The Entrepreneurial Mind

Facebook CEO Mark Zuckerberg talks about the social network site's privacy settings in Palo Alto, Calif in this file photo. For every entrepreneur, Cornwall urges taking time to consider how to transition from working in the business to focusing on the big picture. (Marcio Jose Sanchez/AP/File)

Want your business to grow? Learn how to step away

By Dr. Jeffrey Cornwall, Guest blogger / 02.13.12

Entrepreneurs face a difficult challenge in how they should be spending their time as a business grows.

The dilemma is commonly referred to as needing to "work on the business rather than work in it." 

Typically, entrepreneurs are heavily involved in working directly with their customers during the startup phase. They do much of the work necessary to generate revenues. Tasks such as sending out invoices, bookkeeping and developing marketing materials are squeezed into their days as they can find time.

And if there's no time during the day, these things may get put off until the end of the day or the weekend.

But with growth comes the need to add more employees, and with a growing staff comes the need to develop procedures and systems to make sure that all the necessary work of the business gets accomplished.

This is when entrepreneurs' own job description needs to begin to change, as it is up to them to "work on the business" and make sure it evolves and develops.

However, for many entrepreneurs this transition in roles is much easier said than done. 

Often it's the "in the business" work that led someone to start the business in the first place. The owner may have started a cabinet company because he loves working with wood. Or someone may have started a Web development company because of her design skills and knack on the computer. 

It can be hard to let go of work you really enjoy doing.

Another issue that can get in the way of this transition for the entrepreneur is being uneasy with delegating important tasks to others. Developing good training programs, clear procedures and effective systems can help make that process a successful one.

I hear from many entrepreneurs that the process of moving from a hands-on role to more of a management role can create anxiety. They tell me that they feel they're not busy enough. Or they say that they feel as if they're not really contributing.

From my own experience, I can say that these feelings will ease over time as the business grows and the entrepreneur becomes more comfortable in his new role.

Some entrepreneurs are not sure what success looks like when working "on the business." They are more accustomed to checking things off the to-do list by working with customers and doing more routine work.

But creating effective systems and building a strong culture will become a bigger part of the entrepreneur's job. Any outcomes from these tasks will evolve slowly. Therefore, it will take a long time to see the results of these efforts.

It's best to view the transition of the entrepreneur's role in the company as a one- to two-year project. As you begin to delegate parts of what you do, replace them with things that will improve the business and help it grow.

Moving from working in the business to working on the business is best accomplished if it's viewed as a gradual process rather than an abrupt event.

Wake Forest MBA student and case writer Robbie Shappley distributes the IBM case to students competing for a $50,000 cash prize at the Wake Forest Marketing Summit. Cornwall finds that many aspiring entrepreneurs start with a backwards business model. (PRNewFoto/Wake Forest University Schools of Business/File)

Avoid the backward start-up

By Dr. Jeffrey R. Cornwall, Guest blogger / 01.30.12

"I've developed this really cool product and I have applied for a patent."

"I want to show you this awesome app that I helped design."

"We've got a great idea for a website." 

Those of us who work with entrepreneurs hear these types of introductions all the time when people come to meet with us.  Whether it is a result of years of development and research, or a sudden inspiration that leads to a "eureka moment," these aspiring entrepreneurs have come up with what they hope to be the next big thing.

The problem is that many of these entrepreneurs have gotten the design of their business models backwards.  

Rather than look to the market to tell them where opportunities are, they have come up with an idea and are trying to run full speed into the market with it.  
Starting a business by trying to find a market for an already developed product usually leads to a long and often futile launch of the new venture.  It results in a very expensive start-up process, as revenues tend to be very slow to materialize.  Expenses just keep piling up as the entrepreneur tries to find a target market with customers who need the product. 

The approach to starting a business that has the best chance of success is to look to the markets for ideas.  

Start by looking at markets you already are familiar with from your knowledge, skills, and experiences.  The best business opportunities come from solving everyday problems that you have observed from your previous work experiences, your hobbies, or things you see in your everyday life.   
Look for groups of customers who share a common dissatisfaction with how they are being treated or who cannot find what they really want.  It may be something as simple as a market that has not been given good customer service.

