink | TrackBacks (1)

Startup Journal offers an interview with Tom Peters. Now I must admit that I've never been a big fan of much of his work, but this quote from him is just, well, bizarre.

"SJ: Peter Drucker is famous for asking businesses, 'What business are you in?' What question do you think every business should ask itself?

Peters: 'Why should I fall in love with you?' You see, I'll add the passion to the Drucker thing. To me it's a big deal. Say I'm running a business and I'm trying to choose an accountant. And so I have 27 interviews and my question to you isn't, 'Are you a competent accountant?' -- that comes later on -- but, 'Why should I fall in love with you? What's going to make this a glorious relationship?'"

Now I've hired a few accountants in my day, and I can promise you that this is not a question that I would ever ask. And if I ever did, most accountants I know would be out the door before I finished the question.

Sure, you want them to be interested in what you do, seem motivated to work with you, and understand how to work with small businesses. And rather than ask 27 of them about "falling in love with them," find two or three through your network and find out which one will be the best fit for you and where your business is headed.

Maybe its time for Tom Peters to hang it up!

Posted by Jeff Cornwall at 05:02 AM | Permalink | TrackBacks (2)

Just pay attention when you visit your local parade of homes this year. Home offices are now standard features in many new homes. Once destined to set up shop in the basement, dining room, kitchen, etc., home offices are now just part of the floor plan.

StartupJournal tells us that this was not always the case, however.

"(M)any white-collar telecommuters and self-employed professionals used to go to great lengths to hide the fact that they worked from home. They would change the word apartment to suite in their address. They borrowed conference rooms from friends for meetings with clients. They even had other people leave the outgoing message on their answering machine to give the impression of having a secretary. A barking dog, a honking car or a crying child while they were on the phone would leave them wide-eyed and white-knuckled until they were sure no one had noticed."

But, now working at home is common. In fact, it could even be considered chic.

"These days, however, 25 million people in the U.S., or 19% of those in nonagricultural jobs, work from home at least occasionally, according to the Bureau of Labor Statistics. The practice has become socially acceptable and even desirable."

The big caution as we've talked about more than once before at this site: set boundaries between work and non-work in the home!

Posted by Jeff Cornwall at 06:00 AM | Permalink

I was curious about some of the SBEC state rankings I wrote about yesterday. Why were Tennessee, New Hampshire and Texas not in the top 10? They are all relatively low tax states with no personal income tax, which seems to drive many of these rankings.

Well, the devil may be, in part, in the details. It seems that several states still do not recognize the benefits of S-corps for supporting the formation and growth of small businesses. Rather than flow income from these businesses through to the owners to be taxed at the personal rates, which was the intent of the federal legislation, some states tax the income that flows through S-corps. The advantage of no double taxation for S-corps does not seem to apply in these states. And three states that brag about no state income taxes have some fine print that says otherwise.

"Texas has no personal income tax. But it does impose a 4.5% income tax on corporations, which applies to S Corporations. New Hampshire also inflicts no general personal income tax. However, its burdensome corporate income tax of 8.5% encompasses S Corporations. The state of Tennessee sees the wisdom in not taxing general personal income as well, but also falters by having its 6.5% corporate income tax apply to S Corporations."

Posted by Jeff Cornwall at 07:18 AM | Permalink

September was the 18th straight month that the small business optimism index from the NFIB was positive. Does small business optimism matter? According to another study by the NFIB it may well be important.

"Research shows that small-business owners vote. A nationwide survey sponsored by NFIB in 2002 found that amongst small-business owners, 84 percent were 'extremely' or 'very likely' to vote."

Specifically, the small business optimism index was up 1.5 points from August, with plans to build inventory leading the way.

"The percent of owners intending to continue stocking their shelves soared to the strongest reading since the mid-1990s. Those actually increasing their stocks climbed a point to a net 2 percent, even with strong sales trends. The net percent of those reporting positive sales rose to 8 percent, adding to a six-month run in reports of higher sales--the strongest since 2000. But expectations for improved sales in the near future ebbed a few points to a net 23 percent--still a solid figure."

Capital spending was also looking strong among small business owners. This is important economically, as capital spending helps in sustaining a recovery.

"Looking ahead, 23 percent believe now is a good time to expand facilities—up three points from August levels and five points above year-ago figures. More than one-third--36 percent--said they expect business conditions to be hotter six months from now, a hike of four points over August."

Credit conditions for small business and earnings both remain strong, as well.

