The Entrepreneurial Mind

Still Just Surviving

2010-02-09T12:29:58Z

The NFIB Index of Small Business Optimism for January finds that optimism has clearly stalled for small business owners.

"Small business owners entered 2010 the same way they left 2009, depressed," said William Dunkelberg, NFIB chief economist. "The biggest problem continues to be a shortage of customers."

The highlights:

Employment --Owners reported workforce reductions that average .52 workers per firm, basically unchanged for the past several months.

Capital Spending --the frequency of reported capital outlays over the past six months rose three points to 47 percent of all firms, an improvement from December's record-low reading, but historically very weak.

Inventories and Sales --Small business owners continued to liquidate inventories and weak sales trends gave little reason to order new stocks.

Earnings -- In a word -- weak. "Don't expect much spending or hiring until these trends reverse," said Dunkelberg.

Credit --Regular borrowers (accessing capital markets at least once a quarter) continued to report difficulties in arranging credit at the highest frequency since 1983.

The engine of any recovery -- small business -- is still in a survival mode.

When a Bailout Plan Ends Up as Good News

2010-02-09T12:09:17Z

Ben Cunningham sent along a link to a story that looks into what actually happened with the $15 billion for small business support announced by the SBA last spring. I had raised concerns about an artificial infusion of debt financing for small businesses when this was first announced (see here and here).

It seems that as of today, none of the money has been distributed. From Jake Tapper with ABC News:

The source told me that the reason the program has not been officially utilized was twofold.
One, almost every potential participant declined to cooperate because they didn't want the stigma of using TARP funds given the tremendous public anger towards Wall Street and resentment about the $700 billion bailout.
Two, the specific purpose of the plan - to get the secondary market moving again for these SBA loans - was largely accomplished.

It may seem odd, but a story about government bailouts actually qualifies as a "The Glass is Half Full" post.

Why?

First, the public is not buying "government as the solution" policies and are pushing back against them. Although the story only references TARP, bailouts and the wasteful spending they have created have been getting more and more bad press and scrutiny from the public.

But even more importantly, the market worked on its own without the government helping with massive infusion of taxpayer dollars.

I doubt that most of those inside the belt-line in Washington understand the real lessons of this story, however.

Supporting Guatemala Honey Entrepreneurs

2010-02-08T19:20:41Z

My colleague here at Belmont University, Jose Gonzalez, has been working with a group of students to assist honey farmers in Guatemala.

They all spent time in Guatemala over part of the Christmas break and are now back working on plans to help these farmers. Toward that end they have entered their project in Dell's Social Innovation Competition.

Here is our students' entry into this competition to set up an entity to support these farmers and to expand a microloan fund:

Our plan is to support the creation of an independent venture that manages the production and commercialization of Fair Trade honey for small-scale farmers in Guatemala.

Background: Located in the mountainous department of Quiche in northern Guatemala, the town of Chajul suffered some of the most brutal violence of Guatemala's thirty-year Civil War. Its predominantly indigenous community continues to be one of the most economically distressed in Guatemala. Our team traveled to Chajul earlier this year and worked with the coffee farmers of the Asociacion Chajulense. This cooperative of 1,400 Fair Trade and organic coffee producers exports to the US, Canada and Europe, and provides techinical support and social services to its membership.

While the Fair Trade movement has improved the lives of Chajul's farmers, they continue to struggle with poverty, and recent climate changes have emphasized the urgent need for diversifying their incomes. With this in mind, the Asociacion Chajulense recently launched a venture to Fair Trade Honey production. Honey is an ideal supplemental crop. For most of the year, beehives require only a small amount of maintenance, and the annual division of hives allows for a typical yearly increase in production of 50%. To date, Chajul's successes with honey are impressive, as 100% of their production has made its way to the European market.

Our plan: To spin off the cooperative's honey project into a separate entity solely focused on the production and sale of honey. What started as a small initiative to support coffee farmers can become a highly impactful independent economic development initiative for the region. The potential is remarkable. The modest efforts so far have impacted only 50 producers who are involved in honey production activities. We estimate another 1,000 families stand to benefit from the implementation or our plan. Resources would be invested in creating the necessary organizational infrastructure and capacity to manage the newly created social venture. A portion of the funding would be allocated to the expansion of a microloan fund.

Over 85% of the population of Quiche lives on less than $2 a day. The lack of economic development opportunities is a significant detriment to the region. By creating a more efficient opportunity for revenue growth for a cooperative that is a central part of the community, it will greatly improve the livelihood of the honey bee farmers, their families and the community.

