The Entrepreneurial Mind

From CNN Money:

Wyoming tops the list of states with the most business-friendly tax system, according to a report released Monday.

South Dakota, Alaska, Florida, Nevada, New Hampshire, Texas, Delaware, Montana and Oregon round out the top 10, according to the Tax Foundation's State Business Tax Climate Index (to see the full report click here).

Businesses face the least hospitable business tax climate in New York, followed by New Jersey, Rhode Island, Ohio, Vermont, Maine, Kentucky, Nebraska, Iowa and Arkansas.

When looking at total tax burden as a percentage of income, Alaska is the lowest. Tennessee is the fifth lowest in taxes, but has a rather complicated way of taxing some businesses, so it did not make the top rankings of previous list.

UPDATE: See Political Calculations for a dynamic version of these rankings.

Posted by Jeff Cornwall at 05:51 AM | Permalink

Making a sale, getting the books closed out, making coffee, finishing work for that new client, emptying the trash and a myriad of other things tend to make up an entrepreneur's typical day. All of the rush of just keeping the business moving ahead often leads to running a little bit behind. But this is a bad habit to get into, as it can create problems down the road with customers, bankers, partners and family members all of whom are counting on you, or even expecting you, to be on time.

Being late is bad business etiquette. Chronic lateness can say a lot about a person's character. Any form of lateness can be viewed as a sign of disrespect.

Diana DeLonzor, author of Never Be Late Again: Seven Cures for the Punctually Challenged, says that there are seven types of tardy people. A review in the Denver Post offers this summary:

Rationalizers: They deny their problem and maintain they're late only occasionally.

Indulgers: Run late because they give in to procrastination. They lack self-discipline and moral fiber. Should join the military.

Deadliners: Get their thrills from crisis-induced adrenaline, so they almost enjoy missing planes, trains, weddings, birthdays.

Perfectionists: Tend to be female, hence the Washington Post-style neologism "inerstrogen" to describe the state of trying on five outfits, four hairstyles and three types of lipstick while in a tearing hurry.

Rebels: Time is so bourgeois. And what better way to show your contempt for society than by freeing yourself from the shackles of the schedule. Should the revolution come, they would miss it.

Absent-minded professors: They get easily distracted en route. They're the ones who actually stop and smell the flowers.

Producers: Feel unimportant and self-medicate by overscheduling.

I am not sure which of these types best fit my students who are chronically late, but I sure have a lot of tardiness in my classes these days. For right now it just makes their old professor irritable and cranky. However, some day this bad habit could cost them a lot of money.

Well I better get going now. The absent-minded professor doesn't want to be late for class.....

Posted by Jeff Cornwall at 05:34 AM | Permalink | TrackBacks (1)

We offer our students the opportunity to learn through experience in two ways. For those who have their own business, we offer student business hatcheries and incubator programs. For the rest we have formed a series of campus based businesses. Our first three were retail stores: a record store with our music business program, a retail art gallery with our art department, and a clothing store set up as a private business by one of our majors. This year we launched two new campus-based businesses: a public relations firm and a graphic design firm. Both are in cooperation with those academic departments. The Nashville Business Journal ran a story on these two new businesses this week.

Posted by Jeff Cornwall at 10:57 AM | Permalink

COTC for this week is brought to you over at Ideologic.

Posted by Jeff Cornwall at 06:02 AM | Permalink

Over 30 states are now moving forward on actions to limit eminent domain. Here are a few highlights from February on the post-Kelo eminent domain front:

Arizona

Property rights supporters, including current and former public officials, have begun a voter initiative to limit government's power to condemn private property and also to require compensation for owners when land-use actions diminish property values. The group, known as Arizona Home Owners Protection Effort...needs to submit signatures from at least 122,612 registered voters by July 6 to get the measure on the November ballot.

Florida

A special House committee striving to form a consensus on how to change the state's eminent domain laws enters its final scheduled meeting today, hoping to recommend a new policy in time for the start of the legislative session on March 7. The Florida House Select Committee to Protect Private Property Rights was formed in the wake of a controversial U.S. Supreme Court decision last summer that upheld a Connecticut city's effort to take private property for the purposes of economic development.

Georgia

The Governor is proposing a bill to strip eminent domain powers from anyone other than elected officials.....The Governor also proposed a constitutional amendment that would prohibit the use of eminent domain for economic development or to boost tax revenue.

Iowa

A state bill that toughens rules for condemning private property for public use will head to the state Senate where lawmakers may make additional changes. Although the state House of Representatives approved an eminent domain bill last week, it did so after various modifications to the original bill.

Maryland

Small-business owners crowd House hearing on eminent domain.

Minnesota

Mayors and city council members from several Minnesota communities have declared their support for reforming the state's eminent domain laws.

New Hampshire

The New Hampshire Senate was unanimous today in supporting a bill that would limit government's power to take private land by eminent domain. Similar legislation is also advancing in the House. Two constitutional amendments also have been proposed.

New Mexico

A measure limiting the power of governments to seize land using eminent domain gained unanimous support in the House....The bill would prevent land from being seized from a private owner in order to promote private or commercial development.

South Dakota

Calling it a model of legislative cooperation, the South Dakota Senate on Tuesday unanimously passed a measure that is designed to protect private-property rights.

Tennessee

State Sen. Randy McNally doesn't want government agencies, utilities or development authorities to have the right to seize private land under Tennessee's eminent domain laws unless an elected government body votes in favor of a particular project. Reps. Charles Sargent and Ben West, both of whom have filed bills in the House for the upcoming legislative session, want to stop local and state governments from condemning private property and forcing a sale solely to attract new development with greater economic value.