Posted by Jeff Cornwall at 06:42 AM | Permalink

South Dakota was rated the friendliest state for entrepreneurs in a ranking released by the Small Business & Entrepreneurship Council. This is not at all surprising, since South Dakota was aggressively courting Minnesota small businesses when I lived in the Twin Cities.

"The 'Small Business Survival Index' for 2004 has been revised and expanded, including the addition of S-Corporation tax treatment, a new workers' compensation cost measure, and each state's status regarding regulatory flexibility statutes. The Index now analyzes 23 major government-imposed or government-related costs affecting small businesses and entrepreneurs, including an assortment of taxes and measures that reflect various regulatory costs, and computes an overall rating."

Here are the top ranked states:

1) South Dakota
2) Nevada
3) Wyoming
4) Washington
5) Florida
6) Michigan
7) Mississippi
8) Alabama
9) Colorado
10) Indiana
11) Texas
12) Pennsylvania
13) South Carolina
14) New Hampshire
15) Virginia
16) Tennessee

This list includes some states, like South Dakota, that may have historically been considered "unattractive" destinations to live by many people (by the way, I think South Dakota, although too cold, is quite a nice place). And the top list includes some states, like Michigan, that have fallen on hard times due to the downfall of traditional industries. This shows that markets can work between states. By breaking down barriers, these states can find ways to attract new jobs and new residents. This can also work for other public policy issues, such as education.

The SBEC ranked the following states the lowest:

37) North Carolina
38) Montana
39) Oregon
40) Ohio
41) Massachusetts
42) Vermont
43) Iowa
44) New Jersey
45) New York
46) Maine
47) Minnesota
48) Rhode Island
49) Hawaii
50) California
51) District of Columbia.

It is too bad to see North Carolina falling in these types of rankings. It was a great place to do business in the 1980s when we started out ventures there.

Find where your state ranks and get details on their methodology at sbecouncil.org.

Posted by Jeff Cornwall at 05:46 AM | Permalink

The dynamics of any family business can be a challenge, but they can differ widely from family member to family member within any given family. For example, my brother and I were successful together in business as partners and had a great working relationship. My wife and I had a small, part-time business together while in college, which although successful, helped us learn that we did not want to be in another business together with both of us actively running things. We went our own ways in our careers, although she has always been my most important advisor in all in all of my business deals. We have been blessed with a wonderful marriage for twenty-six years and counting. My father was always my other most important outside advisor.

StartupJournal has an good summary of the issues married couples face when they go into business together. One of the most common rules in family business is learning to keep family and business issues distinct, and keep as few issues as possible from becoming family business issues. This can be most challenging for husbands and wives.

"Still, family-owned businesses must deal with specific -- and potentially messy -- issues. On one hand, they often benefit from loyalty and stability. Everyone has a vital stake in the business. On the other hand, dissension over money or child rearing might spill over into, say, a meeting to discuss marketing with a colleague. There might be a divorce or an incompetent brother-in-law on the payroll."

As with any business partnership, think about who you take on as business partners very carefully, thoroughly, honestly, and objectively. This is never truer than it is with family business partners who are spouses. Ask the difficult questions and talk about the challenges and problems that being in business with family will create.

The best rule I ever heard from married business partners: no business talk in the bedroom--ever!

Posted by Jeff Cornwall at 06:09 AM | Permalink | TrackBacks (2)

HobbsOnline comments on an AP story that reports on Shiite insurgents in Iraq who are beginning to give up on fighting and turning their energies to earning a living. They are beginning to sell their weapons through government buy-back programs. One that was interviewed, named Kadhim, plans to use this money to start a small business.

"Could it be that good old fashioned entrepreneurialism is what, in the end, stabilizes Iraq? Perhaps. Business owners have a stake in stability. Once he starts his business, Kadhim will find himself wanting the government to do more to crack down on the insurgents that threaten the stability of Iraq. George Bush has said he believes in the transformative power of liberty. Kadhim is reaching out for his freedom to start a business. He may find himself, his city and his country transformed.

Posted by Jeff Cornwall at 05:45 AM | Permalink

Carnival of the Capitalists is one year old! BusinessPundit has the anniversary edition posted for your reading pleasure.

Posted by Jeff Cornwall at 07:34 AM | Permalink

Tim Worstall hit me hard with his article "Entrepreneurs of the World Unite! You Have Nothing to Lose but Your Guilt!" at Tech Central Station. He writes a commentary on a study by William Nordhaus of Yale (published by the National Bureau of Economic Research) which reports that entrepreneurs on average only accumulate 2.2% of the wealth that they create. That's right, only 2.2%!!

