The Entrepreneurial Mind

This post comes to you from Palo Alto, California, where I am attending a forum on the future of small business.

I got to my room and started to look at today's USA Today, which had a special section on small business. I was pleased to see that the main stream media is starting to get entrepreneurship right. The special section seemed to have a good overview of what it takes to be an entrepreneur. This was nice to read, as the media still doesn't seem to always "get" entrepreneurship.

They highlight that entrepreneurs are after more than just money. This is a big leap, as the media seems to still be fixated on those who make the biggest fortune. They also seem to get risk-taking: "would-be entrepreneurs are calculated risk takers." Also good to read, as they too often glamorize the extreme, and often careless risk-takers.

But, then I see that while they admit that "a college degree doesn't hurt," they go on to say that Bill Gate didn't finish college. Blah, Blah, Blah. The data shows that he is the exception. Success rates go up dramatically for those who get educated in the entrepreneurial process. At this point I am beginning to worry that they are going back to their old ways.

Then they make a slip as bad as Mel Gibson's. They run one of those hokey quizzes that has "ten questions" to see if you are "an entrepreneur." YIKES! Just when I thought they were beginning to get it right.....

I guess that is why I keep blogging.....

Posted by Jeff Cornwall at 08:18 PM | Permalink | Comments (5)

Inc.com is running a contest to find the "Best Lemonade Stand in America." There are lots of profiles of these budding entrepreneurs that highlight their passion and their ingenuity. I think I should forward these winners to our admissions department.....

Posted by Jeff Cornwall at 07:54 AM | Permalink

For a long time everyone seemed to ignore the self-employed: those who work for themselves and have no employees. We all seemed to view self-employment as a temporary state. They were the consultants who were between "real" jobs.

A recent census report shows that these folks now number 19.5 million people!

Among the fastest-growing: building finishing contractors (22.5 percent), Internet service providers (18.7 percent), nail salons (14.7 percent), electronic shopping and mail-order houses -- including Internet-based consumer trade (12.7 percent), lessors of real estate (9.7 percent), formal wear and costume rental stores (8 percent) and motorcycle dealers (7.4 percent).

It is time to recognize this group for who they are: a major part of this entrepreneurial economy. More of the self-employed with no employees are deliberately choosing this as their permanent work.

Posted by Jeff Cornwall at 07:44 AM | Permalink

The horse trading that has become standard in Washington resulted in something that each party can use to rally their base this fall. The Republicans got an estate tax break and the Democrats got a minimum wage hike. From the Washington Post:

The House, at about 1:30 a.m. yesterday, voted 230 to 180 to raise the minimum wage to $7.25 an hour, from the $5.15 rate on the books since 1997. The bill also would exempt from taxation all estates worth as much as $5 million -- or $10 million for a married couple -- and apply a 15 percent tax rate to inheritances above that threshold and as much as $25 million. For estates exceeding $25 million in value, the tax rate would be 30 percent.

We are in a transitionary period in our economy the likes of which we have not experienced in over a hundred years. Our economy is becoming more and more dependent on entrepreneurs for growth. And yet, our politicians keep dancing the same dance that they have since the beginning of the big government era that started in the middle of the last century. This is no longer a time to horse trade between unions and corporate America. If we don't wake up, we face economic atrophy that will assure that the US will be a second rate economic power within the next 20 - 30 years, if not sooner.

Our agenda needs to shift to one that will get government out of the way of our entrepreneurial economy. Instead our politicians are rearranging the chairs on the deck of the Titanic...

Posted by Jeff Cornwall at 07:27 AM | Permalink | TrackBacks (3)

I was going through the press clippings that my Dad sends me via snail-mail every few days (now you know where I get my Luddite tendencies from) and came an article that highlights a business not far from where I grew up in Wisconsin.

Badger Mining, a family owned business, was named the best place to work in the US by the Society for Human Resource Management. Badger Mining, headquartered in Berlin (pronounced BER-lin since WWII), manufactures aggregates out of silica, limestone, etc.

Here is their mission statement:

Our mission is to become the quality leader in the industrial minerals industry with a team of people committed to excellence and a passion for satisfying our customers. We will allocate all our resources by having self-directed work teams identify, evaluate, and develop our most profitable opportunities, with controlled growth and the highest quality standards. We are committed to environmental responsibility, safety, health, and integrity while providing a rewarding and enjoyable place to work.

They have been able to develop a very profitable business that has been around for twenty-seven years, while treating their employees and other stakeholders with respect:

- They were lauded in the award for their open communications, which includes communication from dissenting points of view. Employees said they felt free to discuss any decision with the person who made that decision no matter what position they hold in the business.

- Flexible work hours allow employees, or associates as they are known at Badger Mining, to attend family events.