Please go to the website and give our students your vote.

Registration is very easy. You can find the Belmont idea here. Just click on "Promote" to give them your vote. Thanks!

Don't Add to the Challenges of Startup

2010-02-04T12:01:19Z

There are enough challenges with start-ups -- finding capital, finding space, attracting customers, reaching breakeven, hiring employees, etc., etc.. Why do so many entrepreneurs add interpersonal problems to this the already long list of challenges that must be dealt with during startup?

I have written often about the pitfalls of working with partners in entrepreneurial ventures (see here and here for a couple of recent musings). When a partnership works well, it can help you achieve things you never could have achieved alone. That was certainly the case with some of my partners in our health care venture.

But, partnership problems can be a significant cause of business failure for deals that would have succeeded were it not for the infighting of the owners.

Such dysfunction also extends to the key members of the team who are not formally partners in the venture. Team dynamics can soak up precious time that is needed to align the business to the market and getting customers in the door.

MyVenturePad has a link to a good post by Martin Zwilling at his blog Startup Professional Musings in which he looks at how to build a successful start-up team.

Culture really begins to take form with the first few hires, so make sure you look at not just people's talents, but their fit with your evolving team.

Manage the team carefully to build cohesion. And if someone is not fitting in, do not wait to long to remove that person from your business. The longer you wait to act, the worse the problem gets, and the more damage will be done to your team.

There is Still Money Out There

2010-02-03T12:23:09Z

While money is harder to come by, there is still money out there for deals that hold promise.

Last year the Forbes America's Most Promising Companies identified twenty entrepreneurial ventures with strong promise for growth.

In a follow-up, we find that many of these firms have had success in raising money. Mind you, it has not been a flood gate of cash flow opening for these firms even with the publicity from this event. But, together they have raised about $19 million.

But, because funding is still limited, the firms in this group are being prudent with every dollar they raise, making sure they get the most bang for the buck. From Forbes:

That's not to say some on our Most Promising list didn't express a bit of caution. Brian Javeline, founder of ServusXchange in Pompano Beach, Fla., anticipates shelling out to further develop his Web-based software that lets building contractors manage invoices, create estimates, schedule work orders and communicate with subcontractors. However, he notes: "Nothing is being spent unless we clearly have to."

A key reason these firms have been able to raise money is that they are doing what they said they were going to do. Making promises is not enough -- you have to hit your milestones. Most investors have a much more cautious approach to funding these days. Rather than betting on a plan and a dream, they now expect entrepreneurs to show them results before investing any money. The Forbes list of growing companies are hitting many of their milestones, as can be seen in this article.

That requires more an more firms to learn the art of the bootstrapping start-up and often need to continue bootstrapping to get by between rounds. Pre-revenue financing is very rare right now, and even growing firms must be patient for any follow-up rounds of funding.

Bloggers Share Their Collective Minds

2010-02-02T20:40:29Z

The mood is still pretty down among small business owners. For example, according to the latest SurePayroll Small Business Scorecard, business owners' optimism is at the lowest levels since last year about this time.

It seems that the mood of us who blog about the economy is at least as dour as the players we follow in the economy -- in my case, the entrepreneurs and small business owners in our economy.

Ewing Marion Kauffman Foundation released a survey today reporting that 48 percent of economics bloggers said that the economy was "worse than official government statistics show." (Although I am not an economics blogger, per se, I find myself writing about economic policy from the entrepreneurship slant, so have been included by Kauffman in this group).

In the inaugural Kauffman Economic Outlook: A Quarterly Survey of Top Economics Bloggers, the Kauffman Foundation sent invitations to more than 200 top economics bloggers. The Foundation will be surveying the bloggers about their views of the economy, entrepreneurship and innovation every quarter to provide a new gauge for the nation's fiscal health.

"As independent thinkers who are immersed in discourse through the innovation of blogging, these economics writers have a unique voice and perspective, and potentially profound influence," said Tim Kane, senior fellow at the Kauffman Foundation and author of the study. "While they individually express themselves virtually every day, we think their collective voice needs to be heard."

Research highlights include:

The bloggers expect the greatest growth prospects over the next three years to be in interest rates, inflation and the budget deficit. U.S. output and jobs are expected to increase, but with about half the intensity of growth in global output.

