The Entrepreneurial Mind

I have had some interesting discussions with a entrepreneurs the last few days about what I call "business plan paralysis." Never make the mistake of being a slave to what you have written in your business plan. Just because you present a specific business model in your plan, it is no guarantee that it will actually look anything like what you thought it would once it gets going. You may need to adjust your features or services, change your pricing, change your distribution strategies, alter your staffing plans, widen or narrow your target market, or even make significant changes to your product or service. While the plan may give you a path to launch your business, the market will tell you how to proceed from there.

Successful entrepreneurs are not necessarily that good at crafting the initial business plan. What they are good at is listening to the market and listening to their customers. They will tell you what your business should really look like if you'll just listen.

Don't be arrogant and stubborn about your vision. Let it evolve and develop according to the feedback you get from the market.

Don't assume that you'll look like a failure or a fool to your customers for having to adjust the direction of your business. The market will be happy that you are better meeting their needs. They will be glad you listened.

Don't worry about what investors might think about your need to adapt to market information. Keep them informed every step of the way. They will be impressed with your management skills and support you as long as what you are doing will make the business stronger. They want you to make money -- not to follow the plan as it was originally written. They expect you to listen to the market and adapt.

In most cases the original opportunity for your business came about due to changes in the market. So continue to listen to the market and it will tell you where to take your business over time.

Change is the one constant in today's economy.

Stay nimble. Stay flexible. Continue to adapt. And listen!

Posted by Jeff Cornwall at 05:30 AM | Permalink

University-based entrepreneurship education takes many forms.

Some students pursue a very traditional business education. Such is the case of Joe Pascaretta, founder and president of the Alps Lawn Company and Alps Technology International and a freshmen student at the University of Michigan, recipient of the $5,000 scholarship from the National Federation of Independent Business -- Young Entrepreneur Foundation.

Both of this 19 year old's companies are growing substantially. Pascaretta's Alps Lawn Company -- a landscaping firm that serves more than 60 residential and commercial properties -- experienced a 239 percent increase in revenue to gross more than $1 million in 2006. Pascaretta's other business, Alps Technology International -- an Internet technology firm for the Web site development market -- saw a 93 percent increase in revenue in part due to a major increase in international sales.

When deciding where he should attend college, Pascaretta chose the University of Michigan so that he could continue to run both of his businesses. He realized that financially he could have chosen to forgo college, but instead chose to pursue a degree in business while continuing to run his companies. College for him is as much building credibility as anything else.

"In today's business community, a degree is a valuable asset," said Pascaretta. "I plan to continue running both businesses through college, but after graduation I want to be able to evaluate my options and see what opportunities are out there. As an entrepreneur, I'm always looking for new innovative ways to reestablish myself in the business world."

Other colleges and universities are actively seeking students like Pascaretta. There are any number of programs being created to meet the specific needs of student entrepreneurs who want to integrate their business pursuits into their education.

For example, Grand Canyon University has gained a lot of good press for their newly announced College of Entrepreneurship. From their web site:

Established in 2006 to address the evolving needs of the 21st Century Entrepreneur, Grand Canyon University started the nation's first College of Entrepreneurship. Michael Gerber, entrepreneur, and best-selling author of "E-Myth" joins the only college of its kind -- an "Entrepreneurship school by Entrepreneurs" as the Chairman of the College of Entrepreneurship. Michael Gerber, along with an advisory board of internationally known experts, provides the core team for this dynamic learning community.

The College offers a bachelor of science degree program designed for tomorrow's business owner and promises to offer a curriculum unmatched by other entrepreneurial schools. State-of-the-art simulations, adjuncts who are "entrepreneur-teachers," and a University Entrepreneurs Fund for seed funding to select student-inspired business plans makes this program a major cut above the rest.

Belmont and other universities are also actively recruiting high school students with businesses to come and study at their schools. This past weekend I spent the day talking with many such students at one of our preview days for high school seniors. We are seeing about 40% of our incoming students arriving on campus with businesses in hand. At Champlain College, they actively advertise their "Bring Your Own Business" program to prospective students.

Universities are generally slow to respond, but there is evidence that many schools are moving quickly to bring their business education into the new entrepreneurial economy.

Posted by Jeff Cornwall at 05:32 AM | Permalink | Comments (1)

The National Venture Capital Association reports that venture capital fundraising was at its highest since 2001. So what does this mean?

First, it tells us that there is a lot of idle cash in the economy. And this cash is available in part because other forms of investment are not creating adequate returns. Institutional investors and very wealthy individuals, the most common source of venture capital funding, are no longer seeing high yields in real estate. So more of this money is flowing into venture capital funds.

Second, it tells us that venture capitalists will not be able to be as selective in their investments. Over the past few years VCs have taken much of their funding into later stage deals. Now we will likely see them invest more in earlier stage ventures, and may even see them become less selective in the industries that they are willing to look investing in.

Finally, solid high-potential companies will have a slightly stronger hand during negotiations with VCs. Simple supply and demand tells us that when demand is high (excess money in VC funds), demand will be strong (for good deals). It may now become more of a sellers' market when it comes to entrepreneurial deals being peddled to the VC "road show" market.

Posted by Jeff Cornwall at 08:33 AM | Permalink

A marketing plan is so much more than simply a list of promotional tactics to be used to sell your product. While how you plan to promote your business is important, the marketing plan should explain all of the strategies you will use to build relationships with your customers.

Marketing plans consist of what is commonly called the "4 P's": Product, Pricing, Promotion and Place (distribution). When building your marketing plan you should address how each of these will improve your chances of attracting customers to your business.