Nordhaus summarizes his findings this way:

"We conclude that only a miniscule fraction of the social returns from technological advances over the 1948-2001 period was captured by producers, indicating that most of the benefits of technological change are passed on to consumers rather than captured by producers."

But, I really like Worstall's reaction to this. He is an entrepreneur and seems to take all of this rather personally!

"As we already know the first and most basic truth about economics is that incentives matter. What incentive is there to struggle to launch a new company or product if having reaped the rewards of doing so one is brow beaten by society into apologizing for the wealth, forced into making grants to puerile non-entities, funding pressure groups on this or that fashionable matter. Where's the incentive for the next generation in that? Far better that those who have won launch into rip-roaring enjoyment of the things that money can buy, create a little envy so as to gee up those making the great decision of life. Whether to work for a salary and pay 20-30% of their income to the rest of us or to innovate and give 98% away?"

So what to do? Are we really going to foster a truly entrepreneurial economy with such a meager share of the spoils?

"We now know that innovation and entrepreneurial activities are hugely profitable for the wider society, almost all of the gains going to that society, not the initiators. We wish to encourage more such activity but have ruled out structural changes because the pols will undoubtedly screw it up."

Amen to that. If the politicians get involved we may get even less! But, with the politics of envy serving as such a staple of American elections we better hang on to our wallets.

What would I suggest we do? Perhaps we should stop taxing that which is creating so much good for our society. That would be a good start. Entrepreneurs are already creating so much public good by creating jobs and stimulating the economy through the multiple effects they create by the consumption of goods and services from other businesses.

What a wonderful platform to begin a discussion on the public policy issues related to entrepreneurship!

(Thanks to Ben Cunningham for passing this along).

Posted by Jeff Cornwall at 05:49 AM | Permalink

StartupJournal reports on changes that have taken place in the SBA loan program:

"Last Friday, despite last-ditch efforts in Congress, significant changes took effect in the nation's largest government loan program for entrepreneurs. As such, some business owners hoping to use the program may find themselves looking for new financing because they no longer qualify. Many who do qualify will pay higher fees for their loans. And in some cases, borrowers may find their local lenders, who also now face higher costs, less eager to participate in the program."

This may sound like a disaster for small business (especially as framed in many articles about this change), it is really part of an effort to stabilize this program and insulate it from the ups and downs of congressional funding. While this program has been important for many small businesses, it is a program that often suffers from policy changes and politics. These changes are actually an attempt to reduce the need for government subsidies and make the program self-funded.

"The 7(a) program would be operated via fees collected from lenders and borrowers, not a government appropriation. The SBA says such a move will streamline the program, reduce the burden on taxpayers, and stabilize funding."

Liberal politicians are screaming doom and gloom, but this is really a good change that will take this program out of the arena of governmental appropriations and move it more into the free market. Similar changes made in the Reagan administration proved to streamline and improve service for other SBA programs.

Posted by Jeff Cornwall at 07:08 AM | Permalink

The growing pots of money held by VCs is starting to flow more into deals, which will help support future growth. Inc.com reports:

"Overall investment by venture capitalists is up 19% from last year, up from $14.1 billion to $16.8 billion....Biotechnology and telecommunication companies led by companies like Avera Pharmaceuticals and Vonage Holdings attracted the most attention from the venture capital community, though semiconductor manufacturers and companies addressing computer-security concerns were also popular with speculators."

Posted by Jeff Cornwall at 07:03 AM | Permalink

Small Business Trends has an article by Kare Anderson on the growing trend for businesses large and small to partner together to reach common customers.

"It reflects a growing trend of organizations joining forces with others who serve the same kind of consumer. Together, they have discovered that they can act quickly to offer extra value, convenience or other stand-out benefit."

How does it work? Here is an example of two businesses partnering to reach the same customers while spending fewer total dollars:

"T-shirt designer Tami Minatelli was able to exhibit at nine street fairs this summer without paying for her booth space. A new manufacturer of a unique, no-stain suntan lotion paid for Tami's booth.

"Why? Because she wore their lotion and her T-shirts, with a sign above her head, describing her original painting-on-cotton method and the lotion's 'do no harm' guarantee. Next to burn protection, that's the biggest concern of people who use suntan lotions."

