The Entrepreneurial Mind

new dog old trick offers an assessment of the economic impact of Katrina. And as he rightly points out, it is more than just oil. Construction materials will be in great demand over the coming months as folks begin to try and rebuild.

While government assistance will be critical in the short-term, I hope that the small business owners who have dominated that part of the country's economy will be able to start rebuilding their lives soon. These entrepreneurs will be the key to creating jobs in the area and restarting the local economies. However, given the magnitude of this disaster it may take a long time for this process to gain any momentum.

Through all of this there will be a temptation for governmental officials to get too involved. Usually any attempts they make to "fix" the problems end up with much worse unintended consequences. Coyote Blog rightly points out that if we try to cap the price of oil, for example, we will merely trade the problem of higher prices for the problem of long gas lines. Prices will go up for oil and construction supplies in the short run, but this too will pass. It is due to a temporary shortage that will work itself out in a relatively short time.

Unfortunately, when government tries to get too heavy handed in "managing" such a crisis much of what they put in place never goes away and rarely does much good.

We have a strong and healthy economy. It will heal itself, so let it work. Once the immediate disaster relief is over, get government out of the way.

Posted by Jeff Cornwall at 06:46 AM | Permalink

Just like that we have gone from the media worrying about jobless rates being high, to worrying about tightening job markets making it tougher for small businesses to compete for workers.

From Inc.com:

On Thursday, the Bureau of Labor Statistics reported that initial jobless claims fell by 4,000 the previous week, data that may indicate strong demand for labor, especially in the small business sector.

William Dunkelberg, an economist with the National Federation of Independent Business, said that small businesses have been having a harder time finding the employees they need to grow. Earlier this month, the NFIB found that 21% of businesses surveyed have job openings they cannot fill. Seventy percent have encountered difficulty finding qualified people.

Looking forward, the NFIB survey found that 20% of businesses plan to increase their workforce. "There's no question that labor markets will stay tight," said Dunkelberg.

Most of the current economic expansion is taking place due to small businesses. Many have started over the past couple of years and have not had experience in hiring in tighter job markets.

So here are a few things to keep in mind:

1. Keep Staffing Forecasts Current. Even if you are a small business, you need to think down the road for the next two or three years to anticipate what your hiring needs may be. Forecasts should be updated every few months to adjust for changing conditions and the changing state of your business. Keep your eye on long term trends within the labor market segments you will need to be hiring from. Some types of employees will be particularly hard to find, so extra effort will be required.

2. Base Staffing Plans on Milestones, not on Time. Never tie your staffing plans to the calendar. The passing of six months is not what will require you to hire new employees. Know what the triggers are in your business that will necessitate more employees. For example, it could be things like a certain number of clients, sales levels, or production levels for employees. More managers and supervisors it should be based on the number of first line employees each can effectively supervise. And don't forget the needs of support staff in areas like billing and sales. As labor markets tighten, you may need to move these triggers up earlier in time. It takes time to get employees up to speed. Know how long it will take to recruit, hire, and train new employees for each position you are planning to hire so they can be ready to work when you really need them. If you could hire and train workers in 60 days a year or two ago, you may now need to plan on a lead time of 90 or even 120 days in a competitive job market.

3. Measure Your Employment Triggers. Work with your bookkeeper or controller to give you quantitative reports on your key employment milestone triggers, and insist that you get these reports regularly. You need to have the timing of the hiring process accurate, so the chances of not having staff to support growing demand are minimized.

4. Never Just Hire Warm Bodies. Hiring someone just for the sake of hiring rarely works. Mediocre hires make mediocre employees. This will only postpone hiring the right people and force you to get rid of the dead wood you just hired before you can hire the people you really need. This will actually hinder your ability to grow.

5. Keep Current on Wages and Salaries. Tighten job market will put some upward pressure on pay due to supply and demand. Stay competitive in your pay, and plan on pricing increases in advance to cover any increases in labor costs. Don't let your pricing lag too much or cash flow will become a major issue as you grow due to shrinking profit margins.

6. Don't Forget to "Close the Bank Door". The single best staffing tool you have is retaining the good employees you have right now. Create a culture that makes good employees want to stay with you. You may have to pay a little more that you'd like to, but it is much more cost effective that constant hiring and training. And staff shortages can be very costly in terms of lost revenues.

And to those who have made the sudden shift from worrying about no jobs in the economy to worrying about not enough workers? Lighten up! This is a good problem!

Posted by Jeff Cornwall at 07:48 AM | Permalink

COTC can be found at CaseySoftware.com.

Posted by Jeff Cornwall at 08:27 AM | Permalink

My thoughts and prayers are with all of the people along the Gulf coast as their lives change forever from the impact of hurricane Katrina. The damage of the wind and water, the loss of electrical power, and the disruption of commerce will make it impossible for many small businesses to continue. I was in business the year that North Carolina was hit by three storms. One of them, hurricane Fran, hit those of us in the Raleigh area quite hard. Our business was able to survive the interruption of cash flow and business activity, but many of my friends were not so lucky.

Please keep them in your prayers not only as the storm hits, but in the weeks and months to come as they try to put their lives back together.

Posted by Jeff Cornwall at 06:17 AM | Permalink

Last week I posted on the need for entrepreneurs to find an outside set of eyes to help advise and coach them. An option that many entrepreneurs have found extremely helpful over the years is to tap into the expertise of the retired business people who belong to SCORE (Service Corps Of Retired Executives).

I recently had the pleasure of being a luncheon speaker to the Nashville SCORE chapter. This group may be retired from their business careers, but they are not ready to retire from the world of business.

SCORE is a national organization with chapters in 389 cities. The SCORE volunteers include people with expertise in a variety of areas of business and most industry sectors. Many chapters also include more and more retired entrepreneurs. SCORE is a "resource partner" with the SBA.

The national SCORE website offers several tools to find assistance, including an "Ask SCORE for Business Advice" feature that allows for on-line counseling. They also have features to help find counselors by locality or area of expertise. The site also has some good generalized written information about entrepreneurship and small business management.

With any advisor or mentor, it may take a while to find the right person who fits with you, your business, and your needs. Build your network and eventually you will find people who can help over the long term. SCORE is another good source of people with the potential to be of invaluable assistance.

