The Entrepreneurial Mind
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
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
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:
- 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.
- 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.
- Apply for a microloan.There are more micro-lenders popping up across the U.S.
- Join a credit union, which can offer up to a $50,000 business loan to its members.
- 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.
- 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
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.
In this file photo, candidates for graduation from Wichita State University clap during the 109th Fall Commencement ceremony held at Koch Arena in Wichita, Kan. Will dropping out of school help or hurt the chance to become a successful entrepreneur? (Jaime Green/AP/The Witchita Eagle/File)
Dropping out to become an entrepreneur: A good idea?
In May of this year, Peter Thiel, a co-founder of PayPal and an early investor in Facebook, awarded 24 young, aspiring entrepreneurs $100,000 to "drop out of school and become world-changing visionaries."
Now that the publicity has settled down, I thought it would be a good time to offer the perspective of three entrepreneurs who dropped out of Belmont's entrepreneurship program.
None of them was part of Thiel's program, but each dropped out to chase his entrepreneurial dreams. However, all three eventually decided to return to school to finish their degrees.
John Price and Sam Dryden dropped out of the entrepreneurship program to pursue their photography and video-related businesses.
"I have never been a typical student, and I often found myself frustrated with classwork," Dryden said. "When it looked like my business was going to be a success, I jumped at the opportunity to pursue something that at the time I decided was more important than a degree.
"We are told to study hard so you can get a degree and then a job. Hey, I already had income, so why waste time in school, right?"
Both of them saw a choice: stay in school and be a student, or pursue their careers as entrepreneurs.
"I knew that I wouldn't be able to reach my business goals while attending a university and splitting the time," Price said.
Timothy Weber left the Belmont entrepreneurship program to pursue his Web-based business, GoodMusicAllDay, full time. However, it wasn't long before he decided leaving school might not have been a wise choice.
"After just one year out of college, I realized how little of a business background I had and how many 'lessons' I could have learned in a classroom instead of after they had already negatively impacted my business," Weber said.
All three entrepreneurs believe the business experience they gained while out of school enhanced their learning curve when they returned.
"Leaving school gave me crucial experience that in my opinion made the return to Belmont more valuable than if I had never left," Dryden said. "My experiences out in the 'real world' gave my professors leverage to turn class time into very meaningful time for me. It was no longer homework, and it was instead a focused business workshop that had actual repercussions in life."
At Belmont, as in many other entrepreneurship programs across the country, professors encourage students to start ventures while in school to enhance what the course work offers them.
"The entrepreneurship program allowed me to understand my business before spending all my money and time pursuing it," Price said. "The time in college provided me with the opportunity to focus on the bones of my business before I applied it to the real world.
"The time I would spend talking through my business ideas with other students was some of best feedback I could have gathered."
These three entrepreneurs learned an important lesson when they dropped out of college. It does not have to become a choice between pursuing your dreams and advancing your education, as both work better when pursued hand in hand.
In this file photo, an artist's impression released by the European Space Agency shows a Galileo satellite in orbit. Demios Space, a company based in Madrid, is an impressive startup that launched its first satellite into space with money out of pocket. (ESA/Handout/Reuters/File)
Small business in space
I am in Madrid, Spain this week with a group of MBA students on a one week intensive study abroad.
Yesterday we visited an impressive company, Deimos Space, headquartered here in Madrid.
The founders were able to build a high growth company that launched their own satellite into space using only self-funding of $250K from the founders. An amazing story of what bootstrapping and building the right team can accomplish.
They started, grew to a global presence in the space market, and exited their venture all within a ten year period.
Most of the founders are still with the company helping to take the core technologies they developed in Deimos into other markets and other applications. There is a great description of how far they have taken their business model on their website.
Entrepreneurs need clear and accurate records to help manage the challenges of their startups, Dr. Cornwall argues. (Sigrid Olsson/Altopress/Newscom/File)
Small business and the importance of paperwork
In the rush to start a new business, the simple act of keeping records often gets put on the back burner. But poor record keeping has been the demise of many otherwise successful businesses.
The entrepreneur needs clear and accurate records to help manage the challenges of the startup. These records can help manage cash flow and will provide financial statements that can help monitor the progress of the new venture.
