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.

The Importance of Balance

One of the joys of teaching at Belmont is that I get to keep in touch with so many of our alumni.  I offer my students a life time warranty on their entrepreneurship education, which translates into my willingness to continue to help them out on their entrepreneurial journey after they leave our campus.  We have made a policy in our program to never charge for consulting with alumni businesses and to never take an ownership stake in their firms.

I met for lunch yesterday with my former student Adam Wynia.  Adam was a member of the Belmont golf team.  His final business plan in our program dealt with becoming a professional golfer.  He has been working to implement this plan by playing the developmental professional golf tours since graduation.

Adam also is doing some golf teaching.  He is part of a program that teaches golf in a rather unconventional manner.  It is an approach that takes a rather holistic approach, focusing less on the technical details of the golf swing and more on how the body works together to get a natural, consistent, predictable swing.

The philosophy they take is that the golf swing starts with the ankles, which must work with the legs to help open the hips and get the proper shoulder turn.  The arms and hands are just an extension of the proper movement from the rest of the body.  Too many golfers focus only on their arms and hands.  It takes the whole body working together to get a consistent swing.

Adam said that by focusing on the golf swing this way, the golfer is able to focus on balance.  With the body being balanced, the body can swing naturally and consistently.

I know….this is supposed to be a blog about entrepreneurship, not golf.  But, this has been such a long winter that spring fever has hit me hard and it seems that I can’t get my mind off of golf!

As I listened to Adam describe how they teach the golf swing it dawned on me that this is how I am trying to teach entrepreneurship.

The proper golf swing begins with the ankles, which provide the proper foundation needed for balance.  A new venture needs to start with a solid foundation, which comes from proper fundamental assessment of the opportunity — Is this idea a real business opportunity? 

With a proper foundation, the legs, hips and shoulders can all work together to get the proper swing while staying in balance.  In a new venture, it is the business model that defines how all of the parts need to work together — in balance, if you will — to meet the needs of the market.

If you do everything in balance with your ankles, legs, hips and shoulders, your arms and hands will follow.  The result is a consistent, predictable swing.  Think of your business plan as your arms and hands — it is the natural extension of getting the opportunity assessment and business model right, thus ensuring that all parts of the venture are working together.

Adam said that only focusing on your arms and hands will not lead to a consistent swing. 

Likewise, focusing only on the technical details of the business plan will not lead to a predictable entry into the market. 

Economic Pessimism Shapes Entrepreneurs’ Actions

I recently attended the second annual Kauffman Foundation Economics
Bloggers Forum at the foundation’s headquarters in Kansas City, Mo.

The invited attendees were economists who write popular blogs or
those, like me, who write about the economy in their blogs.

The economists there
were in general agreement that the economic forecast for the next year
or so remains pretty bleak. This is particularly true on Main Street
America, as they see little job growth in the foreseeable future.

About half believe the
economy will remain as it is now, with unemployment hovering around 9
percent or 10 percent and economic growth staying anemic. The other half
think the economy will turn significantly worse in the next year or
two, in large part because of the federal debt.

Recent surveys of small-business owners seem to
indicate that many entrepreneurs share the worries expressed by the
economists at the bloggers forum and are taking specific actions to deal
with what they see as a continuing recession.

According to the latest poll of small-business owners
taken by the National Federation of Independent Business, one defensive
measure entrepreneurs are taking is putting off hiring.

“Net job creation will
appear in the coming months, but the gains will be painfully slow with
timid consumer spending, especially in the service sector,” said William
Dunkelberg, the NFIB’s chief economist.

In the NFIB survey, owners complained that poor sales
are their biggest problem, and that there is no need to hire with no
new customers. In this harsh sales environment, it’s hard for workers to
earn their pay. Owners cannot pay workers more than the value they add
to the firm.

More than half stockpile
cash

A survey conducted by Brother
International Corp. found that small-business owners are strengthening
their cash reserves to buffer the impact of a prolonged recession.

The survey revealed
that 53 percent of small-business owners believe stockpiling cash is the
best strategy for surviving the current economic climate, as opposed to
investing in their businesses.

This is a prudent strategy during a weak economy and
can help protect a business from future economic shocks. Cash is the
best cushion against uncertainty.

The same survey showed that the majority of
small-business owners (79 percent) plan to strive to make their company
more efficient this year. Bootstrapping is back in style, and it’s a
great path to higher cash reserves.

Economists and entrepreneurs seem to agree that, in
terms of Main Street America, the economy will not improve anytime soon.
While the economists disagree on the public policy needed to improve
the situation, entrepreneurs are taking steps to weather the ongoing
financial storm.

Entrepreneurs’ Outlook for the Economy Worsens

The latest semi-annual survey American Express OPEN Small Business Monitor was released today.  Overall, the mood of small business owners is not good.  Fewer entrepreneurs see the economy improving with expanding
opportunities for their business when compared to the findings of six months ago (18% vs. 26% last fall). 