Posted by Jeff Cornwall at 05:43 AM | Permalink | TrackBacks (1)

The US Patent and Trademark Office (USPTO) has introduced a new, user-friendly web site for small businesses to provide clear information on intellectual property (IP) issues.

A growing number of small businesses engage in some form of business overseas, including manufacturing and assembly, which opens them up to intellectual property abuse. The site offers some help in this area.

The site also offers reasonably clear steps to assess what, if any, intellectual protection a small business might need. If it looks like your business is vulnerable to IP piracy and theft, it is important to engage an attorney with experience in this area. Make sure the attorney is not only experienced in IP, but also in working with small businesses and their limited budgets. IP protection can get very expensive quite quickly, so be clear about the level of your risk exposure and the size of your budget. They probably cannot make you bullet-proof with any sized budget, but hopefully can begin to offer you some protection on this key asset.

Posted by Jeff Cornwall at 05:24 AM | Permalink

The alarmists are wringing their hands. The deadline for the change in the bankruptcy law is approaching. We hear words like "record filings" and "bankruptcies soar" from the press. Keep your eye on the facts, however, and not the hype. Bankruptcies are, and will be, up a bit for the next few weeks. But so far, the increase is only 11%. I predict that total bankruptcies when looked at the entire year will not differ significantly from past years. And next year should be significantly lower. Businesses that truly need bankruptcy as an option will still be able to use this strategy, but the changes will no longer make it an easy way out. And it should not be the easy route, as that was never the intent of the law. Bankruptcy was intended to be the last resort, and the laws were established to make the process as orderly as possible.

Posted by Jeff Cornwall at 08:39 AM | Permalink

Entrepreneurs can get quite isolated. We get into bad habits, ignore issues that need to be addressed but may cause us some discomfort or pain if we change things, and try to avoid dealing with things we just don't like to deal with. This can be a problem employee who needs to go, problem accounts receivable that need attention in collecting, or even calling on potential customers.

I have the same issue with my golf game. I have been playing on and off since I was a kid and have developed some bad habits in my swing. My son Russ, who is a great golfer, always spots my golf "issues" when we play together. While in Hawaii he saw something in a picture he took of my swing that he pointed out was probably the cause of my recent inconsistencies. Sure enough, he was right, and I am now hitting the ball better than I have in years.

As entrepreneurs we need this kind of outside eye on our businesses once in a while. Find someone who knows about business, knows you, and can be constructively blunt with you when you need it. Have that person spend some time with you and your business once in a while to help you work out the kinks in your business.

This doesn't have to be a hired consultant. I had a couple of fellow entrepreneurs who played this roll for me (and me for them in return). I now play this roll for some of our alumni.

There are plenty of cheerleaders who will inspire you to move ahead in your business. We need that. But we also need someone who will tell us like it really is.

Even professional golfers have a swing coach. Find one for your business.

Posted by Jeff Cornwall at 06:28 AM | Permalink | TrackBacks (4)

A colleague sent me a report from The Herman Group, which provides management consulting and futurist-based strategic planning. They cite a trend that those of us who teach entrepreneurship are intimately aware of:

Early indications suggest that the Millennial Generation, born after 1985, has a strong orientation toward entrepreneurship. They feel confident that they can achieve great results--at least earn a satisfactory living--by going into business for themselves. This population cohort is showing itself to be self-aware, astute, creative, and comfortable taking the risks involved with businesses.

Indeed, as we add more sections of entrepreneurship each semester, the students keep filling them up.

The report raises a concern that I also hear from large employers.

While it is inspiring to see young people with a desire to create something, to try new business ventures while they are young, there is also a downside. These entrepreneurs, full of intellectual curiosity and energy, are often ideal employees for existing companies. However, if they are business for themselves, these unique human resources are usually not available to work for other employers. They are simply not interested.

What is interesting is that this is leading many employers to outsource functions that they just cannot adequately staff. And guess who is at the helm of the small businesses that large employers are looking to for such outsourcing? That's right, the young entrepreneurs who they cannot attract to hire!

This is just one more data point that shows how job growth is being created by entrepreneurs and their small businesses.

(Quotations from "The Herman Trend Alert," by Roger Herman and Joyce Gioia, Strategic Business Futurists. (800) 227-3566 or http://www.hermangroup.com.)

Posted by Jeff Cornwall at 05:06 AM | Permalink | TrackBacks (1)

The practice of local governments using eminent domain to seize private property is nothing new. But the recent Kelo case has created a fire storm across the country. While the Supreme Court has said "No, thank you" to taking a do-over on the Kelo decision, as many as thirty states and scores of local governments are moving ahead to place restrictions on the use of eminent domain to keep it from becoming a duplicitous tool of developers, big corporations and governmental officials. This is good news for small businesses and home owners alike. But with the Kelo case now the "law of the land", we need to keep the pressure on to counteract this decision at the local and state level.

Posted by Jeff Cornwall at 06:23 AM | Permalink

Small business economic conditions were strong and steady in the second quarter of 2005, according to the latest report issued by the Office of Advocacy of the SBA.

"The economy stayed strong and steady in the second quarter of 2005 as real growth continued at over three percent," said Dr. Chad Moutray, Chief Economist for the Office of Advocacy. "Industrial production and proprietors' income both continued to grow and small business optimism remained high."

In the second quarter interest rates continued to increase, reflecting the Federal Reserve's efforts to stabilize the growing economy. Nonetheless, the Senior Loan Officers Survey showed the demand for small business commercial and industrial loans remained strong, while at the same time venture investment deals grew, reaching $5.8 billion.

The one cloud that is looming over what is now over two years of economic expansion is the price of oil. West Texas crude (a benchmark for oil) was at $56.26 a barrel in June, an increase of nearly $2 from March, and is now hovering around $65.

However, despite high energy costs, consumer and producer prices rose only modestly in the second quarter. There are also indications that prices may have peaked, at least for the time being.

But let's put this all in perspective. When adjusted for inflation, the price we pay for gasoline has been relatively stable over the past 100 years. In fact, there have been several periods in the last century when gasoline was priced relatively higher than it is today.