- They have an "impeccable safety record" that got them an additional award from the U.S. Department of Labor's Mine Safety and Health Administration (MSHA) and the Industrial Minerals Association - North America

- They share 20% of profits with those who generate their profits, their employees, every quarter.

- They offer full insurance for the entire family, and if your family waives their coverage, you get the cash -- $8,000.

- They offer four $5,000 college scholarships, one to a student located in each of their four operating locations.

- Badger has been recognized for their land stewardship and conservation efforts.

This is a small business that has put their values into practice in how they run their business. They clearly manage their operations with integrity.

Posted by Jeff Cornwall at 12:35 PM | Permalink | Comments (1)

The NFIB just released findings from its second poll related to small business and banking. I wrote a post on the first poll last week. This new poll finds that American bankers are stepping up their competition for small-business accounts.

First, a note of caution to all you hungry young commercial loan officers out there. Entrepreneurs don't like to change banks. It is disruptive and a hassle, and can be expensive if there are loans involved. Only one in 10 small-business owners have switched principal banks in the last three years, according to this survey.

But, bankers don't give up easily. To progress through the ranks of Vice Presidents of "this" and "that," they have to expand their portfolios. Slightly more than 40 percent of the owners surveyed said they have seen an increase in banks courting their business. Nearly three-fourths of those owners cited a noticeable increase in mail solicitations and advertising and an almost similar share were aware of the appearance of more places to bank. Nearly two-thirds of those with fewer than 10 employees got phone calls from bank telemarketers, 65 percent were made aware of financial products and services targeted to their sector and 57 percent reported in-person contacts.

Sometimes it is the entrepreneur who goes shopping for a new bank. My experience is that it is usually when we are unhappy with an answer we just got on a loan request. The NFIB survey found that twenty-one percent of small business owners shopped for a new principal financial institution in the past three years. But, entrepreneurs need to remember that all bankers basically think the same way. Of those entrepreneurs who went shopping, only one-third actually switched.

Incredibly, 5 percent of small business owners said there were too few alternatives to attract their business. Those folks really need to get out more. The old saying "There is a bank on every corner" needs to be modified a bit. It seems that now there is a bank on every corner and a half a dozen in between each of them.

Among those who did find a new principal bank, service and credit issues were the key motivators driving them. Sixty-four percent changed to obtain better service quality; 47 percent pointed to the number and type of services available elsewhere. Half noted the expectation that they could more easily satisfy their credit needs at a new bank and slightly more, 53 percent, said they believed the new institution being considered would give them better loan terms and rates.

In the past, owners have expressed consternation about the considerable merger and acquisition activity in the banking industry, but less than one-fourth of those who switched banks cited that as a reason for the change. While a merger may not directly motivate someone to change banks, the outcomes of mergers can be the issues they do cite as reasons for changing. Service can get worse, loan officer turnover increases, and terms can get tighter as banks get bigger and more bureaucratic in their practices.

Slightly more than 41 percent said they use a small bank, one with assets of $1 billion or less, while the share reporting banking at very large institutions -- those with more than $10 billion in assets -- was just a few points less, 38 percent. Only 15 percent had their accounts handled by very small banks holding less than $100 million in assets. Nearly half, 47 percent, said they still use only one financial institution exclusively. These results are a bit surprising, as the common wisdom is that smaller community banks work better with small businesses.

Posted by Jeff Cornwall at 12:50 PM | Permalink | TrackBacks (1)

U.S. venture capital investing reached its highest point in 4 1/2 years with $6.73 billion directed to 619 deals, according to the Quarterly Venture Capital Report released by Ernst & Young LLP and VentureOne. Overall deal count increased 3% from the second quarter of 2005, and the capital was 5% higher than a year ago, representing the most venture capital invested in a single quarter since the fourth quarter of 2001. Health care led the way in these investments.

Two things to keep in mind. First, this is very good news as venture capital investment tends to be a leading economic indicator. VCs see better days ahead, even if we are in a soft economic period in the short-run.

Second, these new ventures represent only a small sliver of business start-up activities in the US. Using recent data, we can estimate that there are over 1,600 new business with employees created every day. The tendency is to only focus on the deals with the big money behind them. While they matter, they are about 0.4% of business start-ups with employees; a point reinforced by Glenn Reynolds (of Instapundit) the other day at TCS Daily:

It seems to me that while big enterprises will always be with us, we're going to see a much more vibrant small-business (and even micro-business) sector over the next decade or so. I also suspect that neither the culture, nor the people who purport to measure and manage the economy, are really up to understanding the impact of this trend.

Posted by Jeff Cornwall at 10:51 AM | Permalink | Comments (1)

The Ohio Supreme Court took a bite out of Kelo in a decision today that will restrict the use of eminent domain for development purposes in the state of Ohio. In an unanimous decision, the Ohio Supreme Court ruled today that economic development may not be the sole reason for the government to seize private property for eminent domain purposes.