Look for markets that are ready to try a new product to replace the old ones they now using.  That is what has led to the success of the Nashville-based app company Aloompa.  Much of their growth has come in the music festival market, where their apps replace outdated printed programs.
Look for markets where something that has worked in other similar markets has not been tried in your market.  That is what inspired Bob Bernstein to open Bongo Java, a neighborhood coffee shop in Nashville, that was like the ones he loved in his home town of Chicago.  

Look for markets with "pain" and then develop a product or service that takes care of that "pain."  

My favorite meeting with an aspiring entrepreneur is when they come to my office and say, "I have found a market that needs...."  
I know they are starting down the right path to develop a business model that has a good chance of success.

A money changer shows some one-hundred U.S. dollar bills at an exchange booth in Tokyo in this file photo. Dr. Cornwall argues that raising too much money from investors can be a problem. (Issei Kato/Reuters/File)

In business, more money is not always a good thing

By Dr. Jeffrey R. Cornwall, Guest blogger / 01.03.12

One of the biggest mistakes I made during my days as an entrepreneur was raising too much money.
Because our business was successful, we had investors eager to offer us money. But by taking money when we really did not need it, we found that it created more problems than benefits.

When taking money from outside investors, you give up part of the control over your business.

"One of the reasons most people start a company is so they don't have a boss," says Jake Jorgovan, co-founder of Rabbit Hole Creative, a high-tech graphics and marketing firm. "If you take out funding, then you have an investor looking over your shoulder at every decision you make."
Taking outside money can also lead to building overhead and creating an infrastructure that can lock you into a specific business model as you attempt to make good on the things you have committed to in your business plan.

Michael Brody-Waite, CEO of InQuickER LLC, prefers to keep his company lean and adaptable even though it has grown to annual revenue of seven figures.
"We chose to stay agile and not lock ourselves into a rigid trajectory unnecessarily," Brody-Waite says. "The cost of taking money in terms of distraction and complexity is well-documented. Our company is built on maintaining less mass, agility and out-simplifying our competition."
Too much funding can also propel a company into a level of growth for which it is not prepared.

"Bootstrapping your growth allows you to grow at a pace that is comfortable for you," Jorgovan says. "Investors will want to see rapid returns on investment regardless of what that means for you. When you bootstrap a company, you can build it into the company that you want to work in. You can build it into a business that you enjoy going to work at every day."

Like many entrepreneurs, both Jorgovan and Brody-Waite have felt the pressure to consider taking funding from investors. It seems to be part of the entrepreneurial culture, especially in businesses that have the potential for significant growth. There seems to be an expectation that seeking investment capital is a standard part of starting such a venture.

Although both businesses have seen successful growth through bootstrapping rather than fundraising, there may come a time when bringing investment money into each company makes sense.

"I expect us to take money eventually," Brody-Waite says. "However, the cost in time, agility, complexity and mass would have to be significantly lower than the tangible benefit to our company."

When it comes to seeking investor money for an entrepreneurial business, the goal should never be to raise as much as you can.
Instead, your goal should be to raise money only if you truly need it. And even then only take as much funding as is absolutely necessary to reach the goals of the business.

Dr. Cornwall argues that moving on from a failed concept is its own success. (Mark Duncan/AP/File)

Turning a failed idea into a success

By Dr. Jeffrey R. Cornwall, Guest blogger / 12.22.11

A student come up to me before class the week before their business plans were due this past semester looking very dejected.  
"My concept just can't work," she said.  The more she tried to pivot the business model, the more she uncovered evidence that convinced her that she had reached a dead end.

This is what is known as a teachable moment.

Aspiring entrepreneurs go through an arduous process between the initial spark of an idea to the eventual launch of a business.  

They start by sifting through the various ideas they have to find the one that has the most promise.  Many ideas may appear promising at a first glance, but careful assessment helps to sort out those that have little promise. Eventually, the entrepreneur selects a product or service they hope will be accepted by the market.

The next step is for the entrepreneur to take the idea and begin to build a business model. 

 
The primary goal of business modeling is not to try and rationalize starting a business based on your idea.  Instead, the objective is to discover all of the challenges, flaws, and gaps that need to be addressed if you have any hope of moving from a good idea to a successful business.  Business modeling is a process of finding problems and fixing them by altering and expanding the operating framework needed to launch the business and, when necessary, pivoting the concept based on what is learned about your customers and what they really want.   

When developing a business model, you may reach a point where you realize that no matter what you do, it just won't work.  This realization can happen very late in the process even at the point when you are developing a written business plan based on the business model.  If that happens, no matter how much time and effort you have put into the project, you need to be decisive and abandon it.

