The Entrepreneurial Mind
In this February 2011 file photo, President Obama and Small Business Administration Administrator Karen Mills participate in a breakout session during the Winning the Future Forum on Small Business in Cleveland. It is a myth that all business people think alike, act alike, and stick together, Cornwall writes. (Carolyn Kaster/AP/File)
Small business vs. big business: The divide widens
There has always been a bit of a tension between small businesses and their big corporate cousins.
I have always seen it in business schools. Thirty years ago those of us who were trying to add entrepreneurship into business school curriculum met strong resistance and even hostility from traditional business faculty. Even today there remains a bit of a tension between entrepreneurship and traditional faculty in many business schools.
We see the rift between small and large businesses play out in local business organizations. Chambers of Commerce, technology associations, and other organizations that support the interests of business often feel pulled between the competing interests of small business members and corporate members. Small business members want basic educational programming and networking opportunities to help bolster their businesses, while corporate members look for help in gaining favor with local governments regarding incentives and tax breaks. Small business owners pay greatly reduced memberships. Corporations pay large fees based on their employment. Lose one small business member that is not happy — not a big deal. Lose one big corporate member and it can make a huge hit on the budget. Guess whose voice is the loudest.
And at the national level the natural tensions that exist between small businesses and larger corporations has been heightened significantly since the election. ( Continue… )
A trader works on the floor of the New York Stock Exchange in this November 2012 file photo. Even in challenging economic times such as these, there are pockets of opportunity to grow and expand your business, Cornwall writes. (Brendan McDermid/Reuters/File)
4 tips for small business owners in a weak economy
Caution and uncertainty continue to be the watch words for most entrepreneurs in the current economy.
Recent surveys of small business owners by the National Federation for Independent Business (NFIB) suggest that entrepreneurs are uncertain about the future of the economy and the impact of issues such as tax policy and regulation on their businesses.
The response of these business owners has been to be cautious about investing in capital equipment, growing their inventories, and expanding their workforce.
In the most recent NFIB survey from November of 2012, uncertainty among entrepreneurs about future business conditions reached a record high, eclipsing the previous record for uncertainty set during the Carter Administration.
However, even in challenging economic times such as these, there are pockets of opportunity to grow and expand your business. ( Continue… )
In this October 2012 file photo, an employee works on his computer at the office of CloudFactory, a Canadian startup that based itself in Kathmandu, Nepal. The last thing new business partners think about as they launch their new venture is what will happen when the day comes when the partnership ends, Dr. Cornwall writes. (Navesh Chitrakar/Reuters/File)
Making strong business partnerships
When starting a new business together, business partners are brimming with excitement about the possibilities that the new venture may bring. There is a collective air of anticipation like a team in the locker room getting ready to head out for the “big game.” The last thing new business partners think about as they launch their new venture is what will happen when the day comes when the partnership ends.
But the truth is that eventually every business partnership will come to an end. It may come earlier than the partners expect, due to fundamental and irreconcilable business disagreements. Or maybe because one of the partners simply has lost a passion for the business and decides it is time to pursue a new career direction.
Dysfunctional partnerships are a major source of business failure, whether it is the result of open conflict or because a partner has lost heart. They suck energy and time away from building the business and often can lead to the failure of what was otherwise a perfectly good business model.
Even if the partners have both a great business and personal relationship, the partnership eventually will come to a natural end. Perhaps one of the partners is ready to retire before the other partner. Or perhaps the partnership finds its ultimate end due to the death or disability of one of the partners. ( Continue… )
In this April 2008 file photo, Dana Pinero, of New York, foreground, waits in line to mail tax returns for both herself and her boyfriend at the James A. Farley Main Post Office in New York. Tax increases on the super-rich won't make up for the nation's deficit, Dr. Cornwall writes. (Tina Fineberg/AP/File )
Beware of misdirection in debate on taxes
So why are we hearing all the attention being paid to taxing those making over $250,000 in the current debate over how to increase revenues to the government?
We are told that it is part of Pres. Obama’s “Buffett Rule” that increases taxes on a mythical group of super-rich people, many of whom we are being told are more than happy to pay more taxes since they are so wealthy.
