The Entrepreneurial Mind

Here is a blessing for 2008 for all entrepreneurs around the world (with apologies to those in Ireland, to whom this may sound vaguely familiar):

May the market rise up to meet you.

May cash flow always be at your back.

May customers shine warm upon your face,

and opportunities fall frequently upon your venture.

And until we meet again,

May God hold you in the palm of His hand.

Here's to another trip around the sun! Happy New Year!

Posted by Jeff Cornwall at 05:17 AM | Permalink | Comments (1)

When you deal with something almost everyday it can become second nature to you. So it is with financial statements for those of us who pour over them in business plans, financial forecasts, and case studies. But for many entrepreneurs, even some with surprisingly large companies, financial statements are difficult to digest and interpret.

My column in this week's Tennessean offers some tips on how to begin to understand and better utilize the information contained on a monthly income statement.

It is important to look beyond the numbers presented in the income statement and examine the percentages that each of those numbers represents. Look at major expenses every month to see what percentage of sales is being used to pay for each expense. Entrepreneurs who train themselves in how to read their income statements carefully will begin to see trends that will help them make decisions and solve problems within their companies.

Posted by Jeff Cornwall at 10:00 AM | Permalink

I have always tended to believe that the titles we assign to positions in our businesses are a cheap currency we can use to attract and reward employees. There were many times over the years that I actually asked a prospective new hire to suggest to me the title that would best fit what they would be doing in the position. As long as it helped accurately communicate what they did to other employees and outsiders that they interacted with in their work, I tried to be rather flexible.

The Wall Street Journal has a story that show just how far some companies take create titles:

Princess paysalot (payables, purchasing and asset manager), cultural curator (office manager) and supreme sorceress of syntax (copywriting team lead) are among the jobs at privately held board-game maker Cranium Inc....

The "cool" factor is one driver behind the trend. "Whenever someone sees my business card, they say, 'Wow, you must work for a really cool company!'" says Mr. Tait, whose company has about 80 employees.

Recruiting may be another. "When compared to other companies, it makes us stand out," says Robert Stephens, founder of Geek Squad, a 24-hour technology-services provider acquired by Best Buy Inc. in 2002. Some jobs at the company: counter-intelligence agent, double agent, mission controller, covert operator and public defender. Mr. Stephens calls himself chief inspector.

As long as a title does not misrepresent what someone does, cause too much confusion, or delegitimize the company to the outside world, have some fun!

I wonder what the university would think about this title for me -- The Pied Piper of Free Enterprise.....

Posted by Jeff Cornwall at 12:49 PM | Permalink | Comments (1)

One of the most potent shots in the arm for our entrepreneurial economy over the long-term would be fundamental tax reform. Cross-sector and cross-economy studies show the impact of tax rates and tax complexity on entrepreneurial activity. I am one who advocates that since our economy is now driven by entrepreneurs owning small businesses (just over 50% of GDP according to the most recent SBA estimate), it is now time to rethink our approach to taxes in this country.

So far only one major presidential candidate, Gov. Huckabee, is advocating a plan similar to the Fair Tax that had gained some traction over the past year. It replaces the income tax with a sales tax. Before the lefties out there start gnashing their teeth and wringing their hands, note that most plans being discussed have provisions to rebate a large portion of tax back automatically each year to, in effect, exempt lower and lower-middle families from the impact of any tax.

I saw this morning in a story from the LA Times sent to me by Andy Tabar that the mainstream media is launching some preemptive strikes. Let's take a closer look.

The opening paragraph frames the story quite nicely for the left:

Mike Huckabee, one of the most conservative Republicans in the 2008 presidential race, has embraced one of the most radical ideas on the campaign trail: a plan to abolish all federal income and payroll taxes and replace them with a single 23% national sales tax.

"One of the most conservative Republicans"? Given his position on many issues I would not call him conservative. I guess since most of the rest of the field seems to be big government, liberal Republicans, the relative positioning is correct. But conservative? Hardly!

Next line is also interesting:

The idea -- dubbed the "fair tax" by proponents -- ....

Do I sense a bit of irony in the writer's tone here?

Note that this story is a report on the 2008 campaign and not an editorial. Here is the writer's take on the tax reform movement:

The sales tax proposal has been around for years but languished on the fringes of practical politics and policy. Tax professionals generally regard the idea as impractical, regressive and even "crackpot," as one critic puts it.

For more on my view of the criteria of practicality, please see my recent debate with the NFIB over the wisdom of practicality and political expediency.

But, wait... The writer brings in an expert. She talks to tax professionals! No ox getting gored there! The last time we relied on tax professionals to fix the tax system was Pres. Reagan's so-called tax reform. All that act achieved was to lead to the doubling of the tax code -- now over 65,000 pages long.

The writer then goes on to paint this position as political suicide by citing examples of previous politicians who crashed and burned due to there support of tax reform. We see some hint of the oppositions strategy -- fear tactics. They will talk about an "added" 23% tax, failing to mention that the income tax goes away. Oh, and they also omit the key provision that exempts a large number of Americans from paying the tax through a simple across the board refund.