Those three legislators' bills are among at least 29 filed by Tennessee lawmakers in the wake of a U.S. Supreme Court ruling last summer that reinforced governments' broad powers to take private property to build projects touted as having greater economic clout.

Texas

The state already has approved legislation limiting government's eminent domain powers to take private property when it comes to certain uses, including economic development. But Wright Gore III, backed by a petition with more than 400 signatures, wants to prohibit eminent domain for private business, including its use to seize property deemed blighted. State law, approved last year, allows use of the tactic for municipal urban renewal activities to eliminate blighted areas.

Utah

A House committee voted Tuesday [2/21/06] to spend more time researching proposed restrictions to the way governments take private property for public use.

Virginia

Both the House of Delegates and Senate have unanimously passed bills that say the government cannot use eminent domain for the primary purpose of enhancing tax revenue.

Posted by Jeff Cornwall at 05:13 AM | Permalink

StartupJournal has put together a get collection of material for any of you interested in franchising.

They start with basic research tips:

- Look into franchisee litigation (almost inevitable these days, so look for troubling patterns)

- Know what you are getting into when buying a franchise. The SBA has a good overview in their consumer's guide.

- Talk to existing franchisees, including as many as you can who own the franchises you are considering.

- Pay attention to the legal details, as these are the rules that will govern any and all disputes once you sign on the dotted line. The UFOC (required by law) is the key document, so read it and make sure you understand what it says.

- Some franchises may be eligible for financing through the SBA.

StartupJournal has some other helpful articles that cover the benefits of buying a franchise versus going it alone, the general pros and cons of franchising, evaluating your personality fit for franchising, and what it takes to succeed as a franchisee.

Beyond the contractual issues that arise in franchising, there are some fundamental business and personal concerns that many franchisees experience after it is too late.

One of the biggest sources of frustration among franchisees is that they perceive that the value added they get from association with their franchisor diminishes over time. A franchise will charge a significant monthly percentage fee (this can average about 7% of sales) associated with all that they offer in terms of systems, marketing, purchasing power, and so forth. Over time, many franchisors realize that they can be just if not more effective on their own without paying the monthly percentage of sales to the franchisor. This on-going monthly fee is often glossed over by franchisees during start-up planning, as they tend to think only about the initial fees and capital expenditures in their planning.

Another concern expressed by franchisees is that with all of the rules and standardized procedures, they tend to feel more like an employee than a business owner. Those who try to break away from the predetermined model and processes can face the wrath of the franchisor. Larger franchisors have entire staff dedicated to franchisee compliance.

A financial risk to consider is that many first time entrepreneurs can only afford newer franchised concepts, since well established franchises can cost hundreds of thousands of dollars to buy in. These start-up franchisors can begin to experience their own growing pains. Some don't survive. In some cases they may take the franchisees down with them.

It is critical to understand all of the ins and outs of franchising as a general business strategy first. Then if the idea of a buying a franchise still makes sense, do your homework on the company and its concept. All franchise opportunities are not created equal.

Posted by Jeff Cornwall at 05:44 AM | Permalink

An issue that advocates of small business continually fight is minimum wage legislation. The NFIB raises numerous concerns over the consequences of increasing the minimum wage:

- The Kennedy amendment would enact the largest increase ever in the starting wage, $2.10 over two years. A 36 percent increase in labor costs would place a huge burden on small businesses.

- Many small employers already are facing 15 percent to 20 percent increases in health insurance premiums. A large minimum-wage increase not only adds to these labor costs but also could force employers to cut back on health-care coverage or other fringe benefits that they need to attract workers.

- Nearly two-thirds of minimum-wage workers move above the minimum wage within one year. Most minimum-wage jobs are entry-level jobs that are not lifelong dead-end jobs. These jobs allow Americans to establish a track record of work that creates opportunities for better paying jobs.

- Higher mandated wages reduce employment opportunities for the least skilled and cause shifts in the profile of those who get hired as employers favor more highly skilled applicants. And as entry-level unskilled job opportunities disappear, welfare recipients have a more difficult time finding work. Thus, those who most need assistance are helped the least.

- Minimum-wage hikes have ripple effects on the economy, often having unintended consequences against the entry-level earners the minimum-wage proponents profess to help. When small business and employees are hurt, it's a double whammy for the economy.

One unintended consequence that can happen when you meddle with a market is that small business owners just give up and close their businesses. However, sometimes entrepreneurs and other innovators will find a way to work around onerous regulations. BoingBoing.net has a wonderful example of this related to minimum wage.

Abir Majumdar says: "I went to one of those Taco Bell/KFC hybrids in Morrisville, NC and all the ordering was done through the gigantic touchscreens. No humans take orders there. You go to the machines and you're presented by an animated Colonel and talking taco. Then you put in an order as if you were at amazon. You can pay with cash and credit card."

Posted by Jeff Cornwall at 05:24 AM | Permalink

My entry yesterday about growth prompted Credo Advisors to reflect on the ethical challenges that growth can bring.

While it may seem obvious that ethical issues might start to crop up (or increase in frequency) with growth, I'm often surprised by how many businesses get caught off guard anyway. I've personally fallen victim in the past, having been blindsided by issues regarding key personnel that I missed during the initial vetting process. In my case, I tend to be a very idealistic and trusting person and typically think that anyone who wants to work with me has the same motives.

Quite true. Every person you hire can contribute in some way to the evolution of your culture. Pick the wrong people, and their contributions can take your culture in the wrong direction.