In addition to the court's finding that economic development by itself is not a public use that justifies the government to use its eminent domain powers, the court also determined that Ohio courts must apply "heightened scrutiny" when reviewing eminent domain statutes. The unanimous opinion continued to find that the use of the "deteriorating area" standard is unconstitutional "because the term inherently incorporates speculation as to the future condition of the property...rather than the condition of the property at the time of the taking."

(Source: NFIB)

Posted by Jeff Cornwall at 10:43 AM | Permalink

Carnival of the Capitalists is at Names@Work this week.

Posted by Jeff Cornwall at 08:52 AM | Permalink

There is a growing chorus arguing that the best way to deal with illegal immigration is to take away the incentives for illegal immigrants to enter the US. Specifically this includes social services and employment opportunities.

This week ICE (U.S. Immigration and Customs Enforcement) came down hard on three employers.

"ICE is taking an increasingly tough stance against egregious corporate violators that knowingly employ illegal aliens," says ICE Assistant Secretary Julie L. Myers. "Bringing criminal charges against these unscrupulous employers and targeting their ill-gotten gains is a tactic we are adopting nationwide. This is a wholesale departure from the past system of sanctioning corporate violators with minor fines, which were rarely paid in a timely manner or at all."

So who were these immigration king pins that ICE brought to justice? Some large corporate meat processor? A mega corporate farming operation? Was it the large employers in New York City who Mayor Bloomberg said would go out of business without illegal immigrants? Guess again.

They were three small businesses. In Arkansas it was a small construction framing business. In Kentucky it was a franchise owner of a few hotels in the small town of London, Kentucky. And in Ohio, it was the owner of Bee's Buffet in Fairfield, Ohio.

A former official of ICE being interviewed on Fox News this morning speculated that small businesses were targeted because they were cheaper and easier to go after. To make a public relations bust to show our citizens that the government was finally cracking down on illegal immigration, ICE busted a few motel maids, carpenters, kitchen workers, and the small business owners who employed them.

I agree with enforcement of our immigration laws. But why focus on a few small employers to grand stand for the media? That will do nothing to quell the illegal immigration crisis.

Posted by Jeff Cornwall at 06:15 AM | Permalink

HCA, headquartered here in Nashville, may be going private in an announcement expected today (according to Reuters and other media sources). There have been rumors of this for weeks. HCA owns hospitals and other healthcare businesses throughout much of the US and operates several facilities Great Britain.

Participating in the highly leveraged private equity buyout is some members of the Frist family (Dr. Thomas Frist, Sr. co-founded HCA with Jack C. Massey, benefactor of Belmont's Graduate School of Business).

Leveraged buyouts are an interesting case study, and this one will likely be no different. The usual short-term outcome is finding ways to streamline assets to only the most profitable, and seeking other cost-cutting measures. More money has been amassing in firms specializing in leveraged buyouts as other investment options have become less lucrative.

Posted by Jeff Cornwall at 06:19 AM | Permalink | Comments (2)

Do you find yourself suddenly unemployed? Are you so tired of your cubicle that it is time to move on before you lose your mind? Did a once in a life-time opportunity to launch a start-up just get plopped in your lap? Not all entrepreneurs end up as entrepreneurs as part of some grand plan or life-long dream. It may just be the events of everyday life that put you in that position.

Information Week recently ran a profile of several "accidental" entrepreneurs who started their businesses after life dealt them a twist, as it often does. They looked to their personal interests, their techie hobbies, to find new paths for their careers.

Posted by Jeff Cornwall at 08:25 AM | Permalink | Comments (7)

I used to get teased by my managers, bankers, lawyers, and CPAs about how long I would drag my feet on new technologies. They complained that we were among the last businesses to buy a fax machine (OK, I am dating myself a bit here) and PC work stations. Everybody else had voice mail and e-mail long before we did, so they claimed. But a new study released by the NFIB shows I am not alone in my conservative approach to new technology (access the report via this page at NFIB's site).

Bank web sites with lots of bells and whistles may appeal to some, but they are just window-dressing as far as the nation's small-business owners are concerned. Only half do any Internet banking, according to a NFIB National Small-Business Poll. The study found that over the past three years, slightly more than half--54 percent--found technology at their principal bank increasingly helpful. But more than one-third asserted that technology had no impact on them at all, and 11 percent complained that technology is getting in the way. Now those are my kind of people!

So what matters most to small business owners? A convenient location is the most important bank characteristic for conducting their firm's banking business (62%), followed by a bank whose personnel know the owner and the business (57%), and a reliable source of credit (57%). Who needs fancy technology when you have a banker nearby who knows you and your business and is ready to loan you money when you need it?