Then, as a final attempt to discredit, the author ties the plan to Scientology and Texas millionaires (they clearly must be the worst kind...). I kid you not:

Among the early advocates of a national sales tax were members of the Church of Scientology, a group that battled the IRS for years to gain recognition as a legitimate religious institution eligible for tax-exempt status.... [T]he issue was taken up by another group, Americans for Fair Taxation -- better known as Fairtax.org -- founded in 1995 by a group of Texas millionaires.

Please know that I do not endorse Gov. Huckabee. My approach has been to comment on and support positions, but not candidates. On taxes I like his proposed system, but note that he is silent on scaling back on the federal government and reducing the total tax burden. Remember that to fuel an entrepreneurial economy we need to not only simplify the system, but also cut the tax rates.

Posted by Jeff Cornwall at 07:42 AM | Permalink | Comments (2)

Entrepreneurs today are not only the builders of our new economy, but also have the potential to help rebuild our society and culture. Here is one simple example of how entrepreneurs can be true community-builders sent to me by Ben Cunningham. From Deleware Online (via Crave Online):

[Pedro] Toala was paralyzed in June 2006, when kids tipped over the portable toilet he was using in a Wilmington city park. His spine broke when he fell....

[M]ost of [his] split-level house was inaccessible to a man in a wheelchair. He could not eat dinner with his family or go into the backyard with his son. Just getting in through the front door was difficult.

Early this year, Cher Przelomski and The Planning Factory, a special events company, decided to investigate how they could help the Toala family as a way of celebrating the firm's 25th anniversary. The group first tried to interest producers of ABC-TV's "Extreme Makeover: Home Edition." When ABC officials declined, Przelomski and her colleagues organized their own version.

About 70 contractors and 60 volunteers responded to revamp the entire home and make it not only more accessible, but more beautiful, energy efficient and functional. Pettinaro Relocation provided a furnished apartment for the Toalas to live in until the work was complete.

The family was able to move back into their remodeled home in time for Christmas.

Posted by Jeff Cornwall at 12:29 PM | Permalink

Posted by Jeff Cornwall at 08:00 AM | Permalink | Comments (2)

Many entrepreneurs do not want the added complexity of having to manage the expectations of outside investors and the demands placed on a business by banks. In this case it is not that the entrepreneur cannot raise outside funding -- as discussed in my previous post on bootstrapping. There are many cases of businesses that could have fairly easily raised external funding, but the entrepreneurs made a conscious decision to use bootstrapping techniques to avoid any need for such funding. These entrepreneurs just do not want outsiders -- be they investors or bankers -- significantly involved in their ventures.

There are several reasons behind this concern:

- External equity funding creates dilution of the entrepreneur's ownership in the business. Equity financing reduces the ownership percentage of the founding entrepreneurs, thus reducing their share of any profits and any wealth created through the venture. The business must get that much larger for them to reach the financial goals that they had originally established for their business.

- Equity investors can sometimes turn out to be less than scrupulous individuals -- commonly known as sharks. Sensing the entrepreneur's vulnerability, these investors will demand much more of an ownership stake than the deal actually requires, based on their investment. They can also intend from the very beginning to force the founding entrepreneur out of the business once they have taken financial control.

- Adding equity investors complicates the interpersonal dynamics in the company. Many entrepreneurs report that partnership relationships can be even more complex than a marriage. The commitment with equity investors is long-term and in reality, indefinite.

- Significant debt financing can make a business much more susceptible to downturns in the economy. If a downturn occurs and profits decline, large payments on loans can become difficult or impossible to meet. A similar business with less debt will have more excess cash flow, without the large debt payments, to cushion the blow of declining revenues and profits.

- When a business is sold, the entrepreneur is required to pay off all debts before any money can be distributed to the owners. Since taxes owed on the proceeds of the sale are typically calculated without consideration of any debt that must be paid off, entrepreneurs who have relied heavily on debt have been known to have little or no money left after the sale of their businesses.

- Bankers impose many restrictions on a company as part of the terms of large business loans. These restrictions may limit the entrepreneur's freedom to make some decisions on major issues affecting the business, such as expansion, payment of dividends to shareholders, or compensation of management.

- Most debt issued to entrepreneurial ventures requires personal guarantees by the entrepreneurs. These guarantees mean that if the business defaults on its debt, the entrepreneurs will be personally liable for those loans. The bank has the right to come after personal assets to pay off the loan. Avoiding personal guarantees of business loans has proven to be a compelling reason for many entrepreneurs to use bootstrapping to avoid the need for bank financing.

Posted by Jeff Cornwall at 06:57 AM | Permalink | Comments (1)

A social enterprise is the latest monthly $10,000 Ideablob winner.

Marci Bossow Schankweiler of North Wales, PA is President and founder of Crossing the Finish Line (CFL), a Blue Bell, PA-based non-profit organization that provides excursions for young adult cancer patients and their families. Schankweiler founded CFL after her first husband passed away from cancer at the age of 30. She plans to use the prize money to help fund a home for cancer patients near Orlando, FL.

Ideablob.com is an on-line community where small business owners and entrepreneurs are sharing business ideas in exchange for feedback, advice and votes from the community. The monthly prizes are sponsored by Advanta, one of the nation’s largest credit card issuers (through Advanta Bank Corp.) in the small business market.

