Dr Jeff Cornwall

Tag Archives: cornwall

Why the Mood of Entrepreneurs Matters

The word out today on the mood of entrepreneurs in the U.S. and it is not at all encouraging.  The NFIB Small Business Optimism Index is down sharply this month.

And who can blame them!

Unemployment remains high and shows to positive growth.  Don’t be fooled by the “80,000 new jobs” spin.  Due to our population growth in this country we need at least 130,000 new jobs each month just to break even with the added people coming into the workforce.  Without jobs, people are not spending.  And without spending in our economy, there is no reason for entrepreneurs to become aggressive again and get into a growth mode.

The President is drawing a line in the sand insisting on increasing taxes for those earning over $250,000 a year.  Many who fall into this proposed tax increase are entrepreneurs.  We know that for every 1% increase in the marginal tax rate that we can expect a 1.5 to 2.0% decrease in start-up activity.  Remember that this announcement came after the survey from the NFIB that showed a sour mood among business owners.

And then there is the new healthcare model about to roll forward in this country.  Many small business owners are paralyzed by the implications of this law.  I have had a couple of friends estimate the costs for their small businesses and it is tens of thousands of dollars for even a modest sized payroll.  Obamacare will lead to a huge decrease in employment in small business as it is implemented over the next two years.  (By the way, most of what we are hearing from the Republicans is only lip service, so we should all plan for it to move ahead).

So we can see why small business owners are in a foul mood.  A weak consumer base, increasing taxes, and increasing labor costs are not going to spur entrepreneurs to help lead the economic recovery.

So why should we care?

Entrepreneurs have led every past recovery.  If they are not optimistic they are not going to hire more workers, buy more inventory and increase capital spending.

This economy is dead in the water and we are doing everything wrong when it comes to helping those who can help rebuild economic growth

Putting a Crowd Around the Board Table

Crowdfunding, which uses the Internet to generate small contributions of funding from a large number of people, has been getting a lot of attention lately among entrepreneurs.

Crowdfunding primarily has been used to help raise money to support social causes and to help fund struggling artists.  The money received from crowdfunding has to be considered a contribution or a donation.  In most cases, something nominal is usually offered in return for financial support, such as a free download from a musician.

Historically, because of securities laws, small businesses have been unable to use crowdfunding. Until recently, entrepreneurs had only been able to seek funding from a limited number of people who meet specific income and wealth criteria.

A few creative entrepreneurs have used a loophole in the rules to raise money through crowdfunding.  Rather than treat money raised through a crowdfunding campaign as investments, they offer people something of value in return.  For example, a person opening a new brewpub may get people to “donate” to support the start-up by offering free admission to a special opening night event.  The contributions would be motivated by the desire of local beer enthusiasts to support a new local brewery.  The most commonly used websites that promote traditional crowdfunding are Kickstarter and IndieGoGo.

One instantly legendary crowdfunding campaign was implemented by Eric Migicovsky.  He was raising money for his new wrist watch, called Pebble, which pairs with smartphones via Bluetooth.  Contributors were promised they would get preference to buy a Pebble when the watches were introduced to the market.  Although his initial goal was to raise $100,000, Migicovsky was able to raise over $10 million to help launch Pebble.

The recently enacted Jumpstart Our Business Startups (JOBS) Act of 2012 significantly expands the use of crowdfunding for entrepreneurs.  Under the provisions of this bill, those who provide funding through crowdfunding can now become equity investors with ownership in the business.  The JOBS Act opens up the funding of start-ups to allow almost anyone to invest in entrepreneurial ventures.  Several efforts to create crowdfunding platforms under the JOBS Act are being developed, including one in Nashville called InCrowd Capital, being led by Phil Shmerling.

Attracting investors through crowdfunding requires a different approach than when pursuing funding from angels and venture capitalists, who tend to invest more in the entrepreneurs leading the team than in their ideas.

Crowdfunding investors, on the other hand, are attracted to compelling stories and business ideas they can see themselves using.  What led to the success of the Pebble crowdfunding campaign was that people were excited about a completely new technology that they wanted to be the first to own.  Not every product can create that kind of passion and excitement.

