The Entrepreneurial Mind

Still Hunkering Down, Still Bootstrapping

2010-03-17T13:55:43Z

A new survey of small business owners by Brother International Corporation found that small business owners are still hunkering down.

The survey revealed that more than half (53 percent) of small business owners believe stockpiling cash is the best strategy for surviving the current economic climate, as opposed to investing in their business. This is a wise and prudent strategy right now. The economy is a long way from recovery and more shocks could be in our future. Cash is the best cushion against uncertainty.

The same survey showed that the majority of small business owners (79 percent) will strive to make their company more efficient this year. Bootstrapping is back in and is a great path to higher cash reserves.

Additional results from the survey include:

15 percent say they would give up 10 percent of their company in exchange for a guarantee that they'd be protected from negative economic effects in 2010.
51 percent of small business owners find that their stress level is at the highest it's ever been, or higher than usual, as a result of the economic climate. In fact, close to half (48 percent) of small business owners think about their business while trying to fall asleep.
65 percent of small business owners believe they put in more hours than if they worked for someone else.
50 percent of small business owners enjoy the flexibility that comes with "being your own boss"
35 percent enjoy being able to pursue their passion.

Now is Not Time to be Careless with Tax Compliance

2010-03-16T10:45:13Z

The "kinder and gentler" IRS that came out of the restructuring the agency over a decade ago may be about to pass. From a commentary by Robert Teuber in the Wisconsin Law Journal:

"Most veteran IRS agents, particularly in the collection division, will tell you that the 1998 Restructuring Act emasculated the IRS and was perceived to have stripped its agents of both their power and autonomy. At the time, it was said that a kinder, gentler IRS emerged.

"The trend is now a return to the type of behaviors that preceded the restructuring. Do not misunderstand me -- I am not suggesting that the IRS is acting inappropriately. But I will say that agents have overcome the fear of acting aggressively and the sense of impotence that existed in the years following the Restructuring Act."

Entrepreneurs need to vigilant when it comes to tax compliance, as the flood of new agents has business owners in their cross-hairs.

One area that is getting close attention is the status of independent contractors. Over the years the IRS has tightened up their definition of employee versus independent contractor. Now they going to do 6,000 audits over the next three years specifically looking at this issue.

There are twenty triggers that can lead the IRS to disallow independent contractor status. Here is a link to the IRS website definitions. Do not take chances with this issue. If you have any doubts, check with your CPA.

This is not the only targeted area for audits that will impact entrepreneurs. Small business owners will definitely be under the IRS microscope for several years to come.

Top 5!

2010-03-15T22:26:06Z

Fortune named their Top 5 schools for entrepreneurship:

Babson College
Indiana University
University of Texas
St. Louis University
Belmont University -- How about that!!

Entrepreneurship Students are Ready

2010-03-15T10:36:13Z

With traditional employment looking so bleak a common question is this: "Are you seeing more students interested in entrepreneurship given the depths of this recession?"

This is a good question because historically we have seen a small upswing in student interest in entrepreneurship when the economy and job market soften. But this has become a much deeper recession and a more worrisome long-term economic climate. How are students reacting this time?

When the bottom fell out of the economy, the initial reaction among my students at Belmont University was one of shock. This generation is one that has been protected from failure and insulated from risk. I tend to have graduating seniors in the class that I teach, so those not already in business did not know what to do next.

But over the next few months, I saw a transformation. My students began to accept the new state of the world and adjust their expectations. I began to believe that this generation is ready to follow their entrepreneurial spirit and help rebuild our economy.

The other day I received a piece of data about our program that affirmed my theory.

Many industries see interest

Each year we usually see about 15 to 20 new businesses started by our undergraduate students. Mind you, they do this in the midst of taking classes and often while also working part time. This year we have seen a tripling of new practicing student entrepreneurs.

We went from 18 new undergraduate student businesses last year to 54 this year. These students are coming from all across our campus from many different majors.

The businesses they are starting are in a variety of industries. As would be expected in Nashville, a good number are in the entertainment industry -- including audio production, video production, artist management, live performance and music promotion.

There are several related to the food industry, too, including a couple of different types of catering businesses, a manufacturer of food flavorings, one that makes barbecue rubs and sauces and a food co-op.