"We are thrilled that the ideablob community picked a non-profit as this month’s winner," said Ami Kassar, Advanta's Chief Innovation Officer. "There are more than 1.5 million non-profit organizations in the United States, most of which are small and face the same daily struggles for survival as millions of small businesses."

"We've been talking about securing a home near Orlando for a while and when I heard about ideablob.com I thought I'd put the idea out there," explains Schankweiler. "There's such a demand to provide young patients a respite from the traumas associated with cancer. Thanks to the support of the ideablob community, we now have the money to provide additional assistance."

Go to ideablob.com to put your idea into the mix and to vote on this month's ideas.

Posted by Jeff Cornwall at 07:45 AM | Permalink

I received the following comment from Dr. Graboyes of the NFIB to my reply to his comments from my original post about their 10 healthcare principles. I would welcome your thoughts on this debate! Has the NFIB become part of the problem or am I being too idealistic and naive?

I believe Dr. Cornwall unintentionally validates my arguments rather than his own in that: (1) the "pragmatic" actions he describes are polar opposites of NFIB's current efforts; (2) the Cato Institute does not advocate a total retreat of government from health care; and (3) the solutions Dr. Cornwall offers are not solutions.

(1) In the 1940s, employer-sponsored health insurance arose from the private sector, not from the government. Private firms offered health insurance to circumvent the suffocating effects of wage-price controls.
The firms had found a loophole in the law, and federal government's role was to acquiesce, not to innovate. In the 1970s, the low-deductible policies Prof. Cornwall laments were private sector responses to Nixon-era public policies. In both cases, bad public policies led private firms to pursue problematic responses. NFIB's current strategy is to do the opposite: we want good public policies that lead private firms to take constructive actions.

(2) The Cato Institute is, as Prof. Cornwall notes, "about as market-oriented as they come." No doubt, NFIB's positions on health care reform will not be entirely to Cato's liking. But, contrary to Prof.
Cornwall's claim, even Cato doesn't advocate a total retreat of government from health care. In "Sinking SCHIP: A First Step toward Stopping the Growth of Government Health Programs," Michael Cannon urges health care deregulation "thereby allowing government health programs to focus on those patients who most need assistance." That sounds like reducing government's role, not eliminating it. In "Crisis of Abundance," Cato scholar Arnold Kling offers a market-oriented plan that cuts the government's proportion of health care spending, but does not eliminate it. (I reviewed the book favorably at:
http://www.nabe.com/publib/be/0704/reviews.html) As long as government has some role in the mix, distortions will be present, and second-best solutions will be inevitable. The tough part of the debate is figuring out what that second-best is and not settling for less. It is there that free-market proponents will disagree.

(3) My previous posting asked Prof. Cornwall "[W]hat proposals would you take to Congress and the state legislatures? We're looking for specifics, and we'd be glad to listen." His response was: "Give the consumers control of their health care dollars. Remove the employer from the health care system. What a way to truly put small business on a level playing field with big corporations. Tear down government barriers to a truly free health care system - deregulate health care. ... We can reform Medicaid like we reformed federal welfare. Shift that money back to the state in block grants free of federal mandates. We can deregulate health care just as we deregulated so many other powerful industries during the Reagan era."

Good, thought-provoking ideas. But they're bumper stickers, not specifics. Let me suggest an experiment: Put the above suggestions in a letter on university stationery. Send a copy to each of the 535 members of Congress and 7,000+ state legislators. Ask each recipient for a mere 30 minutes of time to discuss the ideas. Now calculate two variables: X = the number of "thank you for your interest" letters signed by legislative interns and Y = the number of legislators willing to meet with you. My guess is that X will be at least 100 times Y.

When I'm a college professor, I can advocate any fantasy health care system my imagination desires. NFIB doesn't have that luxury. NFIB represents 350,000 member firms, their employees, and the larger community of small businesses. Sweeping philosophical declarations won't protect their livelihoods. Prof. Cornwall says: "Don't tell me that such fundamental change is not pragmatic or realistic." Well, sometimes we have to tell you that; NFIB can't demand all or nothing. We have to remember Voltaire's, "The perfect is the enemy of the good."

On the other hand, it's tempting to let pragmatism to turn to sloth and timidity. So Prof. Cornwall and others like him do a great public service by pushing us to achieve as much as we can and not settle for less than what is possible. Thanks to him for his advice and willingness to talk.

Posted by Jeff Cornwall at 11:55 AM | Permalink

The TaxingTennessee blog has a post about an interesting analysis at the Lunch Over IP blog based on Doc Searls' The Cluetrain Manifesto. (Lots of links, I know, but this whole blog thing is supposed to be a conversation after all).

Searls makes the case that with advances in the Internet, markets have become "conversations." It is a remarkable look into what he believes is the future of how markets behave. Click on through and read about his views. They are an important perspective on what our economy might become.

Past predictions were that the growth in the use of the Internet was leading to an era of depersonalization. Searls believes that the future is just the opposite as we move from the 'static web' to the 'live web.' As our on-line world advances it is leading to an even more personal relationship with customers. He goes so far as to say that advertising as we know it will soon cease to exist.

A good example of how things are changing on-line can be seen in this article from the Wall Street Journal.

Small online retailers are chatting up customers to get them to stick around on a site longer -- and buy something.