The IRS expects even the smallest of businesses to document deductible expenses and support all items reported on tax returns.
Also, bankers monitor the progress of their business customers using financial information. If you cannot supply timely and accurate financial statements and other required information to your banker, it will hurt your ability to get loans when your business is at the stage where it could otherwise qualify.
The first step in establishing a record keeping system is setting up a separate checking account for the business. The deposits into this account should include any initial investment you make to start your business, the proceeds from any startup loans or investments, and all revenue from customers.
This checking account should be used to pay all expenses for the business, but not any personal expenses. As an owner you can draw money from this account, which can be deposited into a personal checking account to pay personal bills and living expenses.
Carefully document every expense paid from the business account. If paid by check, make careful notation of the check number, date of the check and purpose of the expense for each purchase. If paying with business debit or credit cards, keep detailed notes on each expense. Writing this on the back of each receipt is a good habit.
Set up a filing system, which can be either hard paper copies or scanned records, to track all documentation on receipts and expenses. Think ahead when setting up the filing system so it can accommodate the business as it grows. Use separate files for each vendor and customer and organize these files by type of expense or receipt.
Accounting software, such as QuickBooks, can help organize financial information. But remember that no system runs itself. Any system for record keeping relies on proper and timely input of information from you.
One lesson that many entrepreneurs learn the hard way is that you should not delegate financial record keeping to employees too quickly. Sadly, fraud is common in small startup businesses, and it often leads to the failure of an otherwise healthy business. Keep a close eye on financial records and put in systems of checks and balances. For example, never let the same person who handles revenues from customers also pay the bills, as this makes stealing money easier to cover up.
Record keeping may seem mundane compared with the other aspects of starting a business, but it is a critical step to ensure a healthy business. Record keeping systems should be simple to use. The job of the entrepreneur is to use this system to keep accurate, timely, consistent and compete records of all activity in the business.
Finding employment for former offenders significantly reduces the probability that they will return to prison in the future. Small business can play a key role in this process, the author argues. (Frances M. Roberts/Newscom/File)
Small businesses: Building community through hiring
Owning a business gives entrepreneurs the freedom to pursue more than simply income and wealth from their businesses. Many choose to use their businesses to become building blocks to help improve their community.
Several students at Belmont University are participating in a program addressing one challenge faced by every community: Inmates are released from prison every day back into the community and face a difficult transition back into society. TRIO, which stands for Transformation Reconciliation from the Inside Out, uses education as a tool to help build a path for successful reintegration of former offenders from prison back into the community.
One important partner in this process is local employers. Finding employment for former offenders significantly reduces the probability that they will return to prison in the future.
In the first phase of this program, TRIO brings together college students and inmate students in classes that are offered at the Charles Bass Correctional Complex Annex in Nashville. The goal of the classes is to engage the inmates jointly with college students in education to help foster understanding and reconciliation through community support.
Some of the students are trying to help with the next step in this program by identifying employers who are willing to hire the offenders. This is not always an easy task.
"I am especially discouraged when employers see only a crime rather than an individual working toward reconciliation," said Lindsey Ricker, an entrepreneurship major at Belmont who is participating in TRIO. "Many employers take one glance at a checked felony box and throw a job application in the trash."
"I have confidence in our guys," added Eliza Hemmings, a sociology and French double major from Belmont. "I have confidence that given support and the right opportunity that they will be successful in their re-entry process. It is not possible to change the past -- what's done is done. But what we can do as a larger community is support their will to change, their will to contribute to society in a positive way and rebuild their lives. We as community members have a choice as well, and I choose to support my inside friends on their journey toward success."
Employers who are participating find benefits from hiring men from this program.
"Which Wich (a sandwich shop franchise) has found the employees re-entering society to be hard-working, determined and bringing a positive attitude to the other employees and customers," said Tracie Maybaum, a Which Wich general manager. "One of the most beneficial assets they bring to work is their attitude. Theirs positivity influences other employees, and their gratitude is motivating."
The government can assist employers who are willing to hire former offenders. The U.S. Department of Labor insures qualified former offenders bonding for a range of $5,000-$25,000 for six months. And those who hire a qualified former offender within a year of release may be eligible for up to $9,000 in tax credits.