One of the biggest complaints small-business owners lodge against banks is staff turnover. Only half of those surveyed have been served by the same account manager over the past three years. Twenty percent said they had two, 13 percent had three, and 7 percent report having no manager at all to help them. This is not a new problem. It really accelerated back when banks were deregulated in the 1980s. You would think banks would have solved this problem by now.

The NFIB survey found that small-business owners are generally happy with their banks and they are slowly moving toward electronic banking that will bring greater efficiencies and lower relative costs over the longer term. The key word here is slowly. We eventually got that fax machine, but not until the prices came down and I was convinced that it would actually help our business perform better.

Maybe we are not really Luddites. We are just prudent when it comes to our money.

Posted by Jeff Cornwall at 07:37 AM | Permalink | Comments (2)

What do farmers do? They farm. What do designers do? They design. What do managers do? They manage. What do entrepreneurs do? Well, they.....

Those who start and build businesses engage in a career that has no simple verb to describe what we do. Entrepreneur is a noun. Entrepreneurship is a noun. Entrepreneurism, a newer form of the term, is a noun. Entrepreneurial is an adjective. But, as you remember from 8th grade, adjectives simply describe nouns.

Entrepreneur comes from an Old French word (a fact that I still find hard to accept) entreprendre, which means to undertake. So it started as a verb, but now is a noun. As a side note, I am glad we did not take the literal translation of the French term to refer to those who start businesses. Otherwise all of us who are entrepreneurs would be known as undertakers instead.

So why is Professor Cornwall going into a long, and rather seemingly trivial diatribe? Am I finally becoming the doddering old academic we see mumbling to himself, shuffling across campus?

I assure you there is a point to all of this.

I have been watching the crusty old journalist (another profession that is not a verb), Dan Rather, go ungraciously and rather defiantly off into the sunset of his life. His career as a journalist is clearly behind him, but he won't give it up. And then it came to me. His understanding of who he is is defined only by what he does for a living. He defines who he is as a person by the career he has pursued. Without his career he has very little else. Without it he is lost as he has nothing else in his life that has any real meaning.

We have seen others fail at retirement. Lee Iacocca could not stay retired as a corporate executive (noun). Magic Johnson and Michael Jordan could not stay retired as athletes (noun). For all of them, what they did for their work defined who they were as people.

Careers can do this to us. If we are not careful, they can consume all that we are. And what gets lost? Our families, our friendships, and even our souls.

If we are to become all that we were put on this Earth to do, we have to temper the temptation to become consumed by our work. We need to resist becoming the noun of what we do for a living.

Work hard at being a spouse. Work hard at being a parent. Work hard at worshiping God. Work hard at being a friend. Work hard at being a good citizen in your community. And yes, work hard at your vocation. None of these alone can fulfill our humanness.

One of the risks of using nouns to describe what we do in our work is that it can reinforce the tendency we all have to get carried away with our work. I loved starting a growing businesses (most of the time, at least). I love teaching and writing. It is indeed a blessing to love what one does for a living and joy the hard work that goes along with it. But, with every virtue there is a vice looming in the background. Although hard work is a good thing, it can be taken to excess and become a vice if it keeps us from all the other things we should be doing with our lives.

American society does not make this any easier. I am reminded of the lyric from a jazz record from the 1980s that said, "Everything in moderation, and moderation is the first to go." We have become a culture of excess.

This is particularly true for the entrepreneur. We seem to create folk heroes out of entrepreneurs who expend Herculean efforts to achieve success in their businesses. And while this is good to a point, if entrepreneurial success comes at the expense of our marriage, our families, our faith, and our friendships, it is a hollow victory. If all we have at the end of our lives is our wealth, if that is all we leave behind, that is not a life well lived. As the old saying goes, "you never see a hearse with a luggage rack."

So here is what I am going to commit to: I will help to find us a verb to describe what entrepreneurs do. It has to be catchy, like the term entrepreneurship, so that people will actually use it. And if they do, maybe that will be one small step toward no longer defining those who start businesses only in terms of that activity. We can be, and should be, so much more.

Posted by Jeff Cornwall at 06:49 PM | Permalink | Comments (6)

The Tennessean has a profile of Alison Brown, who traded a career as an investment banker for one as a bluegrass music entrepreneur.

"I worked with the kind of people who just wake up in the morning thinking about structures for bond refundings," said Brown, a Harvard University alumna and UCLA business school grad. "I'd wake up and think about when I was going to get to play the banjo again. And the two things were just mutually exclusive."

Rather than take the traditional path of trying to make it with one of the big labels in town, she decided to make her own path.

"If you have the money and the clout of a major label, you're in a better position to shove things down people's throats," she said, speaking as someone who had worked briefly at a major pop label. "Our approach is to find art that we think is great and then try to draw people to it."