Students have set up online businesses that sell everything from golf clubs to auto parts to high-end makeup. There are businesses that sell such things as jewelry, lawn services, aprons and kitchen cabinets.

And some students have created businesses that provide a variety of services, including basketball training, online marketing, medical waste disposal and even credit restoration.

Now it is time to turn the newly minted "Entrepreneurial Generation" loose. It is time to help give them the capital they need by cutting taxes. We also need to provide the freedom they need to navigate a very challenging marketplace by clearing the path to starting and growing businesses by cutting regulatory red tape. The "Entrepreneurial Generation" is willing to meet the challenges in our economy. This news has certainly raised my spirits about our economic future.

(This post ran as my column in the Tennessean today).

New Microfund Launched

2010-03-10T19:02:25Z

There is a new source of start-up capital in Nashville.

Solidus Company announced today the formation of a microfund to support local entrepreneurs and to help accelerate the growth of start-ups in the Middle Tennessee area. JumpStart Foundry will focus on very early-stage concepts. Over the next 12 months, the microfund intends to select 10-14 entrepreneurs for the program who will receive financial, business, and technological support to accelerate the growth of their businesses.

Each of the selected concepts will receive $15,000 in equity capital and special arrangements with participating partners for marketing, accounting, legal and technology services. In addition, three members of the group will use their knowledge and experience to mentor the entrepreneur and accelerate the success of the project. In return for this investment, JumpStart Foundry will receive a collective 10% ownership in the Common Stock of the company.

Townes Duncan, President of Solidus Company, explained why he believes this fund will make an impact on the local start-up environment. "Traditional venture capital funds require investments to be at least $1-5 million in size. This amount of capital is often much more than an entrepreneur can effectively utilize at the very early-stage of concept development. Over the last few months, Solidus has assembled 18 experienced, successful entrepreneurs who want to solve this early-stage funding gap and share Solidus' passion for helping promising start-ups. Together, this founding group set out to craft a new way to provide support, both financial and operational, to innovative and promising entrepreneurs."

According to founding member Scott Kozicki, "the JumpStart Foundry name is meant to be symbolic of our two-fold mission. The fund intends to help launch or "jump-start" emerging new business concepts. Further, we will also act as a foundry by leveraging our experienced group of founders to help mold the concept into an exciting, emerging business. To complete our offering, Jumpstart Foundry will also establish partnerships with local organizations to offer important business services at either free or dramatically reduced pricing for the fund's investments. These partnerships will allow our entrepreneurs to focus their time and capital towards building value in their company."

"Over the past few years, we have seen models like Y Combinator and Tech Stars mature and grow into significant economic development engines for their communities," said Vic Gatto, Partner, Solidus. "We believe JumpStart Foundry incorporates the best attributes of these predecessors but is also tailored to meet the unique needs of Nashville by leveraging our existing industries (i.e. healthcare, music, & transaction processing) to spur innovation."

Belmont University Center for Entrepreneurship is providing meeting space and other support for this initiative. However, because we set a "no investment, no consulting fee" policy for alumni and student ventures, I will not be participating financially in this fund. We have already had students and alumni from Belmont express interest in this new program.

Microfunds are part of the changing landscape in new venture financing.

Job Growth Still Not Happening -- Tax Credits No Solution

2010-03-10T11:19:51Z

In almost every previous recession it has been small businesses that created the job growth that pulled us out of high unemployment.

According to the latest poll of small business owners taken by the NFIB, small businesses are not yet moving into job creation mode.

Over the next three months, 8 percent of small business owners surveyed plan to reduce employment (down 2 points), and 13 percent plan to create new jobs (up 3 points), yielding a seasonally adjusted net negative 1 percent of owners planning to create new jobs, unchanged and still more firms planning to cut jobs than planning to add.

"Net job creation will appear in the coming months, but the gains will be painfully slow with timid consumer spending, especially in the service sector," said William Dunkelberg, NFIB's chief economist.

