The Entrepreneurial Mind

COTC is now up over at Ashish's Niti.

Posted by Jeff Cornwall at 12:30 PM | Permalink

The latest Global Entrepreneurship Monitor (GEM) report has been released and it continues to show the strength of entrepreneurial economic development around the world. Once again, there seems to be some data they just can't quite figure out.

As reported by the National Dialogue on Entrepreneurship, "entrepreneurial activity tends to decline as national incomes rise. So, the highest levels of entrepreneurial activity among participating countries can be found in Uganda, Peru, and Ecuador. Meanwhile, the worst performing countries-Japan, Belgium, Italy, Sweden, and Finland---all tend to enjoy relative prosperity."

The report then acknowledges that there is at least one pesky exception to this pattern: The United States.

Let's try a counter hypothesis to the data they found. Japan, Belgium, Italy, Sweden, and Finland are all countries that are fond of socialism and planned economies. The GEM studies only have data for seven years, and they do not report any trends that back up their assertion that entrepreneurial fell in these countries because they built up wealth. On the contrary, they compare these countries to developing economies and assume that the difference must be the relative level of wealth in these countries.

Let's try my hypothesis. Because Japan, Belgium, Italy, Sweden, and Finland try to control their economies in one way or another, they stifle entrepreneurial activity. The one shining exception among wealthier nations (at least until our own slide to socialism is complete) is the US. We still are a country with relatively low barriers to business start-up and less overall regulation on commerce. The US is not some statistical anomaly. Our current economic expansion is driven by entrepreneurship because our public policy and our culture support business formation.

Posted by Jeff Cornwall at 06:18 AM | Permalink | TrackBacks (1)

The National Dialogue on Entrepreneurship reports on the year end study of venture capital activity that was complied by PricewaterhouseCoopers.

"According to the National Venture Capital Association (NVCA), overall VC investments in 2004 reached $20.9 billion. This total is an increase from last year's total of $18.9 billion, and it represents the first increase in three years. Overall, 2,876 deals were completed in 2004. Key trends include an increase in later stage investing; key sectors include the life sciences and software. Other good news is that first time financings also grew in 2004, as 796 companies received venture capital for the first time."

The total number of businesses represented in this group is relatively small when compared to the total number of entrepreneurial ventures in this country. However, these are high potential deals that could have a large impact on their industry sector over the next several years. Also, venture capital deal flow is a strong indicator of the health of this economic cycle.

Posted by Jeff Cornwall at 06:07 AM | Permalink

From the Joint Congressional Economic Committee:

The Bureau of Economic Analysis (BEA) announced today that the gross domestic product (GDP) increased at an inflation-adjusted annual rate of 3.1 percent in the fourth quarter of 2004. This follows growth of 4.0 percent during the third quarter of 2004.

o An increase in the trade deficit; exports fell as imports rose.
o A slowdown in consumer spending; consumer spending grew at a healthy 4.6 percent annual rate in the fourth quarter on the heels of 5.1 percent growth in the previous quarter.

* Fourth quarter GDP growth was boosted by inventory investment, which had pulled growth down in the third quarter.

* Real GDP increased 4.4 percent in 2004 compared with an increase of 3.0 percent in 2003. Growth in 2004 was the highest since 1999.

Posted by Jeff Cornwall at 10:10 AM | Permalink

I have argued that there is nothing wrong with the music industry that a free and open entrepreneurial marketplace cannot fit. I came across a nice summary of how we got to where we are in this industry at a blog called patrickWeb. The author also sees a bright future for the music industry even though it will never again look like and operate as it has been in the past.

"The bottom line is that most all people like some kind of music. Composers like to compose, musicians like to perform and conductors like to conduct. Business models that embrace rather than fight technology are finally emerging. The music pie will get bigger -- it surely will get shared differently -- but I am confident that it will get bigger.

Well said. And it will be music industry entrepreneurs making the pie bigger.

Posted by Jeff Cornwall at 08:57 AM | Permalink

The state of Virginia is one of the states currently considering regulatory flexibility for small businesses.

The SBA Office of Advocacy and NFIB are supporting enactment of such legislation across the country. "In the last two years twelve states implemented regulatory flexibility for small businesses through legislation or executive order. Several bills supporting regulatory flexibility are pending before the Virginia General Assembly."

A recent study from the Office of Advocacy found that small businesses spend over $7,000 per employee per year to comply with federal legislation and regulation, while larger business spend about $4,400 per employee.

The Small Business and Entrepreneurship Council has published a study that ranks each state's regulatory and policy environment for small businesses. Virginia ranked 15th in this study.

Posted by Jeff Cornwall at 08:18 AM | Permalink

When I teach about entrepreneurship, I stress the importance of starting with one's aspirations and goals. For more and more people, these aspirations go well beyond financial goals they hope to achieve through their new business. Lifestyle and family issues are increasingly being identified as key issues as new entrepreneurs plan their businesses.

For many of the young women I work with, planning for a business that allows them to be active mothers for their children is a fundamental goal for their entrepreneurial careers. An article in today's Tennessean highlights this trend.

"You can't swing a diaper bag on a playground without it landing firmly at the foot of a woman running, or thinking about running, her own business - whether that business be knitting blankets to sell at a craft fair, selling cookware at home parties, or nailing down advertisers for a franchise entertainment coupon book that grosses six figures."

There is a popular website that offers support and ideas for women looking to integrate entrepreneurship and motherhood called MompreneursOnline. (Caution: Some opportunistic person associated with this site made sure that they trademarked "Mompreneur"....).

Posted by Jeff Cornwall at 06:32 AM | Permalink

Blogs are becoming more popular as tools for business. Blogs can be places to place advertising, places to seek free p.r., a mode of intra-company communication, and as a substitute for newsletters to market a business.

Anita at Small Business Trends offers some useful posts to help understand the basics of blogging, including how to write a blog, how to get p.r. on a blog site, and how to use a blog for intra-company communication.