We look at product because we need the customer to tell us what they really want from us. We may have developed our own thinking about this, but what we think does not really matter. I work with many artists through my position here at Belmont -- musicians and visual artists are common in our program. I tell these artists that if they want people to pay for their art or their music that they will need to adjust their skills and gifts to meet the needs and wants of the market. But, that lesson is not just for artists. It is for all entrepreneurs. We have a notion of what we think the market wants when we open our doors, but in almost all cases the market begins to immediately give us feedback that tells us what they truly want. What they want may force us to make a minor adjustment in what we offer, or it may take a major rethinking of our business concept. If we are not ready to adjust to the feedback from the market, our chances of success fall dramatically.

Pricing is the next key part of the marketing plan. What we understand what the market wants in our product, we now have to price it at a level that the market is willing to pay. Most often an entrepreneur will set the price relative to the market. The most common mistake I see is pricing the product or service too low. Price is part of what communicates quality to the market. If you price lower than everyone else, that may send a message of inferior quality to all of those potential customers. I refer to this as "apologizing to the market."

Place tells how we get the product or service from us to the customer. Will we use distributors, retail outlets, our own retail stores, the Internet, door to door sales, kiosks, or some other means to get the product into their hands?

And finally there is promotion, which tells how best to communicate our product, its price and how they can get it, to the market.

Now here is a final step in market planning that many overlook. There is another part of the business plan that should tell the same story as our marketing plan -- our revenue forecasts. Revenue forecasts should never be made by guessing or simply plugging in some numbers that look reasonable. Rather, the revenue forecast should, in numbers, tell the same story as the marketing plan. Why? Consider the simple formula for Revenues:

Revenues = Price X Quantity

If we do a good job in our marketing plan, and use real information we derive from real customers (or potential customers), it should help explain our assumptions for those two seemingly simple variables -- price and quantity. A well developed marketing plan will tell us why we think we can charge a certain price. It will also help us explain why and how we intend to sell a certain number of units by giving the customer what they want (product), how we will get it to them in a manner that will make it easiest for them to buy it (place), and how we know they will be aware of all of this information (promotion).

Posted by Jeff Cornwall at 07:55 AM | Permalink | Comments (1)

There is an interesting guest column at Inc.com on religion and work written by Alan Wolfe, Director of the Boisi Center for Religion and American Public Life at Boston College. Wolfe writes the following:

Workplaces are not public in a legal sense and, because they are not, courts will generally allow companies room to find their own ways of accommodating the rights of believers. But workplaces are public in a social sense; they are composed of groups of people, and the larger the groups grow, the more likely there will exist religious differences among them. There is an implicit bargain here for private companies to accept. Make room for diversity and tolerance, and few will object to religious expression in the workplace. Confine the right to expression only to select groups, however, or use one faith to browbeat others, and those others will rightly object. The choice is up to each company.

I believe that Wolfe has missed an important part of this issue by looking at this only from the position of the individual employee and to define it only in terms of evangelization toward a specific religion. There are many privately owned businesses in which the owners have used the core values of their faith to shape how they start and grow their companies. They build their values into the policies and practices, and into the culture of their companies, that govern everyday activity in their businesses.

These entrepreneurs are not doing this to convert their employees nor to make their firms an extension of some particular church. They do this because their faith is based on integrity. What is good and what is right does not change once they walk into the door of their businesses. And they find ways to integrate this into how they run their companies. It shows up in compensation systems, job design, employee ownership programs, policies governing customer relations -- the list goes on and on. It is not a matter of using their businesses to save others souls, but to act in ways that assure that their own souls do not become compromised by how they act in their business.

The specific religion that these entrepreneurs practice becomes inconsequential, as does the religious tradition of their employees. My experience and the results of the interviews we have conducted for our forthcoming book suggest that because the focus is on how the entrepreneurs' faith and values guide their actions, these businesses become good places that are valued by employees of all faiths. They are companies that treat all employees with dignity, fairness, and respect, that treat their customers well, and that have a truly good culture.

Posted by Jeff Cornwall at 08:57 AM | Permalink

I had the pleasure of participating this past fall in a day long discussion conducted by the Institute for the Future on the future of small business. The first installment of the final report that began with that incredible day of dialogue has now been released. The Intuit Future of Small Business Report provides a fascinating look into the future of our entrepreneurial economy. I encourage anyone who is a small business owner, wants to be a small business owner, works in a small business, or does business with small businesses -- OK, basically everyone -- to read the full report.

The report begins with a discussion of three consecutive eras of transformation that have occurred in the US over the past 40 years -- the social transformation of the 1960s and 1970s, followed by the technological transformation of the 1980s and 1990s, and finally the entrepreneurial economic transformation that began around 2000 and is still underway. Each transformation played an important role in the subsequent one, and together they have fundamentally changed the culture and economy of the US.

Three trends that are shaping the future of small business are examined in the first installment of this report.

The Changing Face of Small Business

There are some distinct demographic patterns in the current entrepreneurial economic transformation. Two age groups are showing significantly higher entrepreneurial activity: the Entre-Boomers and the Generation Y, or what I call the Entrepreneurial Generation.

For the Boomers, entrepreneurship is a form of "un-retirement." According to this report, only 30% of Boomers mention financial needs as their primary reason to keep working. Personal fulfillment and longer production working lives seems to be a major drive behind their entrepreneurial propensity.

The Entrepreneurial Generation tends to reject the corporate world, favoring instead the independence and flexibility that an entrepreneurial career can create. Interestingly, they also tend to believe that an entrepreneurial career is more secure.

The changing face of small business is also reflecting more women entrepreneurs looking for the flexibility that business ownership can create -- mompreneurs, as some call them. It is also being shaped by a growth in immigrant entrepreneurs.

Just as in the last great entrepreneurial age of the late 1800s, immigrants are playing an important role in this economic transition. Many immigrant entrepreneurs are pursuing a global approach with their small business.