Owners complained that poor sales are their top problem, and there is no need to hire with no new customers. In this sales environment, it is hard for workers to earn their pay. Owners cannot pay workers more than the value they add to the firm. This is why a jobs tax credit will do little to increase employment. No one can pay $40,000 for a worker to get a $5,000 tax credit unless that worker can add at least $35,000 in revenue to cover the cost of hiring. And as long as the tax credit issue is alive in Congress and not passed, employers that were ready to hire (13 percent plan to hire) will wait until they can qualify for the credit, delaying much needed gains in employment.

More evidence that those shaping our current economic policy are completely out of touch with the realities of owning a growing a small business.

Assessment of Entrepreneurship Education Around the Globe

2010-03-09T12:41:34Z

Education and training for entrepreneurs worldwide is inadequate, according to the Global Entrepreneurship Monitor (GEM) Special Report: A Global Perspective on Entrepreneurship Education and Training, released today at Babson College, lead sponsor and co-founder of the GEM project.

Entrepreneurship education is one of several key factors, along with access to finance, government policies, infrastructure, and others, that influence attitudes about entrepreneurship and people's willingness to start businesses, according to GEM. Interviews with experts in 31 countries around the world found that in almost every country entrepreneurship education and training was inadequate, especially in primary and secondary schools.

In surveys with more than 100,000 individuals, GEM found that 80% of entrepreneurship education and training is provided through formal channels such as primary and secondary level schooling, and through university degree programs. This is significant because most formal training is at the primary and secondary school levels.

"Training at a young age cultivates an entrepreneurial spirit early on, but college-level training is important too, because it validates entrepreneurship as a potential career path," says report author and Babson Professor Donna Kelley, "Besides skill-building, training increases an individual's awareness of entrepreneurship and their intent to start a business, and improves perceptions about their ability to do so," says Kelley.

Sixty percent of individuals engaged in entrepreneurship training acquire it from informal sources, which GEM defines as non credit-bearing courses at a university, local business organization, or government agency, or self-study using books and Internet courses. "Access to informal programs is a good thing too, because entrepreneurs can obtain the specific skill sets they need to achieve their immediate goals," says Alicia Coduras, from IE Business School in Spain and lead author of the report.

GEM also learned that entrepreneurship training is of most benefit to individuals in wealthier countries where the entrepreneurial environment is rich in conditions that allow new businesses to thrive. "For entrepreneurship training to be productive in low-income countries, it needs to be complemented by beneficial government policies, infrastructure, and other basic requirements," says Kristie Seawright, GEM Executive Director.

Spring Break

2010-03-08T12:57:15Z

We are on spring break this week, so my blogging will be a bit lighter than usual. Taking some time with family, including a trip down to Miami. And of course, I will be playing a little golf, as well!

NFIB Statement on Job Creation by Small Business

2010-03-05T16:22:00Z

William C. Dunkelberg, chief economist for the National Federation of Independent Business, issued the following statement this morning on February job numbers based on NFIB's monthly economic survey that will be released on Tuesday, March 9. The survey was conducted through February 28 and reflects 799 small business owner respondents:

"In February, small business owners reported a seasonally adjusted decline in average employment per firm of negative 0.13 workers during the prior three months, an improvement from the January reading of negative .52 workers per firm. Ten percent of the owners increased employment by an average of 5.0 workers per firm, but 19 percent reduced employment an average of 3.2 workers per firm (seasonally adjusted). Lower layoffs and jobs from new firms should produce a better jobs number, but it won't be great. There still isn't any energy in hiring."

The Importance of Small Business and Jobs

2010-03-04T18:44:15Z

The importance small businesses for both job creation and job loss in our economy is highlighted in a new study from the SBA Office of Advocacy. Through much of the 1990s and and into the 2000s, small businesses accounted for 65% of new jobs created in the economy. But since the recession took hold, small business has accounted for 60% of job losses.

Over the 15-year period from 1993 to 2008, small businesses created some 65 percent of the net new jobs in the private sector, according to conservative estimates cited in a new report from the SBA Office of Advocacy.

Advocacy economist Brian Headd notes that many of the new jobs were in new business startups, but an even larger share were in expanding firms of all sizes--particularly mid-sized firms with 20-499 employees.