Posted by Jeff Cornwall at 06:14 AM | Permalink

I have known a couple of folks who started businesses offering their services as professional organizers. This article at StartupJournal shows how much financial opportunity and satisfaction that there may be for this type of business.

"'I keep doing it because I love it; it's instant gratification,' says Sally Allen, owner of A Place For Everything LLC in Golden, Colo. Maria Gracia, founder of Get Organized Now! in Watertown, Wis., says, 'It's a very rewarding field emotionally, and it can also be financially rewarding.' And Barry Izsak, president of Arranging It All in Austin, Texas, concludes, 'My life is so good. I never dreamed I'd be doing something that is so easy for me, and making so much money.'"

For many of these organizers, their businesses are growing much larger than they at first imagined. Many report that they are adding subcontractors and offering products to go along with their organizing (storage systems, books they have developed on how to keep organized, etc.).

As Barry Moltz likes to say, the best business opportunities are those that solve other people's pain. I guess too much stuff is quite painful to a lot of people these days!

Posted by Jeff Cornwall at 05:58 AM | Permalink | TrackBacks (1)

Those critics who predicted doom and gloom for SBA lending due to increased fees seemed to be proved wrong as reported at Inc.com.

"Despite rising interest rates and higher fees, small business owners tapped a record number of Small Business Administration-backed loans in the first quarter of fiscal year 2005.

"In the quarter, which began October 1, 2004 and ended December 31, 2004, the Small Business Administration (SBA) and its partner banks approved 23,197 loans worth $3.56 billion, a 23% increase in volume and a 14% increase in value over the same period a year ago."

Fees were raised to offset a new budget model for the SBA that was passed to try and create more long-term stability in its lending programs.

Posted by Jeff Cornwall at 06:38 AM | Permalink

Fortune Small Business highlights three entrepreneurial ventures with an environmental focus.

* "One solution to America's energy crisis just may be gobbling away at a poultry farm near you. Changing World Technologies has developed a working system to convert turkey guts and scraps into fuel oil."

* "IdleAire is the big dog in an emerging pack of companies that provide technology to reduce pollution at truck stops. Badgett's firm installs a system of gray control consoles attached to bright-yellow tubes suspended from an overhead rack. Drivers pull up, turn off their rumbling engines, latch the unit onto a $10 adapter that fits in their passenger window, and open a clamshell-like control console that pipes in climate-controlled air, electricity, broadband Internet access, satellite TV, and long-distance phone service."

* "Tony Rogers is a member of the rose-bud Sioux tribe who lives on the tribe's South Dakota reservation. He doesn't have an engineering degree, hasn't worked for a power station, and has never invested in the energy markets. Yet Rogers is an entrepreneur at the cutting edge of green energy development. He is director of the Rosebud Sioux Tribe Utility Commission—the group responsible for building the first wind turbine on a Native American reservation."

Three nice examples of how the private sector can solve broader societal problems even while making a profit or creating self-sustaining non-profits. A definite win-win.

Posted by Jeff Cornwall at 05:59 AM | Permalink | TrackBacks (1)

New venture start-ups in the health care industry have been in the doldrums for the past couple of years. However, in an article from Private Capital Advisors shows that IPOs in Life Sciences is up significantly in 2004.

Venture capital activity in health care deals has also increased. All of this has created much stronger valuation multiples in the industry.

"All four sub segments within the healthcare services industry experienced LTM EBITDA multiple expansion. The most significant increase in median multiples came from the long-term care segment, which increased 21 percent to 7.5x from 6.2x."

This is good news for the health care industry, which seems to be regaining momentum in new business development.

Posted by Jeff Cornwall at 05:07 AM | Permalink

Here are the most recent economic reports from this week (from the Joint Economic Committee of Congress):

State Employment Statistics:

* Non-farm payroll employment increased in 32 states in December. The states with the largest employment gains were Florida (+12,100), Texas (+7,000), Georgia (+5,600), Colorado (+5,400), and New York (+12,100).

* Employment increased in 48 states during 2004. The largest gains in 2004 occurred in Florida (+172,300), California (+152,300), Texas (+124,800), Virginia (+79,500), and North Carolina (+76,400).

* Over the past year, the unemployment rate has fallen in 43 states.

Federal Budget:

* The budget deficit for fiscal year 2005 is projected to be $368 billion – that's over $40 billion less than the fiscal year 2004 deficit. CBO projects an even smaller deficit of $295 billion for fiscal year 2006.

* As a percentage of Gross Domestic Product (GDP), the budget deficit will be 3.0% for fiscal year 2005 and 2.3% for fiscal year 2006, significantly lower than the 3.6% level reached during fiscal year 2004. These deficit-to-GDP ratios are significantly lower than levels reached in the 1980s and early 1990s. The most recent highs were 4.7% in 1992, after the Gulf war, and 6.0% in 1983. (In order to compare deficits across different years, it is important to account for the economy's capacity to absorb the deficits and the government's ability to finance them. Both of these factors depend on the size of the economy. For this reason, economists typically measure deficits relative to GDP.)

* The ratio of publicly-held debt to GDP is projected to be 38.1%, a percentage that is still lower than the ratios the U.S. sustained for most of the 1980s and 1990s. Indeed, the debt amounted to almost 43% of GDP as recently as 1998. Since 1940, the highest ratio achieved was 108.6% in 1946.

Economic Expansion

Robust growth in consumer and business investment spending continues to fuel growth in the gross domestic product (GDP) and payroll job gains continue at a healthy pace. Payroll employment has expanded for 16 consecutive months and payroll job gains in 2004 totaled over 2.2 million. Energy prices rose again recently, after a sharp retreat from recent peaks of late October. Higher energy prices have pushed up the dollar value of imports while stagnant growth abroad has hampered export growth. As a result, the U.S. trade deficit hit a record high in dollar terms in November. Despite increases in energy prices last year, inflation remains tame. Forecasters continue to see low inflation along with strong and steady growth at least through next year.

Posted by Jeff Cornwall at 10:43 AM | Permalink

Dell is the latest example of a big corporation behaving like a big bully. Ben Cunningham passed along this article from the Greensboro News-Record about Dell trying to bully their way out of paying taxes in North Carolina.