Posted by Jeff Cornwall at 08:14 AM | Permalink

Scientists are envisioning a day in the not too distant future when the retirement age might have to move from 65 to 85. It seems that anti-aging drugs are a real possibility. From Red Herring:

But drugs that prevent aging itself are on the distant horizon, and with them could come dramatic social changes, such as much later ages for everything from puberty to retirement, and massive inequality in life expectancy between those who can afford the life-lengthening compounds, and those who can't. These changes, in turn, would have a significant impact on the global economy.

I guess they would! First, the idea generating part of my brain has kicked into high gear thinking about all of the new businesses that would come out of such a change. But then I started to think about all of the deadbeats who can't even manage to save for the longevity we now enjoy. Does that mean we have to fund social security to cover these people for 40, 50 or even 60 years???

Posted by Jeff Cornwall at 05:27 AM | Permalink

COTC can be seen at The Stalwart this week.

Posted by Jeff Cornwall at 12:42 PM | Permalink

We are experiencing a new challenge for the campus-based businesses we run here on the Belmont campus. Our students run a record store, a clothing store, an art gallery, a graphic design firm, and a PR firm. All five of these businesses are faced with succession issues this year.

One of our local papers ran a story on this today:

Looking at the profit and loss sheet, [Boulevard Design] likely would not have survived its short two years in the graphic design industry.

[Laura] Duditch [student manager] wants that to change, but she will not be around to see it. She graduates in May and has planned an adventure in Taiwan with her future husband. One of her student interns will take the helm after graduation.

Bryan Vaughan has a similar quandary. The junior music business major spent nearly the last two years managing a record store called Reverb Media, a few spaces down from Boulevard Design Studio. Vaughan leaves this summer to study abroad, then to manage his start-up publishing company called Paper Garden Records.

"It's hard to put in everything when you know you're going to give it up," he said.

The students experience the same kind of succession issues that any small business faces. The only difference is that instead of taking decades, succession for them is accelerated down to a few short semesters.

Posted by Jeff Cornwall at 10:02 AM | Permalink | Comments (1)

Growth puts strains on all aspects of an entrepreneurial business. Hiring more staff, expanding the resources necessary to support new customers, managing cash flow, building new systems to support your business, and so forth all take time and attention. If you do not get these issues taken care of properly, your business can suffer or even fail.

But, growth also creates personal challenges for the entrepreneur. Here are some of the more common issues that entrepreneurs wrestle with as their business grows:

- Delegation: Your "baby" is now a "teenager" ready for more independence

Letting go is tough for most of us. We have been with our business all the way through its growth, through the good and the bad times. But at some point, if we want our business to grow successfully, we have to begin to delegate. At first it will seem that no one can do what you do as well as you can. But just like raising a teenager, at some point you have to begin to let go so they can learn and grow up. Your business will go through this same difficult transition. If you don't begin to let go, you business may never successfully move into its next stage of development.

- "My company just isn't the same as it used to be"

With each person we hire, our culture can change just a little bit. And over time, this can lead to a business that does not look like we had intended or envisioned. One area that you must keep control of is your culture. Your values shaped the culture of your business as it began, but to maintain that culture you must actively manage it. You do this by who you hire, what you reward, what you celebrate, the structure you create for the business, your communication, etc., etc. Be deliberate about the culture you intend and think about how each action you take over time can effect this culture.

- "So just what is a CEO supposed to do, anyway?"

For many entrepreneurs, this may be their first time as a CEO. That title means very little in the early days, but as the company grows it takes on more meaning. Defining your role and your style as the CEO of your company takes planning and specific effort on your part. It may even feel a bit awkward at some point, but you have to establish what your role will be as the CEO. Play to your strengths.

- The Fear of the Unknown: Moving from hands-on to strategic

Many entrepreneurs start their businesses because they like the hands-on part of their business. Engineers like to engineer. Furniture makers like to build stuff. As some point in the growth of the business, the entrepreneur begins to move away from the hands-on part of what they company does. This can be a painful and frustrating period. Keep this in mind when you decide how far you want to grow the business. It is OK to keep it at a size that allows you to stay in the hands-on part of what you do.

- "How come everyone keeps forgetting this is still my company (sometimes, including me)?"

I remember how at some point it seemed that I was chasing everyone else's goals for our business. Our banker, our CPA, our attorney, fellow entrepreneurs, our managers all seemed to have their own vision for what we could become and ideas for where we could take the business. Some of these folks wanted us to take our business public. That is not where I wanted to go, but I felt the pressure to look seriously in that direction. Even though it possibly cost me some money, I am so glad that I ultimately listened to my own aspirations. I would have been very unhappy running a public company. Remember: it is your business!

Posted by Jeff Cornwall at 05:41 AM | Permalink | TrackBacks (2)

Farmers were among Americas first entrepreneurs. The National Dialogue on Entrepreneurship has a link to a new study on the current state of the entrepreneur farmer in America.

Consolidation and the rise of corporate agriculture have created tough times for the family farm, but in many regions, farm-based entrepreneurship is growing. A recently posted report from Iowa State's Department of Sociology examines the issues around farm-based entrepreneurship. Entrepreneurship has become a critical component in local efforts to preserve family farms. An earlier survey in Iowa found that 21% of farmers operate a second business outside of their farming operation. Most of these businesses are in agriculture-related fields, such as manufacture of farming equipment or other types of food production. The challenges facing these business owners are not a whole lot different from those facing urban entrepreneurs. At the top of their list of challenges was access to outside financing and access to more sophisticated business services--especially in the area of marketing.

In addition, let's look to the other side of the globe for ideas. I wrote this post recently about the turn around of farming in New Zealand thanks to aggressive deregulation. Farming is still a highly regulated industry in the US as can be seen on this article about the trials and tribulations of a milk farmer. If we want to help American farmer entrepreneurs let's put our efforts toward open and free markets.