It is a great tool for bootstrappers who want to get the most out of tight marketing budgets. And, both partners win by saving money, enhancing their messages with the possible synergy of each others' product or service, and by reaching more customers.

Posted by Jeff Cornwall at 06:42 AM | Permalink

I am proud to say that none of the students who studied with me in the late 1990s fell into the get-rich-quick scheme that was known as the dot.com craze. My students knew that my view of true entrepreneurship was that it was not just a mechanism to feed off of greed and raise a bunch of money that had no real purpose just because you could.

True entrepreneurship is about addressing real needs, building value, creating jobs, fueling the economy, building strong communities, and creating real wealth for those who take on the risk of investment. I told my students that they could start a dot.com if they like, but if they wanted my support (and a reasonable grade) they had to start one that met those criteria. None ever did. At the time I took some heat from many of my fellow academicians, but I stuck to my guns on this one and I think that time proved me right.

Om Malik, who has had his work in a variety of business publications including Forbes, writes a piece in Business 2.0 titled "The New Road to Riches:
How to get ahead in the postbubble world: Build a company cheap. Flip It fast. Repeat."

When I first read this title, the words of Pres. Reagan came to mind, "Here we go again!" But read on. The techies finally are beginning to understand true entrepreneurship in Version 2.0 of information technology start-ups.

"(It) is part of an emerging breed of here-today, bought-tomorrow startups that are sprouting with minimal funding, flowering briefly, and being gobbled up by far bigger companies. In many instances, these built-to-flip outfits forgo -- or sometimes can't get -- money from venture capitalists. They instead create shoestring operations focused on the rapid development of narrow technologies to plug gaps in existing product lines or add useful features to existing products. Then they look to a deep-pocketed patron to scoop them up."

Instead of raising money just because they can, these folks are now looking for real opportunities, bootstrapping them, and finding a way to help them grow. While I am a little concerned about the "flipping" part, at least they are getting the first steps right this time.

How big is this trend? "By the end of September, there will have been more than 5,300 tech acquisitions in 2004, based on research from Mergerstat."

My hope is that those who get bought up and then are locked into employment deals with big tech companies will begin to become restless with the corporate life. Maybe Version 3.0 of the tech boom will actually see entrepreneurs who actually want to build companies that have legs and will build value over the long term. Then we may really see a Renaissance of technology companies fueling sustainable economic growth. True techie entrepreneurs: what a concept!

Posted by Jeff Cornwall at 07:00 AM | Permalink | TrackBacks (5)

Travis McMenimon is a fellow blogger who happens to be a college senior at Villanova (what a wonderful and open media this is). He has been blogging about his personal "Odyssey of the Mind" at his blog site of the same name. He polled a few of his fellow bloggers who were much longer in the tooth and grayer in the beard than he is to see what we thought about the issue of when is the right time to start your first venture. As you can imagine, we all have different thoughts on this question....You can read about what each of us said Travis' blog.

Posted by Jeff Cornwall at 06:46 AM | Permalink

An article in Inc.com reports the strongest IPO activity since 2000 for VC backed firms. This is an important leading indicator for the strength of the entrepreneurially driven recovery.

"The third-quarter number brings to 48 the total of IPOs so far this year, a figure that already exceeds the sum of IPO activity for 2002 and 2003 combined, according to the report."

M&A activity is also strong, which is another sign of renewed growth in the emerging venture sector.

"Ninety venture-backed U.S. companies were merged or acquired in the third quarter, for a total of $5.89 billion, with information-technology companies representing the majority of those deals."

These activities will further enhance the base of funds that venture capitalists will have to invest, so this should support strong growth in new VC investment into 2005.

Posted by Jeff Cornwall at 07:08 AM | Permalink

In the recently signed tax cut legislation were 23 tax breaks for businesses that were about to expire. While lower taxes are a good thing in principle, many of these are much too targeted. From Inc.com's reporting of this news:

"(P)art of the tax package are 23 tax breaks for businesses that were set to expire. Among the breaks, worth approximately $12.97 billion, are a research and development tax credit, credits towards alternative energy production, and additional support for the continued economic recovery of lower Manhattan. The tax relief is expected to cost the government $131.4 billion in revenue over the next decade and would affect an estimated 94 million Americans."

Economic engineering does not work over the long-term. A better policy is broader tax cuts that can help all businesses and all citizens help to continue to support economic expansion.