Now I am all for less taxes, but I want it for everyone, not just the powerful. Tax breaks to big corporations that make threats is poor public policy.

Posted by Jeff Cornwall at 05:53 AM | Permalink

Even though from the outside the music industry seems like a wounded giant, it is proving to be fertile ground for entrepreneurs willing to think about new and creative ways of getting music from artists to listeners.

The latest of these new ideas just got venture capital funding, as reported by Red Herring.

"Mercora, of Santa Clara, California received $5 million in Series A funding Monday from Silicon Valley's Norwest Venture Partners, to finance its Internet radio network. Mercora IM (Individual Modulation) Radio, which uses streaming audio, lets users listen to music from other users' computers.

"'It is a network of radio stations that is basically converting your PC into a webcasting station in compliance with copyright laws,' said Srivats Sampath, co-founder and CEO. With Mercora, every user becomes a broadcaster and their playlist becomes a channel, he said."

Not only is Mercora rethinking music distribution, but they are even rethinking broadcast radio. This may not be the answer for this industry, but it is definitely the kind of innovation that may help reinvent how music gets from performers to their fans.

Posted by Jeff Cornwall at 05:47 AM | Permalink

The National Dialogue on Entrepreneurship reports on the United Nations' growing interest in entrepreneurship:

"In 2000, UN Secretary-General Kofi Annan chartered a whole host of initiatives tied to the UN's Millennium Development Goals, a package of plans to reduce poverty and promote new development by 2015. As part of this effort, a UN Task Force on Science, Technology and Innovation was set up; this group has just released a new report entitled Innovation: Applying Knowledge in Development. The report examines the role of science, technology, and innovation in meeting the Millennium Development Goals. The Task Force sees a big role for entrepreneurship, and it encourages UN members to do more to support the development and small and medium-sized enterprises. They also suggest that universities take a more proactive role in supporting development, via support for regional development projects, local support for business creation, and other community development activities."

Let's hope that these countries don't decide to take too big a role in entrepreneurial development. The best they can is to work toward deregulating the entrepreneurial process in their countries. In many parts of the world, including many already developed economies, the hurdles and costs of entrepreneurship make business start-up too complex and too expensive to realistically expect entrepreneurship to spur any significant economic growth.

Posted by Jeff Cornwall at 05:43 AM | Permalink

Guy Kawasaki, founder of Garage Technology Ventures, offers his words of wisdom for start-ups at Entrepreneur.com this month. Here are a few of the highlights:

- "Do you make meaning? Great companies change the world by fighting the status quo, inertia and ignorance. They make people's lives better, fix the bad and perpetuate the good. Mediocre and unsuccessful companies start out only to make money. Here's the acid test: If your company never existed, would it matter to the world?"

- Forget the 25 word mission statement. Kawasaki recommends a three word "mantra" to describe what you do. Getting down to three words would be the ultimate challenge for almost any entrepreneur I know. But, an intriguing idea!

- Understand the economic model of the business. How will it make money?

- "If it takes five years of industry experience to begin to understand what you do, you've got a problem. Your parents should be able to explain your product or service. Your grandparents should be able to use it."

- Find a niche.

He also offers his view on writing a plan, recruiting staff, raising money, and more. A great read for entrepreneurs at any stage of development from a guy who has seen a lot of deals.

Interested in more? His book is a treasure.

(Thanks to Bruce Schierstedt for sending this along).

Posted by Jeff Cornwall at 05:22 AM | Permalink

Dane Carlson at Business Opportunities is host of the Carnival of the Capitalists this week.

Posted by Jeff Cornwall at 08:19 AM | Permalink

One of the programs we are very proud of here at Belmont University is our student created, student run retail businesses. Three different groups of students were chosen from at least a couple of dozen proposals to occupy three prime retail spaces on the edge of our campus, Each space is at least 1000 square feet, and the University along with local foundations helped to provide funding to make each store possible. Becky Gann, Program Coordinator for our Center for Entrepreneurship, oversees these and all of our other co-curricular programs.

The Tennessean ran a story this past Sunday marking the opening of the third business in the space. It is called Feedback Clothing. Unlike our other two stores, which are "owned" and operated by student organizations, this business was developed by an independent group of students.

These students have already had some of the lessons we hope to offer them through participation in our programs.

"One of her partners in Feedback Clothing Co. had just quit to take a better job, downsizing the management team -- and staff, for that matter -- from three people to two. The computer and cash register weren't going to be ready for Friday's opening, necessitating some 'old-fashioned' money collecting. Alexander's grandparents and 9-year-old brother were happily helping hang T-shirts and put together furniture.

"'We're making it work,' she said. 'It all comes together eventually.'"

We also offer students who have started their own businesses access to our Student Business Hatchery. It offers students access to space and equipment, such as a copier, fax, computers, etc.

We also bring these student entrepreneurs together weekly, along with those running the retail spaces, to serve as a peer advisory group. There are over two dozen students in our Hatchery and Practicing Student Entrepreneurs programs, and the number is growing every month.

We are expanding these programs through support we are getting from the Coleman Foundation. Our goal is to support students from any major across campus who have entrepreneurial aspirations and ambitions.

Students today are so very different than even those I saw when I got back into teaching seven years ago. They understand America is now in an entrepreneurial economic growth period not seen in decades. They embrace opportunity with enthusiasm and confidence.

What a gift it is for me to be able to help them realize their dreams!

Posted by Jeff Cornwall at 05:28 AM | Permalink

Entrepreneur.com recently offered a guide to the myriad of technology that can link you and your employees to your business twenty four hours a day, seven days a week, and around the globe.

"From home offices to hotel rooms, technology is the wind beneath your business wings, the premium gasoline in your work tank, the foundation of your building-you get the idea. Slews of laptops, wireless solutions, remote software and cell phones await your use."

