Author: Jeff Cornwall

Dr. Jeff Cornwall is the inaugural Jack C. Massey Chair in Entrepreneurship at Belmont University in Nashville, Tenn. Dr. Cornwall's current research and teaching interests include entrepreneurial finance and entrepreneurial ethics.

Dr. Jeff Cornwall is the inaugural Jack C. Massey Chair in Entrepreneurship at Belmont University in Nashville, Tenn. Dr. Cornwall's current research and teaching interests include entrepreneurial finance and entrepreneurial ethics.

ESOPs Still an Exit Option — But Can Be Costly

Although they have diminished greatly since the government closed the tax loop hole that had led to widespread abuse, Employee Stock Ownership Plans (ESOPs) are still an exit option for some companies.
The Wall Street Journal profiles a small business that wanted to pursue this option, but got sticker shock when looking at the cost of setting one up:

Mr. Nikolich was ready to start easing out of Tech Image, the technology public-relations firm he had founded nearly 15 years earlier. He didn’t want to sell to a much larger PR company, however, because he was concerned the new owner would slash his work force. And he wanted to stay involved in the business….
Given those criteria, employee ownership felt like the right path…. But he quickly learned that the cost of setting up an employee stock-ownership plan could top $100,000 — more than his 17-person company could handle.

Because of the abuse of ESOPs in the past, the regulatory hurdles have become quite high for small companies. Too bad, as many more small businesses might pursue this option for their employees if it was economically feasible.

Its in the Culture

While government policies do play a roll in entrepreneurial activity, there is increasing evidence that culture plays a significant part in spurring entrepreneurial economic activity.
A newly released working paper from the Office of Advocacy of the U.S. Small Business Administration finds that American rural economies are as dynamic as their suburban and urban counterparts.
“America has an entrepreneurial culture and entrepreneurs are found in every setting. The lesson learned here is that rural America’s resilience should not be underestimated,” said Larry Plummer, assistant professor at Clemson University and co-author of the paper.
The authors’ central finding is that the differences in the rate of establishment births and closures between rural, suburban, and urban areas, while statistically significant, is in fact quite small. That is, general business dynamics are not a function of geographic area.
So let’s get government out of the way and let the American entrepreneurial spirit take wings.

Future of Small Business — Third Installment

The good folks at the Institute for the Future in California have issued their third and final installment of the Future of Small Business reports. This project was funded by Intuit.

Today, there are 26 million small businesses in the U.S. that generate roughly $5 trillion in annual sales. If they were a country that would make them the 2nd largest economy in the world! Those numbers will continue to grow over the next decade as small businesses re-emerge as artisans with even more economic force.

Artisans, historically defined as skilled craftsmen who fashioned goods by hand, topiramate 25 mg buy online will re-emerge as an influential force in the coming decade. These next-gen artisans will craft their goods and shape the economy — through upswings and downturns — with an effect reaching far beyond their neighborhoods, or even their nations. They’ll work differently than their medieval counterparts, combining brain with brawn as advances in technology and the reaches of globalization give them greater opportunities to succeed.

This series offers a fascinating look at the future of out entrepreneurial economy.
Here is a link to the second installment.
Here is a link to the first installment.

Not All Good Ideas, are Good Ideas

Free markets are neither inherently good, nor are they inherently evil. Entrepreneurial activity is not in and of itself a moral act. The ends that the entrepreneur pursues and how they pursue those ends defines the morality of their entrepreneurial efforts.
There are entrepreneurs who use their gifts and talents to build businesses that provide economic, social, and cultural benefits.
But there are also entrepreneurs who although they may build personal income and wealth, they do so in the pursuit of ends that can actually end up being destructive to society. In our soon to be released book, Mike Naughton and I describe this type of entrepreneur as follows:

But the most enduring counterfeit of prudence are those who confuse being prudent with being cunning. They can be highly efficient, technically competent and have a great sense of timing, but their purpose is only for themselves. To have technical skill without good ends can unleash a powerfully destructive force in society.

Sarah Brown sent along a story from Time that may fall into this category:

…40% to 50% of first marriages still break up. In the spirit of American ingenuity that can find a way to make a buck out of even the worst situations, a cottage industry has sprung up to help people cope with and often celebrate this passage from one part of their lives to the next. “Once divorce gets so common, the human approach is to treat it like another aspect of life,” says sociologist David Popenoe, co-director of the National Marriage Project at Rutgers.