The JOBS Act certainly broadens the pool of people who can invest in small businesses and offers an exciting new avenue for raising money for start-ups.

However, using crowdfunding also may make the entrepreneur’s work more challenging.  If adding just one new partner increases the complexity of running a business, imagine what a crowd of partners can do to complicate an entrepreneur’s life!

A Long Journey

In May of 2005 Jason Duncan walked across the stage at Belmont’s graduation.  At that moment he became the first alumnus of our new entrepreneurship program.

Like many who have followed him, Jason had worked on a business he wanted to launch while studying in our program.  His plan was to move to Montana and open a coffee shop.  He even had a name for his coffee shop – EVOKE.

However, as is often the case, nothing went according to plan.

Try as they might, he and his wife Jenni were never able to open their coffee shop in Montana.  But they did find a way to get into the coffee business.  Since every attempt to open a store seemed to meet a roadblock, they adjusted their business model and opened EVOKE as a mobile coffee catering business.

“EVOKE did not set out to be a mobile coffee catering company,” said Jason.  “But what we found out is that we grew up doing this, made money, and knew that we now had a foundation to stand up on.”

Although they had success with their mobile coffee catering business in Montana, in 2008 they decided that their best chance for long term success was to move EVOKE to Jason’s home town of Oklahoma City.

“When we moved EVOKE to Oklahoma City, we knew we had two options:  to work our tails off and learn from our mistakes in Montana or shut EVOKE down and move on,” said Jason.  “We knew we could be better.  We took the first option and worked tirelessly to run a solid company based on what we had planned years ago.”

Jason and Jenni realized they would have to adapt their business model once again in this new market.

“Oklahoma was very different than Montana,” explained Jason.  “We had competition, which we did not have in Montana.  So, we focused on a key part of coffee:  The relationship.”

The customer relationship part of the business model is the one that most often gets misunderstood.  There is not one best way for all businesses to interact with customers.  But there is one best way for your business model to build a relationship with your customers.

The large national coffee chains are built on a relationship with their customers that supports the core of their business model, which is efficiency.  They are good at getting a large volume of people through their stores each day.

EVOKE’s business model was based on a different relationship with their customers.  They chronicled their ups and downs openly and honestly in a blog to allow their customers to get to know them on a more personal level.  They worked hard to become part of the fabric of their community. By following this model, EVOKE has become one of the top coffee catering businesses in the country.

But they never lost sight of their original plan.

“We did not change our vision as we grew and kept our eyes on the ‘final’ goal — if there is one in business,” said Jason.

So on the first of May this year, their plan to open a coffee shop finally became a reality.  They opened the first brick and mortar EVOKE coffee shop in Oklahoma City.

A Tough Road During Tough Times

Several new studies of small business owners today show that tough times continue for entrepreneurs.

Two surveys released today offer some disturbing results.  Wave Accounting, a cloud based accounting software company for micro and SMB’s, released a survey of their 250,000 micro and SMB customers and Pepperdine University’s Graziadio School of Business and Management joined with Dun & Bradstreet Credibility in a survey released today of 6,000 small business owners.

The Wave survey reinforced what a lot of us suspected.  The number of accidental entrepreneurs, those who started businesses after finding themselves unemployed and unable to find work, has doubled over the rate found before the recession began (from 9% to 18%).

And the role that government incentives played in their decision to launch their business?  Only 2% of respondents in the Wave survey said government incentives fed the decision to go into business for themselves.  And in the Pepperdine survey, only 1% said the highly publicized crowdfunding JOBS Act would have any impact on their ability to raise needed funding.  So don’t let politicians fool you into believing that their attempts to steer and guide the economy have an impact!

And speaking of financing, only 41% of the businesses looking to raise capital were successful.

A shocking figure from the Wave survey relates to how well the business owners were able to meet their basic needs through their business. An incredible 52% of American small business owners can’t put food on the table through the earnings from their business over the past twelve months.

