The Entrepreneurial Mind
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.
Several new studies of small business owners today show that tough times continue for entrepreneurs.
Two surveys released yesterday 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 yesterday 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
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.
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.
RELATED: The job-shifters: people who reinvent themselves mid-career
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!
RELATED: The job-shifters: people who reinvent themselves mid-career
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.
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.
The organizational structure of the typical small business evolves from a series of specific decisions to help manage the challenges presented by growth.
When there becomes too much else to do, the entrepreneur finally decides to stop doing the books and hires a bookkeeper.
As demand increases and more sales opportunities arise, a salesperson is hired to help. When more and more workers get hired, a supervisor is named to manage day-to-day operations. And when a new location is opened, a manager is brought in to help run it.
With each of these decisions the entrepreneur starts to create an organizational structure.
As the business grows, employees are organized into specific functions such as bookkeeping, sales and operations, and eventually someone is put in charge of each of these departments.
While the decisions an entrepreneur makes to handle each specific challenge may make good sense individually, sometimes it doesn’t add up to a complete whole after the structure has been pieced together.
To be effective, the organization’s structure needs to align with the overall market strategy that the business is pursuing.
In their classic book, The Discipline of Market Leaders, Michael Treacy and Fred Wiersema identify the three common competitive strategies of successful businesses. They conclude that there is a specific alignment of structure, culture and systems necessary to support the chosen strategy.
The first competitive strategy is operational excellence. This is what a business needs to be efficient, consistent and low-cost. Burger chain McDonald’s is a good example of this strategy, as its customers want the same food served quickly and inexpensively in every McDonald’s they visit. This strategy works best with what might be called a bureaucratic structure, where decision-making is completely centralized at the top levels of the business with tight controls to ensure consistent performance.
The second strategy is product leadership, in which the business seeks to be the leading innovator in its market. This is a common strategy of many technology businesses. The structure that works best with this strategy is one that is flexible and can quickly adapt to each new product offering. People are reassigned and reorganized to meet the unique needs of each new product.
The third strategy is customer intimacy. This strategy — as it evolves — must allow any employee to do what needs to be done to meet the needs of the customer. A common mistake of small businesses is that, as they grow, they try to pursue all of these strategies at once. This is never sustainable over the long run.
Each strategy demands a specific approach to organizing how work gets done.
A key to being a successful venture and managing growth is finding the competitive strategy that works best for the market, and then working to build a structure over time that supports that strategy.
There is no one best structure for all businesses. But there is a best structure for the type of market strategy that a business chooses to pursue. Find it.
Here are my thoughts that I shared with the author for this story, which regular readers have heard me say many times:
Generation Y is the most entrepreneurial generation ever. Parents raised their children to be independent. This generation feels a general sense of distrust for large organizations and government.
What will be really interesting to watch over the next decade or so is the next generation coming along — Generation Z.
These are the children of Generation X. They share some characteristics with Generation Y. For example, they seem to view entrepreneurship as a perfectly normal career path.
But they have some fundamental differences. Unlike Generation Y, they will probably not be seeking balance and meaning in life from their careers. They are driven, high achievers. They are the first generation for whom the constantly connected, social media world is ubiquitous.
Should be a fun ride as they start to enter university programs like ours. We will need to be adjusting our programs and probably our expectations as this group begins to replace the Gen Y folks in our classrooms. They will challenge us to integrate technology and social media in our classes. They will be looking for more high growth opportunities than the Gen Y folks have.. And we will have to get comfortable with their multi-tasking personalities.
This may be about the last generation I teach. By the time they have worked their way through the system it will about time for me to open my bait shop. I will always be teaching in some fashion. I will continue writing and will certainly honor the life time warranty I offer my alumni.
I will be leaving the next generation — will they be “Generation AA”??? — to my younger colleagues. Who knows what they will bring into this world!
“There is a bank on every corner. If you don’t like the answer you get from one, go to the one across the street.”
That is the advice my late father gave me a long time ago about finding a small business friendly bank.
Now there is a new tool to help make this process easier for small business owners.
“One of the biggest challenges that small businesses face is access to capital,” says Ami Kassar, CEO of MultiFunding, a small business financial advisory firm. “We decided to give small businesses a gift this year and help them find local banks that are friends of small business – Banking Grades.”
Banking Grades is a proprietary online tool that grades every bank on its commitment to small business lending. Using public data from the Federal Deposit Insurance Corporation (FDIC), Banking Grades compares the amount of a bank’s deposits to the amount of loans that bank has made to small businesses. These loans are $1,000,000 or less. “Based on our experience of helping small businesses find financing, we believe that a one million dollar loan is a good barometer of small business lending,” explains Kassar.
On Banking Grades, anyone can search for an FDIC-regulated bank by name, zip code, city and/or address. Banks that make the most loans to small businesses (proportionately to their deposits) receive an A. Conversely, the banks are not making small business loans, receive an F. There are thousands of banks in between. “It is our hope that small business owners will use this tool to find local banks that will lend to them. All banks have money, but the biggest one or the closest one to your store isn’t necessarily the one focused the needs of small businesses,” says Kassar.
Banking Grades gives an A grade to 2,693 banks in America. In order to receive an A grade, a bank needs to utilize 25 percent or more of its domestic deposits to make small business loans.
I tried it for my location. It was easy to use and, quite frankly, eye opening. I found out I was doing business with two banks that did not get very good grades!
“You are gnats! You are like annoying little gnats flying around in the face of consumers.”
This is a message that I consistently tell aspiring first-time entrepreneurs.
Why the harsh words? Most first-time entrepreneurs have so much enthusiasm that they can become blinded to the reality of the challenges that every new business faces.
I tell them to think about the last few hours. How many small businesses did you go past without even really noticing them? What about all of the products in the convenience store where you got gas this morning?
How many of the service businesses that had logos and advertisements on the sides of their trucks did you actually pay attention to?
Many of those products on the shelves are the result of someone’s entrepreneurial dreams. A small-business owner spent hours agonizing over the business name and a logo, and yet most passersby barely notice it.
New business owners need to adjust their expectations. While starting a new venture is one of the most important and exciting things you’ve ever done, to the market your product is just one more in an already overcrowded sea.
So, new business owners need to get a sense of urgency. They need to develop a plan to become more than just another annoying little gnat!
To successfully launch a new business the entrepreneur needs a clear entry strategy, which is a plan for how the business is going to gain the attention of the market and start attracting customers.
If your business is going to take existing market share away from established businesses, you are going to have to do something better, faster or cheaper than the competition. Give people a compelling reason to change their buying habits.
Start small: Consider a niche strategy. This simply means the entrepreneur finds a small part of a market that’s not being served or that has been significantly under-served. It gives the entrepreneur a safer market to conquer a bit hidden away from established businesses.
But establishing a niche requires that you find ways to let the customers in that niche market know that your new business is now open and is ready to fill their specific unmet need.
Getting the market’s attention for a completely new product that has the potential to impress the mass market is the most difficult and expensive market entry. It requires extensive investment in advertising and other forms of promotion to build awareness for your new product and to educate the public about the benefits it offers.
No matter which type of entry strategy you pursue — and as excited as you may be about your new business — remember this: If you build it they may, or they may not, come.
You will need to work hard to find the most effective means to attract those initial customers.