This niche approach to the industry is gaining traction. She is one of many who are quietly changing the music industry right under the feet of the big three companies that now dominate.

Posted by Jeff Cornwall at 07:59 AM | Permalink

I must admit that I am one of the few people who have never been to MySpace or FaceBook. I have nothing against such sites. It just must be the Luddite in me that keeps me from wanting to try anything new.

StartupJournal has a story about how social-network sites are proving to be a great place to engage in very targeted marketing. And it is free...at least for now.

For start-ups on a shoe-string budget, the opportunity to gain widespread exposure at no cost may seem too good to be true. But networking sites like MySpace, purchased by News Corp. last year, allow groups -- including businesses -- to create online communities for free. As a result, new ventures eager to establish an initial customer base can benefit by creating a network on MySpace and inviting "friends."

Time to update my bootstrapping lecture for this fall!

Posted by Jeff Cornwall at 07:35 AM | Permalink | Comments (1)

AnyLetter hosts Carnival of the Capitalists this week.

Posted by Jeff Cornwall at 07:16 AM | Permalink

Inc. magazine has picked their top 30 entrepreneurs under 30. See them here (or you can go right to the slide show about these amazing young people here). Quite a group!!

(Thanks to Jim Greene, a proud new dad, for passing this along).

Posted by Jeff Cornwall at 01:50 PM | Permalink

Red Herring is sponsoring a Summit of over 300 delegates who will come together in Hong Kong August 28-30, 2006 to "discover an exceptional array of entrepreneurs and leading experts from the best technology firms in Asia. Themed 'Meet Asia's Innovators', Red Herring Asia 2006 will present the winners of the Red Herring 100 Asia award." You can get more information here.

Posted by Jeff Cornwall at 10:14 AM | Permalink

The Wall Street Journal has an amusing story about how Baby Boomer VCs are trying to get hip and relate to twenty year old hot shot entrepreneurs.

Forty-year-old and 50-year-old venture capitalists -- often more accustomed to private jets and second homes than to hanging out with kids in bars -- are now heading to beer-soaked parties to meet 20-year-old techies. One investment firm invited entrepreneurs to a hip-hop concert. Another venture capitalist, sensing a networking opportunity, is organizing a bowling team to compete in a new league formed by young startup executives.

Other investors are taking notes at industry tech conferences where panels of teenagers discuss their favorite video-Web sites and cellphone games. Last year, Shasta Ventures of Menlo Park, Calif., commissioned its own research to survey middle schoolers about their personal Internet use. The results, which highlighted the heavy teen use of "social networking" and blogging sites like MySpace.com and Xanga.com, were "very revealing," says Tod Francis, a 46-year old Shasta partner.

My advice as someone who makes a living working with twenty-something entrepreneurs? Be yourselves! Remember, you are about the same age as their parents in many cases. The more you try to act like them, the more they will roll their eyes and laugh at you when you walk away.

(Thanks to Andy Tabar, one of Belmont's own young techie entrepreneurs, for passing this along).

Posted by Jeff Cornwall at 10:00 AM | Permalink | Comments (2)

There is an interesting policy issue as it relates to immigration that will likely get lost the current emotional debates about illegal immigration.

It is a fact that immigrants are a major source of new businesses in any entrepreneurial age. We saw evidence of this during last big entrepreneurial explosion in the US during the late 1800s (no, class, I did not witness this first-hand). We see evidence of the same thing today in this new entrepreneurial economic age we are now experiencing. From Hispanic Business:

Historically, entrepreneurship in the USA has been highest among immigrants launching grocery stores, construction companies and other businesses serving their communities.

For example, the number of Hispanic-owned firms -- many started by Mexican immigrants whether here legally or illegally -- soared to 1.6 million from 1997 to 2002, the Census Bureau said this spring. That 31% jump was three times the growth of all firms.

"This is a country of immigrants," Minniti says. "They replenish the core of the population that is more likely to generate businesses." Immigrants tend to be younger and have more children, creating generations of future entrepreneurs.

All true. But, that does not remove our obligation to develop a process for immigration that will allow for the smooth flow of new people into this country through an organized and controlled process. Yes, I want to encourage entrepreneurs of all nationalities to come to this country. We need them. We are in an entrepreneurial age in this economy and their energy and drive will help make this a better country. But, those facts cannot be an excuse or be used as a smoke screen for the disorderly and uncontrolled immigration process we now face.

Allow in the immigrants who want to work and can help build this country. We also need to find a better and more systematic way to bring in those who want to come here to be entrepreneurs. The current immigration laws are outdated and do not reflect our need for more new entrepreneurs in the US.