True. But, technology can also become the chains and shackles that make many entrepreneurs feel like slaves to their businesses. The very freedom that such technology can create also leads to resentment, burn-out, and fatigue in many entrepreneurs. For many, the only escape is when the flight attendant closes the airplane door for take-off. Alas, even that escape may soon be taken away if cell phones are allowed for use on commercial flights.

I would like to offer some possible "connection free" zones that entrepreneurs can create to restore a little sanity to this high-speed world:

-Church
-Your daughter's dance recital
-The bathroom
-The golf course
-Your son's choir concert
-Dinner our with your wife
-Family reunions
-Movie theaters
-The tennis court
-The dentist's office
-Family vacations
-Walking the dog
-Public rest rooms
-College campus visits with your teenagers
-Family dinner

Connectivity is an amazing tool that can allow businesses to grow more effectively. You can keep better communication and coordination with branch offices, traveling staff, customers and suppliers.

But, give yourself some time for family, for rest, and for leisure. Disconnect from the connected world. You, and your business, will be healthier.

Posted by Jeff Cornwall at 06:38 AM | Permalink | TrackBacks (1)

President Bush used his inaugural address to focus on spreading freedom around the globe. As an American blogger, I found this piece from Red Herring on the lack of freedom for bloggers in China (and other countries) a poignant reminder of how precious our freedoms really are.

"The Chinese government is notorious for its aggressive censorship of dissent and obscenity on the Internet. Human Rights Watch produced a report on the country's Internet surveillance activities in August 2001. Besides China, countries that monitor web surfers' reading habits include Iran, Saudi Arabia, the United Arab Emirates, and Vietnam. But China is the most persistent, says Nart Villeneuve, director of technical research at the OpenNet Initiative, a collaboration of three academic groups that analyzes Internet filtering and surveillance.

"For the past year, the Chinese government has been filtering blogs. Censors have filters at all levels, from Internet service providers to Internet cafes. The OpenNet Initiative recently released a study detailing how three Chinese blog providers-blogdriver.com, blogbus.com, and blogcn.com-have filtering mechanisms to control the content of the blogs they host."

Too often we take our precious freedoms for granted. Freedom of speech, freedom of thought, free markets. God bless America!

Posted by Jeff Cornwall at 06:12 AM | Permalink

Red Herring reports on what is truly one of the highest of all high risk ventures.

"The mobile market might be a cut-throat business, but try running a cellular company while insurgents bomb base stations and industry officials are murdered on route to work.

"That's the world of Iraqi wireless carrier AsiaCell, which has managed to convince 442,000 subscribers to sign up for service in northern Iraq."

Now that is what I call the entrepreneurial spirit!

Posted by Jeff Cornwall at 05:37 AM | Permalink | TrackBacks (1)

"You never know what...the gods will throw your way. A war? A recession? Technology evolving and obsolescing before your eyes? Excessive growth? There's no end to the obstacles your business may encounter." This sobering set of scenarios is posed in a recent article from StartupJournal passed along to me by Mary Beth Groce.

Their recommendations are good advice for any growing business. A clear strategy, flexibility, realism, ethics and a strong network are some of the qualities that they found in companies that weathered such challenges.

Posted by Jeff Cornwall at 05:25 AM | Permalink

HobbsOnline berates Tennessee Gov. Bredesen for seeming to be out of touch regarding the economic impact of small business, specifically as it relates to the debate over TennCare.

"Maybe the reason Bredesen's economic development focus during his eight years as Nashville's mayor was on recruiting big companies to open large operations in Nashville, and that he did little to nothing to aid the city's small-business sector, was that he really thinks Big Business is where the economic vitality and jobs growth is. If so, he'll never craft a successful TennCare reform. For a successful TennCare reform will accommodate the realities of today's economy - specifically, the reality that it is small businesses, not large ones, that employ most Tennesseans and, indeed, most Americans, and it is small businesses, not large ones, that fuel the nation's economic engine and generate most of its new jobs."

But Gov. Bredesen is not alone among public officials. The term entrepreneur is still rarely used in economic development policy discussions in Washington. Should Gov. Bredesen's ambitions take him to Washington some day, he will fit right in with his big business biases.

Posted by Jeff Cornwall at 03:59 PM | Permalink

William "Denny" Dennis, Senior Research Fellow with the NFIB Research Foundation, was one of the keynote speakers at the USASBE conference this past weekend. He has been working in Washington on behalf of small businesses and entrepreneurs for the past three decades.

In his remarks he said that he believes that any kind of flat income tax or major reform is "off the table." He sees some hope for simplification in some areas, but the structure of the commission looking into tax reform is made up more of politicians than the kind of policy folks that could rely create fundamental change in the tax system.

The Washington Times reported last week on the make up of the commission.

"The bipartisan commission includes William Eldridge Frenzel, a former Republican congressman from Minnesota who served on the tax-writing Ways and Means Committee; Elizabeth Garrett, a law professor at the University of Southern California and former legislative director and tax and budget counsel to former Democratic Sen. David L. Boren of Oklahoma; Edward P. Lazear, a Stanford economics professor and senior fellow of the conservative Hoover Institution; and Timothy J. Muris, a former chairman of the Federal Trade Commission under Mr. Bush."

The Washington Times echoed Mr. Dennis's pessimism on the likelihood of major tax reform.

"Mr. Bush has said that he would like to preserve mortgage deductions and charitable deductions in the tax code, popular provisions that would not be included in a pure flat tax or national sales tax. On Thursday, Mr. Bush signed legislation that allows those who donate money this month to the victims of the Indian Ocean tsunami to deduct those contributions on their 2004 tax returns."

This was disappointing news to say the least. The President is not even inaugurated for his second term and our window for opportunity for meaningful tax reform seems to be already fading fast.

********************************

One bit of good news that Mr. Dennis shared was that regulatory flexibility legislation at the state level still has strong momentum and should be enacted in several additional states this year. He did raise some concern, however, as he has begun to see editorials in major papers begin to question why small business should be given any breaks on laws and regulations. So, this battle may not yet be won.