We should also keep in mind that much of the price we pay at the gasoline pump is actually made up of taxes. Politicians think nothing of adding on an additional tax to pay for a new project. Does that tax go away when the project is done? Of course not. Some taxes are indexed to gas prices, so the current increase at the pump is actually creating quite a windfall of tax revenues in some states.

An interesting outcome of the high price of gasoline is that voters in many states (for example, Washington, New Jersey, Oklahoma, and West Virginia to name a few) are now beginning to pay more attention to these taxes. If an outcome of the higher price of gasoline this summer is a series of mini-tax revolts, I guess there will be at least one positive outcome from all of this.

While the recent spike in fuel costs is causing some concern about its potential impact on growth, there is no evidence that this is happening. The entrepreneurial economy continues to roll along.

Posted by Jeff Cornwall at 05:45 AM | Permalink

Parthenon Publishing specializes in developing print and on-line custom publications for the customers, membership groups and employees of sponsoring companies. Bobby Stark co-founded Parthenon Publishing in 2002, 10 years after receiving an MBA from Belmont University.

Bobby Stark was an experienced marketing strategist with over 15 years experience when he in decided to start his own business.

Parthenon Publishing, Inc. had no existing customers or clients, so Bobby had to hit the street and work hard to establish a client base for his new company. By offering a customized approach to multi media communications, Parthenon was able to quickly earn a loyal base of customers who have helped refer more new clients to his business. Parthenon now serves some of Nashville's biggest companies, including HCA, TravelCenters of America (TA), Fleet One, Spheris, Psychiatric Solutions, and IASIS. Three years after it's founding, Parthenon now has sales of over $2.8 million and 10 employees.

TravelCenters of America's magazine, RoadKing, boasts a circulation of over 225,000 readers and is distributed at all of TA's 160 locations nationwide. Parthenon not only manages the content and layout, but they also handle all aspects of advertising and publication.

Bobby is active in Young Entrepreneur's Organization (YEO) an organization dedicated to entrepreneurship and continued education.

When asked why he chose Nashville to launch Parthenon, Bobby said that it is a great place for entrepreneurs to find kindred spirits. Both the city of Nashville and the local business have made the area great for aspiring businesses and entrepreneurs.

"Nashville is a really fun town for entrepreneurs."

Bobby accounts Parthenon's growth to how well they know their customers' businesses and their intended audience for each publication. Parthenon acts as an advocate for the reader, engaging them with content and information. This is a challenge in the information age of today, with a reader's time continuing to be a valuable commodity.

Bobby says that continuing to attract and maintain the best people will be their biggest challenge as they try to continue to grow their business. He believes that it is the Parthenon team that draws and retains customers. It is this team that also keeps Parthenon successful in their highly competitive market.

Posted by Jeff Cornwall at 07:17 AM | Permalink

This week's selections are at Strange Brand.

Posted by Jeff Cornwall at 06:55 AM | Permalink

A new report by Joel Popkin and Company, Cost of Employee Benefits in Small and Large Businesses, has been released by the Office of Advocacy of the U.S. Small Business Administration (SBA). The report specifically looks at the cost of health insurance, retirement plans, paid vacation, and sick leave.

The report finds that the rate of offering various benefits and that their associated costs can vary dramatically with firm size. Here are some highlights from this study:

- Paid vacation: This is the most common benefit offered by businesses of all sizes. The study found similar rates of offering this benefit among small businesses with over 100 employees and large companies. 50% of the smallest companies (fewer than 10 employees) offer paid vacation

- Sick leave: Paid sick leave is offered by 81% of large companies and 65% of small businesses.

- Health care: The cost of offering health care per employee is highest for the smallest businesses (under 10 employees) and the largest companies (over 1000). Very small businesses do not have bargaining power in securing health insurance, while larger businesses are forced to offer richer benefits due in part to worker unionization. Increases in premiums have been much higher for smaller business over the past few years.

- Retirement plans: About 75 percent of larger firms have some type of retirement plan for employees, while about 35% of small business offer such plans.

As businesses grow, they must pay close attention to benefits offered by larger companies, as they often will have to compete with these businesses to attract key staff. When developing financial forecasts, it is important to factor in a higher cost of benefits as the business grows to reflect the challenge of attracting employees. This can create significant cash flow challenges for businesses that rely heavily on human capital for growth.

But, adding benefits should not just be looked at as a net cost. As seen in this classic article from Inc.com, some entrepreneurs believe that they cannot afford not to offer rich benefits.

"If you use benefits to build a cadre of talented people who stay with you for years, you'll hold on to your power....Your company's future will just get stronger and stronger."

Posted by Jeff Cornwall at 06:08 AM | Permalink

I had promised a review of The Past and Future of America's Economy: Long Waves of Innovation that Power Cycles of Growth, by Robert D. Atkinson, which was on my summer reading list. The National Dialogue on Entrepreneurship had recommended Atkinson's book:

Atkinson argues that we are in the midst of a major technological shift that has only just begun. While economic change is all around us, our political systems and our policy ideas have not shifted in response. Atkinson recommends that policymakers embrace 'growth economics', a whole range of policies that nurture entrepreneurship and innovation.

The book correctly argues that our economy is best understood in terms of its long term evolution. We are now in an entrepreneurial economy that needs new models for public policy. "Growth economics" is an economic theory that some argue is what is now needed. According to Atkinson, this model is based on three fundamental principles:

1- Focus on the Real Economy, Not Prices. Atkinson argues that we miss what is really going on in the economy when we focus on monetary variables such as interest rates and inflation. Instead we should place our attention on real output. I agree with this. Most of Washington policy makers' attention seems stuck in the old economy, looking at what is best for the Fortune 500 rather than what is best for Main Street. Real growth in our economy over the past twenty years is coming from entrepreneurs, and that is best measured by the real output of goods and services.

2- Focus on Growth, Not Just the Business Cycle. Again, our old economy bias has us looking at the way the economy behaved in the 1960s -- four year economic cycles with slow and steady growth. The new economy is entrepreneurially based, and can support years and years of growth without the traditional ups and downs of the old "business cycle".

3- Focus on Productivity, Not GDP Growth. GDP is a function of productivity and hours worked. Improving productivity can improve our standard of living and quality of life, not just adding hours worked. Real productivity gains will not just increase incomes, but add more time for leisure. Fewer work hours has been the unmet promise in our economy for the past forty years.