We need to do more than control illegal immigration. We must acknowledge that It is, at least in part, a symptom of an unbalanced supply and demand of human capital in our economy. We need more workers and we need more entrepreneurs. To solve the current problems we face, pull the current immigration system out by the roots. We need both to develop a new set of immigration policies and processes that reflect our new economic age, while at the same time improve the security of this great nation in an age of terrorism.

Politicians seem to have set this whole thing up as an either/or proposition, which it is not. We need to enhance the flow of legal immigration and protect our national security and preserve the rule of law.

(Thanks to John Russell for suggested a discussion of this issue).

Posted by Jeff Cornwall at 09:11 AM | Permalink | Comments (1)

One key aspect of effective marketing for entrepreneurs is to learn how their customers think. By learning how to "think like your customer" you have a better chance of developing accurate revenue forecasts and more effective marketing plans. Every good bootstrapper has mastered the art of getting into their customers' heads and using this knowledge to get the most bang for their precious marketing dollars.

But, an article at StartupJournal reminds us of another important lesson. What customers say is not always reflective of what they really believe and how they will actually behave. Customers may say things to us that are based on what they think is socially acceptable and politically correct. But, they do not always act on what they say.

In the StartupJournal piece we find out that all of the talk by consumers about being environmentally sensitive and aware does not always lead to a decision to buy.

Running an environmentally friendly business can be a good way to distinguish yourself from competition in your area and create a niche, and that's especially true with today's growing concern about global warming. But be careful of assuming that just because you're "green," consumers will naturally be willing to throw more greenbacks your direction.

After all, look at how many failed attempts McDonald's has had when trying to react to the stated preference from consumers for healthier foods. Time after time, even though they offer "healthy choices," we go back to our Big Macs and fries -- albeit maybe with a Diet Coke. We say we want healthy food, but when we pull up to the drive-thru what we really order is what tastes really good at a reasonable cost. And what still tastes best to us is fried and fatty.

If you want to have a "green" business or offer healthier foods, do so because you think it is the right thing to do, and not because you think it is trendy and will increase your profits. Equating ethics and social responsibility with better business performance misses the point and rarely holds true over the long term. We should never do what we think to be the right thing because we get some reward (at least not some earth reward). We should do the right thing simply because it is the right thing to do. And know that you will still need to compete on what customers really look for: value, convenience, service, quality, special features, and so forth.

Posted by Jeff Cornwall at 05:34 AM | Permalink | Comments (7) | TrackBacks (1)

In a new survey from NFIB just released this morning, small businesses have expressed their pessimism over where the economy is headed. Since they now generate 50% of the GDP, their concerns deserve our attention.

Small business owners' plans to create jobs and plans to spend on capital have significantly declined. While this is prudent for their long-term survival, as it protects their cash position in a possible economic downturn or recession, it will hurt economic growth in the short run. Small business has been the job creation engine and has been particularly strong in capital spending over the past few years of the current (or should I say, most recent) expansion.

It is clear this is a proactive move on the part of small business owners to slow commitments to new jobs and new equipment, as they are reporting that their profits are still strong. Although there are positive signs that this will not be a very long down turn, at least for now small business is seeing the glass half empty.

Posted by Jeff Cornwall at 05:31 AM | Permalink | Comments (6)

Carnival of the Capitalists can be viewed at Fat Pitch Financials.

Posted by Jeff Cornwall at 03:19 PM | Permalink

Its funny how things converge once in a while. I was thinking about the economist Schumpeter on our morning walk this morning. (Sorry honey...I promise it was in one of those quiet moments between our conversations during our walk). Schumpeter is credited as being the first economist who captured the power and process of entrepreneurship in the economy. He coined the phrase creative destruction to describe what entrepreneurs do. It is the process of innovation, which is what fuels long-term economic growth. As we come up with new ideas, old products and services become obsolete and fall by the wayside.

I was thinking that it was like the ill-fated policy we had in the US to prevent any and all forest fires at all costs. We've now learned that the seeming destruction caused by forest fires is actually vital in keeping the forest healthy over the long term. By fighting the fires, thinking we were helping preserve the forests, we were actually hurting the forests ability to continuously regenerate itself. The forest fires were the process of creative destruction for the forests!

I was thinking about how the power structure that has been created by large public corporations and the government over the past decades fights natural economic progress and change. Through their power, corporations attempt to institutionalize what they make and protect it through legislation. It is like the fire fighters thinking that preserving what is right now is actually best for the economy. It is not.

If you think about it, that is a big part of the reason that we continue with gasoline powered transportation even though we know it can't last and hope and pray that we can get out of our dependence. But the industries tied to gasoline-based transportation, and the government that has become their partners, do what ever they can to fight off the natural process of creative destruction that should be moving our economy to its next stage of development.