Posted by Jeff Cornwall at 05:55 AM | Permalink | TrackBacks (2)

Michael Simmons contacted me about his blog site, Young Entrepreneur Journey. It is an interesting site that gives some insight into the thoughts of an aspiring entrepreneur.

Posted by Jeff Cornwall at 05:29 AM | Permalink

Small business research and statistics are now easier to find thanks to the Office of Advocacy's newly redesigned web site. The site, www.sba.gov/advo, offers intuitive, easy to use menus and search features that guide users to a wealth of data, reports, and statistics on small business and the American economy.

(Source SBA Office of Advocacy).

Posted by Jeff Cornwall at 05:21 AM | Permalink

Paul Orfalea, Founder of Kinko's, spoke at the USASBE conference I attended this past weekend. Here is his definition of success:

"Success in life is having kids who want to come back to visit you when they've grown up."

Posted by Jeff Cornwall at 12:11 PM | Permalink

Carnival of the Capitalists is at one of my regular stops, Small Business Trends.

Posted by Jeff Cornwall at 09:29 AM | Permalink

There were three entrepreneurship programs honored this year for their contributions to advancing entrepreneurship education at the 2005 conference of the United States Association of Small Business and Entrepreneurship (USASBE).

The Syracuse University was honored for their advances in integrating entrepreneurship education at the undergraduate level. Specifically, their work in integrating entrepreneurship education across their campus was highlighted.

Western Carolina University was honored for their innovative MBA program in entrepreneurship.

Georgia Tech won the award in the "specialty program" category for their technology transfer program (TI:GER) that integrates science PhDs, MBAs and law students on common entrepreneurial projects.

Posted by Jeff Cornwall at 06:11 AM | Permalink

I am spending this weekend in Palm Springs at the annual United States Association of Small Business and Entrepreneurship (USASBE) conference. I am amazed at the energy level and size of this group of entrepreneurship educators. There are over 600 attendees this year, with representives from the very elite universities to community colleges and everything in between. In fact, this conference is so good and so full of information that I came to Palm Springs without my golf clubs!! I will try to share a few of the highlights when I return....

Posted by Jeff Cornwall at 05:59 PM | Permalink

The Fair and Accurate Transactions Act (FACTA) was passed to help protect all of us against identity theft. But, a single provision in this new law opens up small employers, even those with a single employee, to lawsuits if they do not properly destroy (i.e., shred) any documents or papers containing personal information about their employees before throwing it away.

USA Today reports that small and medium employers may face significant risk due to this new law.

"While the effect on individuals who employ one or more people could be bad enough, the real impact is more likely to be on small to midsize businesses.

"'A small businessman who makes a mistake could bear the brunt of a regulation like this,' says James Plummer, policy analyst at Consumer Alert, a non-profit group that focuses on a free-market approach to consumer regulations."

What are the consequences if you do not comply?

"An employee could be entitled to recover actual damages sustained if his or her identity is stolen as a result of your inaction. Or you could have to pay statutory damages of up to $1,000 per employee....The federal government could fine you up to $2,500 for each violation. States can fine up to $1,000 for each violation."

While well intentioned, FACTA seems to be another example of an emotionally charged issue that Washington uses to overreach into areas that are not really at the heart of the problem.

Posted by Jeff Cornwall at 08:28 AM | Permalink

I have worked with a couple of business start-ups recently in which the business partners were husband and wife. In both cases the couples were still newlyweds. To say the least, this creates some additional challenges both for the business partnership and for the marriage.

Last October Inc.com ran an interview with a couple that seemed to be getting both their business and their marriage off to a good start. Michele and Steve Ferree first decided to start a franchise business together and then decided to get married. They offer some good insights into their dual partnership.

1. "Don't do it by accident."

I agree! I always tell entrepreneurs that they should never be impulsive about starting a business. They should be as thoughtful about starting a business as they are in going into a successful marriage. In this case, they are actually doing both.

2. "Recognize that in a business you're always competing, even with your spouse."

3. "Be prepared for business to get personal."

You need to be honest to be successful in business and in marriage. That requires a lot of honesty between partners who are married to each other!

4. "Don't get stuck in typical gender roles."

5. "Establish a real separation between work and home."

In any family business there are family issues, business issues and family business issues. The goal should always be to keep the family business category as small as possible. Work on your marriage and work on you business, but always at different times.

6. "Fight the business's unfair pull."

Sometimes you just need to turn off the cell phone!

7. "Get a counselor or a coach."

Make sure they are good at business and at marriage.

8. "Keep asking the right questions. Am I being true to myself? Am I helping my partner be true to himself or herself?"

Indeed!

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

Inc.com reports on the cost of compliance of a newly enacted (effective November 15, 2004) provision of Sarbanes-Oxley, the legislations that was passed to protect individual investors from accounting irregularities in publicly traded companies (e.g., Enron).

"The provision in contention is Section 404, which requires the creation of extensive policies and controls within public companies to secure, document, process, and verify material information dealing with financial results....(W)hile the provision is appropriate for firms of 250,000 workers, its intentions are mislaid when it comes to businesses employing just 250 people. The cost of maintaining such controls can reach a staggering $500,000 per year, according to a study by CFO magazine. The lobbying group argues the cost, which includes the retention of auditors, is beneficial to the accounting industry, but excessive for small public companies."

So even small publicly traded companies will face new audit expenses that will total hundreds of thousands of dollars a year. Where does all of this money go? Why to the same industry that created much of this mess to begin with: the accounting industry. Just as their duplicitous relationship with regulators and legislators has helped to create the mess we know as the tax code, they are now turning their illegal and unethical acts in financial reporting into another cash cow for their audit operations through Sarbanes-Oxley.

Small and medium companies should long and hard about pursuing a public offering. Entrepreneurs should even look long and hard at venture capital financing, as a public offering is often the end game of this source of funding. Debt and other tyeps of private equity financing strategies should be looked at as alternatives.

I have always cautioned entrepreneurs about the downside of going public, including loss of control and the eventual demise of the original culture of the business. This provision of Sarbanes-Oxley and its other requirements now make public offering for smaller businesses a realistic financing strategy for only the most high-growth, high-potential ventures.

