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.

Economic Foot Soldiers

During the last economic expansion entrepreneurs constantly battled to find workers. Staffing shortages were the major challenge that the entrepreneurs who I was working with complained about. This recovery has created a new challenge: supply shortages.
Why are inventories so low? Businesses have been slow to ramp up production during the current expansion even though the economy was clearly picking up. Just this past weekend, I was talking with small businessman who said that even though their revenues had increased dramatically this past year they still had not really expanded their work force since their post 9/11 layoffs. They were falling behind on some orders, but he was still not sure they should add staff or inventory.
The current expansion has seen an unusually slow employment recovery. Why? In large part it is because we are still waiting for the other shoe to drop. Entrepreneurs remember that after the 9/11 attack, those businesses that were already running lean and tight were the most likely to survive the dramatic shock on the economy that followed. There is a general, yet usually unspoken fear that there will be another ?event?. So they are being very cautious. They don?t want to be caught with large inventories and bloated payrolls if the terrorists strike again. Entrepreneurs have a general sense of confidence in the economy, but they just don’t trust that events will allow it to continue.
This caution has led to the current shortages in supply. As the economy has gotten red hot, the capacity is just not there to meet the growing demand. Russell Sheldon, a senior economist at BMO Nesbitt Burns in Toronto, states in a commentary published in the Nashville Business Journal that these shortages are widespread. ?Inventories at all stages of production plunged relative to sales in the initial months of this year. All three levels – manufacturing, wholesalers and retailers – are very short on inventories.? I see it in my neighborhood where construction has slowed due to material shortages, while demand for new houses is stronger than it has been in years.
Sheldon and other economists warn of what these shortages can create. It is demand-pull inflation. Many entrepreneurs had not experienced an economic downturn before the recession that began in early 2001. Even more of them have not known of the challenges that inflation can create for business leaders. The last serious period of such inflation was 1979, when we saw prices grow at a double-digit rate. I remember, as I had just finished by MBA in finance from Kentucky and very few of us in that graduating class could find meaningful work.
Hopefully the Fed can keep inflation in check this time. We learned from the inflationary periods of the 1960s and 1970s that panic over rising prices only made inflation worse. So we all must do our parts to keep inflation under control. Knowing why we are facing this challenge may help toward this end.
But, things are no longer as predictable and simple as they once were. The attacks of 9/11 were aimed directly at our economic system. And they got a direct hit. We are at war. The war has come to our shores, and the enemy intends on attacking the very foundations of free enterprise and our way of life. In many ways, entrepreneurs are the economic foot soldiers of this part of the war. And much more is at stake than simply their businesses.

Even well connected start-up can find financing a challenge

This story in the Tennessean tells the tale of experienced entertainment industry executives trying to launch a start-up. As evident from this stroy, connections and name reconition alone are not enough to bring money to the table.
“(Carl) Kornmeyer, who was heavily involved with The Nashville Network and CMT during his Gaylord tenure, has decided to build a company from scratch in a big way, one seeking somewhere in the neighborhood of 0 million. The venture, called New Shoes Media, is exploring digital cable network and programming opportunities.”
They are hoping to raise the money though local sources here in Nashville, but may end up chasing venture capital as well.
One piece of advice from this humble blogger: think about your “story”. This is especially important as one moves away from the locals who know you. Why do I raise this issue with this start-up? Well, here is how they say they got the name for their new company:
“The company’s name came before Kornmeyer, however. It reflects the gamble they are taking. ‘Come on, baby needs a new pair of shoes.’ And the dice go rolling across the table.”
Not a part of the story that most experienced investors want to hear. Prudent risk taking is what they are seeking in deals. Rolling the dice is normally not the business they are in with their financing deals.