We are also told that this is “only” 2% of the tax paying population. While that is true — well actually they are 1.8% of tax payers to be exact — we are still looking at increasing taxes on over 2.5 million people according to IRS data. ( Continue… )
Vice President Joe Biden speaks to a group of small business owners at Wrap-Tite, Inc, a stretch-wrap manufacturing company in Solon, Ohio, in this September 2011 file photo. The entrepreneur must intentionally shape the business culture to ensure the team will begin to embrace the budgeting process, Dr. Cornwall writes. (Amy Sancetta/AP/File)
Budgeting for entrepreneurs
In the early stages of a new business, entrepreneurs do not pay much attention to budgets.
Financial forecasts that estimate revenues and expenses are part of the business planning process. But these are really just estimates, since so much is unknown about what will actually happen as the business begins to grow. Because of this, it is impossible to develop accurate budgets. Managing cash flow is a week-to-week or even day-to-day challenge that is a reaction to what bills need to get paid first based on what revenues have come in the door.
Budgets are based on history and experience in the business. Budgets also require that a business has stable and predictable revenues. So for most new businesses, the lack of any financial history and too much uncertainty about the future means that creating a budget is really not plausible
But over time, if all goes well, the revenues of the business will become more stable and predictable. When this happens, it is a good time to start implementing the budgeting process.
While setting budgets may seem like a relatively simple process, it can profoundly impact on the culture of an entrepreneurial firm. ( Continue… )
President Barack Obama pauses as he speaks at the election night party at McCormick Place Wednesday in Chicago. Small-business owners can expect a continued increase in regulation of businesses and the economy, Cornwall writes. (Carolyn Kaster/AP)
The future of small businesses in Obama's second term
I have been relatively quiet about this past election. Why? I really did not believe that the outcome would be that different on its impact on small business no matter which of the two parties won.
While there may have been some differences in the pace of policy change and in how it is implemented, both major parties in this country fundamentally believe that an activist approach to the economy is the proper approach. Both parties talk about “managing” and “fixing” the economy, and “helping” business owners.
A free market works when investors and consumers — both individuals and businesses — are allowed to make choices that are not constrained by heavy regulation and influenced by differential tax policy. Economic freedom does not need “managing”, “fixing”, nor “helping.”
That being said, now what can entrepreneurs expect? ( Continue… )
Former Senator Blanche Lincoln, chair of Small Businesses for Sensible Regulations, speaks at forum sponsored by National Federation of Independent Business (NFIB) and Politico in this November 2011 file photo in Washington. (Kevin Wolf/AP Images for NFIB/File)
For small business owners, the recession continues
September was another month of low expectations and pessimism for the small-business community, with the NFIB Small Business Optimism Index losing 0.1 points and falling to 92.8. The recession-level reading was pulled down by a deterioration in labor market indicators, with job creation plans plunging 6 points, job openings falling one point and more firms reporting decreases in employment than those reporting increases in employment.
The survey shows that key elements that will be needed for small businesses to, once again, help pull us out of a recession are just not improving:
- Capital spending is clearly in a “maintenance mode.” Business owners are keeping things running and replacing things when absolutely necessary, but they are not rushing out to expand space and equipment. The continue to be in a hunker down frame of mind, which is a good way to be for the foreseeable future.
- Sales continue to be sluggish. The source of cash we need to pull us out of a recession is not more access to debt. That is absolutely the worst approach. The economy is fragile and small businesses are financially on the edge in many cases. Debt issued to small businesses may feel good for a very short period of time as it might fix immediate cash flow concerns, but it only makes things worse if sales do not improve. Debt payments increase the company’s overhead which makes operational cash flow even more strained.
- Spending by consumers will only improve when their employment improves and their confidence in continued employment is strengthened. Right now these things are nowhere in sight.
Cornwall advises that small business owners step away from the computer and start finding some real live customers. (Business Wire)
Turn off the computer and start your business
Here is a sampling of quotes from first-time entrepreneurs that I hear in my office.
“I am trying to get my business card just right – does it look better with a horizontal layout or a vertical one? And do you think this font is OK?”
“We think that after working on it for the past six months that our business plan is just about finished.”
“I’ve been tweaking my logo for the past couple of weeks and I think it is getting close to what I want.”
“This is my latest mission statement – I moved a couple of words around so I hope it sounds better now.”