"More and more, we're finding that both new startups and ongoing high-growth firms have important roles to play in the labor market," said Acting Chief Counsel for Advocacy Susan M. Walthall. "Fast-growing firms scattered across the economy create a large share of jobs--and because no one can predict which idea will be the next to catch on, it's important to create an environment in which a wide spectrum can start up and expand."

Advocacy's analysis of the quarterly Bureau of Labor Statistics data show that over the 15 years from 1993 to mid-2008, 31 percent of net job gains (jobs created minus jobs lost) came from the opening of new establishments. An even larger share--the remaining 69 percent--were from ongoing firms of all sizes that expanded. (These net figures are based on establishment openings minus closings and establishment expansions minus contractions.)

But then came the recession.

In the current recession, firms with fewer than 20 employees began losing jobs as early as the second quarter of 2007. Small business have accounted for 60% of all job losses. From 2008 to the second quarter of 2009, these smallest firms accounted for 24 percent of the net job losses. Businesses with 20-499 employees accounted for 36 percent of job losses. The remaining 40 percent of job losses were in large firms with more than 500 employees.

Keep in mind that up until 2007, small businesses under 500 employees and larger firms each made up about 50% of the workforce.

In every past recession it has been small businesses that have kick-started job creation. We don't see evidence of that happening right now, and federal policy is doing everything wrong to help entrepreneurs play the vital role of job creation in our dire economic situation.

Growth and Exit

2010-03-04T18:38:04Z

Jason Del Rey has a great interview with Josh James at Inc.com about his growth of Omniture and eventual sale to Adobe. A very honest reflection -- well worth the read.

(Thanks to Belmont alum Bradley Martin for passing this along).

Evidence that Facebook Works as Marketing Tool

2010-03-02T12:13:20Z

While we hear about the power of social media as marketing tools, especially for those trying to bootstrap their businesses, but just how effective is it?

New research from Utpal Dholakia and Emily Durham of Rice University takes a look at this question. The study is featured in the March issue of the Harvard Business Review.

According to this study, companies that use Facebook and its fan page module to market themselves to customers can increase sales, word-of-mouth marketing, and customer loyalty.

Dholakia and Durham surveyed customers of Dessert Gallery (DG), a popular Houston-based café chain. Prior to the study, DG did not have a Facebook presence.

The study, based on surveys of more than 1,700 respondents over a three-month period, found that compared with typical Dessert Gallery customers, the company's Facebook fans:

•    Made 36 percent more visits to DG's stores each month.
•    Spent 45 percent more of their eating-out dollars at DG.
•    Spent 33 percent more at DG's stores.
•    Had 14 percent higher emotional attachment to the DG brand.
•    Had 41 percent greater psychological loyalty toward DG.

According to Dholakia, the results indicate that Facebook fan pages offer an effective and low-cost way of social-media marketing.

"We must be cautious in interpreting the study's results," Dholakia said. "The fact that only about 5 percent of the firm's 13,000 customers became Facebook fans within three months indicates that Facebook fan pages may work best as niche marketing programs targeted to customers who regularly use Facebook. Social-media marketing must be employed judiciously with other types of marketing programs."

Dholakia said Facebook marketing programs may be especially effective for iconic brands, which appear to attract a higher percentage of their customer base as Facebook fans.

Growth in Social Enterprise Continues During Recession

2010-03-02T11:51:29Z

The growth of social enterprise continues in spite of, or maybe because of, the recession.

Donna Fenn highlights The Unreasonable Institute, a new incubator formed in Colorado for social entrepreneurs, at her blog:

This year, the incubator's first, the founders vetted 33 candidates from 284 applications from 45 countries. Their criteria: "the ventures need to address the root cause of an environmental or social problem or need," says Hartung. "And they can't be donation or grant driven. They have to have a revenue mechanism that covers costs. We're also looking for those that can scale outside of their country of origin and eventually meet the needs of a million people." Tall order! According to Hartung, some of the candidates are for-profit, some are not-for-profit, and a few are hybrids. And their founders run the gamut from a former child soldier to an MIT engineer.