So far, so good. Focus on what matters for real economic growth and quality of life. Entrepreneurship is creating our current growth and our culture could benefit for more time for true leisure. But Atkinson and other take a wrong turn when it comes to implementation in our public policy.

His solution is for government to pick the economic winners. Government agencies should be charged with identifying those economic sectors that they believe will offer the best chance for long term growth. We should then provide companies in these economic sectors with tax incentives. We should also focus our educational efforts to train people to support companies in those industries that are part of the planned areas of growth. However, "growth economics" as they define it is an old approach, and it will simply lead to more big government, more centralized control over our lives, and ultimately economic decline.

Governments have never been able to succeed at centralized economic planning over time. The Japanese thought they had it all figured out in the 1980s only to find their winners could not sustain the economy.

Entrepreneurs working within our free markets have been fueling amazing growth over the past twenty years. Let's get government out of their way and free up more capital for them to grow their businesses through lower and much simpler taxes. That will be "growth economics" done right.

Posted by Jeff Cornwall at 05:46 AM | Permalink

During my week off we went to a couple of movies (Four Brothers and Red Eye -- both were worth seeing). While we were making our way to the show, I was struck by some unethical selling practices at our local multiplex.

First, when you walk up to buy popcorn, they try to sell you a "value pack." Now we have been trained by fast food to understand this to really mean it is a value. I look frantically up at the prices to see what the value price is, but I can't see any listing. It must be the newest, latest deal. After all, at a fast food joint a value meal might save you fifty cents when compared to buying the sandwich, fries and drink separately. You think, "What the heck. I might as well get the whole deal for a little more money."

But not at our theater. We soon find out that their "value" pack, a popcorn and a drink for example, costs exactly the same as buying each separately. There is no value in their value pack!

Second, once we said no thanks to their value offering, we then asked for a medium popcorn. At this point the young person behind the counter holds up a medium bag limply with a rather disappointed look on his face and says, "This is the medium bag. Are you sure it is going to be big enough?" Read between the lines, "You idiot! Why would you waste your money on this puny bag?"

Now out theater is part of a large, multi-state chain. So I bit my tongue, at the strong encouragement of my wife, and moved on to the show. I wasn't going to change the practices of the theater by yelling at the high school kid behind the counter.

So instead, let me offer these simple suggestions to all the entrepreneurs who read this site on some basic ethical principles that may keep you from becoming a company like the one the owns our local multiplex:

- Don't mislead your customers.
- Don't lie to your customers.
- Don't treat your customers like they are idiots.

Posted by Jeff Cornwall at 07:01 AM | Permalink

I will be taking a week off for a little summer break. Please visit some of my favorite sites listed on the right column of my site. If you are new to my site, please feel free to take this chance to go a root around in my archives. I will be back on August 22nd.

StartupJournal offers some additional statistics (from an American Express survey) to those I posted on Wednesday about entrepreneurs on vacation.

This new survey tells us that although we may physically take time off, we may not really be mentally taking time off. And that can take its toll over time, as we all need time to rest. In the past, I have written about this importance of taking time off (here, here, here, and here), as hard as that can be for entrepreneurs.

It may be too much to ask to simply work at full speed for 51 weeks and then try to stop for one week of vacation. Learn how to take time off in small bites. Find something that you can do once a day or even just once a week that takes you mentally away from your business.

In learning how to rest, many people much wiser than me tell us that it is essential to find a way to find true silence in your life. Take a little time each day to pray, meditate, contemplate or whatever your personal preference. But don't always use words; take time for true silence.

The fruit of SILENCE is Prayer
The fruit of PRAYER is Faith
The fruit of FAITH is Love
The fruit of LOVE is Service
The fruit of SERVICE is Peace
(Mother Teresa of Calcutta).

Posted by Jeff Cornwall at 07:38 AM | Permalink

Inc.com has a story that just made me shake my head.

About two-thirds of small business owners are satisfied with how they have balanced their personal lives and work schedules, despite the fact that they work an average 52 hours a week, according to a new survey released by the Wells Fargo/Gallop Small Business Index.

The survey also found that over half of small business owners work six days a week, with more than 20% working all seven. Fourteen percent of surveyed small business owners reported taking zero vacation days in a year, and almost 40% of those who do take personal time off said that they still answer work-related phone calls and email while on vacation.

Nonetheless, 67% of small business owners said they were satisfied with their personal life-work balance and almost 90% said they were satisfied with being a small business owner in general.

I've been there and I know what they are going through. During the first couple of years of your business you often can't take much time off. Even if you do, you are thinking about the business. You are running on adrenalin, excitement, and fear. And even with all of this, it is still fun.

But, at some point what was necessity can become a bad habit. And that is the dark side of entrepreneurship. When the business can take over your life and cost you much more than you ever anticipated: your family, your friends, and your health.

Here are a few thoughts on how to avoid the dark side:

- Keep control of your business and your life, even in the early stages.

- Set goals for your life as well as your business in your business plan. Life goals are as important as financial goals over the long run.

- Engineer time for the other things. It may that you make it home for dinner every night, have a date with your spouse once a week, or never miss your kid's games or concerts. You may need to go back to work afterward, but take the time.

- Make sure any breaks you take are both physical and mental. That will be hard at first. My wife and I tried to meet for lunch when I was building my business. The first few times I know my head was not there. But, I worked at it and eventually learned how to get away mentally. Believe me, it took hard work.

- Set goals for separation. I met an entrepreneur who had been able to build up to six weeks of vacation a year. And she was trying to add a week a year! She became one of my role models. I tried to learn from her how to build a business that could run itself when I was away.

- When life gives you a break, take it. When we sold our business I immediately was mentally working on the next deal. But, my wife tugged my sleeve and said "take a break and make sure what you really want to do next." At first it drove me crazy. I was used to running in overdrive. However, that break gave me time to reflect and contemplate where I should go next. And surprisingly to me, it was not the next deal, but into teaching.

Entrepreneurship is in my blood. But so is being a husband, a father, a friend, and now a teacher. Learning how to sort out all of the conflicting demands takes hard, conscious work. It never just happens.

