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.

That Pony Might Hard to Find

I quick follow-up on my post from yesterday about small business employment trends….

Denny Dennis with the NFIB Research Foundation pointed out to me that the data from the Bureau of Labor’s Business Employment Dynamics (BED) report adds additional worrisome clues into the state of job creation among entrepreneurial firms.

Typically, small business creates modest employment growth during recessions, while big businesses have massive job losses.  However, the BED data indicates that this recession is seeing small business is creating fewer jobs than large businesses.

Small Business Trends Shifting

The SBA Office of Advocacy has issued an update of their Small Business FAQ.  There are some worrisome changes in some of the statistics.

The small business job engine is sputtering.  For several years the SBA has estimated that about 78% of new jobs in the U.S. have been created by small businesses over the past several years.  They now estimate this figure to be about 64%.  I would predict an even further plummet over the next two years.  These are running averages, so it takes time for the numbers to shift.  However, I must admit that this sudden drop took my breath away when I read it.

The small business foundation of the economy is weakening.  The SBA estimates that in 2007 the small business birth rate is about 627,200, which is the lowest level in the past five years.  I am worried what the 2009 figures will show, although this number includes self-employed.  That number may be up due to the high unemployment rate.  But, for the first time in the past several years, business closure rates and business bankruptcy rates exceed the business birth rate.  This is alarming.  We also need to keep our eye on the Census estimate of the number of small business that have employees.  It was at 6.0 million as of 2007 estimates (if the future estimates really will have any credibility with the new policy that is moving the Census Bureau directly under the control of the White House).

And what about survival rates?  The jury is out on this.  We will have to wait until 2011 to have any meaningful data on business survival rates.  The baseline going into this economic downturn — that may be turning into a full fledged small business collapse thanks to the policies of the current President and his predecessor — is 69% survival rate two years out and 51% survival rate five years out.  Again, we have to rely on the Census for these estimates, so not sure how they will spin the future statistics.

No Recovery without Jobs

If I hear one more report about a jobless economic recovery I think my head will explode.  There is not real economic recovery without job creation.  Talking about a “jobless recovery” is a classic spin that politicians from both parties use when the economy gets stuck in a long-term slump.

The latest from William Dunkelberg, chief economist for the National Federation of Independent Business, indicates that the slump is, indeed, going to be with us for quite a while:

“Small business owners in August reported a decline in average employment per firm of 0.8 workers (seasonally adjusted) during the last three months.  August’s figure was unchanged from July, but a big improvement from the record loss of 1.26 workers posted in May. 

“Six percent of the owners increased employment by an average of 2.5 workers per firm while 22 percent reduced employment an average of 3.9 workers per firm (seasonally adjusted).  The job generating machine is still in reverse.  The BLS recently reported unusually high job losses in the small business sector, due in part to terminations and failures.  As can be seen in the chart below, the reduction in labor costs (e.g., jobs) has been huge.  This explains the recently announced impressive productivity numbers; if employees are fired faster than sales fall, output (sales) per hour will rise.  Hopefully, this job cutting has been overdone and will produce a faster than expected recovery in employment (once consumers start spending – retailers and restaurants are in tough shape).  Manufacturing is improving, but that will not budge the employment numbers.”

“Eight percent (seasonally adjusted) of small business owners reported unfilled job openings, down 1 point from July.  Over the next three months, 13 percent plan to reduce employment (down 1 point), and 7 percent plan to create new jobs (down 1 point), yielding a seasonally adjusted net 0 percent of owners planning to create new jobs, a 3 point improvement over July.  Not seasonally adjusted, net job creation plans were negative in all industry groups except the professional services and the wholesale trades.”

What Makes a Good Partnership?

This week’s question for Forbes magazine’s America’s Most Promising Companies initiative is as follows:

What is the single
most important element of any business partnership?

You will most likely spend more time with your business partners than
with anyone else – even your family.  And it will be a relationship
that can be even more complicated to get out of than a marriage. Who you choose to be business partners with should be given as much consideration in a deal as what products you make or what markets you enter into. 

Dysfunctional partnerships are a major source of business failure. They suck energy and time away from building the business. They can often lead to the break-up of perfectly good businesses.

That being said, I think that if I have to pick one element as the most important it would be that you and your partner(s) share the same values, aspirations, and vision for the new venture.  This requires a careful and thoughtful discussion of critical business issues BEFORE the business is ever launched.

Work with your attorney to create a shareholder agreement before you officially incorporate. Just as marriages can fall apart on the honeymoon, business partnerships can fall apart before the first sale is ever made. 

Here is just a sample of some of the issues you should discuss with potential business partners:
•    Do you share the same vision for the business? 
•    Do you share the same aspirations for the business in terms of its size?
•    Are you all going to make the same level of commitment of time to the business?
•    What are your work habits and work ethic?
•    How much time off to you plan to take each day, each week, each year?
•    How much money will you put into the business? And how much do you expect to get out of it?
•    Who will be the President of the company? What roles will the other partners play?
•    How strong is everyone’s credit rating? Can all partners help to guarantee a loan, if necessary?
•    What if one of you gets married and the new spouse gets a job offer in another city? Would you move away?
•    How will employees, customers, suppliers, etc. all be treated?

Business partnerships can be a successful experience for everyone involved.  But it takes open and honest communication and careful planning.

Are Entrepreneurs Born?

Here is my column from yesterday’s Tennessean:

I still get asked what seems like an age-old question: Are entrepreneurs born or made?

Let me start by making it clear that entrepreneurship is not in our genes. While some have tried to demonstrate that there is something innate that leads people to pursue entrepreneurial careers, there has never been a study that has found any link between our nature and entrepreneurial risk-taking.

Life experience is what drives people to pursue entrepreneurship. For some of us it comes from our family upbringing. I caught the entrepreneurial bug at an early age by being involved in family businesses. I was fortunate to be able to play a role in several family businesses ranging from a marina on the lake in Wisconsin to a corrugated box company my father started with a partner.

For others, entrepreneurship is the result of a career crisis — such as getting fired or laid off. As we are seeing in many people today, unemployment can be a powerful motivator. Many have no other option in the job market than trying to make it on their own.

For others, pursuing entrepreneurship may be the logical way out of a frustrating job or a career that is just not fulfilling.

Entrepreneurship can also be the result of an insatiable desire to pursue interests that develop throughout our lives. What starts out as a hobby or pastime can lead to a passion to pursue that interest full time.

A factor that we cannot ignore is the role of culture in forming entrepreneurs. As we see in so many studies, the culture in which we live is a powerful force in creating startups and fueling entrepreneurial economies.

Self-reliance, a dominant part of our culture for generations, has been attributed as a major force that leads so many Americans to become entrepreneurs.

Entrepreneurship is much more passion than personality. We are not born with passion. It comes from our experiences, our family, our work, our hobbies, those around us, the gifts we have been given and our culture.

Entrepreneurs feel that fire

I have learned over the years that I cannot make someone choose the entrepreneurial path in life. In fact, I really cannot even inspire someone to pursue a career in entrepreneurship if they are not already headed that way. The fire has to be in their belly.

Once in a while I have to stoke that fire, or help them see that the fire is there. And once they feel that entrepreneurial fire, my job becomes one of helping them have a better chance for success. By learning about the process of properly defining and aligning the opportunity, securing the necessary resources, planning the venture, and managing growth effectively, we can significantly increase someone’s chance of financial success as an entrepreneur.

So the answer to the question is that entrepreneurs are not born nor made. They are formed. Entrepreneurship is a career that comes out of our life experiences.