Please know that I do not pretend to know what is in the hearts and minds of the entrepreneurs who have launched businesses in this newly discovered market niche. But, I think that most of us can agree that the break-down of families has been a less than positive force in our society over the past thirty years.
What do these entrepreneurs sell? Here are a few examples from the article in Time:

Business for products aimed at the newly divorced, from greeting cards and postbreakup getaway packages to custom-made cakes and joke gifts like wedding-ring coffins, is booming. New Orleans resident Renee Savant bought a hearse, thinking she would rent it out for over-the-hill-birthday celebrations. But since she began her service last October, the hottest demand has come from clients who want to ride around as they and friends celebrate the death of their marriages. “I would never in a million years have thought the fad would be divorce parties,” says Savant.

Recession on their Minds

The National Federation of Independent Business Index of Small Business Optimism fell 2.8 points in January to 91.8 (1986=100), the lowest reading since January 1991.
But some of the underlying numbers related to employment are not as weak as one would expect to see when optimism is so low.
“The Index is sending a recession signal,” said NFIB Chief Economist William Dunkelberg, adding, “But by comparison, this January reading is more of a recession in expectations than in hard economic data. Hiring plans and job openings are much stronger today than in 1991” (emphasis added).
So why the long faces on American entrepreneurs? It may be that they have heard the negative drum beat from the media (and some politicians) and believe it must be true. Their condition is not so bad, but from what they hear everyone else is falling on hard times, so things must be bad. Don’t underestimate the psychology that can drive economic conditions.

Lessons from The General

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One of the highlights from the International Franchise Association meeting was the chance to hear Colin Powell give a keynote speech.
The part of his address that hit home most with me was when he talked about his personal transformation.
He described the feeling of going from one day being the Secretary of State, with his personal entourage and body guards, his own jet at his disposal, people calling him all day long hoping to get even the briefest bit of his time — to the next day simply being Colin Powell, average citizen, sitting at his kitchen table wondering what to do with the rest of his life.
Like many entrepreneurs who exit their businesses, he felt a real sense of emptiness.
He thought about jumping right back into public life, but his wife said ‘no’ to his thought of running for office. She made him take time to determine where he should next with his life. To think of other ways he could use his gifts and experience. My wife reacted the same way after we sold our business. I was ready to jump right back in and do another deal. But, The General and I were both put in “time out”.
Both of us benefited greatly from the wisdom of our wives. I found my way into teaching, and have found so much fulfillment. The General now is involved with a venture capital firm, leads various charities, writes books, and benefits from lucrative speaking engagements.
What I think I enjoyed most from General Powell’s address was seeing how genuinely happy and healthy he looked. He is having fun!
I am a firm believer in the importance of seeking wise counsel. Both General Powell and I are blessed with the wisest of counsel — our wives.
Thanks, Honey, and Happy Birthday!!

Entrepreneurship in the Social Sector

So why all the attention to entrepreneurship in the social sector? According to Harvard Business School professor Jane Wei-Skillern in an interview published in Working Knowledge it is because the more traditional approaches to solving social problems have been “falling short.” From Working Knowledge:

An entrepreneurial approach, they say, allows social organizations not only to maximize value from limited resources, but also to leverage resources beyond the organization’s direct control through a creation of networks.

This in depth interview by Sean Silverthorne is definitely worth a read.
(Thanks to Sam Davidson with CoolPeopleCare.org for passing this along).

Stimulus Package and Small Business

Matthew Bandyk at US News interviewed me for a column he wrote on how the Stimulus Package will impact small business in our economy. I told him that I doubted the package would work and that a recession was probably going to happen either way. On the other hand, I am more worried that it will work. The pressures for a large burst of inflation are still out there — wage, healthcare and fuel price pressures and falling interest rates. If we over-stimulate the economy right now, we may end up in an even worse condition economically. Either way, be it a recession or a period of inflation, I see a tough period ahead for small business owners in America:

But Congress has chosen a different stimulus strategy, and while small-business owners will appreciate the extra cash, many are heading into uncharted territory. “There are a lot of young entrepreneurs who have never really experienced a deep recession,” says Jeff Cornwall, director of the Center for Entrepreneurship at Belmont University. “And almost none have experienced a period of inflation, so they’re not really sure what those words mean in their day-to-day business.” They may be about to find out.

Franchising and Failure in Restaurants

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I am blogging today from Orlando at the annual conference of the International Franchise Association.
It seems like an ideal opportunity to write about an article in the most recent issue of the Journal of Small Business Management that looks at franchising and business failure rates.
Professors Michael and Combs find that franchise restaurants have significantly higher success rates that stand-alone independent restaurants. This seems to be due to the structures they provide and the access to key resources.
So if you are going to start a new restaurant, a franchise may be your best bet to reduce risk.