The Rise of Personal Business

There are now about 20 million "self-employed" Americans. These are small business without employees. The explosion of this segment of our economy comes from several causes.

1- The traditional employment contract is fading away for many professionals.

2- Many prefer the life of a "free agent", taking their skills from job to job.

3- People want more flexibility to create more work-life balance and see self-employment as the ticket to this change in lifestyle.

4- The accidental entrepreneurs, who did not plan to be self-employed, but come to that point through unplanned events in their lives.

The Emergence of Entrepreneurial Education

This trend is near and dear to this old professor's heart. The IFTF authors say that entrepreneurship education will continue to expand well beyond the 1,600 US universities now offering courses. They see more programs embracing not only the high growth entrepreneur, but also small business owners. More attention will be paid to undergraduate students seeking entrepreneurship education. Several schools, including us here at Belmont University, are seeing a growing number of new freshman coming to school with businesses already operating. Entrepreneurship education is also moving into the trade schools, community colleges, and adult education programs.

More younger children will be exposed to entrepreneurial careers in primary and secondary education. This will create a generation that when they enter the work force, will be much more attuned to careers built on entrepreneurship.

***********

Thanks to the folks at Intuit and at IFTF for allowing me to be a part of this exciting look into the future of small business. I look forward to seeing the future installments of this report.

Posted by Jeff Cornwall at 05:30 AM | Permalink | Comments (3)

Why do we write business plans? What purpose do they serve?

Guy Kawasaki had a post yesterday on a recent study by Bill Bygrave from Babson suggesting that business plans are highly overrated. And to a large degree, I agree. (Guy as a link to a Word Document version of this study at his post about this study).

Now before all of my students throw up their hands in joy over this statement, I need to explain further. For while I think too many entrepreneurs spend way too much time on their business plans, many of these same entrepreneurs do not spend enough time on actual business planning.

Let's look carefully at Prof. Bygrave's summary of his conclusions from this study:

The analysis revealed that there was no difference between the performance of new businesses launched with or without written business plans. The findings suggest that unless a would-be entrepreneur needs to raise substantial startup capital from institutional investors or business angels, there is no compelling reason to write a detailed business plan before opening a new business.

That is only true if would-be entrepreneurs have done all of the homework that goes into writing a sound business plan. I know for a fact that the population Bygrave surveys in this study (alumni of Babson) get very good training in new venture analysis and planning. So his subjects all should know how to use these tools in preparation to launch their ventures. It really doesn't matter if they actually go the final step and write it down in a formal business plan.

Business plans are a way to document sound analysis and good planning of your new venture. Whether you actually write this document is to a large degree irrelevant. What does matter is that you go through the process of evaluating the market for the venture, analying the potential profit margin it can produce, and reflect honestly on your personal readiness to make it happen. So it is the process of planning, not the actual plan, that really matters.

So why do I have my students write a plan at the end of their studies? It is basically a final exam in their last class with us to show that they understand how to analyze and plan their new venture. Too many people think that a business plan is the beginning, middle and end of starting a new venture. The business plan is simply a reflection of a sound process -- it is not the actual process.

In reality, investors like venture capitalists use it in the same way. They want evidence of sound analysis and planning, and the business plan is a way to capture the work an entrepreneur has done in these critical steps.

Guy Kawasaki has it right in his conclusion about this study:

However, don't draw the wrong conclusion from this study: "Analysis, planning, vision, and communication are unnecessary." This isn't true. What is true is that a business plan should not take on a life of its own. It is a tool -- one of many that may help you get funded (or, more accurately, hinder you from getting funded if you don't have one) and may help you get your team working as a team. But it is not an end in itself.

So to all of my students this semester -- get back to work on your business planning!

(Thanks to Bruce Schierstedt for passing this along).

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

There is an important eminent domain case in New Jersey that warrants careful attention by all small business owners.

The dispute involves a commercial property owned by BMIA, LLC in Belmar, New Jersey. BMIA has been fighting to keep its property, the Belmar Mall, from being condemned for a redevelopment project. The Belmar Mall is a commercial center that contains 20 mom-and-pop businesses, along with three major chain tenants, Rite Aid, Curves for Women and West Marine.

To help ensure that condemnation of the property would be possible, the city of Belmar conducted a study, which determined that the downtown property was "an area in need of redevelopment." This designation was the first step in instituting eminent domain proceedings. The municipality's "area in need" designation was based on a determination that .34 acres of the 15-acre site, or 2 percent, was in a state of blight.

The NFIB filed an amicus brief with the Superior Court of New Jersey Appellate Division urging the court to find that the municipality's determination lacks sufficient evidence, arguing that finding 2 percent of a 15-acre site in need of redevelopment is insufficient to condemn the entire property.

"It is important that the Court understand the detrimental effect this decision would have on small businesses," said Elizabeth Gaudio, senior executive counsel of NFIB's Legal Foundation. "This case highlights the injustices that property owners, including many small-business owners, face when it comes to battling a local government's liberal interpretation of blight."

An ordinance prohibiting the mayor and town council from using eminent domain to acquire any owner-occupied home for redevelopment purposes has been proposed by the town's newest councilman, Matthew J. Doherty, earlier this month.

Sadly, now that the Kelo case has become a distant memory to many, this story has gotten almost no attention in the media. Hats off to the NFIB for staying on top of property rights in the wake of the Kelo decision and for their active involvement this important case.

Posted by Jeff Cornwall at 10:27 AM | Permalink

There is growing pressure in the US to pursue a policy of socialized entrepreneurship. Government wants to "get control of" and "support" our growing entrepreneurial economy. But, rather than offer what has been shown to be the most effective approach to supporting entrepreneurs -- hands off by government and a simple and fair tax structure -- politicians and bureaucrats are increasingly trying to manage what should be free enterprise.

This week's National Dialogue on Entrepreneurship offers a couple of examples.