A case in point: Backcountry.com, a seller of high-end outdoor gear and apparel. The retailer's staff regularly talks live with customers online about the site's offerings, as well as provides buying tips and addresses any service issue.

"It's an interaction opportunity," says Sam Bruni, director of customer experience at the Park City, Utah-based company.

The world is in a time of dramatic economic transformation. Every business owner must keep his or her entrepreneurial skills tightly honed. Small business may well be the ultimate winner from this transformation as markets shift from being mass markets to relationships with customers directly in charge of what they want.

Small business is best equipped to engage in this type of relationship. Entrepreneurs are best equipped to continually react and adjust to what will likely become a wild ride, indeed!

Posted by Jeff Cornwall at 08:29 AM | Permalink | Comments (1)

I wrote a post early this month about an inspiring young entrepreneur, Louis Barnett, who did not let his dyslexia get in his way of success. Ben Cunningham sent along an update.

First, here is is a bit of history on young Louis from his website:

Louis Barnett is something of a wunderkind. The traditional rags-to-riches story has been told over and over, but then Louis’s story isn’t exactly traditional, more a case of self-belief and hard work.

After suffering from problems at school, Louis was diagnosed with Dyslexia Dyspraxia and a high I.Q. After this, he was taken out of mainstream education in order to be home educated, a decision that he’s now reaping the benefits from.

One day, Louis came across a book on cakes and decorations, which ignited a previously dormant passion for making handmade Belgian chocolate cakes. From cake decorating, Louis then moved into the tempering side of making chocolate, which in turn led to him producing limited quantities of chocolates for his family and friends.

Well, it seems his chocolate business is running smoothly (pun intended...). From the blog Nothing To Do With Arbroath:

The plucky confectioner has opened the factory and employed members of staff to help keep up with demand after his company "Chokolit" attracted worldwide interest.

He now has a website where you can order his yummy products packed in edible boxes. Clearly, he didn't let his disability stop him from tasting the sweetness of success (sorry, but this pun was also intended).

Posted by Jeff Cornwall at 08:39 AM | Permalink | Comments (1)

Last week I started a conversation about why entrepreneurs bootstrap. The most common Reason? Because they have to.

Various studies on start-up funding report that 70-85% of all start-up capital comes from the entrepreneur, family members, and close friends. The reality is that traditional sources of external money -- loans from banks and investments by equity investors -- are just not an option for most start-up ventures. Venture capitalists actually fund very few businesses.

One recent study found that only 38 out 100,000 new businesses reported receiving venture capital funding. Another way of looking at that is that of all estimated 650,000 new businesses that will start this year, only 247 will have had funding from venture capital. Equity investors such as venture capitalists and angel investors place their money in high growth, high potential ventures that can result in very large returns over a relatively short period of time. Most entrepreneurial ventures, particularly small businesses, just do not fit the criteria that such equity investors are seeking.

Generally banks also do not loan to start-up businesses. As one commercial banker stated in one of our Entrepreneurship classes, "Bankers do not lend money to start-up ventures. Period." To understand why, it is important to understand how bankers make lending decisions. Much of the money they keep on deposit is in demand deposits, such as checking accounts, which need to be available when people need or want their funds. When you write a check to pay your rent, you want to know that the money is in the bank available for your landlord to put into his account in his bank. Therefore bankers tend to be conservative when lending out money. They need to know that loans will be paid back, because they money for those loans comes from their customers who trust that their bankers will keep it safe and secure.

Bankers tend to only loan to established businesses that have a proven ability to repay the loan due to strong and consistent cash flow. They also like to see that the owners can pay the loan back personally if the business fails. They will ask for personal guarantees from the owners on any business loans. This means that even if the business fails, the entrepreneurs who owned that business will be held personally liable to pay back any and all business loans from the bank. Banks also like to see that a business has collateral that can be used to back the loans. This can take the form of equipment, buildings and land, inventory, and accounts receivable. New businesses generally do not have cash flow and have very few have assets to serve as collateral.

But, even without ready access to equity investment or traditional loans, entrepreneurs find a way to get it done. That is the power of bootstrapping.

Posted by Jeff Cornwall at 07:46 AM | Permalink | Comments (1)

Friends, even good friends, do sometimes disagree.

I truly appreciate the time and thought that Dr. Graboyes put into his comment on my recent post on the NFIB's principles for health care reform. Let me try to respond.

The position the NFIB has taken is a pragmatic one. I concede that it may be the best among available pragmatic solutions. I would argue that our health care mess -- we both agree that the current system is a mess -- is a result of decades of pragmatism. World War II was ending. Wage controls that had been put in place to keep inflation in check. The federal government, labor and large corporations decided that offering health care benefits was not a violation of wage controls. So a pragmatic solution was to create a system of employer sponsored health insurance as a way to increase compensation without increasing actual wages. It was a pragmatic economic shift.

Fast forward a couple of decades. President Nixon had instituted wage controls once again to stave off the inflationary pressures in our economy. This time the pragmatic solution was to enrich health care benefits. We moved from a major medical system (what is now called a high-deductible plan) to one of very low deductibles. Again this enhancement of compensation was a pragmatic way around wage controls.

Inflation, at least in health care, is once again rampant. And once again, we hear calls for compromise and pragmatism.