Posted by Jeff Cornwall at 05:28 AM | Permalink

When I teach about entrepreneurial finance I try to get the student to understand the financing relationship from both sides of the table. I tell them they need to understand how a banker or investor thinks and what drives them.

An AP article that ran in the Tennessean spotlights some innovative programs that truly put entrepreneurship students in the shoes of venture capitalists.

"In an effort to elevate their teaching beyond the usual case studies and guest speakers, a handful of schools are raising significant amounts of money to turn over -- with a few strings -- to students who invest in real startups. The hope is to better train both aspiring venture capitalists and aspiring entrepreneurs, who will need to know what it takes to catch an investor's eye."

The University of Maryland, the University of Michigan, Cornell University and the University of Utah all have implemented this type of program. These are examples of how far entrepreneurship education is moving ahead in major universities, through the investment of tens and even hundreds of millions of dollars into their programs.

Belmont and several other colleges here in the Nashville area also give students exposure to equity investment in entrepreneurial ventures in their programs.

Posted by Jeff Cornwall at 05:10 AM | Permalink

Small Business Trends offers a few more interesting trends to consider this time related to health and family.

"Food and pets figure in greatly in the top 10 trends for family and health in the United States, as predicted by Better Homes and Gardens magazine. If you are a small business owner, consultant, solo entrepreneur, author, home-based business or franchise owner, you may just find a promising new business opportunity among these trends -- not to mention improving your health and well-being."

Anita also has links to all of the 2005 trends she has written about this year in this post. Several great posts in this list as well.

Posted by Jeff Cornwall at 06:19 AM | Permalink

The economic statistics that the media reports rarely keep pace with changes. We have heard much about this with employment statistics. The media keeps focusing on the smoke-stack biased payroll survey rather than the more accurate household survey that includes entrepreneurial activities in its employment estimates.

How the media reports on retail Christmas sales are also prone to out-dated figures. While brick-and-mortar retail is important, it is no longer the only game in town. Web-based retail sales has finally caught on and it is allowing many small businesses to flourish. According to NFIB online sales this past Christmas season boomed.

"Online retailers got what they wanted for Christmas; totals for the holiday shopping season reached $8.8 billion.

"The holiday shopping season, which is considered to run from Thanksgiving Day through Dec. 27 for 2004, boasted a 24 percent increase in online sales over last year's numbers, according to VeriSign, a Web development and research company."

But, online retailers are not only changing how we shop, but when we shop.

"But visits to online retailers sites started long before the holiday shopping season.

"According to Hitwise, a Web consulting firm, shopping and classifieds sites claimed 9.1 percent of total U.S. Internet visits between Nov. 1 and Dec. 25, 2004 -- a 25.6 percent increase when compared to the same period in 2003. The peak day for shopping and classifieds Web sites was Thanksgiving Day."

So the traditional kick-off for traditional retail shopping is the peak for online sales. I hope the media looks at the entire picture for retail shopping in the future. But, knowing how they work, it may be way into the distant future before they catch on....

Posted by Jeff Cornwall at 05:58 AM | Permalink

The state of Ohio is taking a step in the right direction with a change in their tax code. In the past, they focused their tax incentives to target venture capital backed high potential firms. While this type of business is important to economic development, it is not the only source of growth.

From Inc.com:

"The Buckeye state is facing a projected $4 billion to $5 billion deficit and this tax incentive plan, which has an annual-price tag of $2 million, is on the long list of proposed cuts. Ohio investors say the tax cut is responsible for 131 tech companies -- which are worth a combined $45 million. But Ohio officials state plainly that if Governor Bob Taft is in the business of being anti-business, he won't be governor for long.

"'More than 80% of all business in Ohio is because of small business,' Bill Teets, spokesman for the Ohio Department of Development, said. 'If any tax incentives are going to be cut, it will be in lieu of an overall better, more pro-business tax scheme.'"

Many are framing this as bad news. I believe that it is a wise approach, as state governments have not proven to be very good at picking economic winners. Cut taxes on businesses broadly and let the market work.

Posted by Jeff Cornwall at 06:19 AM | Permalink

The NFIB reports on a variety of new laws having an impact on small business. Some of the new laws are favorable, including some lower taxes and new protection for restaurants from frivolous lawsuits. Other new laws increase taxes and raise minimum wage, which are not good changes for small businesses.

Posted by Jeff Cornwall at 05:28 AM | Permalink | TrackBacks (1)

Odyssey of the Mind is the host of COTC for this week.

Posted by Jeff Cornwall at 08:37 AM | Permalink

A question sent to me via e-mail from I.E.:

Most successful businesses, are not based around a revolutionary product or service. Many entrepreneurs that I've read about, simply enter a field where a number of competitors are already doing well, but the market demand is growing, and a segment of the market is partially underserved. Can you suggest any way to identify such opportunities? This seems especially hard because most competitors are private, so there is no way to know the level of demand in a particular market.

Someone I know is always trying to figure out the next great product to sell on QVC. But try and try as she may, she probably will never succeed with this strategy. Why? She has never had any experience with developing, manufacturing or selling consumer products.

Most successful entrepreneurs don't simply "enter a market." They build off of their experience, their knowledge, their education, and their skills. Successful entrepreneurs find some need in the market that is not being met that they have the knowledge, skills, and experience to satisfy for their customers. Maybe it is an area they gained expertise in from their education, maybe they've worked in the industry, or sometimes it can even come from a hobby or special interest. But even with a strong base of knowledge, more learning and more research is almost always needed.

Also, it takes people beyond the entrepreneur him/herself to successfully start and build a business. For example, my last entrepreneurial phase in life was in the health care industry. We had identified a niche in the market what was fairly new, was not being exploited by any other companies, and showed potential for significant growth. My partners had extensive experience in the health care, which I lacked. But, they needed me as a third partner to bring knowledge and skills on how to build and grow a business. Between the three of us, we had what it took to build a successful health care business. Any one of us trying to pursue this opportunity alone most likely would have failed.

