The Entrepreneurial Mind

The house this week passed the Small Business Bill of Rights, sponsored by Ric Keller (R-FL) and Bud Cramer (D-AL). The legislation is meant to be a blueprint rather than introducing any specific legislation. This is more of a political than anything else, as no specific legislation or reform is part of the bill. It has some good ideas and some nice language, but not likely to lead to any real changes soon.

Here are the key components as reported by the National Association of Small Business:

The right to simplified tax laws that allow family-owned small businesses to survive over several generations and offer them incentives to grow.

The right to open access to government procurement through the breaking up of bundled contracts to give small businesses the ability to compete for federal government business.

The last three provisions concern me somewhat as they could actually lead to expansionary governmental policies. The devil will be in the details on much of this, if it ever actually leads to any specific action.

Posted by Jeff Cornwall at 06:41 AM | Permalink

Thomas M. Sullivan, Chief Counsel for Advocacy of the U.S. Small Business Administration testified before the U.S. House of Representatives Committee on Small Business telling them, "A confusing and complex tax code is at the heart of why the typical small business with fewer than 20 employees spends over $1,200 per employee to comply with tax paperwork, recordkeeping, and reporting requirements."

He was testifying about the so-called 'tax gap' of uncollected revenue from small businesses. He asserts that much of the problem is a result of "uncertainty and confusion" caused by the current system.

Sullivan testified that small business face "a regulatory compliance burden that is roughly 60 percent greater per employee than that faced by larger firms, and a tax compliance burden more than twice as large."

Sullivan concluded that the best way to fix the problem is to simplify the tax code. Sullivan has nailed the problem, but falls short on his recommendation. Every past attempt to "simplify" only created more complexity, confusion and uncertainty. They tax code is too complex to find meaningful ways to simplify. This is more evidence that we need to scrap the current tax code and start fresh with a truly fair and simple approach to taxation.

(Source: SBA Office of Advocacy)

Posted by Jeff Cornwall at 05:31 AM | Permalink

We Americans have been quite smug about our health care, and for a long time with good reason. Everyone in the world comes here when they really need the best care and can afford it. There has even been significant movement by several American health care companies to develop international markets. Well, according to this story from CBS News (via Ben Cunningham) global competition is here in health care.

"A growing number of tourists are...combining holidays with health care. And that's because a growing number of countries are offering first-rate medical care at third-world prices.

"Many of these medical tourists can't afford health care at home; the 40 million uninsured Americans, for example. Others are going for procedures not covered by their insurance: cosmetic surgery, infertility treatment."

Countries such as India and Thailand are leading the way. For example, in these countries heart by-pass surgery costs $12,000 rather than the $100,000 one would pay in the US. These procedures are being done in foreign hospitals that often rate as high as most US facilities. Even with airfare and hotels it can be a huge savings.

Such alternatives may add an interesting twist to the growing trend toward consumer driven health care plans among US small businesses. Watch for active marketing of health care tourism as these plans sweep the nation.

Posted by Jeff Cornwall at 05:10 AM | Permalink

We honored students who pursued their entrepreneurial dreams while attending school here at Belmont University.

Our Regions Bank Outstanding Student Entrepreneur of the Year Award went to Matt Sells, who owns Transformations Landscaping. He received a $5,000 award sponsored by Regions Bank. Matt has worked hard to develop his business, and intends to continue improving and growing it after he graduates next fall. Presenting the award is Allan Joiner from Regions Bank.

We also honored eighteen new students who are practicing entrepreneurs. They have started a gymnastics business, a retail clothing store, music related businesses, graphic design, a coffee shop (in Montana) and a sign company just to name a few. Here are several of them who were able to attend our ceremony.

Having begun my own entrepreneurial career while in college, I can assure you that being a collegiate entrepreneur is no small accomplishment. And what they are doing is what makes me so optimistic for our future.

Congratulations to all!!

Posted by Jeff Cornwall at 06:12 AM | Permalink | TrackBacks (1)

American Express has released their annual poll of small business owners. Here are the highlights:

- 85% expect to grow -- this is a sharp increase from the last poll six months ago showing a dramatic increase in optimism

- 57% expect their revenues to exceed last year's and 35% expect revenues to remain steady -- that results in 92% expecting to as good or better than last year!

- 50% have cash flow concerns -- this is down from 62% a year ago. How will they address their cash flow management? 28% will use personal or private funds , 18% will put off purchases, 18% will use a line of credit.

- 66% plan to make capital investments in the next six months

(via National Dialogue on Entrepreneurship)

Posted by Jeff Cornwall at 05:48 AM | Permalink

The Office of Advocacy of the SBA has released a study that examines entrepreneurial activity by metropolitan areas. Interestingly, the best performers tended to be cities in the South and West, while many of the poorer performing cities were in the Midwest and Northeast.

Posted by Jeff Cornwall at 05:43 AM | Permalink

From Inc.com:

"The Bureau of Labor Statistics released its figures for the fastest-growing large counties in terms of job growth last week, and Rutherford County, Tennessee came in on top at 9.2 percent."

Rutherford County is just southeast of the city of Nashville and is in the Nashville Metro area.

Posted by Jeff Cornwall at 05:06 AM | Permalink

I found an interesting perspective on the ethical challenges faced by entrepreneurs in an opinion piece by Jack Roseman published in the Pittsburg Post-Gazette.com.