I agree with Dr. Graboyes. Our current health care system is not free enterprise. It is one based on a system of rent seeking behavior on the part of corporate medicine, physician and hospital lobbyists, health insurance corporations, and labor. I would like to see how these principles will take us down the road to liberty.

Dr. Graboyes says, “100% private is not going to happen, and one is hard-pressed to find any market-oriented think tank that advocates total retreat of government from health care.” This is just not true. For example, the Cato Institute is about as market-oriented as they come. Michael F. Cannon in an article published at the Cato Institutes's website said the following:

In a field dominated by lefties and rent-seeking weasels whose unifying goal is to provide health insurance to everyone, it is easy to get caught up in universal coverage fever. Even erstwhile conservatives have been seduced into thinking we can achieve universal coverage in a free-market way.

Yet a free market would not provide health insurance to all; some people are uninsurable, others don't want health insurance. National Review made the point nicely: "to achieve universal coverage would require either having the government provide it to everyone or forcing everyone to buy it." Either way, government calls the shots. If conservatives adopt universal coverage as their goal, the left will have already won.

Dr. Graboyes asks for another solution.

Give the consumers control of their health care dollars. Remove the employer from the health care system. What a way to truly put small business on a level playing filed with big corporations. Tear down government barriers to a truly free health care system - deregulate health care. Don't tell me that such fundamental change is not pragmatic or realistic. We can reform Medicaid like we reformed federal welfare. Shift that money back to the state in block grants free of federal mandates. We can deregulate health care just as we deregulated so many other powerful industries during the Reagan era.

Will it be uncomfortable? Yes. Will it be painful? Yes. But we have created a critically ill health care system that needs powerful medicine to return to wellness.

Posted by Jeff Cornwall at 02:57 PM | Permalink | Comments (1)

I have had the pleasure to interact with the 502nd Infantry Regiment that is working to bring entrepreneurial economic development to Iraq. It is part of the story that is just not getting reported.

My main contact has been Major Tim Collier, on the right of this picture from Camp Victory, Iraq. He is part of team working to help rebuild the economy from the ground up.

The goal of this operation is to begin the rebuilding process of the basic economic infrastructure and to help develop distribution channels for trade.

The initial focus is on the carpet industry. One local business hopes to produce a world class reproduction of the famed Pazdyk Carpet, acknowledged to be the oldest hand knotted rug in the world. The plan is to knot ten of these carpets over the next six months.

Below is a picture of the loom being used in this business and the carpet that they are reproducing.

Helping to rebuild the Iraqi economy will be a slow process. By focusing on free enterprise and small business ownership, a future of sustainable economic growth is possible.

Posted by Jeff Cornwall at 08:35 AM | Permalink | Comments (1)

I wrote the other day that I was concerned with the direction the NFIB was taking regarding their position on health care reform. My reading of the tea leaves was correct. They have released their "Principles for Health Care Reform."

They list ten principles: universal, private, affordable, unbiased, competitive, portable, transparent, efficient, evidence-based, and realistic.

A few of these words need to be examined.

Realistic is generally a word policy people use when they plan to tweak the current system and engage in compromise. I have never understood the logic of tweaking a fundamentally flawed model. And it is often unwise to compromise on our principles -- that seems oxymoronic to me. A principle is a firmly held belief. I thought the NFIB stands for free enterprise as a fundamental principle. Why compromise that principle when it comes to health care?

It is interesting that they chose to list universal as their first principle. Understand that the word universal has become a code word for a federalized system. They may try to hide that fact behind having private aspects to it, but universal in the world of policy means mandated. And for health care, that means a socialized system.

Think I am reading too much into this? Here is what they have to say about their principle of private:

To the greatest extent possible, Americans should receive their health insurance and health care through the private sector.

"To the greatest extend possible"??? You can drive a freight train through that loop hole! Liberty is a foundational principle in our system. It is sad that we seem to be finding more and more convenient reasons to compromise on our freedoms, particularly our economic freedoms.

I guarantee that their principle of efficient can never happen by "realistically" tweaking the system and making it a federally controlled and planned mandated system. And while we are talking about efficiency, let's see how they intend to achieve efficiency:

Health care policy should encourage an appropriate level of spending on health care. Laws, regulations and insurance arrangements should direct health care spending to those goods and services that will maximize health.

You got it. We will let the federal government regulate efficiency. I guess that makes sense. The federal government is bastion of efficiency, after all.

Generally I have been on the same side of issues with the NFIB. Their stand on regulatory flexibility is to be commended. Their stand on Kelo and property rights is also on the mark. Their approach to health care reform stands in stark fundamental contrast with those two positions.

Posted by Jeff Cornwall at 08:20 AM | Permalink | Comments (4)

I am working over the break between our fall and spring semesters on a new book on bootstrapping. It is a text that is part of a new Entrepreneurship series from Prentice-Hall. It got me reflecting a bit on why bootstrapping is such an integral part of the entrepreneurial experience. It is worn by so many entrepreneurs as a badge of honor. They beam with pride when they tell of the creative way that they have gotten things accomplished for their business when operating on a shoestring budget.