Anyway, I get home this morning and there in the inbox of my e-mails is link from one of my favorite local blog visitors, Ben Cunningham, to a post that has a quote from George Gilder. Now George Gilder is one of my favorite modern day writers. He tends to spend most of his time writing about technology, but often wanders into broader issues. For example, one of my all time favorite essays, The Soul of Silicon, is an article that he wrote based on a talk he gave at the Vatican. It was in the no longer published magazine Forbes ASAP (creative destruction at work -- ASAP died with the death of the dot.coms). I recommend you read it several times. There is so much going on in this article that you will not capture it all in one read.

So here is the quote from Gilder that Ben sent to me this morning:

As entrepreneurs accelerate the processes of creative destruction that impel all economic advance, the economists measure the destruction but not the creativity.... So countries that multiply the production of well-defined and well-catalogued products of the past -- from subsidized steel ingots to protected automobiles -- will seem to grow faster than countries that multiply entrepreneurs and innovations.

Now this is getting really odd. The quote from Gilder, one of my all time favorites writers, sent to me by one of my favorite local blog visitors, quotes my favorite economist, Schumpeter, in relation to something I had just been thinking about on my walk with my favorite person. As governments amass too much power they seem to fight the creative destruction process vital to sustain an entrepreneurial economy. Over-regulation hampers and can even destroy the natural process of creative destruction. The politicians are like the fire fighters preventing the natural economic burn-off needed to keep our economy moving forward and evolving as it has to do to stay strong.

I told you that it is strange how things like this all come together sometimes....

Posted by Jeff Cornwall at 08:18 AM | Permalink | Comments (5)

Next Tuesday the Vermont Supreme Court will hear oral arguments for a case that will determine the fate of independent contractors in Vermont, who in the present case are individuals that knit patterns for a local apparel firm, Fleece on Earth.

The Federal rules governing who can be considered an independent contractor have gotten much more stringent. In the 1980s, the IRS tended to give employers the benefit of the doubt in determining independent contractor status. If you met enough of the criteria, they tended to leave the employer along. But, those rules have gotten much tighter over the past twenty years. Now any waiver from their criteria and you run the risk of the wrath of the IRS, including assessing past FICA tax employer matches and federal unemployment taxes on all disallowed employees (and penalties, and interest).

According to the IRS:

A general rule is that you, the [employer], have the right to control or direct only the result of the work done by an independent contractor, and not the means and methods of accomplishing the result.

Courts generally rule on independent contractor status using a variety of specific factors including (from LegalZoom):

- If the worker supplies his or her own equipment, materials and tools

- If all necessary materials are not supplied by the employer

- If the worker can be discharged at anytime and can choose whether or not to come to work without fear of losing employment

- If the worker control the hours of employment thus indicating they are acting as an independent contractor

- Whether the work is temporary or permanent

- What is the degree of control over work and who exercises that control?

- What is each party's level of loss in the relationship?

- Who has paid for materials, supplies and/or equipment?

- What type of skill is required for work?

- Is there a degree of permanence?

- Is the worker an integral part of the business?

Bonny Dutton, owner of Fleece on Earth in North Chittenden, Vermont, contracts with individuals throughout the state to knit patterns for her shop. Many of the knitters are retirees and all work on their own schedules, use their own tools, have no deadlines and do their knitting from whatever location they choose.

Dutton considers these knitters to be independent contractors. But the Vermont Employment Security Board has declared that these individuals are Dutton's employees, and is demanding that Dutton pay back taxes and unemployment insurance for these workers. Dutton fought this ruling in court, and the National Federation of Independent Business Legal Foundation filed an amicus brief urging the Vermont Supreme Court to side with Dutton, and save the status of independent contractors in Vermont.

The Vermont law governing independent contractors establishes a three-part "ABC" test for determining whether workers are truly independent contractors or employees. The law requires, A) workers must be free from control or direction from the contractor; B) the service provided by an independent contractor must be outside the usual course of business; and C) the worker is generally engaged in some sort of independent occupation.

The Vermont State Employment Board argues that because Dutton reserves the right to accept or decline products produced by the knitters, this demonstrates control or direction by Dutton, thereby violating part "A" of the test. The knitters, most whom have never even been to Dutton's store, consider themselves to be independent workers and do not believe Dutton acts as an employer.

If this ruling goes against Dutton, it runs counter to the general guidelines defined by the IRS which clearly allows for the control of "the result of work." But its only Vermont, right? Maybe, and maybe not. All of this stuff gets decided in courts. And judges have a funny habit of changing how things work, as we have already seen how they interpret federal statutes dealing with independent contractors.

Posted by Jeff Cornwall at 07:36 AM | Permalink | Comments (3)

Kauffman's eVenturing site just posted a new collection of articles and tools related to exit planning.