"(W)e give up our principles in painless little slices. Each lapse doesn't seem so bad. It's only in retrospect that we see how slippery the slope really was.

"My theory is that the more you make, the greedier you become."

My co-author Mike Naughton says that this becomes the problem when we view wealth as the singular, ultimate goal in a business rather than as an important outcome of the pursuit of good and moral ends. Wealth is not a bad thing; quite the contrary. The ability to pursue wealth is essential in a free society. But to view wealth as the only outcome of our entrepreneurial activities can cause us to eventually corrupt our souls: with each decision, with each non-decision, with each action, and with each inaction.

Posted by Jeff Cornwall at 06:05 AM | Permalink | TrackBacks (2)

I have written several posts about the ability and the responsibility of entrepreneurs to integrate their values into the businesses that they build.

My daughter Maggie suggested I look at what a mortgage company out of Georgia, HomeBanc Mortgage Company, is doing to integrate their values and their faiths into their company. She heard about this business this past week while attending a large retreat for Fellowship of Christian Athletes (she plays volleyball and will be transferring to Belmont this fall). HomeBanc Mortgage sponsored the entire weekend for these students.

HomeBanc Mortgage is a company that recently went private through a leveraged buyout from its former parent company. Their vision statement, their statement of values, and their faith-based statement all set the tone for the values that shape how this company will be run and how all that work there will do their work. Their statement of ethics gives specific expectations of how management and other employees should integrate their shared values into how they do their work.

Many get nervous when we speak of integrating faith and work, and indeed some companies have become too prescriptive about what faith people should follow. While predominantly Christian, HomeBanc Mortgage takes great strides to be inclusive:

"As a faith-based company, HomeBanc Mortgage Corporation believes that associates should not have to check their spirituality at the door. We recognize that spirituality is deeply personal - we do not seek to impose any particular faith or doctrine upon any associate. We welcome people of all different beliefs into our family, treating each associate with dignity and respect. Regardless of our differences, we all share the common commitment to putting the needs of others ahead of our own. By serving others with the heart of a servant, we strive to enrich and fulfill the lives of our associates, our customers and our communities."

Posted by Jeff Cornwall at 06:01 AM | Permalink

Visit the Carnival of the Capitalists this week at Peaktalk.

Posted by Jeff Cornwall at 05:55 AM | Permalink

"Cardinal Ratzinger has not contradicted John Paul II's...teachings on economics, which found great merit in the market economy and even condemned European-style welfare states." This what Fr. Sirico sees from the papacy of Pope Benedict XVI. Read his complete essay here.

Posted by Jeff Cornwall at 05:47 AM | Permalink

When I ask a room full of young entrepreneurs about their goals, some envision a life full of starting and growing businesses. Others tell me that they want to achieve business success early in life and then retire young. To them, entrepreneurship is simply instrumental to other plans they have for their lives.

Wilson Ng at Business-Driven Life ponders the question of early success in business and what it means for the rest of his life. He worries about peaking too early, as he is certain he would miss the excitement that entrepreneurship brings to his life.

When I was active as an entrepreneur I would often think about the next deal to chase. Like Wilson, I enjoyed the excitement of starting and growing a business, and we had many opportunities to do just that.

Then about nine years ago we sold most of our businesses. I was ready to find the next opportunity. But, my wife pulled on my sleeve and encouraged me to slow down. She suggested that I take some time to think about what I really wanted for the next phase of my life. At first it was hard for me, as I had lots of opportunities to examine and possible deals to pursue. But she is wise, and I listened to her advice. I took my time and really examined what I wanted to do next.

With time I realized that I wanted to spend more time with my family. I realized that there were other things for me to do besides another business start-up. I realized that I missed college teaching. I had never taken the time to think about all of this in the heat and excitement of building a business. But, once we sold our business I could take time to reflect and discern: and my wife made sure that I did.

Entrepreneurship is a wonderful path in life. I will always be grateful for the opportunities and challenges it offered me. But, I realized that it was not all that I was called to do in life.

When life offers you a chance to pause and reflect, take advantage of it. You may jump on to the next deal and you can do so knowing it is where you need to be. But, you may realize it is time for a new chapter.

Even though my days as an active entrepreneur are probably over, I truly believe that my best days are yet to come. Success takes many forms.

Posted by Jeff Cornwall at 06:40 AM | Permalink | TrackBacks (1)

Small Businesses are beginning to feel the effects of interest rate increases, according this report from the AP (via Law and Entrepreneurship).

"While $2-a-gallon gasoline grabs plenty of media attention today, small businesses are well aware of another source of rising costs the upward creep of interest rates. Owners say they've been feeling the effects of rising rates in the nearly 10 months since the Federal Reserve began nudging rates higher."

Posted by Jeff Cornwall at 06:26 AM | Permalink

There is an increase in the use of private placements as a means for raising equity funds according to an article at Inc.com. "According to Capital Hunter, a California-based research firm, there were nearly 2,000 more Reg D filings in 2004 than the year before - accounting for a 14% increase."

Certainly the chill that Sarbanes-Oxley has put on the path of "venture capital money leads to an IPO" that many entrepreneurs in high capital start-ups is partly behind this trend. Also, the ever growing expectations for high returns among VCs have caused many entrepreneurs to look to other options such as angels, angel networks and private placements.

Private placements are highly regulated and require careful attention to the rules. Investors must be "accredited", which means they must be one of the following:

-Any national bank

-Any corporation or business trust with assets in excess of $5 million.

