The Entrepreneurial Mind

You Have Better Answers

Fri, 19 Mar 2010 14:19:42 -0600

Here is my final thought from the Economics Blogger Forum....

One of the economists in attendance here today said that while he respected the enthusiasm of people sounding their voices through the Tea Parties, "populists rarely have ideas for effective economic policy."

After hearing the bickering about economic policy nuance throughout the day today, it is clear that economists have little understanding about the day-to-day hardships being faced by small business owners on Main Street.

It it is time to listen to the economic wisdom of the populist entrepreneurs across America when they tell the government, "Let us keep our money and get out of our way!"

Its Technology, Stupid

Fri, 19 Mar 2010 11:55:47 -0600

We had a rather spirited discussion in a small group breakout late this morning session here at the Economics Bloggers Forum here in KC. It centered on what really caused the recession. The argument was made by Michael Mandel (formerly of Business Week) that we had very few real technological innovations introduced into our economy since 1998. What is interesting to me is that this may partially explain why we are seeing no entrepreneurial job growth pulling us out of the recession. In all past recessions it has been entrepreneurs who have kindled new growth. The argument may be that there is no real base of new technology to build from to jump start a recovery.

The good news is that Bob Cringely asserts that there is a technology seedbed out there that may yet spur long-term growth.

Economists Talking at Each Other

Fri, 19 Mar 2010 09:39:57 -0600

I am blogging from the Economics Bloggers Forum today at the Kauffman Foundation in Kansas City. As a non-economist what I have taken away from the discussion so far this morning is that the long term economic forecast is pretty bleak, and that few of the economists can agree on what has happened to us and what we need to do.....

The Missing Step in Planning

Fri, 19 Mar 2010 05:32:29 -0600

I have tried a different approach to business planning with my students this semester.

While I have defended business planning in the past, I also recognize that it is often not used effectively. People rush into planning without making sure they are writing a detailed document about something that can actually make it in the market. I also see that people who move into writing a business plan too quickly can get lost in the details.

It is this second issue that has led me to add a new step in business plan development for my students (and with the alumni I work with, as well).

I have integrated a step between the cursory opportunity assessment process and developing a full business plan.

The step is based in large part on the ground breaking work of Osterwalder and Pignuer on business modeling. It has proven to help them see how the moving parts of the business fit together and work (or don't!) before they dive into the details of planning.

Here is the assignment (this can serve a s good outline for anyone planning a venture):

1- Mission Statement (25 words)
2- Business Concept (1 page max) - 5%

Additional description of the concept beyond 25 words in mission
Key values entrepreneur brings to the business
Key goals and objectives, including personal financial and non-financial goals

3- The Value Proposition (2 pages max)

Based on industry research, why is this an opportunity?
What are the macro trends that support this opportunity?
What are the more focused localized trends that tie into industry trends above?
What is the "pain" in the market does the business address?
Cite evidence to support

4- Target Market (1 page max)

Who are they?
Why are they your target?
What are the key attributes that drive their decision to purchase?
Who are your main competitors and how well do they address customer preferences above?

5- The communication and distribution channels (1 page max)

Where do your customers get their information to make a purchase decision?
What form do they prefer this information in?
How do they want you to get the product or service to them?

6- The relationships established with clients (1/2 page max)

How important is customer service in the business?
Do we need to deal with each customer on a personal basis?
Do they just want us to get them the product and leave them alone?

7- The key resources needed to make the business model possible (1 page max)

People - estimated cost for each
Equipment - estimated cost for each
Inventory - how much to start and how much on hand (if applicable)
Physical space
Operating cash on hand
Suppliers

8- Key Activities (1 page max)

What are the "must do's" to get this ready to launch (Feasibility Plan)?
What are the "must do's" to get the first customer (Feasibility Plan)?
What are the "must do's" to keep customers coming in the door and to keep them from leaving us?
What are the "must do's" to support growth?

9- Key Stakeholders (1 page max)

Who are your most critical stakeholders and what will get them to work with you? (This included sources of outside funding, if needed!)

10- The revenue streams (1 page max)

What generates revenues for the business?
What will pricing strategies be?
What is our pricing structure?

11- The cost structure (1 page max)

What is the cost per unit?
What is the overhead cost to operate?

12- Breakeven (One sentence max)

When will we breakeven based on these initial estimates? (More precise figures will come in the business plan)

Still Hunkering Down, Still Bootstrapping

Wed, 17 Mar 2010 07:55:43 -0600

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

Tue, 16 Mar 2010 04:45:13 -0600

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!

Mon, 15 Mar 2010 16:26:06 -0600

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

Mon, 15 Mar 2010 04:36:13 -0600

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

Wed, 10 Mar 2010 13:02:25 -0600

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

Wed, 10 Mar 2010 05:19:51 -0600

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

Tue, 09 Mar 2010 06:41:34 -0600

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

Mon, 08 Mar 2010 06:57:15 -0600

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

Fri, 05 Mar 2010 10:22:00 -0600

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

Thu, 04 Mar 2010 12:44:15 -0600

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

Thu, 04 Mar 2010 12:38:04 -0600

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).