Posted by Jeff Cornwall at 06:31 AM | Permalink

Carnival of Entrepreneurship is at Working Solo this week. Each week this offers a collection of 7 posts from some sites you may not regularly visit, but deserve your attention.

Posted by Jeff Cornwall at 06:29 AM | Permalink

Small business owners are beginning 2006 in an upbeat mood. In a survey released this week by the NFIB, small business owners say they expect sales growth and anticipate hiring more employees.

"This is great news for small businesses," NFIB Chief Economist William Dunkelberg said. "It points to solid job creation and continued downward pressure on the unemployment rate. Equally important are the data showing that there was no change in the net percent of those firms raising prices (18 percent), indicating no new pressure on prices."

If only we could get Washington to keep their eye on this ball. None of the major debates going on right now get to the heart of what will help these trends continue to improve. We need to get government out of the way of entrepreneurs (by the way, Eidelblog has a great post related to this) and reform the tax system. We would see an explosion of small business growth if they would follow this formula.

Posted by Jeff Cornwall at 06:12 AM | Permalink

At the end of last year I had a post on how entrepreneurship and free markets have helped transform farming in New Zealand. In a study recently released by Babson College, finds that the indigenous Maori are the world's third most entrepreneurial people.

- In terms of Total Early-Stage Entrepreneurial Activity, Aotearoa (Maori New Zealanders) at 17.7% and New Zealand at 17.6% were surpassed globally only by two other countries (Thailand and Venezuela).

- About 83% of Maori entrepreneurs are opportunity entrepreneurs, a value comparable to Canada, Austria, and the United States.

- About 25.0% of Maori versus 13.1% of the general population say they expect to launch a start-up in the next three years.

What drives this entrepreneurial spirit? For New Zealanders, both Maori and non-Maori, wealth creation is not as important as is independence. Maori have twice as many independence-driven entrepreneurs as wealth-driven entrepreneurs. The typical New Zealand entrepreneur is an opportunity-based lifestyle entrepreneur, opting for work-life balance rather than wealth creation.

The one concern from this study is that their success rates are fairly low. Only 37% of Maori entrepreneurial start-ups survive three-and-a-half years compared to 62% in the general population. There is clearly a significant opportunity to improve their success rates through education, which can as much as double success rates.

The full report can be downloaded here.

Posted by Jeff Cornwall at 06:10 AM | Permalink

I have written often about today's youth in America. They are full of the entrepreneurial spirit (as well as a strong libertarian streak). A new study just released by Babson College finds that young folks in the UK are also feeling entrepreneurial yearnings.

As well as expecting to be their own boss within three years (13.4% for 18-24 age group compared to 9.3% for 35-44 age group), GEM UK found 18-24 year olds were the most positive in their attitudes towards entrepreneurs, with 69.7% regarding it as a good career choice. Entrepreneurs were also given the highest status among the young.

While these numbers are not as strong as we are seeing in the US, it is a positive trend in the UK. A friend who teaches entrepreneurship in England has talked about being stifled in his work by a cultural resistance to entrepreneurship. This study shows a glimmer of hope that this may be changing.

A detailed summary of this study can be found here. More detailed reports of this study can be downloaded from the London School of Business.

Posted by Jeff Cornwall at 06:00 AM | Permalink

Buying a computer is a big deal for an entrepreneur. The average entrepreneur in the US starts his business with only about $6,800 in start up capital. A computer set-up can easily eat up a third of that. Dealhack has some money saving tips if you are planning to buy a Dell for your business.

Posted by Jeff Cornwall at 09:24 AM | Permalink

A new list of the top ten Venture Capital related blogs was recently passed along to me. Before I give you the link, I want to offer these words of caution:

- Venture capital money funds only a tiny fraction of new business ventures.

- About 80% of start-up capital for new businesses comes from the entrepreneur and her friends and family. Most of the rest usually comes from loans.

- A typical venture capitalist receives hundreds of plans each year, considers only a handful of these deals, and usually funds only 3-5 deals a year.

- Most venture capital goes to businesses that promise very high growth, with the promise of high returns (70-100% annual return on their investment). They are looking for home-run deals. For example, see this story from Red Herring on MovieBeam, which is a start-up planning to offer "video store in a box" that will sit on top of your TV.

- Venture capital firms most often are looking for deals that need at least a $5 million investment, and many now look for $20 million deals. The MovieBeam deal raised $48.5 million from VCs.

- They demand a reasonably quick exit, most often about 3 years. A venture capital fund usually has a ten year life, so the VC is looking for deals with clear "liquidation events." In the past this may have been an IPO, but since Sarbanes-Oxley most of the deals are looked at for their acquisition value.

- They will want a seat on your Board, and they will carry a loud voice in the direction of your business.

- VCs are hard-nosed business people. They will fire you from the company you founded at put in their own leader in your place if they believe it will increase the chance that your business will succeed.

If you still think you are a candidate for venture capital, here is the link.

Posted by Jeff Cornwall at 05:01 AM | Permalink | TrackBacks (1)

On St. Valentine's it only seems fitting to look at the growing trend of couples going into business together. From IndyStar.com:

"Copreneurs," as they're called, are a rapidly growing segment of business partnerships. The number of husband-wife companies has more than tripled since 1990, topping 3.6 million, according to the U.S. Census. Glenn Muske, co-author of a 2002 study titled "Copreneurs as Family Businesses," believes the number of copreneur firms is "greatly underestimated." He said couples are leaving corporate jobs and opening businesses, but for reasons beyond the bottom line.

Family and lifestyle considerations are among the main reasons couples are tying a double knot and becoming both life and business partners. Although it can get rather complicated and for some couple overwhelming, it can work.