First, they laud an article in Science and Technology, "Deep Competitiveness," by Robert D. Atkinson.

Atkinson's national competitiveness policy would include robust efforts to open global markets, an overhaul of the tax code to spur innovation, a major expansion of funding ($2 billion per year) to support research partnerships and technology led economic development efforts ($1 billion per year), and a strong national commitment to digital transformation.

Second is a plug for the National Bureau of Economic Research's 2007 Innovation Policy and the Economy conference.

The Innovation Policy and Economy Group focuses on the implications of rapid technological change for economic policy, and the appropriate policies and programs regarding research, innovation, and the commercialization of new technology.

Both of these are examples of policy makers attempting to move forward an agenda of socialized entrepreneurship. Centralized economic planning does not work over the long run. Just look at the historic failures in Japan, Russia, Germany, and a whole host of other countries that have taken this approach. What does work is free markets with only marginal governmental involvement.

As further evidence of this one needs to look no further than another article in this week's NDE on a report by the National Center for Policy Analysis (NCPA).
From NDE:

A November 2006 report by the National Center for Policy Analysis (NCPA) argues that a lower tax burden over the last 50 years would have increased government revenues to the point that they would have covered actual spending and eliminated public debt. It contends that government policies should be focused on maximizing economic growth and that there is an ideal allocation of economic resources between public and private uses that can grow the economy at the fastest sustainable rate. That optimal level, for federal, state and local taxes combined, is 23% of GDP -- far below the actual rates that have averaged between 30 - 34%. Had that rate been held for the past 50 years: government at all levels would have collected $61.9 trillion more in taxes; real GDP would be three times greater than it is; and, the average American family would have more than three times as much real income today than it actually has.

Lower taxes and less government is what spurs long-term, sustainable economic growth.

Posted by Jeff Cornwall at 08:00 AM | Permalink

Visit David Maister's blog of this weeks edition.

Posted by Jeff Cornwall at 07:54 AM | Permalink

For the past year or so I have been cautioning about growing signs that the IRS is targeting small businesses for audits. A story in the Tennessean (Nashville's local paper) offers a stark example of what this can mean for entrepreneurs.

Michael Crowder retired from the Bristol, Tenn., police force with simple plans.

He and his wife, Caroline, set up a home-based business a few years ago and started selling health-care products. The income rolled in. But they ran into trouble when they decided to deduct some of the cost of a home office, business equipment and client-related trips from their federal income taxes.

The Internal Revenue Service audited the couple in late 2005, originally saying they owed almost $100,000 in taxes and penalties, Crowder said. After months of talks, and with a court date looming in March, the IRS has now reduced that to roughly 5 percent of the original sum, Crowder said.

"Especially in the beginning, we lost tons and tons of sleep," he said. "I never would have imagined that keeping good records and receipts wouldn't be enough."

The root of the problem is not with the owners of small businesses. It is the system. The IRS targets hundreds of thousands of small business owners for audits each year, usually over questionable deductions. But with 60,000 pages of tax code how can anyone, even expert tax preparers, navigate this labyrinth without exposing themselves to the risk of an audit? And when the force of the federal government, particularly the enforcement division of the IRS, comes after a small business owner there is little doubt as to the outcome -- the small business owner most often loses.

The current system is inefficient and ineffective for our new economy. We waste billions of dollars on government enforcement and tax payer compliance. Things will only get worse as more of the economy is driven by small business over the coming years and as the tax code continues to get more and more complex.

An entrepreneurial economy needs a system that is fair in its burden of taxes, efficient in the collection of taxes owed, and not a financial burden when it comes to compliance. And while I'm dreaming, let's make it politician-proof to avoid a recurrence of the mess they have created with the current system.

Posted by Jeff Cornwall at 05:18 AM | Permalink | Comments (2)

One of the best ways to bootstrap your marketing efforts is to utilize public relations (PR) for your business. In effect, PR gets the media to tell the world about your business.

There are a couple of myths about PR. First, although it is often called "free advertising," it is not exactly free. It takes time and often a little bit of money to make PR efforts effective. Although you do not always have to hire a PR firm, it can be money well spent due to their experience and media contacts. So although not free, it is still a very cost effective way to get the word out about a business.

The second myth is that PR "just happens." If you do great things the media will find you. Although that does happen on occasion, most often PR works best when it is an intentional tactic as part of your bootstrap marketing plan. PR works best when you are proactive with any media contacts.

Kauffman's eVenturing has just published a new collection on PR that offers a great array of articles, stories and how-to's.

Posted by Jeff Cornwall at 10:51 AM | Permalink | Comments (2)

Just as in the last great entrepreneurial economic period in the US during the late 1800s, we are seeing immigrants playing a vital role in today's entrepreneurial economy. New research from Duke University and the University of California-Berkeley provides more support for the positive impact of new immigrants, particularly within the technology sector. From the National Dialogue on Entrepreneurship:

Previous research has shown the importance of immigrants to Silicon Valley's tech economy. America's New Immigrant Entrepreneurs finds that this impact is not limited to California; immigrant entrepreneurs are key players in the tech economy across the US. Nationwide, 25.4% of engineering and technology companies include at least one founder who was born outside of the US. In 2005, these firms employed 450,000 workers and generated roughly $52 billion in sales. Almost 80% of these firms were located in two sectors: software and innovation/manufacturing-related services. While Chinese and Indian founders are the key players in California, the backgrounds of immigrant entrepreneurs differ by region. Not surprisingly, Hispanics are the largest portion of founders in Florida. In Massachusetts, Israelis form the largest group (17%) of immigrant company founders, and Indians form the largest group (47%) in New Jersey.

This underscores the need for real immigration policy reform to reflect the new economy and its needs. Immigration policy is currently reflects the way the world operated in the mid-1900s.