The panel assesses conditions as "bad" or "very bad" for small business (52 percent) and bank lending to business (51 percent) and individuals (50 percent). The outlook for entrepreneurs is a relative bright spot, with opinions mixed between bad conditions (36 percent) and good (26 percent).

Seven out of 10 bloggers say the federal government is too involved in economic matters, and they share a clear consensus for action. Tax cuts, especially on payrolls, are recommended, and three ways to cut the deficit had overwhelming support: Medical entitlements, Social Security and Defense should all be reduced.

Off to a Great Start

2010-02-02T12:36:58Z

Well, our latest student-create, student-run campus business, Buzzy's Candy Store, is off to a roaring start!

It demonstrates that the market is still open to businesses that fill a niche, even in the throws of the recession. The student who proposed the venture did her homework and found that a candy store is something our students, faculty, staff and neighbors all wanted. There are still opportunities out there -- a little harder to find, but they are there.

Here are a few shots from their opening weekend.

The Buzzy's Store Front

Buzzy's founding team of students

Belmont University President Fisher among first customers

Part Three on Bootstrapping from the Blogsphere

2010-02-01T11:48:34Z

Sramana Mitra has posted the third batch of blog writings on bootstrapping. You can find links to the first two batches of posts here at EM in previous posts from last week.

Here is the third batch of bootstrapping posts:

Tim Berry says that the best source of start-up funding is sales.
In a counterpoint, Allan Young warns about remaining in what he calls a perpetual start-up mode by over relying on bootstrapping.
Anne Clelland gives the emotional side of a lean start-up in her posts.

Thanks again to Sramana for putting this together.

A Buyers Market for Acquisitions

2010-02-01T11:24:47Z

Just like in real estate, we are in a buyers market for the sale of existing businesses.

The demand for buying businesses has weakened as the recession has lingered, while the increasing number of distressed small businesses has created a surplus of owners ready to sell.

Even when the economy recovers, we can expect conditions to continue to favor business buyers as baby boomer entrepreneurs look to exit or cash out of their businesses to fund retirement.

Scott Hill, managing partner of Peer Business Group in Brentwood, offers five key steps, if you are in the market to purchase an existing business.

First, carefully evaluate the impact of owning a particular business on your family's lifestyle and finances. Evaluate the income and wealth risks by working through worst-case scenarios.

Hill suggests you ask questions such as, "What are my own and my family's lifestyle priorities, and how will the demands of the new business affect what we have been accustomed to?"

And "beyond the investment, down payment and debt obligations, how many months can I survive if the business cannot pay me for a period of time?"

Hill also recommends that you talk about the risks honestly and clearly with your family to make sure everyone is 100 percent behind buying the business.

Second, ask the owner detailed questions about his or her daily activities. Shadow him or her to get a true understanding of the actual role the owner plays in the business. Determine whether the duties of the owner are consistent with your own priorities, lifestyle and values.

Third, take a critical look at the business and try to uncover any red flags. Never evaluate a business from a perspective that simply reaffirms your desire to buy it.

Hill advises: "Some red flags are really no big deal. But some are deal killers." Make sure you uncover and discuss potential problems before you buy.

Fourth, make sure you have enough cash to support the business. "Ideally, you shouldn't buy a business unless you have at least an extra 10 percent set aside for working capital or as an emergency fund."

Statistics say the buyer can expect as much as a 15 percent reduction in sales after the purchase. The more cash you have, the better the cushion, Hill says.

Finally, make sure to work with experts when buying a business. That includes not only a buyer's broker, but also an attorney and certified public accountant who are experienced at business acquisitions.

A challenge you will face is that owners often place unrealistic values on their own businesses. Experts familiar with buying and selling can help determine a realistic valuation.

Scott Hill's firm has a buyers resources page filled with tools and information at this Web site: www.peerbusinessgroup.com/buyerresources.html.

(From my column this week in the Tennessean).

Pedigree Not That Important for Entrepreneurs

2010-01-29T13:31:04Z

Yesterday was a great day here at Belmont. As I mentioned the other day, our latest campus-based business opened for business.

Buzzy's Candy Store had an amazing opening, with revenues in one day that equal what some of our stores would be happy with in a month!! The girls behind this venture, Areej Rabie, Julia Cecere, and Mandy Strader, did an amazing job getting the store ready to open and building a "buzz" for their grand opening. There were lines to check out almost all day.

What is amazing is how many colleges and universities that you may have never heard of are doing really cool things in entrepreneurship education all around the world.