A couple of the specific findings show some modest improvements over the past six months:
 

  • Nearly half of small business owners (48%) plan to make capital investments in their businesses, nearing spring 2008 levels (53%) when investment plans began their steady decline;
  • More than one-quarter have plans to hire (28%), up from the historically low twenty three percent in fall 2009;

One bright spot on the subject of sentiment is among younger entrepreneurs, 72% of whom are optimistic about their business prospects and the economy.  This is consistent with other findings I have reported on and with our own observations as entrepreneurship educators.

Retirement Plans in Small Businesses

The SBA Office of Advocacy released two reports today related to retirement planing in small businesses.

The first report,written by SBA economist Jules Lichtenstein, looks at planning by small business owners for their own retirement.

The author’s results offer substantial evidence for concern that business owners are not saving enough and that their retirement savings may be inadequate.  Some of the findings:

  • Individual-based (outside work) retirement account ownership, contribution activity and employment-based participation (at work) among business owners are low. IRA ownership rate for business owners is only about 36 percent, and only one-third of business owners with an IRA contributed for the 2005 tax year. Less than 2 percent of business owners own a Keogh plan. Only about 18 percent of business owners participated in a 401(k)/Thrift plan.
  • Business owners are more likely to own or contribute to retirement accounts if they are older, non-minority, educated, have more established business(es) (e.g., larger, older, profitable), and own more than one business.
  • Having a micro-business with fewer than 10 employees reduces the probability of an owner having a 401(k)/Thrift plan from 17.4 percent to 10 percent, all else equal.

A second study released by the SBA looks at employee participation in retirement plans in small businesses. Some of the highlights of this study, authored by Kathryn Kobe, included: 

  • Almost 72 percent of workers in small companies have no retirement plan available through the company; an additional 9 percent have a company-sponsored plan available but do not participate. Only 19.5 percent of workers in small private sector companies report participating in a retirement plan.
  • Age, marriage, and educational attainment positively affect the likelihood of participating in a firm’s retirement plan. This holds true for full-time and part-time workers.
  • Defined benefit plans are most likely to be sponsored by large businesses; almost 32 percent of workers in large firms report the availability of a DB plan compared to 25 percent of the workers in small businesses. Defined contribution plans are the type of plan most often reported by both groups. About 75 percent of small business workers and 70 percent of large business workers report that their firms sponsor such a plan.
  • One of the reasons why smaller firms may not offer retirement plans to their workers is the cost of setting up and running a retirement plan. Workers who do not participate in employer-sponsored plans frequently cite eligibility requirements and an inability to afford contributions as reasons why.
  • A number of government programs have sought to simplify retirement plans in order to encourage more small businesses to sponsor them. These efforts have met with limited success and come with a cost.

Given the increasing strains and questionable viability of social security going forward, both of these studies should cause concern given that 50% of Americans now work for small businesses.

You’ve Got to Believe

Lee Turley has a good post at his site Journey of an Entrepreneur.  While selling is an important skill for any entrepreneur, you have to truly believe in what you are selling and believe in your ability to sell:

“If your product is awesome and you’re still hesitant, then call a potential
customer right now! We must learn to take action and not just think. It doesn’t
matter if you get rejected… you haven’t lost anything… but you have gained
courage and if you’re smart you’ll find out why they said no so that you can
improve next time.”

Will the Flame Still Burn Brightly?

A post by Jonathan Ortmans, president of the Public Forum Institute, at Entrepreneurship.org led me to reflect on the changes we are seeing being ushered in America.  Ortmans made the following observation:

“We have long been aware that American education is struggling to stay competitive. We also know that the development of entrepreneurial skills, such as opportunity recognition and prudent risk taking, are not prioritized in most U.S. educational institutions. Developing tomorrow’s talented, capable innovators is a challenge that will require entrepreneurially-driven improvements in education at all levels.

“Programs that introduce students to the possibilities of business creation are few, but they have proven that they can open up new horizons for talented kids and unleash an entrepreneurial drive would otherwise lay dormant.”

But just where does the American entrepreneurial drive that we take for granted come from?  What is the source of the entrepreneurial flame that burns so brightly in the students who come to programs like ours at Belmont?  The answer is our culture.

Since our founding, our culture was fostered by our freedoms.  We created an economy based on economic freedom that rewarded self-reliance and ingenuity, rather than family power and birthrights as had been so common in the histories of our founding fathers and mothers. 

Ours was this economic system that shaped our values over the generations.  We celebrated those who succeeded, holding them up as icons of what was possible for all of our citizens.

We have added the likes of Hewlett and Packard starting an industrial empire out of their garage into the stories that informed our culture.  Even more recently, the stories of technology companies like Dell that started in college dormitories have become part of our folklore.

But now our public policy is moving toward the next stage of a fundamental shift that threatens this part of our culture.  We are seeing self-reliance being replaced by entitlement.  We are seeing the creation of wealth and economic success being vilified.  Property and wealth are no longer things created out of nothing by entrepreneurial individuals seeking opportunity in the market, but public goods to be doled out by government and its armies of bureaucrats.

I fear that the current generation coming into the workforce — the so-called Entrepreneurial Generation — may be the beginning of the end. 