So why do so many entrepreneurs bootstrap their businesses? That is the question I ask at the beginning of the book. The answer to this question is not as simple as it might first appear. Some reasons for bootstrapping a business are borne out of necessity. Resource limitations are genuine constraint of many start-up businesses. The average start-up in the US only has about $10,000 in capital to launch their business.

But in other instances, the entrepreneur makes a conscious choice to be a bootstrapper outside of resource limitations. Whether it be to improve the performance of their business or be it borne out of the values of the entrepreneur, sometimes bootstrapping is a conscious management style. Many entrepreneurs start out of resource limitations, but make the choice to make bootstrapping part of their culture.

Over the next couple of weeks I thought it would be fun to blend my book writing and my blogging a bit. I will be making several posts reflecting on the various reasons entrepreneurs bootstrap.

Posted by Jeff Cornwall at 06:35 AM | Permalink | Comments (5)

In a paper by Dr. Chad Mourtray released this week by the SBA Office of Advocacy, the study finds that:

- Prior military experience is the strongest predictor of self-employment, increasing the likelihood by 9.4 to 11 percent.

- Having some college education increases the chances of self-employment by 3.3 percent, a baccalaureate degree by 4.4 percent and graduate experience by 8.3 percent.

Since we find that self-confidence and self-reliance are both important predictors of entrepreneurial aspirations, neither of these findings are that surprising. However, it is interesting to see that military experience was the single strongest predictor of starting a business.

Posted by Jeff Cornwall at 03:29 PM | Permalink | Comments (3)

Thanks to Paul Chenoweth (see his blog here) and the other folks at Belmont who worked to spruce up my site. Hope you all like the new look.

There is also a new feature at this site. We developed financial templates for our entrepreneurial finance text. They provide a relatively easy way to create complete three year financial forecasts for a new venture -- income statements, balance sheets, and cash flow statements.

We have gotten very positive feedback from bankers and investors who read business plans with these detailed financial included. The spreadsheets force the entrepreneur to think through all assumptions that go into the revenue model. If done properly, this makes the business plan a much tighter and more credible document. It helps to ensure that your marketing plan and revenue forecasts are telling the same story -- one of the most important aspects of a fundable business plan.

You can download these templates by clicking on the buttons in the left column. They are completely free to use! We created them for our students, but hope all aspiring entrepreneurs find them useful.

There are three versions of the Financial Analysis Spreadsheet. The first version is for businesses that have inventory. Examples of this type of business include retail, distribution, re-sellers, and manufacturing. The second version is for businesses with little or no inventory. Examples include service, consulting, health care, software, and engineering. The third version is for non-profit organizations.

The proper development of assumptions is key to getting the most out of these spreadsheets. Each assumption should be carefully documented and any changes in assumptions should be noted. The financial statement assumptions should come out of the business plan assumptions, with all assumptions being consistent and clearly tied together.

The use of the templates requires only a very basic understanding of the use of computer spreadsheets. No programming will be required. Simply enter data in the proper cells as instructed. If unusual errors occur when entering data, it may be the result of entering a space in the assumptions worksheet instead of a zero. In trouble-shooting this problem, make sure that zeros are entered into any “empty” cell.

There are two worksheets for each version of the template. One is for the assumptions, and the second is the actual financial statements worksheet. Yellow cells indicate data to be entered. Blue cells indicate model calculations. The worksheets will provide financial statements for three years when completed.

Posted by Jeff Cornwall at 07:16 AM | Permalink | Comments (3)

The Democrats in Congress are talking about cutting taxes. On the surface that sounds like good news for small business. However, their plan is not a simple one -- nor is it permanent.

From James Pethokoukis at US News:

Time to prime the pump? Democrats sure think so. "There was an overwhelming consensus that the time has come to stimulate the economy" is what Barney Frank, chair of the House Financial Services Committee, told Bloomberg News yesterday. This stimulus would presumably be done through targeted tax cuts, tax rebates, or increased government spending. All temporary measures to give the economy a quick boost. All quaint throwbacks to old-fashioned, Keynesian, demand-side, "put money in people's pockets" thinking. And all unlikely to give the politicians the "bang for the buck" they might hope for.

Pethokoukis offers a pretty compelling history and economics lesson to support his point. Worth a read!

Posted by Jeff Cornwall at 02:09 PM | Permalink | Comments (2)

This morning I attended a small business summit sponsored by the new mayor of Nashville, Karl Dean. An overflow crowd heard remarks from the Mayor, the state director of NFIB Jim Brown, and the head of the Nashville Chamber of Commerce Ralph Schulz on the needs of the over 530,000 small businesses here in Tennessee.

Jim Brown of the NFIB talked about the need for less regulation on small business -- a good goal that boosts start-up activity. He also talked about the need for lower taxes and how -- another noble goal. However, in the same breath he warned us that the current tax shortfalls we are seeing across the country as the economy slows do not bode well for entrepreneurs. It seems that there is a disturbing pattern during times like these. Local and state governments go after more revenue from small business owners through taxes and fees to offset the overall drop in sales tax revenues.

But then came a major disconnect for me when he shifted his remarks to health care. Rather than trust the free markets that he so strongly advocates for on behalf of his small business members, Brown applauded our Governor's expansion of the state-run health insurance program to include small businesses through a new program called "CoverTN."