Even though many said they can’t make ends, it is not due to a lack of effort.  Two thirds (66%) of business owners in the Wave survey reported struggling with time management and work/life balance with 43% of respondents having to work after normal business hours to take care of administrative tasks like accounting and bookkeeping.

All of these results shed light on why business owners remain gloomy about the outlooks of the economy.  Last week the NFIB small business optimism survey continued to show weak results.

“In the last year, small-business optimism has limped along, and today the sector is no better off than it was just over a year ago,” said NFIB Chief Economist William Dunkelberg. “The lack of progress is discouraging, producing no signs that economic activity will pick up this year at all. The calculus of spending decisions requires an estimate of future sales, tax rates, interest rates and credit availability, labor costs, health-care costs, regulatory compliance costs, all of which are very uncertain. Most of this uncertainty is the result of what is happening—and not happening—in Washington.”

A survey released earlier this month by Citibank suggests that entrepreneurs are not giving up in spite of all of the challenges they now face.  53% of respondents of this survey say they have reinvented their business models “to stay afloat or competitive.” This strategy is reinforced in the current competitive climate that 38% of respondents describe as “extremely intense.”

As I have pointed out in the past, we need to keep in mind that all of these results come from surveys of business owners who have survived the recession.  Imagine what all of those who are casualties of the Great Recession might tell us!

Platform Suggestions

Those meeting in Tampa Bay and Charlotte for the two major national political conventions  will be giving lots of lip service to entrepreneurs and small businesses.  If they want to add some substance to their platforms, they need to remember that the burden of taxes an regulation are two of the biggest challenges facing business owners that government can change.  That is what our attention should be on if we want entrepreneurs to try to help pull this economy out of this prolonged downturn.  What kind of burden are small businesses facing?  Take a look at this graphic:

Chamber of CommerceInfographic designed by Chamber of Commerce

All it Takes is Five Slides

Making a pitch for investment is one of the most important steps that many new business owners can make.  It can also be one of the most intimidating.  First impressions matter with investors, so the pressure is on to make your pitch to them a winner.

For many years the rule of thumb was to limit your initial pitch to investors to no more than ten slides in your PowerPoint deck.

But now there is a push to get entrepreneurs to consolidate their pitches even more.  The latest recommendation for pitches to initial investors is to limit the presentation to five slides.

“I am an advocate for communication in a clear, crisp way,” explains Mark Montgomery, founder of the Nashville consulting firm FLO Thinkery.  “Great ideas at the core should be simple.  If you require pages and pages to explain the concept, then perhaps the concept is not fully baked.”

Here is what I would recommend you put on five slides for an initial pitch to potential investors.

Slide One — Who are you?  When it comes down to it, investments are primarily made in people, not in business plans, concepts, or ideas.  The best idea in the world has no value to an investor if they don’t think the entrepreneur can successfully implement it.

Slide Two — What is your concept?  What problem does it solve or need does it take care of for your target customers?  This slide conveys your target market and the value proposition you offer them.

Slide Three — What is your “proof of concept”?   The more real and tangible this evidence is, the better.  Conduct market experiments and, if appropriate, develop prototypes that you can test on real customers.  A great way to get real data from customers is to give the first versions away for free.  The information you get from these first customers will be worth much more that what they might pay for the product.  And, you will have real live customers to talk about with investors.

Slide Four — What is the growth potential for this business?  Tell them what the business can become and what you will need to reach that potential.  Investors want to see growth – significant growth.  They want to opportunity to make their investment back several times over, which means you need to show how the business can grow into new markets or expand into new products.

Slide Five — What is the exit plan?   Investors want a path to get a return on their investment.  Demonstrate that there will be someone willing to buy the business to get them that return.  Find examples from your industry of other startups that have sold to larger companies as evidence.

Your presentation during these five slides should be genuine and passionate.  Show them you are committed, knowledgeable, and prepared.

If you can keep your initial pitch clear and concise, you have a much better chance of moving into more serious discussions with investors.

