Dr Jeff Cornwall

Tag Archives: small business

Who Owes Who for America’s Success?

In case you missed it over the weekend, President Obama said the following about entrepreneurs: “If you’ve got a business — you didn’t build that. Somebody else made that happen.”

Now I am the first to say that entrepreneurs do not build a business alone. They need help from employees, customers, investors, suppliers, family members, and the broader community.

That being said, entrepreneurs are the ones who take the risk to launch the business. They are the ones who do not get paid if money is tight. They are the ones who personally guarantee the business’s loans.

NFIB President and CEO Dan Danner nailed it today when he said, “His unfortunate remarks over the weekend show an utter lack of understanding and appreciation for the people who take a huge personal risk and work endless hours to start a business and create jobs. “I’m sure every small-business owner who took a second mortgage on their home, maxed out their credit cards or borrowed money from their own retirement savings to start their business disagrees strongly with President Obama’s claim.”

Entrepreneurs do not owe any of their success to what politicians do in Washington.  They do not owe their good fortune to government.

It is the government that owes its successes to the entrepreneurs who built our once mighty economy through the pursuit of free enterprise.

Amy Payne at the Foundry put it this way: “The slap in the face to hard-working Americans conveyed Obama’s belief that it takes a village—a heavily subsidized village—to create that venture you’re profiting from.”

Entrepreneurs See Short Recession, But…

The NFIB Index of Small Business Optimism rose 1.9 points in April to 91.5 (1986=100). Half of the gain was due to an improved outlook for business conditions 6 months out, and a quarter was from improved earnings trends. Improved earnings during a slowdown seems to indicate that business owners saw this soft economy coming and took steps to cut costs. 

However, the net percent of owners reporting higher average selling prices rose again this month.  And the percent of owners citing inflation as their No. 1 problem was up to the highest reading since 1982. The number of those planning to raise prices also rose significantly. 

Inflation is starting to hit main street.

The Real Economic Hero

One of the myths about entrepreneurship is that high growth, high
potential ventures (some call them gazelles) are the main driver of
economic growth. For example, consider this quote from National Dialogue on Entrepreneurship:
“High-growth businesses — sometimes known as gazelles — -are the real
drivers of innovation and economic growth in our economy.”

High potential businesses are those that tend to attract venture
capital. VCs need businesses that yield very high returns in a very
short time — some will tell you that they seek 100% annual returns
with an exit within 3-5 years and others simply say they seek 5 times
their initial investment within about the same time period. However,
gazelle companies represent a tiny fraction of 1% of entrepreneurial
ventures.

Do they have an impact? Of course. Are they the “main driver of our economy”? No.

Those boring little entrepreneurs who toil away with only their own
investment — maybe with a little help from their family and friends –
is what really drives today’s entrepreneurial economy. It is these
small businesses that now generate about 50% of the US economy and have
created 77% of new jobs for the past twenty years. They do so with
ingenuity, bootstrapping, passion, persistence, and as Monroe Carell
told our students yesterday, patience.

Gazelles quickly get absorbed into corporate America within 3-5
years if they have any success. The average entrepreneur is not even
considered successful unless the business lasts at least five years.
They are in it for the long run.

Rather than measuring success in terms of mind-boggling returns to
investors, the average entrepreneur measures success in terms of making
a living for his/her family, by creating good jobs, by becoming able to
contribute to building a better community.

Don’t misunderstand my point. I like high growth. high potential
businesses. We get a few coming through our program and they are
challenging, interesting, and fun to watch. I hope we get more.

But, they are not the heroes of our entrepreneurial economy. That
title belongs to the average entrepreneur who will never get a dollar
from a venture capitalist — who builds a successful business seemingly
out of almost nothing.

Average entrepreneurs may not be “gazelles”, but they are the work horses we need to move this economy steadily into future.

Preparing for Tough Economic Times

My column in this week’s Tennessean offers some tips on how small businesses can best prepare for the possible tough economic times ahead. This will be a new experience for most entrepreneurs in America thanks to the long economic expansion we have enjoyed for most of the past twenty years.

Unlike the last period of stagflation in the late 1970s, we are now in an entrepreneurial economy — 50 cents of every dollar in the economy is generated by small businesses.
Small businesses are always tight on cash flow. And if their inputs of raw materials and other direct operating expenses go up, they may not be able to pass along these costs quickly enough to keep their cash flow positive. And they certainly don’t have large cash reserves to ride out the recession that is part of stagflation.