The full report can be found here.

Posted by Jeff Cornwall at 08:20 AM | Permalink

Generally 2006 was a good year for small business and the economy, according to a report from the NFIB.

Here are some highlights from their summary of 2006:

Housing and Construction

In some parts of the country, housing was the hot ticket, especially condos. Construction boomed, fueled by low interest rates, strong employment growth and a flood of investment money (foreign and domestic) looking for an alternative to disappointing stock markets in 2001-2003, which have now reached record levels. Some parts of the country (Southern California, Las Vegas, Florida and coastal communities) experienced bubble-like increases in home prices, and a surge in new home construction.

"Most homes in the U.S. are built by small firms, not the well-known stock market darlings (now not so popular)," said NFIB Chief Economist Bill Dunkelberg. "Following usual historical patterns, the industry built houses faster than the growth in real owners and a glut ensued, contributing to the slowing of the economy. But overall, the housing market adjustments appear to be proceeding in an orderly way, posing little threat of major destabilization."

Spending

The increase in home values helped fuel solid consumer spending throughout the year. Collectively, consumers spent more than their after-tax income all year (the so-called negative saving rate). Huge income gains at the top end of the income distribution produced heavy spending (tens of billions of bonus dollars were paid out by the Wall Street firms) that contributed substantially to GDP growth.

NFIB's latest Small Business Economic Trends survey found that 26 percent of small-business owners surveyed expect to make a capital expenditure in the next three to six months. Still, factors like gas prices, currently averaging higher per gallon than last year, could have an impact on spending habits of consumers and industry-specific businesses.

Jobs

The most impressive development in the second half of 2006 was the strength of the labor markets. The unemployment rate has held at historically low rates (around 4.5 percent) and the percent of the adult population with a job is at a near-record high level (63.3 percent), exceeded only by readings in the dot-com quarters. Nearly one in five owners plans to increase employment at their firms going into the new year, and one in five has one or more job openings they cannot fill.

"This is a good problem to have," said Dunkelberg. "It's a sign that employment will likely remain strong in 2007. But another characteristic of a tight labor market is higher compensation levels, which may keep edging up, putting pressure on prices or, if firms can't raise prices, reducing profits."

The availability of qualified workers is so serious that one in ten owners reported this as their most important business problem. In the second half of 2006, more than half of the owners reported trying to hire each month, with more than 80 percent of these owners reporting few or no qualified workers for their open positions. As a result, the percent of owners reporting higher worker compensation has remained high all year. Labor costs will be boosted by the higher minimum wage if passed, affecting more than 10 million workers, mostly employed by small businesses. Firms will be paying more for the same work, costs which will most likely be passed on to customers.

Inflation

On the inflation front, performance has not been as good from the perspective of the Federal Reserve, although owners are always appreciative of any price increases they can maintain. The percent of owners raising prices (net of those cutting selling prices) rose to a high of 26 percent in April. Since then, the frequency of reported price hikes has declined to the mid-teens, good news for the inflation fighters, but not good enough to get the core inflation rate into the Fed's desired target range (under 2 percent).

"In 2003, the inflation rate was 2 percent and the net percent of firms raising selling prices averaged 3 percent, way below recent readings of 17 percent," said Dunkelberg. "Even with declines in construction prices, too many firms are still successfully raising prices to allow the Fed to declare victory. This leads many observers to expect further Fed rate hikes, although we are not in that camp."

2007: Look Ahead

The economy has slowed a bit and spending rates are down. But spending plans remain historically solid and owners are fairly optimistic about economic growth moving into 2007. The numbers show no obvious signs of a recession in the small-business sector.

"Going into 2007, the good news is that none of the Small Business Indicators is 'out of bounds,' up or down," said Dunkelberg. "That may be boring, but steady growth around 3 percent with modest inflation and solid employment will be welcome, adding 2007 to a string of good years building the current expansion."

The report from the NFIB concludes with a caution about the cost and availability of employees and insurance, tax-related issues, as well as threats of business mandates.

Posted by Jeff Cornwall at 04:29 PM | Permalink

There was another story on the growing trend of Entre-Boomers (Baby Boomers who become entrepreneurs late in their careers) in Business Week.

[M]any boomers--or those 78 million Americans born between 1946 and 1964--are leaving corporate jobs to start their own businesses. And it's not just because they're ready to retire; though some have the time and money to try life as an entrepreneur, many don't. They...are often worried about disturbing corporate trends like layoffs and pension cuts that are leaving many in their age bracket with a tough road through retirement.

"Baby boomers are looking at starting real businesses--looking for another 10- to 12- to 15-year career, God willing," says Paul Magelli, senior scholar-in-residence at the Kansas City (Mo.)-based Kauffman Foundation.

We are seeing an interesting trend with two distinct demographic bulges in entrepreneurial activity. The Entrepreneurial Generation, who are in their 20s, and the Entre-Boomers in their 50s and early 60s.

(Thanks to John Russell, a fellow Boomer and former graduate student of mine, for sending this along).

Posted by Jeff Cornwall at 07:33 AM | Permalink

A new survey commissioned by Office Depot reveals that many individuals (34 percent) lose significant amounts of time -- more than 15 minutes a day or nearly two hours every week -- hunting for lost papers, sorting through messy files and re-booking missed appointments.

I think I lose two hours every day on such activities.

According to the study, the majority (53 percent) live in "controlled chaos," where their desk is a mess but they claim to know where everything is located.

I am in the other 47 percent that lives in uncontrolled chaos. My desk is a mess and I have no idea where things are most of the time.

Busy professionals also are finding this rather chaotic lifestyle costly. In fact, 76 percent of respondents report they lose time to disorder, while more than half (51 percent) are concerned about missing important deadlines or appointments, and many cite fear of diminishing their reputation (16 percent) or losing business opportunities (14 percent) due to disorganization.