This is nothing new. Many of the best innovations in entrepreneurship education over the past three decades have come out of little known programs.

I could never have gotten our program to the point it is now at many of the larger, better known institutions. The bureaucracy and inertia at these schools makes program development a slow and sometimes painful process.

A post by Vivek Wadhwa at TechCrunch from last fall says that pedigree really does not matter for entrepreneurs -- it is what they get out of their education, not where it comes from that matters. He writes:

With my affiliations at three of the greatest universities in the world (Harvard, Berkeley, and Duke), I know I'm going to take a lot of flak for this piece. (Yes, I know that Berkeley and Duke aren't Ivy League -- but they are in the "elite" category). It's not that I haven't been trying to find the good news. I've done three big research projects on entrepreneurship. Each of these reached the same conclusion about education and entrepreneurship: What makes entrepreneurs successful is the education, not the school. It's the same in India and China. India's IITs and China's Fudan University (their "Ivy League" schools) don't hold any monopoly on graduating tech stars.

I find the same thing with our entrepreneurship students. Those who take advantage of all we offer them gain amazing momentum coming out of college.

Certainly, the two freshmen and the sophomore who took the initiative and opened Buzzy's are already improving their chances of success in their futures after they leave Belmont.

(Thanks to Bruce Schierstedt for passing the TechCrunch story along).

Confidence Improves, But Still a Fragile

2010-01-28T12:01:35Z

Several of the recent surveys of small business owners I have cited over the past weeks have been showing signs that confidence is improving. Mind you -- it is not a robust rebound of confidence, but at least there seems to be a sense that the worst may be over. Notice that I choose my words carefully --"...the worst may be over..."

A new survey of Silicon Valley VCs from the University of San Francisco seems to be telling the same story. The Silicon Valley Venture Capitalist Confidence Index rose slightly again in the 4th quarter of 2009.

Kurt Keilhacker of TechFund Capital confirmed, "While there is some caution with macro employment problems and worrisome tax policies, there is guarded optimism in Silicon Valley." Tom Rodgers of Advanced Technology Ventures detailed, "The environment is going through a natural Darwinian contraction...We will see the stronger companies surviving and thriving and the more disruptive and resilient approaches will continue to be funded. This is good for the long-term health of the environment."

While such surveys are encouraging, we need to keep things in perspective. This optimism is not due to an imminent return to economic growth.

Remember -- we are seeing results in these surveys that come from the survivors. And even they are not optimistic because they see good times in the foreseeable future. They are a bit more optimistic simply because they have survived the last two years.

If employment does not rebound this optimism will fade. And employment will not improve due to the Keynesian Folly we see coming out of Washington with massive increases in government spending. It will come, albeit slowly, by turning entrepreneurs loose by putting more money in their coffers through tax cuts and getting government out of their way.

Any signal that we will face higher tax rates will surely kill much of this optimism. And higher tax rates are clearly still on the table since the President was careful to say in his speech last evening that he has not yet raised income taxes.

I am pleased that the panic is over for now. But any improvement in optimism is very fragile and tentative.

Buzzy's Candy Store

2010-01-27T13:56:17Z

Our students are about to open our latest campus-based business -- Buzzy's Candy Store.

Freshmen Areej Rabie and Mandy Strader and Sophomore Julia Cecere are leading this latest venture. It will officially open tomorrow 1/28/10 at noon.

Once again the students have gotten great hands-on lessons in bootstrapping, planning, hiring, inventory management, and so forth.

Here is the segment taped live this morning on the local FOX channel: http://www.fox17.com/newsroom/top_stories/wztv_vid_2620.shtml

They also have a Facebook page set up.

Bootstrapping Thoughts from Around the Blogsphere

2010-01-26T12:09:25Z

Sramana Mitra is running a series at her blog that features a selection of posts from the blogsphere on bootstrapping.

The first three posts she features includes:

Luke Timmerman at Xconomy writing about a biotech start-up that bootstrapped its first 20 months with no support from VCs.
Brad Feld's post on bootstrapping -- noteworthy as he is a VC who advocates bootstrapping.
Taylor Davidson's suggestion of a new funding model that shifts VC funding to meet the new reality of an economy dominated by bootstrapped start-ups with less focus on high, short-term growth.

She will be featuring more posts throughout the week, so I will provide some more links in the next few days.

The Battle Over Boom and Bust

2010-01-25T21:56:27Z