The children being born today will know an America where society and government are expected to provide for them and to solve their every problem.

I truly fear that the entrepreneurial flame that has burned so brightly in this country will begin to dim.

Those of us who teach entrepreneurship cannot ever teach the entrepreneurial drive and the spirit of free enterprise.  I am only successful because those who come to our program have that drive deep in their core values.

I can teach how to evaluate opportunities in the market, but I cannot instill the drive to do so.  I can teach how to assess and manage risk, but I cannot build a class to train students to have the entrepreneurial spirit that seeks the rewards that come from risk-taking.

Entrepreneurship will not go away, but it will not be the fundamental part of our culture and our economy that it has been in the past. 

There is still time to protect the entrepreneurial flame, but it is already beginning to flicker.

candle_flame_2.jpg

You Have Better Answers

Here is my final thought from the Economics Blogger Forum….

One of the economists in attendance here today said that while he respected the enthusiasm of people sounding their voices through the Tea Parties, “populists rarely have ideas for effective economic policy.”

After hearing the bickering about economic policy nuance throughout the day today, it is clear that economists have little understanding about the day-to-day hardships being faced by small business owners on Main Street. 

It it is time to listen to the economic wisdom of the populist entrepreneurs across America when they tell the government, “Let us keep our money and get out of our way!”

Its Technology, Stupid

We had a rather spirited discussion in a small group breakout late this morning session here at the Economics Bloggers Forum here in KC.  It centered on what really caused the recession.  The argument was made by Michael Mandel (formerly of Business Week) that we had very few real technological innovations introduced into our economy since 1998.  What is interesting to me is that this may partially explain why we are seeing no entrepreneurial job growth pulling us out of the recession.  In all past recessions it has been entrepreneurs who have kindled new growth.  The argument may be that there is no real base of new technology to build from to jump start a recovery.

The good news is that Bob Cringely asserts that there is a technology seedbed out there that may yet spur long-term growth.

Economists Talking at Each Other

I am blogging from the Economics Bloggers Forum today at the Kauffman Foundation in Kansas City.  As a non-economist what I have taken away from the discussion so far this morning is that the long term economic forecast is pretty bleak, and that few of the economists can agree on what has happened to us and what we need to do…..

The Missing Step in Planning

I have tried a different approach to business planning with my students this semester.

While I have defended business planning in the past, I also recognize that it is often not used effectively.  People rush into planning without making sure they are writing a detailed document about something that can actually make it in the market.  I also see that people who move into writing a business plan too quickly can get lost in the details.

It is this second issue that has led me to add a new step in business plan development for my students (and with the alumni I work with, as well).

I have integrated a step between the cursory opportunity assessment process and developing a full business plan.

The step is based in large part on the ground breaking work of Osterwalder and Pignuer on business modeling.  It has proven to help them see how the moving parts of the business fit together and work (or don’t!) before they dive into the details of planning. 

Here is the assignment (this can serve a s good outline for anyone planning a venture):

1- Mission Statement (25 words)
2- Business Concept (1 page max) – 5%

  • Additional description of the concept beyond 25 words in mission
  • Key values entrepreneur brings to the business
  • Key goals and objectives, including personal financial and non-financial goals

3- The Value Proposition (2 pages max)

  • Based on industry research, why is this an opportunity?
  • What are the macro trends that support this opportunity?
  • What are the more focused localized trends that tie into industry trends above?
  • What is the “pain” in the market does the business address?
  • Cite evidence to support

4- Target Market (1 page max)

  • Who are they?
  • Why are they your target?
  • What are the key attributes that drive their decision to purchase?
  • Who are your main competitors and how well do they address customer preferences above?

5- The communication and distribution channels (1 page max)

  • Where do your customers get their information to make a purchase decision?
  • What form do they prefer this information in?
  • How do they want you to get the product or service to them?

6- The relationships established with clients (1/2 page max)

  • How important is customer service in the business?
  • Do we need to deal with each customer on a personal basis?
  • Do they just want us to get them the product and leave them alone?

7- The key resources needed to make the business model possible (1 page max)

  • People – estimated cost for each
  • Equipment – estimated cost for each
  • Inventory – how much to start and how much on hand (if applicable)
  • Physical space
  • Operating cash on hand
  • Suppliers

8- Key Activities (1 page max)

  • What are the “must do’s” to get this ready to launch (Feasibility Plan)?
  • What are the “must do’s” to get the first customer (Feasibility Plan)?
  • What are the “must do’s” to keep customers coming in the door and to keep them from leaving us?
  • What are the “must do’s” to support growth?

9- Key Stakeholders (1 page max)

  • Who are your most critical stakeholders and what will get them to work with you?  (This included sources of outside funding, if needed!)

10- The revenue streams (1 page max)

  • What generates revenues for the business?
  • What will pricing strategies be?
  • What is our pricing structure?

11- The cost structure (1 page max)

  • What is the cost per unit?
  • What is the overhead cost to operate?

12- Breakeven  (One sentence max)

  • When will we breakeven based on these initial estimates?  (More precise figures will come in the business plan)