-Any insider of the issuing company (officer, director, or owner).

-Any individual with income over $200,000 or couple with income over $300,000 (must have two years with income at these levels and reasonable expectations on continuation of this level of income).

-Any individual with net worth in excess of $1 million.

The SEC has specific rules (504, 505, and 506) that dictate how much money can be raised in a private placement, but most stay under the $1 million threshold to keep it simple and to keep costs to a minimum.

Advertising and formal promotion of a private placement is prohibited, so potential investors are typically found through personal networking. It can be a very time consuming process. Attorney fees can add up as the information supplied must comply with all formal requirements.

Managing a business that has raised funds this way can create complexity for the entrepreneur. Since transfer of stock is usually restricted, any shareholder problems will be long-term. Also, management of the Board becomes much more formal, complex, and even become quite a political process.

Inc.com makes private placements sound simple. They are not, but they can be a good option for some new ventures.

Posted by Jeff Cornwall at 06:18 AM | Permalink

Pathfinder Therapeutics, Inc., recently featured in this site's Belmont Entrepreneurial Showcase, finished fifth place in the Purdue University Life Sciences Business Plan Competition. Dr. Jim Stefansic, who is currently a Belmont University MBA student, is COO and one of the co-founders of this company. This is one of the most competitive business plan competitions in the country.

Congratulations Jim!

Posted by Jeff Cornwall at 06:03 AM | Permalink

Entrepreneurs ride the waves of change. Over the past 100 years we have seen transportation (automobile, trains and planes) and information (hardware and software) support the economic expansion in America.

What will be the next major wave? That is the sixty four trillion dollar question.

There are some signs that transportation may again shape our economic future. That may sound a bit crazy given that we are now paying $2 - $3 a gallon for gas and the airlines and railroad industries are in disarray. But, we have come to rely both culturally and socially on physical connectedness in this increasing global economy. There in lies the source for possible opportunities. It may be time for transportation to go through another technological revolution that could support the world economy for decades to come.

What shape it may take is not clear. It never really is clear anytime we are in a time of revolutionary change. In the beginning of the information age we had no idea which companies or even which technologies would prevail in the market. Who would have guessed twenty years ago that I would be sitting today on my back porch typing into a machine on my lap that through a wireless connection can broadcast my words all over the globe?

The information age is still an exciting part of our world and will be for some time to come. But, it is inevitable that the breakthroughs will begin to slow down enough so that this segment of the economy will no longer be the main engine of growth.

So where might a new transportation age take us? Could it be some variation of the hydrogen cars now being developed by General Motors? Could is be travel in the sky as envisioned by NASA's Small Aircraft Transportation System (SATS)? Could it come out of the work of Burt Rutan and his group? Or could it be some breakthrough that an unknown group in North Dakota is working on in a garage in Fargo?

I am not sure what the next transportation age will look like, but I am beginning to feel more and more strongly that it will come. Change and chaos creates entrepreneurial opportunity. The potential crisis of supply of fossil fuels and the complete inefficiency of our current transportation systems just oozes opportunity.

Posted by Jeff Cornwall at 06:22 AM | Permalink | TrackBacks (2)

One of my students, Erin Anderson, passed along a web site that describes a Texas program called Texas Teens Exploring Entrepreneurial Minds (T-TEEN). The program's goal is to educate at-risk children about self-sufficiency through entrepreneurship and self-employment. A great concept!

Posted by Jeff Cornwall at 05:58 AM | Permalink

St. Louis Federal Reserve President William Poole supported one of the key factors in supporting the entrepreneurial economy: get the government out of the way of entrepreneurs. From ABC News:

"(H)e cautioned against the intervention of government agencies to lift America's vital entrepreneurial spirit.

"'Are government officials really qualified to determine the resources that entrepreneurs need?' he said in the text of a speech, made available in advance to the media."

The answer, of course, is "No"!

(Thanks to Ben Cunningham for passing this story along).

Posted by Jeff Cornwall at 05:50 AM | Permalink

My students are turning in the final drafts of their business plans today. For some students this is a day of panic and last minute revisions. Others have a sense of relief and peace. For Jason, who has ben blogging about his start-up business at A Thought Over Coffee, this day has put Grateful Dead tune in his head....

Been there....

Posted by Jeff Cornwall at 05:45 AM | Permalink

I have written quite a bit on the dramatic fall-off of IPOs among entrepreneurial ventures due in large part to Sarbanes-Oxley. Fortune Small Business has a story on this in their April issue.

"A combination of Sarbanes-Oxley's steep compliance costs, Wall Street's neglect of small caps regardless of their performance, and heightened investor distrust has turned running a public company into a far less appealing proposition. The number of private firms selling out (instead of plying the IPO seas) is near an all-time high. And many public-company CEOs are yearning for privacy: The number of public companies fleeing the stock market hit record levels during the past two years."

Where this will lead us is anybody's guess. One outcome that I hope for is that this growth in privately held firms will allow more CEOs to take ethics and values more seriously in how they grow and build their firms.

One stumbling block for public companies being more ethical has been the responsibility to the public financial markets to maximize returns. Those CEOs who do not, particularly in small cap companies can find themselves out of work if they miss quarterly financial expectations of the market.

Private businesses are in a better position to look at a broader array of criteria for what defines success, be it job creation, work environment and so forth. Entrepreneurs and the other shareholders define the rules and can set their own definitions for effectiveness in their companies. Profits remain the primary goal, but private companies can place this goal within a context of ethical and moral considerations that address other stakeholders and broader considerations.

