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.

Looking at Life Through the Rearview Mirror

While it has gotten so much easier to get monthly financial statements using off-the-shelf accounting software, these numbers are not all that is needed to effectively manage a business.
First, the income statement, balance sheet and cash flow statement are all based on historic data. They tell you where you have been, but not necessarily where you are headed. A professor from the east coast tells of an exercise he uses to bring this point home. He takes his students to a big open parking lot, where an old car sits with all of its windows blackened out with paper except the rear window.
He sets up a simple course to follow with orange cones. The trick is this. His students must navigate the orange cones driving forward by looking only through their rearview mirror. The cars careen all over the lot as the students try to master this almost impossible task.
The moral of this lesson is to illustrate the challenge of trying to go forward while only able to look in the past.
The challenge for the entrepreneur is to develop a set of numbers that lets them see ahead for their specific businesses. These measures tend to be unique for each situation. For example, it may be the steps that are taken in the sales cycle. If measured and used to manage, these numbers can help predict future sales and improve the steps taken to secure new business.
Here are a few key steps that can assure that you have these numbers and that they are there when you need them:
– First, identify those specific activities that, when taken together, are critical for building sales and growing profitability.
Keep number of measures to the critical few that matter most. Limit to 5-8 measures to assure that managers keep focused.
– Link compensation to these performance measures, placing emphasis on quality rather than just quantity.
– Create a list of numbers you would like to see on your desk each day, each week, each month, and each quarter that will help you see where your business is headed. Focus on those numbers that are critical to guide and navigate the company to desired sales and profits objectives.
– Sit down with your bookkeeper or accountant and see what other suggestions they might have. They can add to your list, but not delete. If you need to, upgrade your information systems and staff if needed to get these numbers. Growing profitably should easily pay for these costs.
– Be Assertive. Do not accept gaps in information or unnecessary information in reports you receive. Make sure that everyone understands the importance of these numbers for the future of the business and knows the part they play in not only providing this information, but in using it to help move the business ahead. Use the key numbers to motivate your employees, so they are working with you to grow the business.
Find the key processes that help make your business grow and find a way to measure them. Don’t ever try to move your business ahead while only looking in your rearview mirror.
(Note: Some of these ideas come from a 1999 article in the Journal of Accountancy and from a 1990 article in Inc magazine).

Time for a Change in Strategy

Small business owners, trade association representatives, think tank scholars, congressional staff, and elected officials came together to celebrate 25 years of the Regulatory Flexibility Act (RFA). The RFA, designed to make sure that small businesses are considered during the regulatory process, was signed into law on September 19, 1980.
But, as I wrote last week, there is a long way to go. Firms with fewer than 20 employees annually still must spend $7,647 per employee to comply with federal regulations, compared with the $5,282 spent by firms with more than 500 employees. Small businesses face a 45 percent greater burden than their larger counterparts.
The RFA requires federal rule writers to consider alternatives that will lessen a proposed rule’s impact on small business. Perhaps this it is no longer enough to “consider” alternatives for small business when it comes to drafting legislation aimed at commerce in this country.
Given the importance of entrepreneurship in today’s economy, a new paradigm is in order. Rather than make a bureaucratic pass at “alternatives” for small business it may be time to view all legislation through the lens of small business.
Most new regulations that impact commerce in this country are big hammers aimed at large corporations. But, given the smaller and smaller role that large employers play in our current economy it is like we are trying to kill squirrels with nuclear bombs.
Here is my proposal. Let’s pass laws that consciously foster small business development, while considering alternatives to specifically regulate the largest of employers as needed. We have been trying the reverse for decades, with only limited success.

Does It Feel Crowded Out There?

A new study just released by the Kauffman Foundation finds that there are 500,000 new business start-ups in the US every month. If accurate, that means we are now seeing start-up rates of 6 million a year!
Here are additional highlights as reported by the National Dialogue on Entrepreneurship:

Somewhat surprisingly, the study shows a relatively stable rate of entrepreneurship activity despite major changes in the national economy in the last decade. Based on data from the Census and the Bureau of Labor Statistics for 1996 – 2004, an average of 0.36 percent of the adult population created new businesses each month with the low mark of 0.33 percent in 1997 and a high of 0.40 percent in 2004.

Most of the recent increase is attributable to immigrant entrepreneurs. While illegal immigration is a very serious problem that needs serious solutions, this shows that many of today’s immigrants coming into the US are helping to improve our economy through their entrepreneurial activities.

When Disaster Strikes

The lessons from 9-11 and Hurricane Katrina are still fresh in many small business owners minds. We now face another huge threat with Hurricane Rita. Inc.com reports on a check-list from Chubb Commercial Insurance that can help small business owners work toward a successful recovery from such events. It includes health and safety issues, getting basic services back to your business, protecting property, and restoring basic business functions for your business. This is an excellent resource that all small business owners should have in their disaster plan. And all small businesses should have a disaster plan in place!
Our thoughts and prayers are with all of you on the Gulf coast of Texas and Louisiana as Hurricane Rita approaches.

The Path to Start-up is Never a Straight Line

Time to check in again with Jason as he works his way through the start-up of his coffee shop in Bozeman, Montana. He is finally getting close to a lease. I am sure the journey to this point has seemed like an eternity to him, but Jason has been diligent with every step. He has not rushed through key decisions just to get the doors opened. Too many entrepreneurs get antsy and make hasty decisions during the start-up process that they can regret for years to come.
We will have to have some sort of major web-based celebration when he finally sells his first cup of coffee. Being the purist that I am, I hope it is a mug of pure, black coffee.

The Flea and the Elephant

A common part of business plans that I read involves some strategy that will lead to the shelves of Wal-Mart or one of the other big mass-merchandisers. StartupJournal tells the tale of one entrepreneur’s attempt to get his product placed in Wal-Mart stores.

Last year about 10,000 new suppliers applied to become Wal-Mart vendors. Of those, only about 200, or 2%, were ultimately accepted. “We just don’t have very many empty shelf spaces,” says Excell La Fayette Jr., Wal-Mart’s director of supplier development.

It is a journey that generally takes a minimum of six months just to get approved — and even then an order is not guaranteed. And along the way expect your margins to get thinner and thinner as costs go up and the price that Wal-Mart is willing to pay you goes down.
One change that is helping more entrepreneurs break into large retailers is that all of them, even Wal-Mart, are allowing more local autonomy for purchasing. But even with this change the odds are against you ever getting a shot at any shelf space.
Anita over at Small Business Trends has some interesting thoughts on this article.

Interest Rates Up Again

In somewhat of a surprise move, the Federal Reserve decided to raise interest rates another 0.25%.
From a summary issued by the Congressional Joint Economic Committee:

The Fed views risks of substantial increases or decreases in inflation over the next few quarters as roughly balanced. Risks of substantial increases or decreases in economic growth are also seen as balanced.
The Fed mentioned that dislocation of economic activity and higher energy prices that resulted from Hurricane Katrina will weigh on spending, production and employment in the near term. The Fed believes, however, that the economic developments stemming from Katrina will be transitory and “do not pose a more persistent threat.”

Rates have been steadily increasing from 1% in June 2004 to the current rate of 3.75%. Such rate increases will impact small businesses that have operating lines of credit, which most often have fully variable interest rates.