Success requires first the ability to identify an opportunity for which there is a market. This usually takes some knowledge of that industry. Second, you must be certain that it can generate adequate profits to meet the cash needs of the business and the entrepreneurs. Finally, you (or more likely your team) must have the ability to successfully implement the plan and manage the business as it grows. Having the skills to manage the business as it grows is critical. However, many entrepreneurs are able to learn new business skills as they grow their businesses, and they can add new team members to fill any gaps in key business skills that arise over time.

Success does not simply come from a "good idea." It comes from some basic knowledge about the product or service, good information about the market, and having the right business skills represented in the members of your team.

Posted by Jeff Cornwall at 06:47 AM | Permalink | TrackBacks (2)

Red Herring has an excellent summary of the 2004 IPOs. The bottom line?

"Everybody loves a comeback story, and the IPO market's 2004 victory was especially sweet—a total of 238 companies went public and raised $45.2 billion. The number of done deals almost equaled the total of those priced in the previous three years, combined....(A)s Sinatra would say, it was a very good year."

Posted by Jeff Cornwall at 06:40 AM | Permalink

Entrepreneur magazine has the predictions for the "hot" franchise trends for 2005. They see franchises related to kids, seniors, fitness and weight loss, and technology as the hot areas this year. All four sectors have seen significant franchise growth over the last four years.

I would recommend being very careful about buying franchises in any of these areas at this point. Because they are "hot" means they will be pricy. If a franchise is over priced, it can hurt the entrepreneur’s chances for success by using too much precious start-up capital for fees that go to the franchisor for the privilege to get into their game. The best time to take advantage of a franchise is in its first year or two of growth. By now franchises in these "hot" sectors are probably relatively over-priced.

Entrepreneur magazine's list of the top 500 franchises can be found here.

Posted by Jeff Cornwall at 06:47 AM | Permalink | TrackBacks (1)

Small Business Trends offers two more sets of predictions for 2005. One is on e-business trends and the other is from the Small Business Advocate newsletter. Both offer some interesting opportunities.

Posted by Jeff Cornwall at 06:39 AM | Permalink

Red Herring reports that the IPO pipeline is full of growing ventures looking to expand.

"As of December 30, 116 companies had filed plans for IPOs to raise $24.8 billion, according to available records. The number of potential issuers and the dollar-volume figures are more than double what they were a year ago.

"Flip the calendar back to January 1, 2004, when 49 IPOs were looking to raise $8.9 billion. By the time 2004 ended, 238 IPOs had been priced, raising $45.2 billion."

This is more evidence of the potential for a strong economy in 2005.

Posted by Jeff Cornwall at 06:25 AM | Permalink

Bear Sterns has released a new report offering more evidence that it is entrepreneurs driving most of our current economic expansion. Rather than investing in growth, most large corporations are sitting on their cash. One of the interesting findings of this study is that one of the major drivers of small business growth is "strong growth in final demand." That is to say, entrepreneurs are giving the market what it wants, and many of these opportunities seem to be in markets that had previously been the domain of larger corporations. We are certainly seeing evidence of that in the music industry here in Nashville.

Thanks to Ben Cunningham for passing this report along.

Posted by Jeff Cornwall at 06:11 AM | Permalink

There is growing pressure to increase minimum wages across the country. Inc.com reported last October about this trend. Now comes word from Law & Entrepreneurship about the impact that higher minimum wages is having on small businesses in that state.

"The Chicago Tribune cites some examples of small business proprietors that will be cutting workforce and hours and raising its prices in order to cope with the increases. Illinois may also be putting its small businesses at a competitive disadvantage as it is the only state in the Midwest that has a higher state minimum wage than the federally mandated minimum wage. Therefore it is making its small businesses located on the state boarder vulnerable to out of state competition which can utilize cheaper labor."

Why are minimum wage laws bad policy, especially when it comes to poorer workers and small businesses? Richard Burkhauser from Cornell University argues that they no longer are having the intended social impact that was intended when minimum wages were first enacted.

"(O)nly one out of three of the working poor gained from the last federal minimum wage hike in 1996. The others were poor despite having higher rates because they either earned more than the minimum wage, worked part time or had large families. Of the $3.39 billion in additional wages generated by the last minimum wage hike, Burkhauser found that only 17 percent went to the families of the working poor. The other 83 percent primarily went to second or third earners whose families had income that was often well above the poverty line, indicated by the federal government to be $16,450 a year for a family of four.

"'Minimum-wage increases are extremely ineffective as a mechanism for reducing poverty,' he said. 'They were never very target-efficient and are even less so today.'"

Posted by Jeff Cornwall at 05:26 AM | Permalink

Once again, a "well intentioned" tax policy has created headaches for entrepreneurs. Inc.com reports about the impact of the so-called millionaire's tax on unsuspecting entrepreneurs. It basically adds another layer of progressive tax on high incomes.

"In New Jersey, roughly 28,000 of the state's high-income residents now pay an extra 2.6% on every dollar they earn over $500,000 annually. Former governor James McGreevey championed the tax as a way to refund property taxes to the state's middle-class homeowners. In similar fashion, California voters passed a ballot proposition in November that tacks an extra 1% tax on every dollar that individuals make over a million, to help fund the state's mental health services. New York, Vermont, and Ohio also have specific taxes for high-wage earners."

The problem with these laws, beyond the inherent flawed logic in progressive taxes in general, is how it impacts pass-through entity owners, such as S-corps and LLCs.

"The problem for S corporation owners and LLC partners is that although they record the profits from their business on their personal returns, most of that profit is on paper only, as the bulk gets plowed back into buying inventory and making capital improvements. 'It hurts us to find the additional cash to pay the tax,' says A. Michael Candido, president of J. Moore & Co....(T)he tax will probably cost the company an additional $30,000 a year -- money Candido says could have been used to hire office help, to upgrade the firm's computers, or to pay health care premiums, which jumped, coincidentally, by the same amount."

Posted by Jeff Cornwall at 05:16 AM | Permalink | Comments (1)

StartupJournal has some excellent advice for those interested in starting up a non-profit business based on the experience of several successful social entrepreneurs.