Posted by Jeff Cornwall at 10:29 AM | Permalink | TrackBacks (1)

For the past several years entrepreneurs with links to China have found a cool reception from most investors. The risks were perceived as too high and there was not enough understanding of doing business in and with China to get the level of comfort most investors need before jumping into a deal.

StartupJournal reports that this may be changing:

Early-stage investors are plowing money into China, and often posting permanent staff here, despite concerns about political instability, tight controls on capital and a dearth of local management talent. U.S. financiers say huge domestic demand for high-tech gadgets and sophisticated technical gear in China is hard to ignore, particularly when it spawns genuine local innovation in fields such as telecommunications and semiconductor design -- not just "me too" technologies riffing off Western products.

But all involved should still be cautious. There are political risks and very weak intellectual property rights. And if you think Kelo is scary, property rights in China really do not exist in any meaningful way.

Posted by Jeff Cornwall at 10:13 AM | Permalink

Alaska's small businesses will face a friendlier regulatory environment, thanks to a new law that gives Alaskan small businesses a voice in the state's regulatory process.

Upon signing the regulatory flexibility bill Governor Frank Murkowski said, "HB 33 is a step in the right direction to ensure the small business community in Alaska has a voice in crafting the regulations that affect their ability to make a living. This in turn will mean that agencies specified in the bill will have to consider the adverse impacts to small business before promulgating regulations. I am encouraged by this move to help return common sense to the regulatory process affecting a very important sector of our economy."

House Bill 33 implements key elements of regulatory flexibility model legislation drafted by the Office of Advocacy of the U.S. Small Business Administration. Similar to the federal Regulatory Flexibility Act (RFA), the model legislation 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 10:09 AM | Permalink

When I first took up blogging, many people told me that I wouldn't be at it for very long. They said that blogging was a fad that would quickly fade away. Well, it is not fading way so far according to Red Herring which says that one-sixth of the total U.S. population read web logs in the first quarter of 2005.

U.S. blog readership in the first quarter jumped 45 percent to 49.5 million people, or one-sixth of the total U.S. population....The increase means 30 percent of U.S. Internet users visited blog sites in the quarter, according to the comScore Media Metrix report.

This is raising the visibility of blogs for advertisers.

So what happens when something catches on in the technology world? Microsoft joins in, of course!!

Seeking to raise its profile in the increasingly influential world of bloggers, software giant Microsoft said Monday it has launched a preview version of its new community blogging service called MSN Filter that will focus on topics like music and fashion in addition to technology.

Given Madison Avenue and Microsoft are joining the blogging world, maybe my blogging days are numbered after all......

Posted by Jeff Cornwall at 05:56 AM | Permalink

Forbes ran a good piece on the Kelo Decision. They agree that our fears are well founded.

"About 30 states are moving ahead with condemnations for private development," reports Lisa Knepper, communications director for the Institute for Justice, a public-interest law firm. "People's fears are well-founded."

States with broader interpretations (read: in the developers' favor) of eminent domain include New York, California, Florida, Missouri and Maryland. On the bright side, Alabama and Utah have passed restrictions on eminent domain for private development.

Sadly, the Forbes story takes a twist about half way through that tries to make is all sound not so bad. They tell us that if we are good at negotiating, we'll be more likely to get "fair compensation." So Forbes tells us to take "solace" in that.

TIME OUT!!!!

Compensation is not the point. Our businesses and our homes are not just some asset that if we get enough cash for it is OK. Kelo gets at the fundamental question of property ownership. Do we ultimately just have property because the government lets us have it? I hope that is not where the Kelo decision is taking us, but I fear that it will be.

I don't care if I get two or three times what my home or business is worth if I am only getting that much because the government wants to give it to a developer or large corporation. Kelo is a slippery slope (and a steep one I might add) with much more grave implications than some seem to grasp.

(Thanks to James Shewmaker for the heads up on this article).

Posted by Jeff Cornwall at 05:08 AM | Permalink

Business Tennessee released its annual Business Tennessee Fast50, ranking TAG (The Access Group) as one of the fastest-growing private companies in Tennessee. Charles Hagood, a co-founder of TAG, is an alumnus of our MBA program here at Belmont. (I ran a profile of TAG a few months ago).

The ACCESS Group works with a variety of Fortune 500 companies throughout North America and Asia in providing a variety of engineering, project management, plant relocation, facility startup and consulting services. TAG also provides A/E and design services to industry via TAG Design Services, LLC and recently began providing Healthcare related consulting services targeting cost reductions, quality improvement, and efficiency improvements through its new subsidiary, Healthcare Performance Partners, LLC.

TAG has been honored on multiple occasions as a Tennessean newspaper Future 50 company including 2003, Business of the Year by the Chamber of Commerce in 2001, as well as the 12th fastest growing small business in middle Tennessee by Business Nashville magazine in 2002.

"The 2005 Business Tennessee Fast50 surely reflects the diversity of industry that is so beneficial to our state," said David A. Fox, editor of Business Tennessee magazine. "These companies are showing what entrepreneurial drive amid a good business climate can accomplish. Many of these businesses are destined to be Tennessee's biggest employers and publicly traded corporations of tomorrow."

Posted by Jeff Cornwall at 11:39 AM | Permalink

The National Dialogue on Entrepreneurship provides a link to a set of recommendations on how to improve New York's entrepreneurial climate.

If you look at economic statistics from the past decade, upstate New York has regularly ranked near the bottom in terms of new job creation and economic dynamism.

The report, Creating a State of Innovation: Unleashing the Power of New York’s Entrepreneurial Economy, was issued by State Assemblyman Joseph Morelle.

Mr. Morelle cites some interesting statistic. His report says that traditional tax incentives in New York have created only 10% of new jobs. He also says that "electoral politics can distort tax incentive economic development." While not earth-shattering news, it is refreshing to hear at least politician admit that most economic development efforts are more about getting votes than making any lasting impact on the economy.

What does he recommend? He calls for lower taxes, less regulation, and improved education to support entrepreneurs and their workers. While he is right on the mark with his plan, I am not holding my breath for any meaningful reform in New York.

Posted by Jeff Cornwall at 05:09 AM | Permalink

COTC can be seen at View From a Height.