Home/Work

Home offices are certainly nothing new. I have had one on and off for most of my career. But with the boom in business formation, more and more new entrepreneurs are following this age old bootstrapper?s tradition of starting their business out of their home. According to the Wall Street Journal’s on-line StartupJournal.com, “The number of full-time home-based businesses has risen 3.1% during the past five years to 9.9 million in 2004.”
It can be the only way that many new businesses can save enough on the costs of start-up to make it during those dicey early months of operation. It takes many forms: the garage, the kitchen table, the basement, the bedroom, the dining room table, or some combination of these.
Even from the beginning it can create some real boundary issues. At this very moment I am violating one of the rules of our household. I have tried to agree to keep my working at home to my home office over the years. It forces me to set up some boundaries between work and home, even though some days they are the same place. But with the wonder of wireless, I sit here in my living room with the Golf Channel on in the background writing about the challenges of working at home.
As a business grows, it can very quickly take over one’s home. I met yesterday with a couple of music industry entrepreneurs who just graduated from Belmont. While they have found that running their start-up out of their homes has saved money at a time when they had very little, it is getting very old very quickly. Josh, who does audio production for a new venture called Submerge Media, told me that his part of the business has now taken over two rooms in his home. Others talk about how uncomfortable it can be as they hire employees and they have to “report to work” around their dining room table. Privacy is certainly a casualty of this type of business arrangement, especially for the entrepreneur’s family.
Eventually many of these businesses will “leave home”. But, the transition can be difficult. The entrepreneur goes from no rent, to having to pay a fairly large chunk of money each month even for a small amount of office space. The commute time increases from the few seconds it takes to walk up stairs, to however long it takes to get to affordable and convenient space for the business. Certainly the up-side is that the garage is no longer full of inventory, the basement full of machinery, or the kitchen full of computers.
There are stepping stones for many businesses. Incubators are always on option, especially for high potential ventures. More and more entrepreneurs find transitionary space with businesses set up to offer just that, such as HQ Business Centers or countless local office cooperatives. Other entrepreneurs take advantage of excess space that other businesses have through sub-leasing some of their space. As we expanded our health care business we often had to take more space than we needed at the moment and used sub-leasing as a temporary solution for our unused offices. Entrepreneurs coming out of university settings are finding that many schools, like we do here at Belmont, have created business hatcheries for aspiring entrepreneurs.
Although some businesses stay home-based businesses for years and years, many out grow their welcome. As Josh said about their growing pains at Submerge Media, “It gets a little weird meeting with clients in my bedroom!”

We will not go quietly…

Just when you thought we baby boomers were fading off into the sunset….WE’RE BACK!
High Tech is going to revolutionize the senior years for those of us born in the 1940s to 1950s according to an article in Red Herring (you will have to register to get to this site if you haven’t done so previously).
“In the future, everything from cell phones to computers will be redesigned for users with limited manual dexterity, poorer eyesight, and hearing….Intel, MIT, and other research centers are working on sensor-rich environments that can monitor their inhabitants, helping people remember to complete tasks and watching for sudden behavioral or physical changes. “
My generation has built sizable wealth, and we are not afraid to spend it to make our lives more comfortable. Combine this with the trend to postpone or transition into retirement and you have a large group of aging people with tremendous disposable income.
Much of entrepreneurial opportunity comes from major changes in demographics, society and technology. In this case, we have a confluence of all three. A major demographic group is moving into a significantly different stage in life. We have created a society in which we expect to have our problems taken care of for us. And, the technological revolution is just waiting for more problems to chase with already developed solutions.
?Aging people may also become be a target market for home robots. In Japan, companies like NEC are hoping to create “nursebots” that can provide basic physical and medical assistance to elderly users?.(I)n their desire to stay healthy, elders will view almost all of their consumption choices through the lens of health. Health considerations won’t be confined to diet or medical regimens: they’ll influence choices in everything from clothing to housing. But because emerging technologies like sensors and smart dust will make it possible to build intelligence and monitoring capabilities into just about everything, it’ll be possible for nearly everything to have a health monitoring or maintenance function. Indeed, this is such an important trend, culture historian and author Theodore Roszak predicts that “by the middle of the 21st century, every highly developed industrial society in the world will be a health care economy.”
What does all this create? Another huge growth opportunity for entrepreneurs in high tech, software and life sciences. At one time there was a concern that the aging of my generation would drag on the economy. After all, the conventional wisdom was that our early parenthood years were our big spending years. As we aged, we spent less, and since we are such a big demographic bulge this was going to create a long term economic decline. Not true, it now appears.
Given the mammoth size of my generation and increasing longevity, this could be a huge entrepreneurial pot of gold for the next forty years. God willing and the creek don’t rise, that is.
Thanks to Bill Hobbs for passing this article along.

Out of Chaos comes Opportunity in Entertainment

I have argued since arriving in Nashville that the entertainment industry is ripe for an entrepreneurial boom. Although the big companies in the industry are hurting, entertainment (especially music) is being made and being consumed. The manner it gets from the source to the consumer is forever changing. The latest figures on venture capital investment support this view. Entrepreneur magazine reports that entertainment is emerging as one of the hot sectors for VC’s. Hang on to your (cowboy) hats…its going to be a wild time here in Music City!