I am in the 24 percent who don't even know that I lose time to my disorder. But then, ignorance is indeed bliss.

A mere 22 percent of respondents stated that they arranged their desk for maximum productivity every day, while 49 percent organize only once a month -- or less frequently.

I organize my desk once a semester, whether it needs it or not.

Of those surveyed, 67 percent are not sure how to start or maintain their efforts.

I gave up years ago -- it is now just a part of my character.

Posted by Jeff Cornwall at 07:22 AM | Permalink

An entrepreneur's vision should communicate what her business can become. It paints a clear and compelling picture for employees, investors, suppliers, and other stakeholders of what they are buying into at a time when the business has little or nothing to show. But to be complete, this vision should describe more than the product the business will make and market it will serve. It should also paint a picture of how the entrepreneur intends to conduct herself as she starts and grows her business.

The entrepreneur's values should also be reflected in her vision for the business. How will she conduct herself as she starts and builds her business? How does she want to treat her employees? How does she want those employees to treat the customer? What are the principles that will shape how her employees act in her business?

The values she brings to her business should be the same values that guide her life outside her business. This is what creates true integrity in her life. Each action in her business will shape her character. The opportunities she pursues, who she chooses to do business with, who she hires, how she treats each stakeholder of her business, all develop her character just as much as her actions in her family and in her community.

So her vision will not only guide her business strategically, but also guide the development of its culture. And it will also help shape who she becomes as a person.

Posted by Jeff Cornwall at 07:53 AM | Permalink | Comments (1)

We have known for a long time that Entrepreneurship cannot just be taught to traditional business students. With 50% of our economy comprised of entrepreneurial ventures, including small businesses of all varieties, we knew we had to find ways to take it across the campuses at our colleges and universities.

I attended our big entrepreneurship academic conference last week, and this change is clearly taking place. We had faculty from Art, Engineering, Music, Pharmacy, Math, Music Business, Graphic Design, Sociology, just to name a few, at a conference that for years has been attended by mostly business faculty. We had about 100 sign up for a pre-conference I ran on innovative ways to take Entrepreneurship into other programs across campus.

Academia, as slow as we are at times to react to change, is responding to the new economy.

Sadly, the new Congress is viewing the world as if we were in the 1950s, worrying about the minimum wage, limiting CEO salaries and corporate profits, and increasing taxes, rather than addressing how the newly emerging entrepreneurial economy can be supported through fewer regulations, lower taxes and a new tax code, and freer markets.

Posted by Jeff Cornwall at 06:05 AM | Permalink

Endless Gibberish Personal Finance Blog is our host this week.

Posted by Jeff Cornwall at 05:59 AM | Permalink

The new congress is moving forward with legislation that will have a direct impact on entrepreneurs, included taxes and health insurance.

One change may arise is in the Alternative Minimum Tax (AMT). The Alternative Minimum Tax was established to catch those very few wealthy individuals who slip through the cracks of the tax code. As American incomes grow, more and more people are getting snared by this complex and convoluted tax. The AMT has become a major concern for entrepreneurs as many are unknowingly getting snared in its web.

A new report from the Tax Foundation finds that some Congressional districts are being hit by the AMT harder than others -- and interestingly many of those districts are represented by Democrats. So guess what? The Democrats seem to have finally found a tax that they don't like. Newly elected House Ways and Means Chairman Charles Rangel (D) has made reforming the AMT a top priority for this year.

An area of concern for many small business owners is health insurance. The NFIB has taken a rather curious path in their lobbying efforts when it comes to health insurance reform. They are aligning with Sen. Ted Kennedy.

"Small business is the country’s leading job creator and represents 99 percent of employers, so a reasonable health care solution demands the attention of our federal lawmakers," said NFIB President and CEO Todd Stottlemyer. "It will take both sides of the aisle to broker an agreement and find common ground. We are confident that an open, honest debate on this critical issue can take place, and we encourage the leadership to set a timeline."

Rather than look to the free market for real health care system solutions, the NFIB is selling their soul. More government regulation and mandates in health insurance may give some short-term relief, but it ain't going to fix the problem. We will only face bigger problems in health care in a few years by postponing the true reform and deregulation that is needed.

Posted by Jeff Cornwall at 04:54 AM | Permalink

The new congress is moving forward with legislation that will have a direct impact on entrepreneurs, included taxes and health insurance.

One change may arise is in the Alternative Minimum Tax (AMT). The Alternative Minimum Tax was established to catch those very few wealthy individuals who slip through the cracks of the tax code. As American incomes grow, more and more people are getting snared by this complex and convoluted tax. The AMT has become a major concern for entrepreneurs as many are unknowingly getting snared in its web.

A new report from the Tax Foundation finds that some Congressional districts are being hit by the AMT harder than others -- and interestingly many of those districts are represented by Democrats. So guess what? The Democrats seem to have finally found a tax that they don't like. Newly elected House Ways and Means Chairman Charles Rangel (D) has made reforming the AMT a top priority for this year.

The AMT is just one small symptom of a terminally ill tax code. But, don't count on this Congress nor the White House to give any attention to true tax reform. And speaking of terminal illness.....

An area of concern for many small business owners is health insurance. The NFIB has taken a rather curious path in their lobbying efforts when it comes to health insurance reform. They are aligning with Sen. Ted Kennedy.

"Small business is the country’s leading job creator and represents 99 percent of employers, so a reasonable health care solution demands the attention of our federal lawmakers," said NFIB President and CEO Todd Stottlemyer. "It will take both sides of the aisle to broker an agreement and find common ground. We are confident that an open, honest debate on this critical issue can take place, and we encourage the leadership to set a timeline."