Unintended consequences do not have to be all bad.

Posted by Jeff Cornwall at 05:28 AM | Permalink

Many governmental programs focus their support on innovation and invention. While these can be the seeds of economic development, entrepreneurship is the process that leads to real business growth according to a new study released by the SBA Office of Advocacy.

"Entrepreneurship is the link between inventors, innovation, and economic growth," said Brian Headd, Economist for the Office of Advocacy. "It's not enough to just focus economic development on inventors and innovation. Entrepreneurs need to be cultivated as well, so that innovations can be turned into jobs and economic growth."

The study, 'The Innovation-Entrepreneurship NEXUS' written by Advanced Research Technologies, LLC, demonstrates that innovation without entrepreneurship generally yields minimal economic impact. The authors note that, "Whether they are building new firms or reinventing existing ones, entrepreneurs, through the application of new ideas to products and services, capture locally the economic benefits of innovation."

Public policy should address those factors that support entrepreneurial activity. Most studies have conclusively shown that reduced government interference in the small business development process and entrepreneurial education are the most effective means to support entrepreneurial economic growth.

Posted by Jeff Cornwall at 07:32 PM | Permalink

Another company with strong entrepreneurial roots has gone corporate in how they wield their power. None other than Starbucks has found the power that a big corporation can have in getting their way in Washington. From the Wall Street Journal via the Fort Wayne Journal Gazette:

"Kris Engskov, head of Starbucks Corp.'s fledgling lobbying effort, won his first real victory last October: a tax break worth millions of dollars to the company. His boss had mixed emotions....These newcomers to Washington are caught in a bind: They have the same desires as every other company -- tax breaks and trade deals. But they find the horse-trading aspects of lobbying, including political donations and asking for favors, often conflict with their public image as idealists changing the way business is done."

Please, stop me before I lobby again!

Posted by Jeff Cornwall at 08:19 AM | Permalink

This week's National Dialogue on Entrepreneurship looks into entrepreneurship in Mexico, the Middle East, and Ireland.

Posted by Jeff Cornwall at 06:12 AM | Permalink | TrackBacks (1)

Newsweek reports on the University of Utah venture fund that was set up by students in their business program. They have recently closed the $5 million venture student run fund that will invest in high growth start-ups. Investments for the fund were raised from private investors looking for traditional high VC returns. The fund has already gotten active in doing deals, including this one involved in VoIP.

(Thanks to Bruce S. for passing this along).

Posted by Jeff Cornwall at 05:58 AM | Permalink

COTC can be found this week at Gongol.com.

Posted by Jeff Cornwall at 05:55 AM | Permalink

Bear Stearns has issued their economic forecast for Spring 2005, and it shows a healthy picture. Some highlights of what supports their optimism:

-Consumer Confidence is trending up

-Small Business Income is way up

-Business Investment in Fixed Assets is up

-Retail Sales have been trending up

-Consumer debt is trending down

-Employee compensation (and federal tax withholding...) trending up

-Corporate Taxes are way up

(Thanks to Ben Cunningham for passing this along--nice article in the Sunday paper, by the way).

Posted by Jeff Cornwall at 05:44 AM | Permalink

In honor of Tax Day I offer some highlights of my thoughts on our tax system:

Taxes do matter when it comes to entrepreneurs and their decision making....imagine that!

Bush's tax advisory panel is moving toward tax simplification--the classic oxymoron....you heard it here first!

Bush's small business agenda relies too much on trying to shape the behaviors of entrepreneurs using tax policies. This is a strategy that never really works for long. All it does is slow down the entrepreneurial economy.

A World Tax is in the works....be afraid, be very afraid!

Big corporations seem to find ways around the taxes the rest of us pay as seen by this post about Dell.

The Millionaire's Tax hurts small business owners.

The IRS is stepping up audits on small and medium businesses.

In this post I discuss how little of the wealth created by entrepreneurs stays with the entrepreneurs...2.2% to be exact.

Remember, there are alternatives floating around out there, like the fair tax.

And finally, the post that Hobbs was sure would get me an audit, "Taxes: A few thoughts."

Posted by Jeff Cornwall at 07:13 AM | Permalink | TrackBacks (1)

I have found the A&E documentary IRS Horror Stories to be a great teaching tool for my classes. It outlines some outrageous cases of IRS abuse of power and examines the culture within the IRS that creates such abuses.

I showed this video to my group of students who are our "practicing entrepreneurs" (they all own/operate entrepreneurial businesses while pursuing their degrees here at Belmont). I find the discussions after the video to be enlightening. Students want to know what they can do. They are angry, overwhelmed, frustrated and afraid. They also offer some of their own stories, particularly from family businesses.

I tell them that the best that they can do is to be active citizens and make sure that their financial matters are in order in their businesses. As our entrepreneurial culture grows in America, their outrage gives me hope that some day we can restore in this country a simple and fair source of revenue generation for the common good.

Posted by Jeff Cornwall at 06:15 AM | Permalink | Comments (1)

Senator Olympia Snowe (R-ME) has introduced a bill that intends to make it easier for small businesses to comply with complex and confusing federal regulations. From the Office of Advocacy of the SBA:

The Small Business Compliance Assistance Enhancement Act of 2005 amends the 1996 Small Business Regulatory Enforcement Fairness Act (SBREFA), a law that bolsters the Office of Advocacy's ability to reduce regulatory barriers that can stifle entrepreneurial growth. It will place new emphasis on compliance guides that agencies are required to write, so that small businesses can better understand complex rules and regulations. It also requires agencies to report annually on their efforts to comply with this law.