And that is the key word: work. A good marriage takes hard work and a good business partnership takes hard work. Putting the two together and making them both work creates the need for a tremendous amount of effort and planning. It rarely just "happens."

Think it through very carefully. An article from Inc.com quotes an expert who estimated that only 5% of couples can make a combined business and marriage partnership work.

The challenges of being both types of partners at once are not just twice as many; the challenges can feel like they go up exponentially. That is why I like to refer to it as a partnership squared, rather than a simple double partnership.

But to all of you couples giving it a try, Godspeed and Happy St. Valentine's Day!

Posted by Jeff Cornwall at 07:30 AM | Permalink

COTC is over at Frugal Underground this week.

Posted by Jeff Cornwall at 03:32 PM | Permalink

Egoist (a blog from Sweden) writes that Instapundit and I may have been a little to enthusiastic last week about entrepreneurial economic reform in Sweden.

I would be happy if this is really the case, but I think it is a long way to go... It is soon election time in Sweden and the debate is heating up between the politicians in power and business leaders.

Posted by Jeff Cornwall at 03:27 PM | Permalink

Anybody who buys roses for St. Valentine's Day tomorrow knows that it is one of the busiest days of the year for florists. If you have any doubt, you can observe the power of supply and demand on the price of a dozen roses. And candy stores and card shops are equally happy to see St. Valentine's Day arrive. But, private detectives???

According to this story at StartupJournal it appears to be the case:

Art League...had been trying for weeks to catch a client's husband cheating, but it wasn't until Feb. 14 that the evidence surfaced. After tailing the man to an office parking lot, Mr. League spied him placing a card on another car before driving away. Mr. League swiped the card -- which was festooned with hearts and professed true love -- and surreptitiously videotaped the woman who later showed up frantically looking for it. He presented the card and the video to his client, and the case was closed.

"It's a good holiday for business," Mr. League says. The Greensboro, N.C., gumshoe has already scheduled five infidelity investigations for Tuesday, and plans to add two part-time sleuths to his staff of four to handle the demand.

Posted by Jeff Cornwall at 07:11 AM | Permalink

Since small business is the "heart" of our economy, the Office of Advocacy of the U.S. Small Business Administration decided to send all of you entrepreneurs this Valentine to tell you why they love you.

Ten Reasons To Love Small Business

10. Small businesses make up 99.7 percent of all United States employers.

9. Small businesses create more than 50 percent of the American nonfarm private gross domestic product (GDP).

8. Small patenting firms produce 13 to 14 times more patents per employee than large patenting firms.

7. The more than 24 million small businesses in the United States are located in every community and neighborhood.

6. Small businesses employ 50.1 percent of the United States' non-farm private sector workers.

5. Home-based businesses account for 53 percent of all small businesses.

4. Small businesses are 97 percent of America's exporters and produce 26 percent of all export value.

3. United States saw an estimated 580,865 new small firms with employees start-up in the last year measured.

2. There are approximately 4,115,900 minority-owned businesses and 6,492,795 women-owned businesses in the United States, and almost all of them are small businesses.

1. The latest figures show that small business creates 65 percent or more of America's net new jobs.

Here's hoping all of you entrepreneurs find a "sweet" deal tomorrow on St. Valentine's Day.

Posted by Jeff Cornwall at 07:01 AM | Permalink | TrackBacks (2)

Community leaders in Guatemala City are looking to entrepreneurship as a path out of gang life for their young citizens, and hope that a new reality TV show may create inspiration for this path.

From an AP story at Yahoo News:

This gang-plagued Central American nation has found a new twist on reality television, putting wayward youths in a house and filming as community leaders turn them into small business owners.

On Friday, the 10 former gang members inaugurated the fruits of their efforts: a car wash and shoe repair shop. The producers of the show, scheduled to air for a week in March, hope it will serve as inspiration for other gang members looking for a way to turn their lives around.

And unlike the heartless and ruthless version of free enterprise featured on Donald Trump's The Apprentice, these aspiring reality TV entrepreneurs are founding their businesses with a strong moral foundation.

The gang members participating in the show already had abandoned gang life, some by joining an evangelical church. Under gang rules, religion and death are the only legitimate ways to get out of gangs.

Sergio Gutierrez, who will be in charge of the car wash, knows that running a small business will be harder than the two-week taping period.

"Now that the (taping of) the show is over, is when the hard part will come," Gutierrez said. "We have to make the business work, but I know if we trust in God, He will help us."

(Thanks to Andy Tabar for passing this story along).

Posted by Jeff Cornwall at 08:55 AM | Permalink | TrackBacks (2)

Not all opportunities come from new industries. I have written quite often about how the music and banking industries, although quite mature, are full of new opportunities. Both industries are facing strong forces for change that the dominant businesses cannot, or sometimes simply choose not to, adapt to. Demographic and technological changes are at work in both of these industries.

From a post at News Alert (based on a story in the LA Times) it is clear that the same is becoming true for the real estate industry.

A decade ago, Richard Barton launched Expedia.com and helped transform the travel industry by handing consumers the same tools to book reservations that travel agents had long controlled.

Now, Barton is applying the same approach to real estate -- and is banking on equally dramatic results.

While Expedia.com killed the entrepreneurial sector of the travel booking industry, I believe that this venture and others like it, will actually open up the real estate industry. Barton's venture addresses only on piece of the real estate transaction. In many ways it is more analogous to e-Bay in how it should break open a mature industry to all forms of new innovation for start-up entrepreneurs to exploit.