"Rather than lurch from grant to grant, these founders are starting for-profit/nonprofit hybrids and applying business tactics to expand their reach and make better use of available resources. They're embracing the wave of productivity savings unleashed in the economy in the 1990s -- new information technologies, smarter financing strategies, savvy alliances."

I am finding a growing number of students in our programs interested in channeling their entrepreneurial aspirations into the nonprofit sector. Just as with their for-profit brethren, they benefit from gaining training in start-up and growth management skills.

Posted by Jeff Cornwall at 05:08 AM | Permalink

I visited an interesting blog site today called Reflections of a Business-Driven Life. It is written by a technology entrepreneur from the Philippines. His post from January 4th on growth was particularly insightful. A great new site for me to visit in the New Year.

Posted by Jeff Cornwall at 06:31 AM | Permalink | TrackBacks (1)

Inc.com has an amazing story told by a young entrepreneur, Bo Peabody, who started a business during the dot.com craze, sold it for $58 million in stock to Lycos at a point where he still had generated almost no revenue, saw Lycos stock go up tenfold, and then sold it all before the dot.bomb crash. Smart? Maybe a little. Lucky? You bet! Here are Mr. Peabody's reflections on his own success.

"Luck is a part of life, and everyone, at one point or another, gets lucky. Luck is also a big part of business life and perhaps the biggest part of entrepreneurial life. At the very least, entrepreneurs must believe in luck. Ideally, they can recognize it when they see it. And over time, the best entrepreneurs can actually learn to create luck.

"Luck in business is different from regular old luck, like when you find $20 on the sidewalk. First of all, being lucky in business has an intoxicating underbelly called believing you're smart. No one actually believes that he should take credit for finding $20 on the sidewalk. But when people get lucky in business, they are often convinced that it is not luck at all that brought them good fortune. They believe instead that their business venture succeeded thanks to their own blinding brilliance."

It is good to be smart. It is even better to be lucky. But, it is critical to know the difference. I have seen too many entrepreneurs confuse luck with brilliance only to come crashing down to earth when their luck runs out.

Thanks to Peyman Motlagh, one of my former graduate students, for passing this story along.

Posted by Jeff Cornwall at 05:52 AM | Permalink | TrackBacks (4)

The Nashville Business Journal (our local version of the American City Business Journals) ran an interesting look back on how well ten local entrepreneurs actually did in meeting their 2004 forecasts.

There are several interesting lessons on the challenges entrepreneurs face when looking into their crystal balls each year. For many they got to where they had hoped, but not the way they had planned. Business planning is such a fluid process, even for established entrepreneurs. The same creativity that launched the business becomes even more important as you navigate what my friend Peter Vaill describes as the permanent white water that is business today.

Posted by Jeff Cornwall at 05:39 AM | Permalink

Once again we have evidence of the utter ineptness of government programs used to target economic development. The latest example is the push to allocate more government contracts to small businesses. Sounds good on the surface, but putting it into practice is another matter as seen in a report issued by the Office of Advocacy of the SBA.

"Some large federal contractors have been miscoded as small businesses, resulting in skewed procurement statistics according to a report issued today by the Office of Advocacy of the U.S. Small Business Administration. The report found that in Fiscal Year 2002 $2 billion in federal contracts were miscoded as going to small rather than large businesses."

That's right, there errors in coding amounted to $2 billion! Many reasons have been cited for these "errors" ranging from miscoding of data to outright deception.

But, there are two larger lessons here. First, governments rarely do well, especially over the long run, picking economic winners of any kind. In the past, government procurement favored big companies with big unions behind them. It was mostly politics and it kept out the little guy from the procurement process. Big business and big unions were viewed as the engine of our economy, and government officials viewed their job to be feeding that engine. Now they view entrepreneurship as the engine and are trying to feed it. But when big government contracts are on the line, can graft and misappropriation be far behind?

This leads to the second fundamental issue. Government officials and politicians believe that spending money is good and spending more money is better. The reach and scope of our government continues to grow every year -- no matter who is in power. Democrats want to take us toward socialism at a dead sprint. But sadly, most Republicans are taking us down the same road, just at more leisurely pace. And now they are trying to draw small business into this mess.

My advice to small businesses? Run away from such programs as fast as you can. You may gain some value in the short run, but will find that government as customer over the long run is nothing but a nightmare. Red tape and bureaucracy are the least of your problems. For example, try collecting late accounts receivable from any government agency for starters. In the health care industry, we found that the only thing slower than insurance company A/R (which often averaged 90-120 days) was government customers. We measured our A/R from them in months, not days.

The full report from the SBA can be found here.

Posted by Jeff Cornwall at 07:11 AM | Permalink

Social entrepreneurship, which is the application of entrepreneurial tools and techniques to non-profits, is gaining recognition both in entrepreneurship circles and among non-profits. Fast Company has honored those non-profits they consider the 25 best social entrepreneurs.

Who are these social entrepreneurs? Endeavor Global is one example.

"Consider the work of Endeavor Global, a New York-based nonprofit that seeds economic growth in developing countries by supporting the work of large-scale entrepreneurs. In 2002, 97 companies funded by Endeavor generated $332 million in revenue and created 8,562 jobs in Latin America."

One of my favorites is the Grameen Foundation USA, which "uses microfinance and innovative technology to fight global poverty and bring opportunities to the world's poorest people."

How do they achieve this goal?

"With tiny loans, financial services and technology, we help the poor, mostly women, start self-sustaining businesses to escape poverty. Our global network of microfinance partners has already reached more than 800,000 families in 20 countries."

This group of non-profits clearly shows that it is the private sector that best addresses even the toughest problems our world faces. Explore these remarkable social entrepreneurs and offer them any help you can.

Posted by Jeff Cornwall at 06:43 AM | Permalink

The first Carnival of the Capitalist of this year can be found at Management Craft. A great first offering of COTC for 2005.

Posted by Jeff Cornwall at 06:37 AM | Permalink