We are seeing this across the country. It started when large corporations such as Walmart began to lead the charge for a federal government healthcare program as a fix for the current healthcare crisis. Large corporations began to signal that they would support a nationalized healthcare policy. Then, advocates for small businesses began to fall right in line.

It amazes me that those who advocate lower taxes and less regulation on one hand are willing to support the enactment of a national healthcare plan that would create a gigantic bureaucratic black-hole of taxes on the other hand. Governmental meddling in healthcare delivery and payment in large part created the healthcare system crisis. So now we are willing to hand the entire healthcare system over to that same government lock, stock and barrel in the name of political expediency?

Posted by Jeff Cornwall at 11:16 AM | Permalink | Comments (4)

We have been watching the growing pessimism of small business owners over the past few months as seen through the NFIB's monthly survey. It now looks like the Federal Reserve is the Grinch that has stolen entrepreneurs' Christmas.

Reaction by small-business owners to Federal Reserve rate cuts in September and October sent the National Federation of Independent Business Small-Business Optimism Index down 1.8 points to 94.4 in November -- the lowest reading since 1993. Seventy percent of the index decline came from two index components, the outlook for real sales and the outlook for business conditions in six months.

"Things were looking good on Main Street until the Fed warned that the economy was at risk of sinking," said NFIB Chief Economist William Dunkelberg. "That warning had credibility, and the logical response was to cut hiring, capital spending and other growth-related activities. And indeed that occurred in the last 12 days of September and continued into October and November. In general, small-business owner expectations that were on the rise before the Fed announcement fell after the announcement, and have drifted to lower levels since."

One bit of good news is that the credit debacle that is behind much our current economic woes is not effecting credit conditions for small businesses. In fact, credit conditions continue to look normal. Regular borrowing activity was reported by 32 percent of the owners, four points below October but typical of readings since inflation ceased being the number one business problem 15 years ago. The net percent of owners reporting loans harder to get in recent months rose one point to a net 7 percent, typical of readings for the past several years.

Once again we are letting politicians and lobbyists set policy for the economy. The business missteps and outright greed from the mortgage and real estate industry is what created this mess. But, rather than let the market work this out, we are going for another bail-out.

Worst of all, these policy decisions coming out of Washington (including the President's misguided consumer mortgage bail-out) are clearly hurting the one true and sustainable strength in our economy -- the small business sector. If left to the market to sort out, we would have had a fairly short, albeit painful correction. However, the unintended consequences of the Fed's actions and possible bail-outs from Washington will be the probability of a long-term hit on small business growth that could actually create the economic downturn these folks claim they are trying to prevent.

Posted by Jeff Cornwall at 06:31 AM | Permalink

The National Dialogue on Entrepreneurship reports on two new studies that highlight innovation in Asia and Europe.

A new World Bank study examines the state of innovation in East Asia with a focus on three primary sources of knowledge flow into the region: international trade, acquisition of disembodied knowledge, and foreign direct investment. East Asian economies still rely heavily on knowledge flows from Japan and the US, but the region's economies are beginning to build their own home-based knowledge industries as well. Patenting activity is growing in the region, especially in Taiwan, Korea, Hong Kong, and Singapore. Not surprisingly, electronics, computers, and communications are areas of particular strength. Other nations, such as Thailand, Indonesia, and Malaysia, continue to lag behind these regional leaders. When seeking to explain these patterns, the authors point to several factors. Regional innovation leaders tend to have more open local economies, better local education systems, and more effective government supports for innovation policy.

Let us hope that by the phrase "more effective government supports" the authors are referring to what has proven to be the most effective government support for entrepreneurship -- bureaucrats and politicians getting out of the way of entrepreneurs and letting free markets work. Central planning efforts where government agencies try to pick winners and losers have never proven to be a wise long-term strategy.

NDE also reports on a new Information Technology and Innovation Policy Foundation report:

[F]uture European prosperity depends upon Europe's ability to more effectively deploy information and communications technologies (ICT). The study notes that European productivity growth rates have lagged in recent years, and it identifies lagging use of ICT (especially in service sectors) as one culprit in the process. Like the US, Europe needs to boost productivity rates. But the pressures in Europe are even stronger, due to a more rapidly aging population. How can Europe reverse these trends? The report's author, Rob Atkinson, recommends greater overall private investment in ICT, the creation of public incentives to support such investment, and expanded efforts to promote digital literacy and adoption among the general population of European countries.

The most effective means of encouraging private investment is making favorable policy decision for an entrepreneurial economy. Lower taxes, less regulation, and stronger property rights are all key elements. I am afraid that most of Europe has a very long way to go on all three of these critical issues of public policy.

Posted by Jeff Cornwall at 08:46 AM | Permalink

In this week's column at the Tennessean I provide a summary of what it takes to attract investors to your business.

So what do these professional investors look for in a business when they make an investment decision?

We often hear that such investors will put money in an "A" team with a "C" idea, but not an "A" idea with a "C" team. That is, rather than investing in the next great idea, they invest in entrepreneurs with a proven track record of success in previous deals. However, the truth is that you will need straight A's to get angel or venture capital money.

Posted by Jeff Cornwall at 06:28 AM | Permalink

Ben Cunningham writes about Sen. Kerry's desire to "help" small business at his blog TaxingTennessee.