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

Posted by Jeff Cornwall at 08:21 AM | Permalink

Kauffman's new e-Venturing site as a great new collection of articles on managing cash flow. It includes stories, how-to's and tools for managing cash and seeking external funding for day-to-day cash flow needs.

Posted by Jeff Cornwall at 12:51 PM | Permalink

Instapundit has a link to a story at Market Watch about the growth of capitalism in Sweden.

Sweden endured a deep financial crisis in the early '90s, with sluggish growth and high unemployment, but this provided an impetus to new approaches in fiscal policy. As a result, the central bank became independent and set a low inflation target of 2%. Centralized salary negotiations were abolished and the labor market developed into one of Europe's most flexible.

Large companies have long been the major driving force behind the Swedish economy, but attention is now focused on the lack of small and emerging companies.

Over the past several years I have seen an explosion of interest in entrepreneurship and free enterprise in Sweden. They are developing amazing educational programs at their universities. They are enacting public policy decisions that the US should pay attention to. It now appears that the Swedish government is moving ahead of the US in recognition of the global shift to a new entrepreneurial economy.

Perhaps we are witnessing the beginning of an entrepreneurial, grassroots transformation of the economic climate in Europe.

(Thanks to Bill Hobbs for passing this along).

Posted by Jeff Cornwall at 09:36 AM | Permalink | TrackBacks (1)

One of the first business lessons I remember learning from my father when I was a kid was about the risks of absentee ownership. For many reasons, things just don't seem to get done quite the same when the owner is away.

CNNMoney has the story of a reservist who was called to Iraq, and learned this lesson the hard way. He owned a limo business in New Jersey.

"The first three months I got letters saying the business was fine," he recalls, sitting at his kitchen table one recent morning in Villas, N.J., a blue-collar coastal town dotted with crab shacks and tackle shops. "But it was actually going under."

His cars were either running late or not running at all. Client calls went unanswered. And customers, used to a dependable service, started to leave.

When he returned home 16 months later, his company had lost 75% of its business to competitors, and Hinker, a 35-year-old father of one, was $25,000 in personal debt. To pay the bills, he sold four company vehicles and picked up a graveyard shift guarding prisoners at the local jail.

This is also one of the risks that entrepreneurs can face when they expand geographically. It becomes harder to keep on top of the details that only the owner seems to care about. As our business expanded across North Carolina, I spent a good deal of my time on the road visiting each of our locations. It was important not only to keep on top of the details, but I discovered that these visits were even more important to keep our vision clearly communicated to all of our employees. These visits became a blend of accountability and motivation.

I was talking to Richard Schulze, founder of Best Buy, several years ago and was somewhat surprised to hear him say that he still tried to visit everyone of the 400+ Best Buy stores at least once every year. It seemed that even with the growth of his company, he still believed in the importance of keeping on top of his operations first hand.

(Thanks to Scott Pafford for passing this story along).

Posted by Jeff Cornwall at 05:56 AM | Permalink | TrackBacks (1)

I hear many entrepreneurs question how big they really want to get because of one reason: employment regulation. Even though there has been progress in reducing regulation on small business through regulatory flexibility initiatives, there seems to be more efforts to push new laws to smaller and smaller businesses.

Now there is one more regulation that any business with 50 or more employees must follow. They must track diversity data on job applicants. From CNNMoney.com:

New federal guidelines meant to standardize how employers track data on the diversity of their job-applicant pool are taking effect starting today for jobs at federal contractors -- and similar rules will kick in later this year at U.S. companies with more than 50 employees....In the new system, federal regulators will be checking to see that companies are keeping diversity data on all applicants....

Such regulations are clearly hurting the entrepreneurial engine that is driving our economy in the 21st century.

(Thanks to News Alert and Ben Cunningham for passing along this information).

Posted by Jeff Cornwall at 08:41 AM | Permalink

Another bank has joined BB&T in refusing to fund eminent domain projects. From the North Country Gazette:

Montgomery Bank, which has six branches in St. Louis and five branches in Southeast Missouri, announced late last week that "it will not lend money for projects in which local governments use eminent domain to take private property for use by private developers."

In a press release issued by the bank, Chief Operating Officer Troy Wilson said, "The sanctity of private property ownership is one of the hallmarks of our individual rights as private citizens. Eminent domain should only be used for public projects, not to benefit private developers."

Talk to your bankers about this and let them know it is important to you. Some banks will take a stand on principle. Others will react to market pressures. Either way, this is another way to fight against the potential consequences of the Kelo Decision.

Posted by Jeff Cornwall at 08:34 AM | Permalink

Back when I was coming out of college, most of the people I knew going into the Peace Corps worked on projects related to education, public works, and so forth. Today, the Peace Corps has discovered the power of entrepreneurship and free enterprise to help change the world.

I was reminded of this by a story in our local paper about a woman who had owned her own hair salon who is volunteering to help aspiring entrepreneurs in the Philippines.

(Alice) Rotan....owned her own salon for 14 years in Chicago. The knowledge she gained from owning her own salon is what she will share with locals in the Philippines who want to start up small businesses.

Entrepreneurship is the most powerful tool we have to share with the rest of the world. Godspeed to Ms. Rotan and all of the other selfless volunteers who are helping to spread free enterprise, one person at a time, around the globe.

Posted by Jeff Cornwall at 05:02 AM | Permalink

COTC is at Any Letter this week.

Posted by Jeff Cornwall at 07:37 AM | Permalink

The conventional wisdom has been that small businesses just cannot compete with large corporations for the best management talent. However, there seems to be trends that are leveling the playing field among employers of all sizes as they compete for talent.