And there is a gathering of social entrepreneurs scheduled next month in San Francisco. The Social Enterprise Alliance, the largest membership organization for social entrepreneurs in North America, is holding the 11th Social Enterprise Summit in San Francisco April 28-30. This year it will be conducted jointly with the 3rd Social Enterprise World Forum. The international three-day event will highlight social enterprise models and strategies from around the world. They are expecting over 600 attendees.

When it comes to addressing social challenges, there is a grassroots movement based on the belief that markets work better than more large government programs.

"Neo-entrepreneurship"

2010-03-01T11:56:55Z

Sramana Mitra offers a stinging criticism of how many business schools teach entrepreneurship in her column at Forbes.

Many business schools are only willing to teach their students about high growth, high potential businesses that can scale to tens and even hundreds of millions of dollars in revenues. Those who may want to embrace students whose aspirations may be less lofty are dismissed by these academics as wasting their education. I have called this approach, "entrepreneurship on steroids."

My entrepreneurship courses are always taught from an inclusive perspective. I have had alums who have created larger, high growth ventures. I have also had alums who have bootstrapped their way to what fits their own definition of success. As long as they employ sound business practices, stay true to their values and priorities, and strive for success however they define it, I am equally proud of all of them.

She rightly points out that many professors teach entrepreneurship from a narrow perspective because that is all they know. She offers the example of Robert Hacker of Florida International University. "Hacker comes from a finance background, and when you are a hammer, of course, everything looks like a nail," says Mitra.

I also believe that too many who are teaching entrepreneurship have never made a payroll. Maybe if they had to white-knuckle it from payday to payday for a few months like most start-up entrepreneurs they may appreciate that even modest entrepreneurial ventures require knowledge and skills that we can offer in business schools.

Mitra has labeled those of us who teach entrepreneurship with a bootstrapping bent "neo-entrepreneurship". She says we "appreciate the practical success factors of young entrepreneurs. Perhaps it is necessity that drives their curriculum design, as access to venture capital or even angel investors is elusive."

I have never seen myself as part of any movement. I am a pragmatist. I see dozens and dozens of young aspiring entrepreneurs come through our program each year and want to prepare them as best I can for the world they will be facing when they launch their businesses.

Co-working Space Helps Cut Overhead

2010-03-01T11:46:29Z

The number of self-employed and freelance entrepreneurs has seen steady growth over the past two decades. As recently as 2007 the Small Business Administration estimated that there were more than 21 million self-employed entrepreneurs without employees in the United States.

Many are predicting that this number will swell as a result of the recession.

The traditional work spaces for the self-employed are coffee shops, cafes and home offices.

More recently a new alternative has emerged, called co-working spaces, where self-employed people and freelancers can come together in a common space. Unlike traditional executive suites, co-working spaces offer more than just space and office support. Co-working space usually has a very open environment that fosters interaction, collaboration and even shared work projects.

Co-working spaces are a good option for many startup entrepreneurs. They also can be a good option for small businesses looking to move from a home office. In an age of technology where it is so easy to become isolated, the co-working movement has drawn those who work independently but still seek to be a part of a stimulating community.

Co-working spaces are being established all around the country. Some of the early co-working spaces, such as Citizen Space in San Francisco and Indy Hall of Philadelphia, have led the way in this emerging alternative work space environment.

A new co-working space, called CoLab, recently opened on Fourth Avenue in downtown Nashville.

CoLab started with its first location in Orlando, Fla., about 18 months ago.

CoLab started as a side business for founder John Hussey of Orlando. Within 18 months, CoLab has outgrown the original floor it had leased and has added a second floor. With the growing success in Orlando, Hussey looked to open in a different city.

"When opening CoLab Orlando, I immediately thought it was a good fit for Nashville because it's an entrepreneurial town -- the creativity of an up-and-coming town on the cutting edge," Hussey said.

Kailey Hussey, a recent graduate of Belmont University and John Hussey's daughter, is heading up CoLab in Nashville.

CoLab Nashville seeks to become a place for meetups, technology groups and entrepreneurs to come together for networking and collaboration.

Bootstrapping entrepreneurs seek ways to keep their overhead low, especially in these uncertain economic times. Co-working space may offer an alternative for entrepreneurs that helps keep the cost of space affordable for those trying to grow their businesses within a limited budget.

(This post also ran as my column this week in the Tennessean).