A View from the Front Lines

My good friend Ami Kassar wrote his first blog post for the New York Times today.  In his post he offers a rather stark assessment of the current state of the small business economy:

We have been reading reports that the recession is over and that the economy is on the mend. I can assure you that for most small-business owners that we talk to at MultiFunding, this is far from the case. Many are still reeling from the recession and struggling to catch up. Working capital is a fight. Banks are not easy to deal with, and fair loans are tough to come by. If you own a retail or service business, it is even harder.

This is the same thing I am seeing among our alumni entrepreneurs and the many other small business owners with whom I cross paths.  This recession is far from over and I see very little hope for a recovery any time soon.

Both candidates for President give lip service to entrepreneurs, but neither have a very good track record.  One distrusts free markets and views bigger government, more regulation, and higher taxes as the solution for whatever ails us.  The other has a history of using bigger government and cozying up to big corporations for his favorite bag of tricks.

Thank goodness for the resiliency of entrepreneurs in this country!  They are going to need it!

May Updates on Small Business Economy

While April showers have brought wonderful May flowers in our backyard, entrepreneurial economy is not blossoming going into the summer.

Here are some highlights from various indicators:

  • 71 percent of small business owners still believe the United States economy is in a recession according to results of the 2012 U.S. Bank Small Business Annual Survey
  • The SurePayroll Scorecard data shows that month-over-month, hiring and paycheck size show little change, both down 0.1%, while year-over-year, hiring is down 1.5% and paychecks are down 1.1%. Optimism among small business owners is also down from last month.
  • Intuit’s Small Business Revenue Index shows that revenues have been growing slowly, while their Small Business Employment Index shows that employment is growing slowly, by 0.2 percent in May.
  • Data from nominees to Ernst & Young’s Entrepreneur of the Year program, shows that over the last two years employment growth in this select group of high-growth companies was 31% job growth. While this sounds promising, these businesses are hard-wired for growth, so in many ways these figures are not as robust as I would hope to see.
  • William C. Dunkelberg at NFIB said this today about their latest small business survey, “May was a stagnant month for employment in the small-business sector, with the net change in employment per firm, seasonally adjusted coming in at ’0′.”

The Right Value Proposition is Heart of Entrepreneurial Success

The value proposition — the collection of things a business offers to the target market to solve a problem or satisfy a specific need — is how an entrepreneur attracts customers away from the other choices they have among all of their competitors.

Most value propositions for new businesses come from some fundamental trend in the economy, in demographics, in technology or in society and culture.  These trends lead to changes within industries.

For example, the widespread use of the Internet forever changed industries such as music and newspapers.  Inflation in the economy both led to soaring healthcare costs and more recently begun to affect the food industry.  Inflation has clearly shaken up both of these industries

A fundamental role of being an entrepreneur is to find solutions for the problems and needs customers have that result from the change that follows disruptive trends like these.

Once the entrepreneur identifies the new business opportunity, the next step is to identify the specific offerings that provide enough value to customers to get their attention and motivate them to purchase from the new business.

It could be something about the product itself, such as its price and value, features, performance, durability or design.  It could also be something about how the product or service is delivered to the customer, such as its method of delivery (in their homes, on-line, in an exciting new retail location, etc.) or the specific services offered to go along with the product.  Or, it might be something about the personnel of the company, including their expertise, responsiveness, or reliability.

It is almost always best to identify and focus on one or two things that will make your business stand out to customers.  Focus on the most important need or problem the customers are facing.  Offer that feature to the customers with excellence in mind, making sure all employees understand its importance.  And make that key feature the heart of all of your promotion and other communication with the customer.

The best way to develop the key features that are at the heart of your value proposition is to listen to your customers, as while you may think you know what the customer wants, most of the time you will not have it quite right.  You will probably have to adjust your product or service to fit with what the customer actually wants or needs.

You may have started with something that is too complex and confusing to the customer.  What you thought would be one of many features of your product may need to become the only thing you focus on.

Sometimes the entrepreneur starts too narrow, and what was thought of as the product or service is only one of its key features – you may need to broaden what it is you offer.

Or you may discover that what you offer is a great value, but you have not been selling it to the right target market.

Once your customers affirm that you are offering the right value proposition, it needs to become the focus of everything you and your employees do every day.