But this is much easier said than done.  You have spent countless hours talking about the business with friends and family.  You have shared your idea with advisors and mentors.  You may have even pitched the idea in business plan competitions and to investor groups.  It feels like your reputation is riding on getting the business launched.  There is a sense of inevitability that launching the business is what you are going to do.

But do not ignore the evidence.  Have the fortitude to walk away.  The fact that you have spent countless hours getting your idea to this point is not a reason to keep moving ahead.

 
So back to that teachable moment....  

As class started that morning I asked the student to share her story with her classmates. I then looked her in the eyes and emphatically said, "You did a great job!  You stayed true to the process and had the courage to acknowledge that your concept just won't work.  Congratulations!"

The end of this story is that while her initial idea did not work out, the process helped her discover several new ideas and gave her the opportunity to make several new connections with people to add to her network.  She learned the lesson that while her idea may have failed, she was successful.

A middle class tax increase countdown clock is seen behind White House Press Secretary Jay Carney as he briefs reporters after President Obama made a statement in the James Brady Press Briefing Room of the White House in Washington. Some politicians are suggesting a compromise to the payroll tax holiday debate that would exempt small businesses from having to pay for it. (Charles Dharapak/AP)

The lousy politics of the payroll tax cut

By Dr. Jeffrey R. Cornwall, Guest blogger / 12.08.11

Politicians have been searching for a defining issue to crystallize the "us versus them" game that has been going on in Washington for the past several years.
The latest is the temporary $1,000 payroll tax cut that is set to expire at the end of this year.  Both sides have their scheme to keep the cut in place.  Those of the left want to "pay" for temporary renewal of the tax cut with a permanent tax increase on the wealthy. 

"Don't be a Grinch," says President Obama. "Don't vote to raise taxes on working Americans during the holidays."  If keeping taxes low is such a good thing, why did they make this payroll tax cut temporary?  But I digress...

Those on the right want to renew the tax cut, but not tie it to any other tax increase.  The right has raised concerns that many among the wealthy who would be paying higher taxes are actually the very entrepreneurs who everyone wants to get busier creating jobs and economic growth.

As always seems to happen, we now have a group of "moderates" suggesting a compromise.  They are suggesting the we have a tax increase on the wealthy to "pay" for renewal of the temporary tax cut, but exempt small business owners.  Sounds like a simple solution, and my guess is something like this compromise may actually pass.  The problem is that such moderate compromises, while they can sound nice and reasonable, often make the waters even muddier.
This compromise is lousy policy. 

Yes, tax cuts (or avoiding tax increases) help spur entrepreneurial activity according to most research on the topic.  The problem with the compromise is that any exemption for small business owners is surely going to require more tax code and more regulation.  We also know from research that increasing regulation and complexity of the tax code decreases entrepreneurial activity.

Let's start with what the Federal Government uses to define a small business.  Under a certain number of employees?  Under a certain level of revenues?  Well, kind of, but years of lobbyists seeking favor for special interests for specific types of small businesses has resulted in an official definition of small business that is 45 pages long!!!  You can see the entire document here.

Certifying that you are actually a small business owner eligible for exemption from the tax increase will probably end up costing you more in staff time and CPA bills than any savings in taxes.

But appearance seems to always trump substance and wisdom these days.  Since in a sound bite the small business exemption will appear like a reasonable compromise it will likely play well in this never-ending election cycle.

But six months from now, when those who pass the laws have moved on to other issues, small business owners will be left scratching their heads, trying to sort out how they can avoid paying the latest "wealthy" tax.

This file photo shows a "closed" sign at the drive through of a Taco Bell store in Philadelphia. Cornwall argues that the closing of a business doesn't necessarily equal failure. (Matt Rourke/AP/File)

Closing a business doesn't have to mean failure

By Dr. Jeffrey R. Cornwall, Guest blogger / 12.06.11

Sometimes an entrepreneur reaches a crossroad.  While the business that they have started shows potential, they may come to the realization that the only chance it has of being sustainable will require raising money to grow it to the next level.  Bootstrapping is always a good path to start a business, but sometimes a certain level of funding is still needed to get to a sustainable scale that can earn the owner an acceptable income.  
 
 The first thing to determine is if the business can absorb the cost of any additional funding after it grows to the next level.  Run detailed budget projections based on the growth you are considering that include the cost of the outside money, be it interest and fees with any type of debt or expected returns if the money comes from an investor.  