"Senator Snowe's bill helps ensure that federal agencies issue compliance guides that are helpful for the small business community," said Thomas M. Sullivan, Chief Counsel for Advocacy. "The bill recognizes that small businesses often need compliance help before new rules go into effect."

This law would be another important step forward in improving the regulatory environment for entrepreneurial ventures.

Posted by Jeff Cornwall at 05:43 AM | Permalink

Thomas Merton is one of my favorite writers, so when Prof. Harry Hollis passed this quote along to me I had to share it here:

There is a pervasive form of contemporary violence (and that is) activism and overwork....The rush and pressure of modern life are a form of violence.

The frenzy of our activism neutralizes our work for peace. It destroys our inner capacity for peace. It destroys the fruitfulness of our won work, because it kills the root of inner wisdom which makes work fruitful. (Thomas Merton)

Posted by Jeff Cornwall at 05:25 AM | Permalink

There was much discussion recently on how eBay's new higher fees would be the death of all of the businesses that built their models around the on-line auctioneer. Well, once again, entrepreneurs prove how resourceful and adaptive they can be when things change. Inc.com has a story of how "eBay entrepreneurs" have found alternatives, including moving to other auction sites or ramping up their own web sites, to keep their businesses alive and in some cases doing better than ever.

Posted by Jeff Cornwall at 05:57 AM | Permalink

Over the past weeks I have made a post on growing interest of angel investors in finding deals to invest in and on the overhang of funding in VC funds.

So what does all of this cash looking for deals mean to entrepreneurs? Remember Economics 101: too many dollars going after the same product makes it a sellers market. In this case, the VCs and angels chasing deals are the buyers and entrepreneurs with deals to invest in are the sellers. When money was tight we saw angels go into hiding and VCs shifted their focus into later stage ventures that had already proven their businesses in the market. But, the improving economy has changed all of that by putting lots of cash back into the investment market.

For example, Red Herring reports that Menlow Investment's newest venture fund has recently closed, raising $200 million more than the planned $1 billion. "The funds will go to between 50 and 60 private companies over the next four years. The firm invests in IT and life sciences at all stages of development." You heard them right: all stages of development.

We have not seen VCs so actively focusing on start-ups in years. Once again, the financing landscape is changing and this time in favor of start-up entrepreneurs.

And interestingly, Sarbanes-Oxley is also making start-ups more attractive. Sarbanes-Oxley has thrown a huge bucket of cold water on IPOs due to the overwhelming reporting requirements this new law has created even for small public companies. The days of VC investments targeting businesses needed help getting to IPO status have almost vanished. So to get the kind of returns that VC funds promise their investors, they are looking more at early stage businesses that they can invest in and help move toward an acquisition. And all reports are that acquisitions are way up.

There is significant and broad momentum building in this entrepreneurial economic expansion and this latest news suggests that we may see at least five years of growth.

Posted by Jeff Cornwall at 05:29 AM | Permalink | TrackBacks (3)

StartupJournal reports that angle investors are "dusting off their calculators and starting to get serious" about doing deals. They are coming together in increasing numbers in both formal networks and informal investment clubs to find good deals to invest in. They also seem to be branching out in the types of deals they are considering. Many angels now seem to be interested in more localized long-term investments in local businesses, including "restaurants, roofing companies and the like." This is a change from their typical focus on high growth, technology related deals.

This is very encouraging for our entrepreneurial economic growth over the next several years, particularly when coupled with the recent reports of the excess of cash that is sitting in VC funds ready to invest in new deals.

Posted by Jeff Cornwall at 05:53 AM | Permalink | TrackBacks (2)

The Shell Foundation has issued a new report titled Enterprise Solutions to Poverty: Opportunities and Challenges for the International Development Community and Big Business in which they argue that simply dumping aid into developing countries is an ineffective strategy to combat poverty. It is a strategy that does very little to improve conditions over the long term. They also assert that there could never be enough funding to "make an appreciable dent on the scale of poverty that still exists."

They argue that the money that is available should be targeted toward initiatives that stimulate local economic development that relies on developing local entrepreneurs. And in addition to funding, business know-how should also be provided to assure long term success. They call on large corporations and their foundations to support these efforts to generate entrepreneurial economies all over the world.

While philosophically I agree with the premise of this report, I do have some worry of their intended strategy. They link their proposal explicitly to the UN's Millennium Project, which will do little more that create another huge rat hole that we pour well-intended money into with little chances of it really doing much good.

We don't need this money to go into national governmental agencies, or even worse a new UN agency, that will apply very little of the funding to its intended purposes of spurring entrepreneurship as a tool to reduce poverty. Such agencies create a huge bureaucratic overhead that does no direct good for the poor. As any bootstrapping entrepreneur will tell you, overhead is money that does nothing to produce product or provide a service for the customer.

(The National Dialogue on Entrepreneurship provided the link to the Shell Foundation report).

Posted by Jeff Cornwall at 05:24 AM | Permalink

TJ Weblog is this week's host of COTC. He has chosen his top 20 posts this week. Jay has included links to all of the submissions not included in COTC this week at his site.