And while we are at it, since when did tax cuts become "costs"? That seems to imply that it is the government's money to begin with. The only costs for government are things that they spend, not revenue that they are not allowed to take from us. It is bad enough when the main stream media uses such language, but even more frustrating when a business news source, such as Inc, talks this way....

Posted by Jeff Cornwall at 10:05 AM | Permalink

Visit this week's Carnival of the Capitalists at Drakeview.

Posted by Jeff Cornwall at 08:28 AM | Permalink

The National Dialogue on Entrepreneurship reports on two very differing views of small business indices.

"It was the best of times; it was the worst of times. That’s the message from two small business indices released earlier this month. The National Federation of Independent Business' (NFIB) monthly index of small business indicators shows a slight drop in small business confidence from July’s near-record levels, but the overall level (102.9) of small business owner's confidence is quite high compared to recent months. Meanwhile, Rep. Nydia Velazquez (D-NY) and her fellow Democrats on the House Small Business Committee have released their own take on the state of small business in the second quarter of 2004. Their view is decidedly more gloomy as their Index reached a seven-year low. The index includes seventeen measures that track job growth, new orders, fuel costs, and other key indicators. Poor conditions facing small businesses are attributed to rising business costs (especially for fuel and health care), difficulties in accessing capital, and limited job growth."

I will go with the source that has the interests of small business as their agenda. The NFIB does not pull punches when reporting small business news and trends. They have presented bad news and good news as it happens.

The Democrats, on the other hand, have created an extremely biased index that fits their agenda, but not necessarily that of small business owners. They weight health care costs very heavily in their index, which fits their push for national health insurance more than small business' concerns. It is an issue small business is facing, but not one of the most important issues as represented in this index.

Posted by Jeff Cornwall at 07:43 AM | Permalink

This was one of those weeks. Everyone looked tired here at Belmont University. The students looked tired, the staff looked tired and the faculty looked tired.

When I asked my students about their weekend plans, I hoped (as a parent of two college age children) that I would hear them tell me that they were going to rest this weekend. They all were dragging so much this week. Who could blame them with the first round of tests and papers for the semester just getting over and their jobs, and their businesses, and their sports practices, etc., etc. But what I heard from each was a weekend that sounded even more hectic than the past week.

This got me thinking about an article in Inc.com I read during this past summer. It was about an effort in Virginia to once and forever "rid the state's code of 'blue laws,' or laws intended to restrict activities and commerce on Sundays." But, in a legislative snafu "Virginia legislators accidentally repealed exceptions to the archaic laws." There would actually be two weeks of even stricter "Blue Laws" due to this oversight.

Now as I read this article, I was struck by the author's choice of language. Rid is a word that often is used to describe the process of casting out something undesirable, bad or even evil. Archaic, well let's be honest, it's a word that refers to anything that predates the Internet, CDs, and unleaded gasoline.

But, what's wrong with a culture that decides to rest for one day? God even rested on the seventh day, after all. Maybe this isn't something we need the legislature to force upon us, but is it a bad thing?

When I grew up, Sunday was just accepted as a different day than the rest. Most of us would get up more leisurely, have a nice family breakfast and go to church. Then we'd go home, spend time with our families and neighbors and have a nice family supper. We didn't do yard work, as that was what Saturday was for. We didn't clean the house and do laundry, as those tasks were taken care of during the week. We didn't shop, as very few, if any, stores were even open. We just enjoyed each other (OK, so my brothers and I still fussed at each other a bit even on Sundays), praised God, and just slowed down.

Now Sunday is a day to catch up on work. It is for many, their day to gain a competitive advantage in their businesses.

When my wife and I first moved to Kentucky, Blue Laws were still in effect. Our Sundays had already gotten more like any other day by this time in our lives. The shock of the "Blue Laws" was immediate. What, no Mall shopping on Sundays?!? I remember that I had the same reaction that the author of the article in Inc had to this aspect of Kentucky culture. This was archaic!!

Looking back, however, I now see the wisdom in the old ways of treating Sunday as something different in our week. A day of rest. A day of praise. Do I follow the old ways? Sadly not really. Should the old Blue Laws be brought back? Probably not, since we don't need government fooling around with anything more in our lives.

But, as I read about the pace of our lives today, the stress we create for ourselves, and the alienation we have from our families and neighbors, I can't help but wonder. Maybe there was some wisdom in our old ways. I am tired. My weekend will be at least as busy as this past week was for me. And then I go back to work....

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