If the cash flow of the business looks like it will be able support the cost of the outside money, the entrepreneur needs to make sure they are ready to deal with the changes that come with the funding.  Debt financing will probably require personal guarantees and may also come with certain restrictions that may limit decisions you can make about how you run your business.  And investors will likely expect to become involved in major decision-making about the business.  
 
 The entrepreneur must carefully consider whether getting the business to the next level is worth the added hassle and risk that comes with outside money.  If it isn't, it may be time to seriously consider working toward selling the business if they can, or possibly closing it down in an orderly way.
 
 The decision of whether to continue operating a business can be one of the most painful experiences an entrepreneur can face.

 As small business owners, we often consider the people who work for us to be more like family than employees.  Closing the business that has been how they have made their living can make you feel like you are abandoning them.

As entrepreneur, our identity and our egos become tied to our businesses and its success. 
 Ending a venture that we have spent much of our waking lives working in and worrying about creates an emptiness and sense of real personal loss.
 But there are times in the career of an entrepreneur when he or she has to find a way to set these feelings aside and make a rational, clear-headed decision about the future of the business.
 Remind yourself that moving on from a venture that is not sustainable can be a new beginning.  While some may tell you that closing a business is a mark of failure, experts would disagree with that.  For example, venture capitalists will often favor funding entrepreneurs who have had failed businesses in the past, as they know they can take what they learned from that failure and avoid repeating past mistakes.   
 Don't think about a business that did not make it as a personal failure.  If you learned from the experience and can take those lessons into your next business -- that is success.

In this file photo, Wichita State graduates walk to the graduation ceremony for the college of liberal arts in Wichita, Kan. Cornwall argues that the millennial generation of entrepreneurs will be key in reinvigorating the US economy. (The Wichita Eagle/AP/File)

Millennials are key to rebuilding the economy

By Dr. Jeffrey R. Cornwall, Guest blogger / 11.21.11

Based on the history of previous economic downturns, America's entrepreneurs will need to play a key role in helping to rebuild our economy.
So, just what is the current mindset and makeup of those in the entrepreneurial sector of the U.S. economy?

Even in a weak economy, or quite possibly because of it, there continues to be a strong interest among the millennial generation in pursuing an entrepreneurial career.

A recent survey of young Americans between the ages of 18 and 34 conducted by the Kauffman Foundation found that 54 percent of those surveyed have entrepreneurial aspirations, and about half of these have already launched a business.

An even higher percentage of young people of color -- 64 percent of Latinos and 63 percent of African-Americans -- expressed a desire to start their own companies. Although some previous studies have found an increased interest in business ownership among women, the Kauffman study found that women still lag in entrepreneurial intent (44 percent compared to 57 percent among men).

Given that there are an estimated 50 million millennials in the U.S., their interest in launching new businesses bodes well for the long-term health of the economy.

What we are finding is that not all of them are in it simply for the money.

The Global Entrepreneurship Monitor (GEM) 2010 National Entrepreneurial Assessment for the USA, conducted by Babson College and Baruch College, found that startup entrepreneurs are increasingly focused on both social and economic goals for their businesses.

Entrepreneurs no longer just want to do well financially with their ventures, but also want to use business as a means to support their commitment to their favorite social causes.

This shift in how small business owners measure their success is also evident in the results of The Hartford's recent Small Business Success Study. This survey found that only 18 percent say that profitability is the most important factor in defining success. In fact, 82 percent say they place great importance on doing something they feel passionate about and enjoy.

A growing number of entrepreneurs are interested in keeping balance in their lives. The Hartford survey reported that for 79 percent of the entrepreneurs they surveyed, achieving a comfortable lifestyle from their business is most important to them.

There is a growing chorus of experts who are worried that entrepreneurs do not seem ready or willing to step forward and provide the economic push we need to begin a real economic recovery.

However, the good news is that the generation now coming into the workforce has a strong entrepreneurial spirit. That should help to eventually create long-term, sustainable growth for America.

A money changer shows some one-hundred U.S. dollar bills at an exchange booth in Tokyo in this file photo. Traditional equity and debt financing options have become much more difficult to secure, but Cornwall argues that there are other options, like joining a community bank or applying for a micro-loan. (Issei Kato/Reuters/File)

The best options for small business financing

By Dr. Jeffrey R. Cornwall, Guest blogger / 11.10.11

The state of small business financing is a bit uncertain these days in terms of both supply and demand.