It is as like they are planning a dinner party where they spent all of their time worrying about getting the centerpiece and place settings just right, but forgot that they need to plan a meal to serve their guests!
Entrepreneurs who own growing ventures will inevitably hear that they need to stop working “in the business” and start working “on the business.” With many first time entrepreneurs, I see them making the opposite mistake.
Even before they generate their first dollar of revenue many seem to become obsessed with working “on the business.”
It often seems as if they aren’t able to pull the trigger and actually launch the business.
Here are a few tips I share with first time entrepreneurs who suffer from this common condition:
- While a well-designed business card is nice to have, it is you and your product or service that will convince the customer to spend their hard-earned money on what you have to offer them.
- Your actual product will rarely look anything like what you may envision in a business plan. In fact, unless you are looking to raise a large amount of capital from outside investors or bankers, writing a formal business plan is not even necessary. Customers will provide feedback that should inform and shape the new business in its early growth. Real information from actual customers is much more important than guesses you might make in a formal business plan.
- A cool looking logo may be nice to have at some point, but a logo is just a symbol that represents a business. Get the business going and then worry about a logo to help people remember who you are.
- Most mission statements I read are ambiguous and tell very little about what a business really does. Work on a simple, memorable pitch that will help customers know exactly what you can offer them.
Unless you are able to muster the courage and get out and “work in” your new business, things like business cards, logos, and business plans have no value. While getting a new business going, your job is not to design the perfect image and develop the perfect business plan. It is to find customers and sell them your product. For without customers to generate revenues, there really is no business to “work on.”
So step away from your computer and go find some real live customers!
Online donation services like Kickstarter allow entrepreneurs to fund their ideas from many small donations. Now some believe the crowdfunding method can be applied to equity investments, Cornwall writes. (Business Wire)
The future of crowdfunding: Crowd-investing?
Looks like I have a new example to use in class for legal changes that create new business opportunities. There are several new entities popping up due to the the growing interest in crowdfunding and the passage of the JOBS Act that will allow crowdfunding to be used for equity investments rather than just donations (the Kickstarter model). We are also seeing growth in microfinancing, which is another segment of this industry.
One entry into the wild west of crowdfunding is a Nashville-based company InCrowd Capital, founded by Phil Shmerling. Phil has started writing a blog on crowdfunding that should become a valuable resource for those interested in this budding new industry and those hoping to learn how to become an effective crowdfunder. Phil is a sharp guy who will surely offer all of us useful information through his blog.
Another site was recently launched is called Seeds. Seeds is not taking an equity approach to crowdfunding. Instead, they have established a “game” site that links participants to real entrepreneurs seeking micro loans. They describe Seeds as “Farmville meets Kiva.”
Here is how they describe how Seeds works:
The Seeds revenue model is three-pronged:
1) We monetize impatience. As you rebuild a citadel in the game, you can either wait hours in real time to complete a level, or use virtual currency to expedite the process. Virtual currency can be purchased with real dollars. Proceeds will be microlent to borrowers.
2) The sale of virtual goods: Within the Seeds virtual world, you can purchase limited edition virtual goods using in-game currency to decorate your world. Proceeds will be reinvested in for-profit microloans.
3) Actively asking players to make microloans to the businesses of their choice.
Thus, we’re merging two multi-billion dollar industries – social gaming and microfinance. We’re taking the profits social games make, and reinvesting it in entrepreneurs for a profit, empowering women and buoying economies (including our own!).
While some are beginning to worry that crowdfunding is just one big train wreck, I think that the evolution of the crowdfunding industry is going to be a fascinating combination of a series of little train wrecks and some amazing successful innovations.
Who is going to win? Nobody knows, but the market will begin to give us some insights very soon.
In this July file photo, Dwayne Durant and Joshua Smith hold a lemonade and popcorn sale in Detroit as Smith's mother, father, and brother look on. Many of the qualities it takes to be a great entrepreneur are developed from early experiences. (Kathleen Galligan/Detroit Free Press/AP/File)
Being an entrepreneur takes guts
Not everyone is prepared to be a successful entrepreneur.