Posted by Jeff Cornwall at 01:59 PM | Permalink

A debate has been going on for years in the academic world over the difference, if any, between small business and entrepreneurship. While much of this debate is rather esoteric, there is one instance where I draw a clear line between the two. It centers on private versus public ownership. An IPO is more than a financing strategy. It is a transforming event that will change a business forever (or at least until the company goes private again).

When a business, no matter how small, goes public with its stock it begins to become a different entity when compared to a classic entrepreneurial venture. Entrepreneurship and private ownership to me are critically intertwined. Once a business goes public, the founders become employed managers. Just ask any of the legions of entrepreneurs who went public, only to be fired from the company they founded. Granted, this can also happen to an entrepreneur before his company goes public if he gets venture capital money. But, it is even more common once the company becomes a "public good."

So when I see lists like Fortune's Top 100 small businesses, I see them as entrepreneurial successes that are no longer entrepreneurial in nature. They are really nascent big public companies.

Posted by Jeff Cornwall at 01:21 PM | Permalink

We played golf today at Ko'olau, which is billed as the "World's Most Challenging Golf Course." While that may be a little hype, it is one of the toughest I have even played. Two lessons for entrepreneurs came to mind with our round.

Focus. Ko'olau is right next to the mountains. There is jungle along every fairway, and many sand bunkers in key places. Many holes have you hitting over jungle to get to the fairway. If I wasn't careful I found myself thinking a shot or two ahead, or thinking about everything around me and not about what I needed to do to execute my shot.

But, I found that when I blocked out the beauty, the danger, the hazards, and just focused on each shot, I did alright. I hit some great shots that sailed over the jungle and landed where they should. Then I went to the ball and made my next shot.

Focus on one shot at a time. Don't think ahead.

So, too, as entrepreneurs we need to learn to block out that which would distract us. We get excited by all the opportunities that we see out there and start thinking about what to do next. Many entrepreneurs jump too soon to the next deal before the current business they are just getting going is even stable.

Focus on one shot at a time. Don't think ahead.

Set Realistic Goals and Stay Within Your Limits. My son Russ and I both went at this course with the understanding that we would likely score quite high. We set out to keep our scores in our normal range, and played our games to reach this goal. We did not try to shoot a very low score, as that was just not realistic on this course under the conditions we played in.

As entrepreneurs we need to set realistic goals. Don't try to turn a nice business into something bigger than it is or bigger than it ever realistically can become. Understand what the business can give back to you and work hard to reach that goal.

I am not saying that we should never challenge ourselves and reach for a goal that may seem hard to achieve. However, we can try too hard.

In golf you should never try to swing too hard. If you do, you usually don't hit it very well. If you swing smooth and easy the ball will almost always go farther and straighter. Do the same in your business. Know your limits and do the best within those limits. Over time, this will lead to more successes.

By the way, by setting a realistic goal today and playing within our limits, we both shot within our typical range of scores on this quite demanding golf course.

Posted by Jeff Cornwall at 05:14 AM | Permalink

I will be blogging for most of this week from Honolulu where I am attending the Academy of Management Annual Meetings (and squeezing in a little golf with our son, as well).

This is the finishing hole of the Hawaiian Prince, which we played yesterday.

(Picture taken by Russ Cornwall).

Posted by Jeff Cornwall at 02:30 PM | Permalink

I tend to rant and rave about things like the Kelo Decision and Regulatory Flexibility for a reason. Both are important policy issues related to small business. And small business matters.

We have over three million new small businesses started in the US every year, ranging from the newly self-employed to new small businesses formed as S-corps and LLCs to emerging high potential businesses backed by angels or VCs.

A new study released by the Office of Advocacy of the SBA sheds light on how important small business is in our economy. Here are some facts from this new study:

- Small businesses represent 99.7 percent of all firms. In 2004, there were an estimated 23,974,500 businesses in the U.S. Of the 5,683,700 firms with employees, 5,666,600 were small businesses (fewer than 500 employees). The latest data also show that in 2002 women owned 6,492,795 firms; Blacks owned 1,197,988 firms; Hispanics owned 1,574,159 firms; Asians owned 1,105,329 firms; and American Indians and Alaskan Natives owned 206,125 firms.

- Small business drives the U.S. economy by providing jobs for over half of the private workforce.

- Small businesses create 60 to 80 percent of the net new jobs.

- Small business with fewer than 20 employees increased employment by 853,074 during 2001-2002. That's right, the smallest businesses in America creates almost a half a million new jobs each year!

- Small businesses create more than half of the private non-farm gross domestic product.

- The future looks good, as small businesses are growing. In 2004, there was strong growth of 7.3 percent in proprietor's income. Business bankruptcies decreased by 2.1 percent and self-employment increased by 2.2 percent.

"Small business drives the American economy," said Dr. Chad Moutray, Chief Economist for the Office of Advocacy. "Main Street provides the jobs and spurs our economic growth. American entrepreneurs are creative and productive, and these numbers prove it."

This and other data for each state and territory are available in individual economic profiles on the Office of Advocacy website.

Posted by Jeff Cornwall at 06:14 AM | Permalink

I have been putting up the alarm bells on the implications of the Kelo decision for the past several weeks. It looks like officials in Oakland, CA have been bolstered by Kelo and are on an "eminent domain roll" of late.

From the New Republic:

On July 1, Oakland took possession of two properties that housed two viable businesses -- Revelli Tires and Autohouse, which provided the livelihoods of John Revelli and Tony Fung -- by eminent domain so that a private developer can build apartments in the redevelopment zone.

On Aug. 1, Oakland took possession of a parking lot about one block away -- on which owner Alex Hahn says he wants to build housing -- so that Sears can relocate its Auto Center on that lot.

....Oakland, you see, is using government's supreme power -- the ability to seize citizens' private property -- so that bureaucrats can trade years of sweat and dreams as if they were property cards for a Monopoly game board.

Don't say I didn't warn you....

(Thanks to Annie for passing this article along).

Posted by Jeff Cornwall at 08:48 AM | Permalink | TrackBacks (2)

Those of you who are regulars here have been keeping up with Jason Duncan, one of our recent graduates, who is blogging about the opening of his business. It is called Cafe Evoke and will be located out in Bozeman, Montana. If you haven't been to his blog site in a while, you should check in over the next few days. He is at a critical point in his start-up.