Rather than look to the free market for real health care system solutions, the NFIB is selling their soul. More government regulation and mandates in health insurance may give some short-term relief, but it ain't going to fix the problem. We will only face bigger problems in health care in a few years by postponing the true reform and deregulation that is needed.

Posted by Jeff Cornwall at 04:54 AM | Permalink

The new congress is moving forward with legislation that will have a direct impact on entrepreneurs, included taxes and health insurance.

One change may arise is in the Alternative Minimum Tax (AMT). The Alternative Minimum Tax was established to catch those very few wealthy individuals who slip through the cracks of the tax code. As American incomes grow, more and more people are getting snared by this complex and convoluted tax. The AMT has become a major concern for entrepreneurs as many are unknowingly getting snared in its web.

A new report from the Tax Foundation finds that some Congressional districts are being hit by the AMT harder than others -- and interestingly many of those districts are represented by Democrats. So guess what? The Democrats seem to have finally found a tax that they don't like. Newly elected House Ways and Means Chairman Charles Rangel (D) has made reforming the AMT a top priority for this year.

The AMT is just one small symptom of a terminally ill tax code. But, don't count on this Congress nor the White House to give any attention to true tax reform. And speaking of terminal illness.....

An area of concern for many small business owners is health insurance. The NFIB has taken a rather curious path in their lobbying efforts when it comes to health insurance reform. They are aligning with Sen. Ted Kennedy.

"Small business is the country’s leading job creator and represents 99 percent of employers, so a reasonable health care solution demands the attention of our federal lawmakers," said NFIB President and CEO Todd Stottlemyer. "It will take both sides of the aisle to broker an agreement and find common ground. We are confident that an open, honest debate on this critical issue can take place, and we encourage the leadership to set a timeline."

Rather than look to the free market for real health care system solutions, the NFIB is selling their soul. More government regulation and mandates in health insurance may give some short-term relief, but it ain't going to fix the problem. We will only face bigger problems in health care in a few years by postponing the true reform and deregulation that is needed.

Posted by Jeff Cornwall at 04:54 AM | Permalink

The new congress is moving forward with legislation that will have a direct impact on entrepreneurs, included taxes and health insurance.

One change may arise is in the Alternative Minimum Tax (AMT). The Alternative Minimum Tax was established to catch those very few wealthy individuals who slip through the cracks of the tax code. As American incomes grow, more and more people are getting snared by this complex and convoluted tax. The AMT has become a major concern for entrepreneurs as many are unknowingly getting snared in its web.

A new report from the Tax Foundation finds that some Congressional districts are being hit by the AMT harder than others -- and interestingly many of those districts are represented by Democrats. So guess what? The Democrats seem to have finally found a tax that they don't like. Newly elected House Ways and Means Chairman Charles Rangel (D) has made reforming the AMT a top priority for this year.

The AMT is just one small symptom of a terminally ill tax code. But, don't count on this Congress nor the White House to give any attention to true tax reform. And speaking of terminal illness.....

An area of concern for many small business owners is health insurance. The NFIB has taken a rather curious path in their lobbying efforts when it comes to health insurance reform. They are aligning with Sen. Ted Kennedy.

"Small business is the country’s leading job creator and represents 99 percent of employers, so a reasonable health care solution demands the attention of our federal lawmakers," said NFIB President and CEO Todd Stottlemyer. "It will take both sides of the aisle to broker an agreement and find common ground. We are confident that an open, honest debate on this critical issue can take place, and we encourage the leadership to set a timeline."

Rather than look to the free market for real health care system solutions, the NFIB is selling their soul. More government regulation and mandates in health insurance may give some short-term relief, but it ain't going to fix the problem. We will only face bigger problems in health care in a few years by postponing the true reform and deregulation that is needed.

Posted by Jeff Cornwall at 04:54 AM | Permalink

Babson College has released a new Global Entrepreneurship Monitor Report. Entrepreneurial behavior continues to fuel the engine of innovation and growth around the world; and countries with the lowest levels of Gross Domestic Product (GDP) boast higher levels of start-up entrepreneurial activity according to the eighth annual Global Entrepreneurship Monitor (GEM).

Buoyed by a strengthening economy, U.S. entrepreneurs have created most of the 6.8 million new jobs in the nation since 2003. These entrepreneurs are young (under 35), educated (52% with one or more degrees), and continue to choose the entrepreneurial, opportunity-driven lifestyle over more stable -- and frequently -- more lucrative careers.

More U.S. Findings:

- 30% of new business start-ups offer more in terms of innovative products and services compared to established business owners. U.S. entrepreneurs are early-adopters too of current technologies; 32% of start-up companies use the latest compared to just 16% of established businesses.

- Start-up entrepreneurs are the most optimistic--20.1% expect to create more than ten jobs and 50% growth in five years compared to just 7.5% of established business owners.

- VC in the U.S. has leveled out to $22-$24 billion in the last three years--way off its 2000 peak of more than $100 billion--but is a five-fold increase over the level in the early 1990s. New Trends: VC has shifted from software to biotech and the wireless sector of telecom. IPOs remain in the doldrums.

Key Global Findings:

- An entrepreneurial boom exists in China and India. New business start-ups in China are up 16.2% from 13.7% last year; 60 % are opportunity-driven; 70% of the Chinese think entrepreneurship is a good career choice; and 32% expect to start a business in the next three years. Chinese governments and policies are most supportive--new funds, new incubators, science parks are all recent initiatives. Improvements in education, funding, and commercial infrastructure are still in demand.

- The scenario is similar in India where one in every ten is engaged in entrepreneurial activity, and the gender gap narrows in India. But India has the highest level of business exits (15%) among GEM nations in 2006. The communications infrastructure is excellent, yet governmental bureaucracy and the presence of 'big player' companies make it difficult for start-ups to establish themselves. Surprisingly, India is behind in developing new policies in support of entrepreneurs.