In the new book Heart, Smarts, Guts and Luck, two successful venture capitalists and a management consultant surveyed a large number of successful entrepreneurs to uncover what traits they have in common. One of the traits — guts — particularly hit home with my experience as an entrepreneur and as a teacher of entrepreneurs.
The authors argue, and I agree, that guts is not a trait that you are either born with or not. Having the guts to be an entrepreneur is something that can be nurtured and developed. They identify three key elements to developing and nurturing guts in entrepreneurs.
Eighty percent of the successful entrepreneurs in this study said that their entrepreneurial guts were developed through experiences early in their lives.
I can cite several experiences from working in our family businesses that helped to toughen my skin. One in particular stands out. When I was in grade school my father partnered in a cleaning products distributorship.
Although I was only eleven, I was eager to become a part of this new venture. So I decided to sell the product door to door. My first sales call was to our next door neighbor, who was a good friend of our family.
Rather than pat me on the head and buy some product to be nice, she looked me in the eyes and said, “Tell me why I should spend our hard earned money on this stuff?”
I did not make the sale. I was left speechless and devastated. It was a hard lesson that I have carried with me the rest of my life. Nobody owes you anything in business – it is up to you to earn it.
The second key element for developing guts is training and education that prepares entrepreneurs how to make decisions in complex situations. We urge every student who comes into our program to start a business while they are in school because this kind of training is so important. It helps them to gain experience, confidence and learn from their mistakes in a safe environment. However, I am not one who thinks we should require every student to start a business as many schools are moving toward. I think that making starting a business an assignment misses a key aspect of developing true entrepreneurial guts – the courage to make the choice and cross the threshold to start a venture.
The final element of developing and nurturing guts is becoming part of a community of entrepreneurs. By joining an ecosystem of fellow entrepreneurs you gain peer support, wise counsel, and a group who can hold you accountable. We need to have our entrepreneurial guts reinforced, nurtured, and checked throughout our career.
Having guts to be an entrepreneur does not imply that you take careless risks – quite the contrary. Having guts to be an entrepreneur means that you are ready through experience to carefully and prudently manage and mitigate the risks that lie ahead.
Not everyone is prepared to be a successful entrepreneur.
In the new book Heart, Smarts, Guts and Luck, two successful venture capitalists and a management consultant surveyed a large number of successful entrepreneurs to uncover what traits they have in common. One of the traits — guts — particularly hit home with my experience as an entrepreneur and as a teacher of entrepreneurs.
The authors argue, and I agree, that guts is not a trait that you are either born with or not. Having the guts to be an entrepreneur is something that can be nurtured and developed. They identify three key elements to developing and nurturing guts in entrepreneurs.
Eighty percent of the successful entrepreneurs in this study said that their entrepreneurial guts were developed through experiences early in their lives.
I can cite several experiences from working in our family businesses that helped to toughen my skin. One in particular stands out. When I was in grade school my father partnered in a cleaning products distributorship.
Although I was only eleven, I was eager to become a part of this new venture. So I decided to sell the product door to door. My first sales call was to our next door neighbor, who was a good friend of our family.
Rather than pat me on the head and buy some product to be nice, she looked me in the eyes and said, “Tell me why I should spend our hard earned money on this stuff?”
I did not make the sale. I was left speechless and devastated. It was a hard lesson that I have carried with me the rest of my life. Nobody owes you anything in business – it is up to you to earn it.
The second key element for developing guts is training and education that prepares entrepreneurs how to make decisions in complex situations. We urge every student who comes into our program to start a business while they are in school because this kind of training is so important. It helps them to gain experience, confidence and learn from their mistakes in a safe environment. However, I am not one who thinks we should require every student to start a business as many schools are moving toward. I think that making starting a business an assignment misses a key aspect of developing true entrepreneurial guts – the courage to make the choice and cross the threshold to start a venture.
The final element of developing and nurturing guts is becoming part of a community of entrepreneurs. By joining an ecosystem of fellow entrepreneurs you gain peer support, wise counsel, and a group who can hold you accountable. We need to have our entrepreneurial guts reinforced, nurtured, and checked throughout our career.
Having guts to be an entrepreneur does not imply that you take careless risks – quite the contrary. Having guts to be an entrepreneur means that you are ready through experience to carefully and prudently manage and mitigate the risks that lie ahead.
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