Posted by Jeff Cornwall at 08:00 AM | Permalink

A niche strategy is the most common type of entry strategy for start-ups that I see. Entrepreneur magazine reports on a study that found that niche businesses are growing at 20 - 25% a year.

In a niche strategy, the entrepreneur finds a small part of a market that is not being served or is significantly underserved. A niche strategy gives the entrepreneur a safer market with less competition and a more dependent market.

Generally, a nice strategy is a good way to enter the market for a new business. It usually takes fewer resources for the start-up, due to lower marketing costs and the ability to start on a smaller scale. Success rates tend to be higher for niche businesses since they have less direct competition. Without much competition, niche businesses can charge higher prices, which allows for quicker positive cash flow during start-up and better margins once profitable.

But, there are some cautions that an entrepreneur should be aware with a niche strategy:

- Entering a niche requires adaptability in your plan. Many entrepreneurs assume that since the niche is a relatively safe place, they can establish their business plan, execute it, and all will be good with the world. But, if you miss the mark on exactly what the niche wants, it doesn't matter how safe the niche is, the customers will not automatically buy from you. You still have to offer what they want. No matter how much research you do ahead of time for your plan, you can still misjudge the market.

A case in point is one of the retail businesses our students started here at Belmont. Lauren started a small clothing store called Feedback. Her plan was to sell "retro" used clothing. Such stores had done quite well in other college locations. However once she opened, she quickly discovered that what was selling were the inexpensive "designer" clothing. This was not going to be the main focus of her store in her plan. Although she had a limited budget, she realized that she had to quickly transition her inventory and get the word out about her expanded offerings from up-and-coming and local designers. She had misjudged the needs and wants of her niche market, but was able to quickly adapt. Her business is now growing.

- Niches Change. Even if you get the market right in the beginning, niche markets (like any market) will change over time. Success in a niche requires that you adapt as your market changes. Too many entrepreneurs get stuck doing the same thing or offering the same product while their customers' needs and wants evolve. Even though it is a niche, the market is not isolated and is subject to the same forces and trends that can impact any market.

- Niches Can Go Away. No market is forever. Niches are the type of market that can dry up, sometimes quite suddenly. Again, adaptation can offer some hope, but if the decline is too rapid many niche businesses will fail.

- Niches Can Grow. While significant growth in your market may not sound bad, it can attract more competitors. And if it grows large enough, it can attract some of the "big boys." At some point your cozy little niche can feel quite crowded and really is no longer a niche. That requires that you adapt your business strategies to this more competitive market. Your pricing will be forced downward, while the cost of business may go up due to increased marketing costs, greater expectations from your customers, and higher labor costs due to more competition for your best staff. Your goal becomes keeping market share in the increasingly competitive market, as you will now need volume to assure profitability.

So is a niche a good place to enter the market? Absolutely. However, change is inevitable and even in a niche market an entrepreneur needs to be able to adapt to survive over the longer-term.

Posted by Jeff Cornwall at 07:00 AM | Permalink | TrackBacks (3)

We had an interesting debate in my MBA class about the role of culture in hiring and firing employees in a small business. While the case for using culture in hiring is fairly straight forward, it is the issue of termination that seems to make some uncomfortable.

The culture in a small business starts with the values of the owners. Each decision she makes, each action she takes shapes the culture of her business. Over time her values will become part of the shared understanding of "how business is done around here."

But as a business grows, the people who join the business bring their own values and behaviors that they have learned in other companies. We found in our health care business that many very technically competent employees just did not fit in our company because their way of working had been shaped and formed by one of the large national health care companies. Many of them never could adapt to our distinctly different culture.

Human resource experts tell us that culture should be a major factor in hiring employees. Even state employment agencies often strongly recommend culture as a criterion. They assure us that it is not a matter of discrimination, but trying to find people who will fit the culture and stay with the business. For state employment folks this is important as they are trying to keep unemployment down. If too many people end up in businesses where they do not fit, it leads to increased turnover and unemployment.

We tried several creative ways to find out if someone would fit in our culture. We had a very decentralized structure that was not dominated by our physicians. We had to make sure that we hired physicians and staff that fit into this culture. We would have them sit in treatment meetings and meet formally and informally with many of our staff. We would talk to our front line staff about each possible hire, and it was that group who often had veto power. Several prospective employees were not hired because they did not treat our receptionist with respect.

Firing employees because they do not fit in a culture is where many, especially those in a corporate environment, get uncomfortable. They seem to hope that eventually these employees will just realize that they do not fit in and leave on their own accord. But, in a small business we do not have the luxury of keeping any excess employees.

Performance in a small business is more than just doing one's job. The culture of the business is still a work in progress, and the business owner must be diligent to make sure that it is evolving the way they want it to. Just because a salesman meets his quota is not enough to keep his job. If he does so in ways that undermine the way the owner wants to build relationships with customers that can be just as important a criterion for continued employment as selling product.

It may be a soft criteria and it may seem subjective to an outsider. But, an entrepreneur knows how she wants her business to run and she has an obligation to make the tough decisions to make sure that the culture develops in a way that is consistent with her values, her ethics and her vision.

Posted by Jeff Cornwall at 05:20 AM | Permalink | Comments (1) | TrackBacks (4)

I have written recently about the change in venture capital focus due to Sarbanes-Oxley. The IPO market has dried up due to the costs associated with the new requirements imposed by this legislation, so VCs are now looking at early stage businesses including start-ups. Their exit strategy has shifted to selling out their holdings to larger public companies.

A new report by the National Venture Capital Association finds that VCs are getting a little impatient with this new approach.

From Red Herring:

Both venture capitalists and private-equity investors have seen lower short-term returns on their investments across all stages as valuations stagnated over the last year....One-year returns to venture investment slumped to 3.6 percent during the first quarter, down from 15 percent during the same period in 2004....The decrease in one-year returns points to a poor market for startups, which have been unable to create significant value for their investors during the last 12 months. "We're basically looking at a market that’s moved sideways in the last year," said John Taylor, the vice president of research at the NVCA.