Hiring former offenders certainly brings with it some risks. But accepting these risks can help contribute toward building a stronger community. And after all, isn't entrepreneurship all about taking risks?
The author argues that giving green cards to international students who graduate with advanced degrees in math, science, technology, or engineering isn't the best solution for pulling the US economy out of its current doldrums. (Carlos Barria/Reuters/File)
Should we give international students green cards with their diplomas?
The National Foundation for American Policy released a policy brief this week that says international students who graduate from U.S. universities with advanced degrees in science, technology, engineering, or mathematics (STEM) should get a green card with their diplomas. The paper also says such a policy would significantly benefit U.S. competitiveness and the economy overall.
In "Keeping Talent in America," the NFAP conducted research funded by the Ewing Marion Kauffman Foundation that shows a highly skilled Indian national sponsored today for the most common skilled employment-based immigrant visa could wait 70 years to receive a green card. The report addresses the need for STEM graduate talent and solutions to the backlog.
While I agree that our immigration system needs reform, this solution simply adds one more layer of complexity on a broken system.
And we don't just need high growth entrepreneurs to pull our economy out of this morass, we need an army of entrepreneurs creating small, medium and high growth ventures.
The last great entrepreneurial revolution in our economy was in the late 1800s and early 1900s. Those entrepreneurs created the businesses that were the foundation of the industries that dominated our economy for decades to come. And they weren't all a bunch of PhD scientists. Many were hard working, blue color folks who developed innovations that changed how all of us lived our lives. Some were sons and daughters of sharecroppers and others were just of the boat coming to a land they hoped would offer opportunity.
We need to find a way to open the doors wide open for those who want to come here and start new businesses. We know that immigrants are 30% more likely than the rest of us to start a business. We need their energy and drive.
I firmly believe that we need a structured system for immigration that is based in the law. But, the one we have now was set up to staff our farms and our factories.
I know many want immigration to be a tool to preserve language and culture. My goal is to have immigration be a tool for economic expansion. We need a system that will turn immigrant entrepreneurs loose in this land of opportunity to help rebuild our economy.
Little change is expected when the new unemployment numbers come out next Tuesday (Rafael Ben-Ari/Newscom/File)
No good employment news for small businesses
Chief economist for the NFIB, William C. Dunkelberg, issued comments on the continued dismal job findings from the latest NFIB monthly economic survey that will be released on Tuesday, October 11, 2011:
"There is a reason that Washington is talking in circles when it comes to the economy: There is no good news to report. Until sales improve, until it becomes cost-effective to hire new workers, we cannot expect small-business owners to take advantage of new hiring tax credits and increase their employee rolls. And the numbers prove it.
"For the fourth month in a row, small-business owners reported an overall reduction in employment, posting an average reduction of 0.3 workers per firm.
"A snapshot at regional numbers reveals that job creation plans were quite negative among firms in New England, albeit less so in the Mid-Atlantic and South Atlantic, West South Central and Pacific states. It would seem that the need for additional workers for hurricane cleanup was not strong enough to overcome broader weak economic conditions on the East coast."What do we expect Friday's DOL numbers to reveal? Our prediction is a weak payroll number and little change in the unemployment rate - certainly nothing positive."
Cautious about the economy, small business owners are holding off growing their enterprises in increasing numbers (dz/DZIMAGES/ DEAN PICTURES/Newscom/File)
To small business owners, it's a recession
Consumer confidence continues to languish, which is leading economists to: 1) worry about a double dip recession, 2) worry about a new recession, 3) or finally agree with most of us that we are still in a recession.
Cautious customers are not spending their money. This is leading many small business owners to continue to see their businesses go nowhere, fast.
Based on how their businesses are performing, more than one-third of small business owners (38%) believe we are still in recession, according to the just-released American Express OPEN® Small Business Monitor.
Economic sluggishness is impacting the psyche of entrepreneurs: 27 percent say they do not plan to grow in the next six months (up from 21% in the spring) and just 77 percent describe themselves as glass-half-full optimists (down from 85% a year ago). I have heard a few even begin to exclaim, "What glass!!!???"
The survey did find a few signs that those who have survived are getting ready for continued difficult times. Cash flow is more under control: 55% have concerns, down from 66% in the spring.
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