To get the full picture, we need to frame this discussion by understanding how unimportant securing new financing is to small businesses in the current economic conditions.  The most recent survey from the NFIB survey released this week suggests just how much small business owners are retrenching right now.

The NFIB survey reports that only four percent of owners they surveyed reported financing as their most important business problem.  Ninety-one percent reported that all their credit needs were met or that they were not interested in borrowing.  Only nine percent reported that not all of their credit needs were satisfied.

But even if demand for credit is not strong right now, finding financing can be a challenge for those businesses seeking new funding.
The Hartford Small Business Success Survey, which surveyed 2,000 small business owners, found that 34 percent of respondents say that obtaining a loan or other capital is difficult.

Traditional equity and debt financing options have become much more difficult to secure.  Banks are very slow and cautious to lend and equity financing has become almost timid.

For those few small business owners seeking new funding, Joanna Krotz offers some non-traditional alternatives in her article at Business on Main:

1. Tap community banks. If you are going to have any luck with bank loans, your best shot is with a community bank with a strong SBA lending track record.
2. Leverage your social media network. Krotz suggests that you should look to Facebook to broaden your "friend network" for funding.  I would caution to approach any funding from family and friends with formal agreements supported with a complete and honest set of information about your business conditions. 
3. Apply for a microloan.There are more micro-lenders popping up across the U.S.
4. Join a credit union, which can offer up to a $50,000 business loan to its members.
5. Hire a loan hunter. New ventures, such as MultiFunding which was founded by my friend Ami Kassar, are having good success sourcing loans for small businesses.  They charge a small fee only when a loan is secured. 
6. Look for local lenders.  Local angel groups are becoming more active with smaller levels of funding for emerging businesses.

As I have said before, piling more debt onto small businesses is not the solution to our economic woes.  That being said, some small business owners do need funding and are good risks.  While finding new funds is definitely a much greater challenge, there are some new options on the financing landscape. 

Demonstrators protest against job cuts in central London. Many of the demonstrators had marched from Jarrow in north east England, recreating a 1936 protest march against unemployment. While the official unemployment figures in some European countries are higher than in the US, the actual unemployment numbers are much lower because of the region's thriving black market economy. (Luke MacGregor/Reuters)

The real unemployment rate and Europe's underground economy

By Dr. Jeffrey R. Cornwall, Guest blogger / 11.09.11

While the official unemployment figures continue to hover around 9% in the U.S., the real unemployment is rate is closer to 16% when you factor in all those who are unemployed or significantly underemployed.

So when we heard while I was in Spain last last week with my graduate students that the official unemployment rate there was 20% my immediate question was, "So high is the actual unemployment rate?"

I was expecting to hear that it was 25% or even 30%.

"Oh, it is much lower than 20%," was the answer we heard.

What? Lower?

"Yes.  We have a large black market that does not get factored in with our employment data.  Many who are officially unemployed as working in the underground economy for cash," the economic expert we heard from explained to us.

The underground economy is, in fact, flourishing around the globe.

In a recent article in Foreign Policy, Robert Neuwirth investigates the $10 trillion global underground economy, which is also becoming known as System D.  Neuwirth writes:

"By 2020, the OECD projects, two-thirds of the workers of the world will be employed in System D. There's no multinational, no Daddy Warbucks or Bill Gates, no government that can rival that level of job creation. Given its size, it makes no sense to talk of development, growth, sustainability, or globalization without reckoning with System D."

So the fastest growing part of the world economy is that which is outside the reach of the measurement and the control of central governments.
We have been told time and time again that it will be entrepreneurs who will pull us out of this ongoing recession.  And many of us have argued that for them to succeed at this, we need government to get out of their way.

It seems that a growing number of entrepreneurs around the globe are not waiting for the government to enact some major policy to assist them, or even for the government to get out of their way.  They are building an economic force outside of the controlled economy that is fast becoming the economic super power, according to Neuwirth's analysis.

Ben Cunningham, who sent the Foreign Policy article to me, reminded me that Milton Friedman always said the one saving grace of government is its incompetence at regulating.

So perhaps help is already on its way for our economy. 
Let's just hope that as government tries to do more and more to "fix" the economy that their level of incompetence grows with each new economic initiative they throw at us.