Posted by Jeff Cornwall at 05:59 AM | Permalink

An age old bootstrap marketing tool is a customer newsletter. NFIB gives several tips for developing an effective newsletter as part of your marketing tool kit. Here is a summary:

- Set up a template with a good design.

- Consider creating an electronic version of your newsletter.

One additional idea that I would suggest is to write articles that highlight your customer's businesses.

Many businesses are taking their newsletters onto the Internet. Here is an example from one of our alumni, Charles Hagood of TAG.

One important piece of advice that I would offer is to make sure that this is something that you have the time, interest, material, and resources to continue over time. If it is an interesting and useful newsletter they will notice if you give up on it and stop sending it to them. And that will send a negative message to your customer base that could hurt your sales.

Posted by Jeff Cornwall at 05:05 AM | Permalink

Here is a quick stroll through a few of my favorite blog sites:

Anita writes about the on-again off-again entrepreneur at Small Business Trends.

Jason continues to chronicle the preparations to open his new coffee shop at A Thought Over Coffee.

New Dog Old Trick compares Nashville to Southern Cal.

Law & Entrepreneurship warns us that the IRS is targeting small businesses. BEWARE!!

Rob looks at Globalization vs. Outsourcing at BusinessPundit.

Coyote Blog muses about paying taxes.

Bootstrapper Notes writes about, well, writing.

Hope you enjoyed these stops along the blogsphere!

Posted by Jeff Cornwall at 08:20 AM | Permalink

StartupJournal offers some good tips to first time entrepreneurs on managing the financing process both before and after the money has been secured for the start-up. Here are their tips and my thoughts on each:

- Not raising enough capital. It is very difficult to go back to your banker or investor for more money soon after you get started. That is a red flag that something is going wrong or that you do not know what you are doing. This is often the result of being too optimistic. I always have entrepreneurs start with their "most likely scenario" with their forecasts. Then I tell them that this scenario has just become their "best case". They then need to come up with two more progressively pessimistic scenarios, which will become the basis of the numbers that present for financing. As my father used to say, "Double the costs and triple the time and you are probably closer to the truth."

- Risking everything you own. Save yourself a reserve to make it through a longer than expected start-up time period or for future hard times in your business when you can't pay yourself for a few weeks.

- Borrowing from friends and family. I just gave a lecture on this yesterday. I am not a big fan of friends and family as business backers, because I like my friends and want to have family gatherings be a peaceful as possible. If you do go this route, know what you are getting into! Your social calendar may get pretty lonely and Thanksgiving may get rather tense if business goes bad. Make sure they know what they are getting into! Set clear expectations making sure they actually read your business plan and understand all of the risks. Disclosure is critical to setting proper expectations. Keep business as business, friendships as friendships, and family as family if at all possible.

- Failing to keep good records. You will be expected to provide updated financial reports on a regular basis from the beginning. Too many entrepreneurs shove it all in a shoebox and wait until the first time taxes are due to sort it out. That is too late for those who trusted you with their money.

Posted by Jeff Cornwall at 07:54 AM | Permalink | Comments (1) | TrackBacks (1)

The SBA has another interesting twist in their definition of what is a small business. If you were a small business in the past you might still be considered a small business as it relates to government contracts and programs. The SBA "grandfathers" businesses for up to five that used to be considered small businesses under their vast array of categories and criteria. Small business owners have voiced their displeasure with this rule as reported at NFIB.

Posted by Jeff Cornwall at 07:44 AM | Permalink

An article at Knowledge@Emory raises an interesting possibility. They question whether the newly passed Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 may dampen our entrepreneurial economy. Why? Because so many entrepreneurs use personal credit cards and second mortgages on their homes to finance start-ups. For these entrepreneurs, easy bankruptcy provides a safety net if things don't go right.

When I teach entrepreneurs and potential entrepreneurs I try to push them to think about start-ups in a prudent and responsible way. Success and failure will both have consequences, so they need to think things through very carefully. I am much less concerned with how many of them start-up a business as I am with how many of them still are operating their businesses three, five, even ten years from when I have them in class. Those businesses that do last over time are my measure of the success of what I do, not the volume of those who do any old start-up.

I want them a little afraid at their start-up. I want them a little nervous. I want them a little worried about what happens if they fail. Entrepreneurs who rush in blindly like marauding pirates have not learned the lessons we try to teach them in our classes.

When thinking about how easy bankruptcy has become, I recognize what a different time and place that I grew up in. When I was young bankruptcy brought a certain shame if it was self-inflicted. Certainly some folks ended up at this point through events outside of their control, and for them we all felt pity. But, if someone was reckless in jumping head first into a business deal that was full of risk with only a small chance of success, there was not pity except for his family who had to endure the consequences of his failure and the resulting bankruptcy. Some spent years slowly and quietly paying of debts from deals gone sour just so they could avoid the stigma of self-inflicted bankruptcy. They were good people who understood that they had a responsibility to fulfill. The Corporate wall of protection was rarely used as a shield from personal responsibility for a business that failed.

Now just like marriage, we encourage people to jump into business with the knowledge that there is an easy way out. We don't get along? No problem, we can just get a quick divorce. Business doesn't make it? No problem, bankruptcy can protect us from most of the consequences.

To me this now means that socialistic thinking has crept into two of the most important foundations of this society: marriage and private enterprise. We now can jump into a marriage or a business deal knowing that there is an easy exit, limited consequences, and a great big government with all kinds of programs and laws to protect us and make it all better.

If Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 causes folks to think twice about their business idea, that to me is a good thing. If one of their main exit strategies is a quick and easy bankruptcy, then I want them to either rethink their plan or start over. Or if they are one of my students, plan to take the class again next semester.

(Thanks to Jennie Bowman for passing this article along to me).

Posted by Jeff Cornwall at 05:55 AM | Permalink | TrackBacks (3)

Could music row be moving out of the 1950s and into the digital age? Music Row (the heart of the music industry here in Nashville) congregated here at Belmont University yesterday to here about the this month's version of the future of the music industry. There are some facinating developments in the wings, such as rent-a-tune subscription services. But, change in the entertainment industry is a likely to increase and some of the incremental adaptations tried so far just don't seem to be making it witht customers. Most of the giants in the industry are looking for a static, one-time fix to make all of the change go away. These are fast times in music, best suited for entrepreneurial thinking and action.

This article from today's Tennessean has a detailed overview of what Music Row executives heard. Are they listening?

Posted by Jeff Cornwall at 05:59 AM | Permalink

Virginia is the latest state to pass regulatory flexibility for small businesses, thanks to a new law that gives Virginia's small businesses a voice in the state's regulatory process.

"Virginia's small business owners now have a seat at the table when regulatory decisions are made," said Thomas M. Sullivan, Chief Counsel for Advocacy.

Passage and signing of Virginia's Small Business Regulatory Flexibility bill resulted from Virginia small business stakeholders working together in a coalition. Virginia's Small Business Regulatory Flexibility bill implements elements of small business friendly regulatory legislation put forward as a model by the Office of Advocacy of the U.S. Small Business Administration. Similar to the federal Regulatory Flexibility Act (RFA), it encourages entrepreneurial success by requiring state agencies to consider the impact of their policies on small business before they issue final regulations.

Posted by Jeff Cornwall at 05:54 AM | Permalink

Red Herring has reported on a worrisome statistic. Only 10 venture capital backed firms went public in the first quarter. Given the level of deal flow and other positive statistics, why would this figure end up so weak? It may well be a sign of the devastating impact that Sarbanes-Oxley is starting have on economic growth generated by entrepreneurial ventures.

"Sarbanes-Oxley costs mid-sized businesses an average of $2 million dollars a year, analysts at Gartner estimate. And the cost won't go away anytime soon. Analysts expect business spending on regulation-related software to grow 37.1 percent for each of the next three years."

Posted by Jeff Cornwall at 12:14 PM | Permalink

I am posting from my back screen porch early this morning for the first time this season....spring has sprung in Tennessee!

Posted by Jeff Cornwall at 06:26 AM | Permalink

I am chairing the International Conference for Small Business this coming June (more on that as it approaches). I have been delighted by the interest in our conference coming from New Zealand. The National Dialogue on Entrepreneurship offers a couple of interesting links on entrepreneurship in New Zealand. One is a report from the New Zealand Ministry of Economic Development and The Treasury and one is a site on their framework for growth and innovation. As I look at these sites I see most of their focus is on cutting government interference of small business and enhancing entrepreneurship education. A good agenda, indeed!

Posted by Jeff Cornwall at 06:13 AM | Permalink

Venture Capitalists were busy raising money in 2004 and have some very full pockets of cash. The phenomenon is known as overhang, and you can read about it here.

More cash means more deals and probably a little bit looser purse strings with the investments they are willing to take. Good times are ahead for high potential ventures looking for money!

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

Fr. Robert Sirico of the Acton Institute offers his poignant reflection on Pope John Paul II.

"One of the marks of John Paul's greatness was his rejection of ideological categories and limitations and his ability to hold complex thoughts together as a result. For him, there was no contradiction between celebrating the vocation of business leaders, as he does so innovatively in his 1991 encyclical Centesimus Annus, while upholding and defending the rights and dignity of simple peasants. In his view, both positions flowed, not from some poll he took, but from the intrinsic dignity and eternal destiny of the human person: a being at once unique, unrepeatable and immortal."

Posted by Jeff Cornwall at 02:50 PM | Permalink

COTC is coming from my home state of Wisconsin this week at Law & Entrepreneurship.

Posted by Jeff Cornwall at 12:39 PM | Permalink

As a Catholic and as a capitalist, Pope John Paul II's Centesimus Annus, more than any other document, has helped me to integrate my religious faith and my belief in free markets. And yet, nothing has challenged my thinking more on what it takes to pursue free enterprise within a moral context than this same document.

As George Weigel said in an interview with Religion and Liberty:

"Centesimus Annus is, with Leo XIII's Rerum Novarum (1891) and Pius XI's Quadragesimo Anno (1931), one of the three great texts of modern Catholic social teaching. But Centesimus Annus did more than recapitulate the teaching of John Paul II's predecessors; it also set the social doctrine of the Church on a new path by its endorsement of the 'free economy,' its empirical sensitivity on questions of economic development, and its insistence that a vibrant, publicly-assertive moral-cultural order is essential to the functioning of the free economy and the democratic political community. Catholics, and indeed everyone interested in the relationship between moral truth and the free society, will be wrestling with Centesimus Annus for at least a century."

Pope John Paul II recognized in Centesimus Annus the importance the entrepreneurial process in building a strong economy.