But as reported in Inc.com, VC activity really hasn't slowed down that much.

Despite fluctuations in the performance of short term venture capital, venture investing totals continued to grow in the second quarter of this year, reaching a total of $5.8 billion invested in 750 companies. These figures show a rise of 19 percent over the first quarter's numbers of $4.9 billion. Venture investing for the first half of $10.6 billion is on par to match the investment totals for the full year of 2004 of $21 billion.

So what does this all mean? Really nothing over the near term. VCs still have excess cash looking for deals, which is why they are investing in earlier stages business growth. Fundraising for deals that will be made over the next two to three years is already in place.

Eventually, this may lead to slower investments into new venture funds. But not to worry. Money is a commodity that will seek the markets that give the best balance of risk and return. Money will still be available for start-ups and growing companies as a new equilibrium will be found in the capital markets. And by then, Washington may have come to its senses and fixed Sarbanes-Oxley.

Posted by Jeff Cornwall at 02:21 PM | Permalink

A common economic development tool used by government agencies is to pick economic "winners" and use them as development hubs. A report by Michael J. Orlando and Michael Verba appears in the 2nd quarter 2005 edition of The Economic Review (published by the Federal Reserve Bank of Kansas City) found that these hubs of innovation may not offer as much long term advantage as once thought.

From the National Dialogue on Entrepreneurship:

These knowledge spillovers are the real competitive advantage of cities. But, does this doom rural communities or less populated areas? Not at all, contend the authors. They argue that locational advantages become less important as technologies mature and their development paths become more predictable. At this point in the technology life cycle, less populated regions enjoy a competitive advantage as they can combine both innovation and lower operating costs. By tracking the location of patenting, the authors indicate that this pattern does indeed characterize the development of many leading technologies in the US economy.

In other words, despite government's best efforts to guide the process of entrepreneurial activity, it is markets that shape the winners and losers over the long-run. Perhaps governmental efforts should be directed away from active planning and toward more proven entrepreneurial stimulators: reducing regulation and creating a fairer tax system.

Posted by Jeff Cornwall at 05:56 AM | Permalink

I happened to spend some time with two entrepreneurs this weekend. Both of them gave me some insights into why they do what they do. I know why I became an entrepreneur and what I wanted to get out of it, but I continue to be amazed at how each entrepreneur I get to know has a slightly different take on the why question.

The first person was a gentleman who we hired to do some electrical work on our home. As I watched him work throughout the day I was struck by his professionalism and with the care he took in his work. As we were settling up with him at the end of the day we started to talk with him about his business.

How long has he been in business? He told us that he had only started a year and a half ago. He had been an executive in the publishing industry for several years. But, the hours and the pressure was taking a toll on his young family, so he and wife decided that it was time to make a change. He decided to go back to the trade he had learned as a young man working his way through college.

"I realized that if I took off time to spend with my family on a Saturday when I was working for the company, it cost them money. If I make that choice with my own business, it only costs me money."

He said that the first year was a challenge financially, but he saw immediate rewards in what mattered most for him: his family. The business was now beginning to make some money, but what mattered most for him was the independence and control to create the right balance between his work and the time he wants for his family.

The second entrepreneur lives in our neighborhood. We were at a going-away party for another neighbor on Saturday night. He and I got talking about his retail business. He and his wife had recently opened a second store. We both shared our stories of how and why we had ended up as entrepreneurs. He had gotten sick of the corporate world and decided to "bet the farm" on a business he had learned about from a friend.

I asked how many stores he planned to open, and he said that he would open enough of them to reach the financial goals he had established for his family. What was interesting about this answer to me is that even though retail can be quite a personal business, he was also working hard to look at it as an investment. He wasn't trying to build an empire or maximize what he could accomplish. The business was a way for him to get to the retirement that he was clearly looking forward to on his own terms and in his own time.

Each of these entrepreneurs looks at business ownership in a different way. No matter how many entrepreneurs I talk with, each seems to have a unique view of their purpose for going into business and what success means for each of them.

What is very common is that however entrepreneurs define success, it is rarely defined in external terms. Most do not become entrepreneurs to impress others or become famous. They do not define their success based on what other people think about them. They seem to have a healthy ability to tune out external expectations.

All of this reminds me of a scene from a movie, October Sky, that we watched this weekend in my MBA class. It is one of my favorite entrepreneurship case study movies (even though it does not appear to be about an entrepreneur at first glance). It is a true story from the late 1950s about a young boy, Homer Hickam, from a desperately poor coal mining town in West Virginia who decides that he wants to launch a rocket after seeing Sputnik flying through the October sky. Homer's quest to launch his rocket is a classic tale of entrepreneurship.

One line in the movie reminds me of the importance for entrepreneurs to keep their focus on their own goals, and not on anyone else's. Homer had attracted a lot of attention from the citizens of his small town, many of whom showed up one day to see him launch a rocket. He becomes quite nervous about the success of this rocket launch and what everyone would think if it failed.

He teacher and inspiration, Miss Riley, looks him in the eye and says, "Homer, you don't have to prove anything to anybody. You remember that. Now, go launch yourself a rocket!"

Posted by Jeff Cornwall at 06:57 PM | Permalink

COTC can be seen at Small Business Marketing Systems this week.

Posted by Jeff Cornwall at 09:56 AM | Permalink

Hillary Johnson writes a very entertaining article from a regular business blog reader's viewpoint:

My habit these days is to make a cup of Lapsang souchong before sunrise, then curl up with my laptop to read e-mail and peruse the collection of business-related weblogs I follow on a regular basis....When I tell people that I read blogs, they usually say something vaguely condescending to the effect that "it must be nice to have so much free time." Most people think of blogs as public diaries kept by the kinds of egotists who make loud, inappropriate political comments at family barbecues or hog the discussion at book clubs, or wannabe journalists who post inflammatory stories with no fact-checking....The truth is that I recently quit my day job to start a company of my own and have absolutely no free time. The business blogs I read aren't written by, or for, fools. Reading them is something I consider part--granted, an entertaining part--of my "job."

As a "blogg-er," it is wonderful to hear the perspective of an avid "blog-ee."

Posted by Jeff Cornwall at 05:39 AM | Permalink | TrackBacks (4)