Let me frame all of the excellent technical information available at this site in the context of the reality of the sale process. It is a rocky road, even at its best. When we got prepared to start the process I was lucky enough to have an attorney who gave me a strong dose of reality about how many deals fail along the way. It helped keep me grounded in what can be one of the most emotional rides of your life.

It all usually starts with a letter of inquiry. The first time you get one, the temptation is to start counting all the money you are about to get. But, hold on to your hats. This stage is about as serious as a smile and a wink at a singles bar. Any company in an acquisition mode will be spreading these around all over the place trying to get a bite. About 90% of the time these inquiries go nowhere.

If the flirtation process of the inquiry moves ahead, next will often come some sort of letter of intent. This is kind of like a promise to go steady. Both parties agree that they are seriously interested in seeing if this can move ahead. Often there is a promise of exclusivity required, but most sellers try to avoid this to keep the buyer honest and hopefully drive up the selling price with a little good old competition. More often than not, the buyer prevails in this and the seller has to promise not to entertain other offers, at least for a little while. Somewhere in this stage the basic form of the deal starts to take place. There are confidentiality agreements that allow the buyer to get enough information to float a trial offer. Remember, the deal almost never gets better for the seller past this point, so this is where you need to negotiate hard. About 50% of the deals that get to the inquiry and deal formation stage fail to make it any further. (If you are keeping score, we are now down to 5% of those initial inquiries still being active).

Next comes due diligence. This is like the stage when he or she gets to meet your parents, find out what you really keep in your sock drawer, learn what you actually make and what you spend your money on, and decide which family you are going to spend Thanksgiving with each year. The buyer will want the right to go through all of your contracts, all of your personnel records, all of your corporate minutes, and do anything else they can possible think of to dig stuff up about your business. It is an intrusive process to say the least. At this point you will likely have to share with your employees and customers that you are thinking of selling, if you haven't told them already. And the worst part is that your employees and customers may get all concerned over nothing, as about 50% of deals fail during due diligence. (We are now down to about 2.5% of the deals still being alive at this point).

Finally, if you make it through due diligence, comes the closing preparation. This is kind of like the final preparation before going to the alter, including negotiating a prenuptial agreement. Remember the old saying "the devil is in the details"? This has never been more true than in the closing process of selling a business. This is where the lawyers from both sides kick into overtime, fighting over the specific terms of the sale. Of course at this point you are ready to say, just get it over with! But, those details that your lawyer wants you to focus on and pay attention to really matter. Why? Because the deal is not really over at closing. There are hold-backs of money, warranties, and sometimes earn-outs that all can lead to major problems post sale if you are not careful during preparation of the closing documents. When your attorney says to pay attention, be patient and listen, you better pay attention, be patient and listen. If the sale of your business is not handled properly, the next stage is litigation, where all of that money you made selling the business can still be at risk. (Another large chunk of deals can fail during the closing process, leaving only about 1-2% that make if from initial inquiry to a final closing).

The moral of this tale is to be realistic, be informed, and be prepared when you enter into the exit stage of your business. And remember that while falling in love is great, it is a long way to the alter.

Posted by Jeff Cornwall at 07:16 AM | Permalink | Comments (1)

The SBA Office of Advocacy offers up lots of statistics, many of which I use frequently at this site and in my classes. They have a great summary of these statistics from 2001-2005 in their new report appropriately if not creatively titled, Frequently Asked Questions.

Commit it to memory so that the next time one of your "corporate type" friends scoffs at your "cute little business" you can let her know that businesses like yours have generated 60-80% of new jobs annually in th US over the last decade. You can even point out that, who knows, she may be coming to you looking for a job sooner than she could ever imagine.

Posted by Jeff Cornwall at 07:44 AM | Permalink | Comments (4)

Many of us have been writing about the revolution that is taking place in the entertainment industry. The dinosaurs of the industry are becoming extinct -- they just haven't realized it to this point. They are fighting back with brilliant long-term strategies like lobbying Washington for more protection and suing 16 year old high school girls for downloading.

And the little mammals, entrepreneurs of all shapes and forms, are quietly and efficiently taking over music and entertainment. Each of these entrepreneurs are finding their own little niche. And many of these niches seem to have legs -- they are not flashes in the pan like we are used to in this business, but rather seem to go on for a long time.

In his new book, The Long Tail: Why the Future of Business Is Selling Less of More, Chris Anderson argues that these entrepreneurs are ushering in a new age in entertainment. It will be much less about blockbusters and much more about profitable offerings that are targeting to a specific, and very loyal, audience. Chris Anderson writes an interesting blog called The Long Tail.

The New Yorker offers a review of Anderson's book, which I plan to read over my break between our summer and fall sessions.

(via the Economist's View)

Posted by Jeff Cornwall at 07:20 AM | Permalink