Summer Reading

The National Dialogue on Entrepreneurship has offered their choices for summer reading:
Thomas W. Malone, The Future of Work: How the New Order of Business Will Shape Your Organization, Your Management Style, and Your Life. Cambridge: Harvard Business School Press, 2004
This is an interesting look at the new face of employment relationships. My take on this it that even if you are not planning to be an entrepreneur you better learn about it. Malone sees management become more a group of free agents that sell their expertise and services to many different companies. You basically better plan to treat your career like it is your own business if Malone is correct.
Nicholas Carr, Does IT Matter? Information Technology and the Corrosion of Competitive Advantage. Cambridge: Harvard Business School Press, 2004.
NDE has this take on this book:
“Carr argues that executives must now treat IT as simply another part of the business; it should no longer drive a company?s strategy. This also means that firms should spend less on IT, and that claim certainly doesn?t sit well with IT companies. Even if you disagree with Carr, this is a provocative book that will make you think about where IT fits in with your business or your local economy.”
David Bornstein, How to Change the World: Social Entrepreneurs and the Power of New Ideas. Cambridge: Oxford University Press, 2004.
Social entrepreneurs are those people who channel their entrepreneurial passions into the non-profit world. A growing area of interest with many potentially very positive social implications.
Sharon Whitely, Connie Duckworth, and Kathy Elliott, The Old Girl?s Network: Insider Advice for Women Building a Business in a Man?s World. New York: Perseus Books Group, 2003.
Lindy Woodhead, War Paint: Madame Helena Rubenstein and Miss Elizabeth Arden, Their Lives, their Times, and their Rivalry. New York: John Wiley and Sons, 2004.
My instincts tell me that the entrepreneurial world is becoming more gender blind. I think if you focus on your own small network, you limit your possibilities.
Stephen Spinelli, Robert M. Rosenberg, and Sue Birley, Franchising: Path to Wealth Creation. New York: Prentice Hall, 2003.
Steve Spinelli was involved with Jiffy Lube and now teaches at Babson. Should be a good book for any interested in franchising your business. I do caution any entrepreneurs thinking about franchising their businesses, however, as many attempts have failed due to poor business models. Corporate overhead has killed many of attempts at growing a business this way. Also, before you decide to franchise your business take a look at all of the attorneys who specialize in this area. That should tell you something about what lies ahead!

Plan ahead on staffing

The economy is growing and employment is up all across the country. Good news, indeed.
But, what this means for small business folks is that it is time to start engaging in more deliberate and longer-term staffing planning. During the last big economic boom, the single biggest impediment keeping the entrepreneurs I was working with from growing was staffing problems. They could not hire the right people when they needed them to take advantage of a growing market.
So here are a few things to keep in mind:
1. Keep Staffing Forecasts Current. Even if you are a small business, you need to think down the road for the next two or three years to anticipate what your hiring needs may be. Forecasts should be updated every few months to adjust for changing conditions and the changing state of your business.
2. Base Staffing Plans on Milestones, not on Time. Never tie your staffing plans to the calendar. The passing of six months is not what will require you to hire new employees. Know what the triggers are in your business that will necessitate more employees. For example, it could be things like a certain number of clients, sales levels, or production levels for employees. More managers and supervisors it should be based on the number of first line employees each can effectively supervise. And don’t forget the needs of support staff in areas like billing and sales.
3. Measure Your Employment Triggers. Work with your bookkeeper or controller to give you quantitative reports on your key employment milestone triggers, and insist that you get these reports regularly.
4. Never Just Hire Warm Bodies. Hiring someone just for the sake of hiring rarely works. Mediocre hires make mediocre employees. This will only postpone hiring the right people and force you to get rid of the dead wood you just hired first.
5. Know Your Hiring Lead Times. It takes time to get employees up to speed. Know how long it will take to recruit, hire, and train new employees for each position you are planning to hire so they can be ready to work when you really need them.
6. Don’t Forget to “Close the Bank Door”. The single best staffing tool you have is retaining the good employees you have right now. Create a culture that makes good employees want to stay with you. You may have to pay a little more that you’d like to, but it is much more cost effective that constant hiring and training. And staff shortages can be very costly in terms of lost revenues.