LEAVE US ALONE!!! For the love of all that is good and healthy.... why do politicians actually believe they can "help" us...the LAST thing in the entire universe that small business needs is the idiots in Congress "helping" them.

Thank goodness for Tom Coburn...he is all that is standing between us and the tyranny of the good intentions of our government.

Amen!!!!!

Posted by Jeff Cornwall at 01:19 PM | Permalink | Comments (1)

My nomination for the viral ad campaign of the year (if there is such a thing) is Office Max for their "Elf yourself" campaign. Here is the Center for Entrepreneurship staff here at Belmont University being "elfed."

(Be patient -- can take a minute or two to upload -- worth the wait!)

Posted by Jeff Cornwall at 12:54 PM | Permalink | Comments (1)

Some interesting findings were reported in the New York Times from a recent study of entrepreneurs:

It has long been known that dyslexics are drawn to running their own businesses, where they can get around their weaknesses in reading and writing and play on their strengths. But a new study of entrepreneurs in the United States suggests that dyslexia is much more common among small-business owners than even the experts had thought.

The report, compiled by Julie Logan, a professor of entrepreneurship at the Cass Business School in London, found that more than a third of the entrepreneurs she had surveyed -- 35 percent -- identified themselves as dyslexic. The study also concluded that dyslexics were more likely than nondyslexics to delegate authority, to excel in oral communication and problem solving and were twice as likely to own two or more businesses.

(Thanks to Jennie Bowman for passing this along).

Posted by Jeff Cornwall at 12:04 PM | Permalink

Whenever I talk with journalists about my blogging I feel uncomfortable. I do not at all consider what I do as being "journalism" as I have known it all of my life. But, many of them tell me that by blogging for as long and consistently as I have been I have become part of an entrepreneurial movement that is transforming the industry of journalism.

I have written about this type of phenomenon before as it relates to the music industry and retailing. I also experienced it being an entrepreneur in the health care industry during the early days of its transformation in the 1980s and 1990s. Entrepreneurial activity in an established industry that is dominated by giant corporations is often referred to as being like "little mammals dancing under the feet of dinosaurs."

Saulo Hansell at the New York Times blog (imagine that -- the New York Times now has a blog!!) reflects on the entrepreneurial undercurrents in journalism today at this post.

Every now and then, I meet someone idealistic and perhaps foolish enough to want to embark on a career in journalism. Until recently, my advice was largely the same as anyone had given for many decades: Find a gig where you can write -- a small town paper, freelancing for an alternative weekly, a business trade publication (my route). If you're good, the story went, you would find you way to bigger publications and forge a career.

Today, it's hard to give that advice, when the economic underpinnings of all those places you were supposed to be trying to work for are so shaky. Is there any good advice other than to learn how to trade mortgage-backed securities? I'm not sure that that opening an account on Blogger and hoping for the best will pay the rent.

Maybe not, but I don't think that taking an entry level job at a newspaper owned by a national holding company has a much brighter future....

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

Posted by Jeff Cornwall at 09:37 AM | Permalink

Sam Davidson has a nice follow-up piece to my post the other day on passion at his blog site CoolPeopleCare. He offers a thoughtful four step process that takes you from dreams to passion, from passion to plans, from plans to action, and from action back to dreams.

Posted by Jeff Cornwall at 11:24 AM | Permalink

If you ever want to get a lot of free books, start writing a blog. I have gotten a mountain of books to review on my desk this fall. Here are a few that might be worth a read over the Holidays:

How to Talk to Customers, by Berenbuam and Larkin.

Learning how to think like and talk to your customers is probably the essential skill for most start-ups. A good book to help with those selling skills.

First, Best, or Different by John Bradley Jackson.

I nice set of short lessons on effective niche marketing.

My Start-up Life, by Ben Casnocha.

See the start-up process from the eyes of a "very" young entrepreneur. A good read for entrepreneurs -- young and old.

Fired Up or Burned Out, by Michael Lee Stallard and Fire Them Up! by Carmine Gallo.

Need to give your team a shot in the arm? Both of these books offer some good advice on what works to communicate vision and passion in business.

For the social entrepreneurs out there I suggest New Day Revolution by Sam Davidson and Stephen Moseley.

I have had the pleasure to get to know Sam. These guys are among the new pioneers of for-profit social enterprises. A great read!

Product Idea to Product Success by Matthew Yubas.

The author outlines the process of going from an idea to a marketed product.

Simple Solutions by Tom Schmitt and Arnold Perl.

A fresh approach to leadership is the focus of this book.

PEAK, by Chip Conley.

Conley takes us back to Psychology 101 to show the lessons we can learn from Maslow on how to lead a great company.

Clear and to the Point, by Stephen Kosslyn.

Keeping with that same theme, Kosslyn uses psychological principles to help us finally get PowerPoint presentations right.

When You Mean Business, by Ray Capp.

Capp offers some simple, but powerful lessons we can learn from successful businesses.

And finally a recommendation from my father. Richistan, by Robert Frank.

Join Wall Street Journal columnist Robert Frank in his journey through the world of America's new rich. Some fascinating stories!

There. I am caught up on my reading and have cleaned off at least one stack from my desk.... Happy reading!!

Posted by Jeff Cornwall at 02:38 PM | Permalink | Comments (3)