- Entrepreneurial activity rises in countries with low GDPs. Countries with similar levels of GDP tend to have similar entrepreneurial activity-- most likely because of the dominance of large businesses.

- Entrepreneurs everywhere are taking advantage of opportunities; still countries with the lowest GDP have the highest levels of necessity-driven entrepreneurs. France and Germany –where necessity entrepreneurship is high--are the exceptions, most likely because of labor reforms which encourage business start-ups over unemployment services.

- The number of new business start-ups is always higher than established business ownership. This is particularly the case in the U.S. where Early-stage entrepreneurship is high compared to Europe where established business ownership is similar.

- Low and middle income countries show higher levels of innovation and technology in Early-stage entrepreneurship than in established businesses. Still, these less-developed countries are not necessarily using technologies that would be considered new in more sophisticated consumer markets of higher income countries.

- Experience and Gender still matter--Early-stagers are young (24-25) and men are more likely to be entrepreneurially active. The exception is women from higher income countries who are less likely to be entrepreneurs than their lower income counterparts.

Here is a link to the full report.

Posted by Jeff Cornwall at 06:41 AM | Permalink | Comments (2)

There are three key questions that every entrepreneur should ask while assessing to see if an idea is a real business opportunity. Is there really a market? Is there enough margin to make the business feasible? Is this business really for me in terms of my passion and my experience? Answering these questions is a process that entrepreneurs should go through with every idea they are seriously considering for a new business. As I have written earlier, answering these questions is a step long before pen is put to paper to write a business plan or a dime of money is raised. My students sometimes refer to this as answering the "3 M's".

There is also a fourth "M" that should be assessed, That is the morality of the business idea. Now what is moral is a tricky issue. But if we are going to be serious about running an ethical business, shouldn't it begin at the very first steps of the start-up? But what makes a business moral?

The morality of a new business relates to two issues. First, do we have a vision to build a good business? Do we intend to business that creates a good culture for its employees? Do we intend intend to treat our external stakeholders, such as customers, suppliers and investors, with integrity and honesty?

The second part of building a good business from the very beginning relates to product or service that we offer to the market. Does our business idea make a positive contribution to society? I am not saying, for example, that only entrepreneurs who make new medical devices that save millions of people's lives is the only type of moral businesses. That is not the point. Rather, do we have a vision to offer a product or service that in some way will make peoples lives a little bit better, even if in some small and insignificant way.

In many ways the issue here comes down to intent. The same business concept can be moral when implemented by one entrepreneur and not moral when started by another. Let me offer an example, but please know that I am not suggesting that I know the intent of either of these entrepreneurs nor pretend to know what is in their hearts and minds, for that is where this ultimately rests.

These examples come from a recent story in US News on genetic screening for the potential to come down with severe genetically related diseases. On the surface this sounds like a pretty good thing to offer to the market. Some of the companies offer this service in a way that clearly is intended to first and foremost help their customers. They only offer tests that are scientifically validated and do so with one-on-one genetic counseling as part of the service. Some other companies in this story offer tests that are of questionable validity and reliability and provide the results with vague and, according to the US News story, potentially misleading written explanation of the results. Again I do not pretend to judge what either entrepreneur intended here, but in looking at their actions and how they implemented the same basic concept, one can infer some possible differences in their visions for this same business concept.

A few years ago I was team-teaching this concept with my co-author Mike Naughton from the U of St. Thomas. One of our students asked us if his family business was a good business, a moral business. After all, their business simply planted bushes and tress along state and county highways. What did that really contribute to society, he asked? But Mike assured him that indeed this business could be good, as long as their vision included good intentions for their customers, their market and their community. The student said that they took pride in making people's long and often tedious commutes a bit more pleasant and enjoyable.

"Then that is indeed a good business," Mike assured him.

Posted by Jeff Cornwall at 05:20 AM | Permalink

It is time to dispel a financing myth. You will often hear that investors will put money in an "A" team with a "C" idea, but not an "A" idea with only a "C" team. The truth is that you will need straight "A's" to get angel or VC money.

Certainly you need an "A" team. The investors need to know that the entrepreneurial team can deliver on the plan. The team's collective experience is the best predictor of future success. They prefer that you have managed a start-up through its growth before, and if it was financially successful that is all the better.

But, they also want an "A" business concept. It has to have market potential that is big, I mean really big. To get the multiples of their investment that they expect, they need your business to have the clear potential to grow to many millions in sales and the probability of many millions in cash flow. They also want to see a relatively benign competitive environment. Never say there is no competitive, because then you look naive, but your plan should insulate you as much as possible from competitive threats, as that is the key to unimpeded growth.

They also want an "A" exit plan. If they can't see a clear path to get their money out of the deal within a few short years, it doesn't matter how good you are or your idea looks. Today that is most often an acquisition, since IPOs are few and far between.

And investors want "A" intellectual property protection. They don't want to invest in deals that cannot be protected. In today's global economy they will often look at your IP both domestically and internationally.

So study hard and do your homework if you want equity financing, as you will need a perfect 4.0 grade point average to close the deal.

Posted by Jeff Cornwall at 05:58 AM | Permalink

In spite of all of the hand wringing in Washington, the US economy is chugging right along.

The Bureau of Labor Statistics reports that there was a strong increase in new payroll jobs in December and that unemployment is holding steady at 4.5%. This was a stronger than expected report.

Self-employment was also up last month by 156,000 to 9.865 million, which is 8.7% of the workforce.

Given the surveys of the past few months that showing that small business owners are already having challenges finding qualified workers, this may not be great news for the entrepreneurial economy as it continues to signal tight job markets and hints of future inflation.

But, as our two soon to be college graduate children pointed out at dinner last night, it is good for them as there are plenty of jobs out there!