"A person who produces something other than for his own use generally does so in order that others may use it after they have paid a just price, mutually agreed upon through free bargaining. It is precisely the ability to foresee both the needs of others and the combinations of productive factors most adapted to satisfying those needs that constitutes another important source of wealth in modern society. Besides, many goods cannot be adequately produced through the work of an isolated individual; they require the cooperation of many people in working towards a common goal. Organizing such a productive effort, planning its duration in time, making sure that it corresponds in a positive way to the demands which it must satisfy, and taking the necessary risks -- all this too is a source of wealth in today's society. In this way, the role of disciplined and creative human work and, as an essential part of that work, initiative and entrepreneurial ability becomes increasingly evident and decisive."

However, Pope John Paul II threw a bright light on the false choice between a blind belief in free markets versus the notion that only government can effectively manage the economy for the common good. Pope John Paul II understood the power of freedom, including economic freedom, but also challenged us to understand the critical importance of a moral culture to give our freedoms meaning and purpose.

As I have written at this site time and time again, the more we keep government out of the details of business the better. Markets work. However, that is only part of the equation. To assure that the social contract of market capitalism survives requires prudent, just, and moral actions on the part of its stewards. Otherwise we are at risk of society backing out of this contract and ultimately we risk the loss of many of our freedoms. As William Simon describes it, we must focus on both "doing well and doing good."

Pope John Paul II has gone home. But, let us continue to pray that his legacy will last for many generations to come here on Earth.

Posted by Jeff Cornwall at 06:29 AM | Permalink

Pathfinder, Inc., a recent feature in this site's Belmont Entrepreneurial Showcase, has advanced to become a finalists in the Purdue University Life Sciences Business Plan Competition. Dr. Jim Stefansic, who is currently a Belmont University MBA student, is COO and one of the co-founders of this company.

"The competition seeks commercially viable business plan entries for innovative products and services in the life sciences industry such as medical equipment and devices, pharmaceuticals and drugs, research services, and software."

Congratulations!

Posted by Jeff Cornwall at 07:26 AM | Permalink

Bank consolidation has been a fact of life for small businesses for over a decade. For example, our business in North Carolina started out banking with NCNB (North Carolina National Bank), which was already a large state wide banking system that grew in part from acquisitions of smaller community banks.

As consolidation began to accelerate around the late 1980s, NCNB purchased First RepublicBank of Texas and soon became NationsBank. We saw our service from the bank change. The loan officers we worked with seemed to change as quickly as the seasons, we were no longer important or large enough to be part of their private banking system, and we noticed a change from a personal relationship to amore formal relationship with the bank. We soon decided to move our banking relationship, which included over $3 million in debt financing, to a smaller regional bank.

The Office of Advocacy of the U.S. Small Business Administration released a study this week that reports that the way in which bank holding companies (BHCs) grow, through either outright merger of non-merged acquisition, has a direct affect on its small business lending practices.

The study's findings suggest:

- In general, larger BHCs tend to do less small business lending, as a percentage of total business loans.

- The organizational form of a BHC relates to small business lending. When BHCs acquire other banks -- but do not merge them -- small business lending is little affected. In contrast, if bank portfolios are merged and integrated into larger banks, their small business lending declines.

"Financial innovation and deregulation are changing the services banks offer to their small business customers," said Thomas M. Sullivan, Chief Counsel for Advocacy. "Many of the changes have been positive and have opened up capital markets to more firms. Others are changing the relationship between what were once local banks and their customers. This study reports on one aspect of those changes and provides sound insight into the evolution of small business lending by banks."

So what should an entrepreneur do if their bank is acquired or merges? I would recommend nothing at first. Some mergers of smaller or regional banks can be positive for small businesses as services can expand and improve. And nothing will likely change in your banking experience right away.

Pay attention to your banking relationship. See what happens with the people you have been working with at your bank and if there are enough changes that begin to concern you may want to start looking for a new bank. Another recent report from the SBA shows that some banks are much more focused on small businesses as clients. There should be options for you to consider. As one former business associate always reminded me, "There is a bank on every corner."

Posted by Jeff Cornwall at 06:49 AM | Permalink

Business and government is not doing enough to protect sensitive and confidential personal information according to computer security experts at the annual Black Hat Europe conference being held in Amsterdam. From Red Herring:

"Simon Davies, a professor at the London School of Economics and director of Privacy International, told security researchers they would have to demand more transparency from organizations that deal in private information.

"Recent scandals at Choicepoint, Reed Elsevier, Bank of America, and the University of California, Berkeley, have compromised the private information of millions of people. This data can be used to steal identities, apply for credit cards, and ruin debt records."

But liability for lapses in computer security is not just the worry of large corporations. As small businesses gather more information about their customers they become more vulnerable to hackers and the liability that may result from their attacks.

And as the article in Red Herring points out, hackers are moving into the wireless world to find new paths into computer systems.

"Joe Grand, for example, gave a talk on vulnerabilities in common computer hardware. He said it was possible to break into a certain type of Dell wireless access point because nobody ever thought hackers would pull the appliance apart and test the software inside. 'So many people in the computer industry trust hardware to be secure just because its hardware. It's a total false sense of security,' he said."

Small businesses are setting up more and more wireless networks, and some, such as coffee shops, bagel stores and so forth, are setting up wireless networks open to the public. All are becoming vulnerable to a hackers attack, and if that leads to the wrong information getting into the wrong hands lawsuits will not be far behind.

Posted by Jeff Cornwall at 06:08 AM | Permalink