From the Herman Group:

Attitudes toward human capital are understandably different in smaller organizations. That attitude, and the opportunity to play a more significant role, appeals to people who want to be involved, who seek meaningful work, who want to make a difference. Mix in today's emerging values centered on life-work balance, personal engagement with work, and being able to choose where you work, and smaller employers become very attractive. Result: those companies will be able to employ high-caliber talent that was not as available in the past. Superstars who sought glamorous jobs in major corporations will show a preference for smaller companies instead.

Recent studies also show that the pay gap between small and large employers is narrowing, with small companies paying about 90% of the wages paid by large employers.

(Thanks to Patricia Jacobs for passing this along).

Posted by Jeff Cornwall at 05:48 AM | Permalink

In past years I have given my take on the "Development Report Card" from the CFED (Center for Enterprise Development). Some, such as the National Dialogue on Entrepreneurship, try to frame this index as a measure of entrepreneurial activity. It measures quite a few things, but most of them have little or nothing to do with entrepreneurial economic activity. Some examples of superfluous measures include:

- Mass Layoffs (most entrepreneurs don't employ enough people to ever layoff a "mass" of them)
- Involuntary part-time employment (part of the left's belief that entrepreneurs only create low paying, part-time jobs)
- Disparity between Rural and Urban Areas
- Teen pregnancy
- Heart disease
- Voting rate
- Recycling rate
- Two measures of renewable energy (Hey Sen. Kennedy -- that includes those windmills you are fighting off the coast of Massachusetts that you are afraid will spoil your view)
- Average Teacher Salary
- Urban Mass Transit

You get the picture. This index should be called the "Socialist Agenda for America." No wonder they rank Massachusetts and Minnesota at the top year after year.

Out of the 85 variables, they do include 5 measures that they contend assess Entrepreneurial Energy and several measures that look at support for high growth ventures. While high growth ventures are important they are not the heart as sole of entrepreneurial activity and growth in this country. But, they are what make economic development agents look good when they request bigger and bigger budgets.

Government sponsored development agencies are more concerned with expanding their own power and their own control over economic planning than true economic development. Most have been co-opted by the left. If they really wanted to support economic growth they would follow a policy supported by almost every study from around the world on what creates entrepreneurial activity:

- Cut regulation of small business
- Cut and simplify taxes
- Educate entrepreneurs on the basics of business formation and growth management

Posted by Jeff Cornwall at 05:37 AM | Permalink

Initiatives to limit the use of eminent domain in the wake of the Kelo decision are moving ahead in 40 states across the country.

Here are updates from various states:

Colorado

Georgia

Idaho

Illinois

Indiana

Iowa

Kansas

Maryland

Minnesota

Missouri

New York

Oklahoma

Rhode Island

South Carolina

Tennessee

West Virginia

Keep up with progress in your city and state and keep the pressure on your representatives.

Posted by Jeff Cornwall at 05:29 AM | Permalink

A new collection of posts begins this week called Carnival of Entrepreneurship. The host of the inaugural event is About Entrepreneurs. This is meant to be a collection of practical posts for entrepreneurs.

Posted by Jeff Cornwall at 08:36 AM | Permalink

The Bureau of Labor Statistics (BLS) released data on the January employment situation.

Highlights of today's employment situation report:

- 193,000 new jobs were added to employers' payrolls in January.

- A broad spectrum of industries experienced job growth, including construction, mining, health care, and financial services.

- The January unemployment rate (calculated from the household survey of employment) was 4.7%, the lowest rate since July 2001.

- Approximately 1.2 million persons age 16 and over had evacuated from where they were living in August due to Hurricane Katrina. About 600,000 of the evacuees had returned home. Of all evacuees identified, 56.8 percent were in the labor force in January. The employment-population ratio for these evacuees was 48.4 percent. The unemployment rate for persons identified as evacuees was 14.7 percent; it was much higher for evacuees who had not returned home (26.3 percent) than for those who had returned home (2.9 percent).

- The number of discouraged workers (those who would like to work but who are not currently looking because they believe no prospects are available) was 396,000 in January, down by 119,000 from a year earlier.

Posted by Jeff Cornwall at 06:00 AM | Permalink | TrackBacks (1)

I am not so much of a conspiracy theorist to assume an intent (nor do I think politicians are smart enough to think this far ahead), but the withholding system for income tax has had an interesting psychological impact on many Americans. They don't really pay that much attention to the taxes being taken away from them. This has become even more true now that we have electronic deposits.

But once someone becomes an entrepreneur, this all changes. Quarterly taxes become a common event for many business owners. Most entrepreneurs choose some form of pass through entity for their business, such as S-Corp, LLC or Partnership, so any profit on the business becomes their personal obligation. While this saves double taxation on profits, it also creates the need for careful tax planning. Four times a year, many of these entrepreneurs have to write a check for their taxes. And boy does that wake you up!

Also, if the entrepreneur now understands the true cost of social security. That part of the social security tax that the employer "pays" (which is not really true as that money would be available to the employee without that tax), or so-called employer match, now becomes the responsibility of the entrepreneur.

Many new entrepreneurs do not plan well enough for all of this (as this article from the Bradenton Herald points out).

This is an important reason to understand your financial statements. You do not pay taxes on the cash you have left at the end of the quarter, but rather on the income you earn. Why the difference? One of the most common example of an entry that reduces cash, but not income, is the principle portion of a loan payment. Paying off principle on a loan is a Balance Sheet issue and does nothing to your Net Income. You still owe tax on the money you use to pay down the balance on your loan.

Here is an easy rule of thumb. When your business begins to grow and has positive cash flow, set aside 40% of the cash profits every month for the taxes you will owe. Keep them in an account where you know they will be there when your taxes are due. Set aside 40% to help build up the cash reserves in your business. Use the final 20% to pay down debt.

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

Pelle at Stake Ventures posted a comment at my site and has a post at his site about my recent post on revenue forecasting.

Here is part of what he posted at his site:

The article makes the classic mistake of thinking all start-ups follow the same industrial kind of model with VC's and business plans etc. I think it is not at all relevant to web based start-ups. Where this is probably relevant are the kind of start-ups where you do need a huge upfront investment.

As all internet start-ups and sooner or later realize these revenue forecasts that you do are nothing more than a waste of time.

Here is my response:

First, you have assumed that I am talking about business plans for the outside world. In that case, you and Guy [Kawasaki] are probably right, as investors and bankers are probably not going to believe your numbers anyway. A VC friend likes to tell folks that he has one person on his staff whose only job is to rip apart the numbers in a plan that they like and reconstruct them with their own assumptions.

However, I am talking much more about planning for the entrepreneur than a plan for the investor.

By spending the time to develop forecasts that tie into the marketing plan, at the very minimum you have now identify the key assumptions that are tied to the big unknowns that create uncertainty in your forecasts.

You now know what you need to track carefully as your business grows. The assumptions become not only what you use to forecast, but become the barometers you use to assess where your new business is really going and why.

This way your forecasts, just like your plan, becomes a fluid and evolves as you learn, as your business grows, and as things change. You imply that I view a forecast as some sort of a contract. Nothing could be further from the truth. I want you to adjust your forecast with each month of experience, with each mistake you make, and with every brilliant decision you make along the way.

When you look at your plan and see how different your business actually looks after you've operated a year than it did in the original plan does not mean you should never plan. It means that your plan and your forecasts are a starting point based on the knowledge you have now and that you have learned and used that learning to get better.

When we fail to forecast we are simply setting ourselves up for a game of blind man's bluff. That is too expensive a game and too risky for me.

I like Pelle's site and plan to visit it more often. Great post and a fun discussion!

Posted by Jeff Cornwall at 02:26 PM | Permalink | TrackBacks (1)

While the two sides of the aisle seemed to come down in a typical partisan manner on the President's State of the Union, here are a couple of my reactions:

Health Care

We are trying to put band aides on a patient who is bleeding to death. While the proposals made by the President are the best band aides currently being offered, they are just short term fixes to a chronic and possibly fatal problem. The government has gotten too enmeshed in health care since World War II and now we are paying the price -- and it is a steep price, indeed.

Tax Cuts

I am tempted to use the same band aide metaphor here, as well. But I'll be less subtle. The current tax code is beyond repair, has led to corruption in all levels of government, and may be the one thing that could kill the new entrepreneurial economic era we have begun to enter into over the past couple of decades. We need Roundup to kill it, not a little pruning to trim it back since that will only make it grow bigger and stronger. (Is that a better metaphor here than the band aide?)

Energy Policy

Again, it is the federal government that has institutionalized the current energy dependence that we suffer from. Don't blame the American citizens! It has been decades of duplicity between the automotive, the oil and the road construction industries that have locked us in and stifiled any innovation from the market.

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

NFIB President and CEO Jack Faris likes much of what he heard related to small business in President Bush's State of the Union address, particularly his proposals for affordable health care, permanent tax relief and energy policy.

Health Care

"Small-business owners know firsthand the struggle to provide affordable health care. That's why NFIB members strongly support health savings accounts and will vigorously support the president's effort to expand their use. Many small-business owners already utilize these accounts to provide affordable and effective coverage for their employees, who disproportionately fall among the uninsured. The president's continued support for Small-Business Health Plans...will also help remedy the unequal playing field small businesses face in the health care market."

Tax Cuts

"The pro-small-business tax cuts of 2001 and 2003 put money back into the hands of small-business owners to hire new employees, and also directly into the economy as owners have purchased new equipment and grown their businesses. That's why the president's call to make this tax relief permanent and prevent large tax increases on all taxpayers is so important."

Energy Policy

"Small business welcomes the president's proposal for increased energy independence. Small-business owners, like all Americans, pay the price of increased energy costs. These costs directly impact small businesses efforts to expand and hire new employees...."

Posted by Jeff Cornwall at 12:55 PM | Permalink

From the NFIB:

This spring the U.S. Supreme Court will hear arguments in a case that may limit employers' abilities to discourage discrimination in the workplace. At issue is whether employees must first take a discrimination complaint through an employer’s internal discrimination policy, or if instead an employee can take an allegation directly to court.

By now most employers, including small businesses, have set up internal processes to deal with employee complaints and grievances. Entrepreneurs have learned that without internal protocol to deal with such issues, they can be open to serious employment law problems.

Even fifteen years ago we had such policies set up in our business, and they generally worked quite well. We were well trained by our attorney to make such processes legitimate and fair to employees.

"In prior decisions, the Supreme Court has created 'safe harbors' from discrimination complaints for employers who do the right thing by establishing and utilizing internal policies designed to prevent supervisors from violating employees' civil rights," said Karen Harned, executive director of NFIB's Legal Foundation. "If employees can circumvent internal procedures and take a discrimination complaint directly to court, the incentives for employers to resolve complaints are eliminated."

This case threatens to take complaints and grievances out any internal reviews within businesses and take them right to court. Under the current system, there is always the option for outside review if the employee is not satisfied with the outcome or the process. But, we found that we were able to address the vast majority of issues internally. If this case goes against employers, it will clog the courts even more than they already are and drastically increase the costs to small businesses.

The current case is known as Burlington Northern & Santa Fe Railway Co., v. Sheila White.

Posted by Jeff Cornwall at 08:11 AM | Permalink