Co-founder of The Entrepreneurial Mind, serial entrepreneur and professor of entrepreneurship.
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.
Face it — we entrepreneurs have a high need for control. And when we feel like we are not in control of our worlds we more often than not fall into the wierd behavior of working more and more hours. It is not that we get more things done — it just feels like we do.
Many of the legendary 80-90 hour weeks are just our attempt to keep really busy, hoping that if we keep busy enough things will get better.
As you can imagine, there is a lot of nervous busy work going on with entrepreneurs these days.
As always, there is a new buzz word for this pattern of behavior.
In a new small business survey by Staples they report that 62% of small business owners admit that they are transforming into “mouse potatoes” (i.e., constantly on the computer). One in five report replacing breakfast with “deskfast” in an attempt to “maximize time.”
Although I worry about the mental health of these entrepreneurs, it does seem to help them feel better about things. A whopping 84% anticipate being able to weather the current economic storm and plan to be in the same business a year from now.
My only caution is this — Don’t become such a mouse potato that you lose your family and your friends. Temperance, my good friends, temperance!
I had the pleasure of having dinner with the ideablob.com people last night. They are driving down to San Diego for another Blob Live event. It will be held tonight at Henry’s Pub from 6:00-9:00 p.m. PST.
The ideablob folks have toured Seattle, Chicago, Philadelphia, and Nashville bringing business idea sharing live to the masses. We had a great time when we hosted the Nashville event at Belmont.
If you can’t make it live to San Diego you can watch a live streaming video starting at 7:00 p.m. PST via Twitter stream #bloblive. http://www.bloblive.com
I am heading off to Anaheim, CA to the annual meeting of the United States Association for Small Business and Entrepreneurship (USASBE), which is the leading organization for those of us who teach entrepreneurship. This year I will be installed as President-elect of USASBE. These are, to say the least, interesting times for the world of entrepreneurship.
Over the past year I have written about the challenges entrepreneurs face in these difficult times. While there are still many opportunities that can be exploited in the marketplace, it will require entrepreneurs to be nimble and prudent, patient and humble.
So how should those of us in education approach the task of preparing today and tomorrow’s entrepreneurs?
Realism. There is a trend in teaching entrepreneurship to interject more experiential learning. This is a very unforgiving economy right now. In the past, we saw countless entrepreneurs who seemed to be able to succeed in spite of themselves. In a recession like this one, there is little room for error and not as much luck floating around. We need to prepare our students well to hit the ground running. The more we can build experience into what we do in our entrepreneurship programs the better. Our students must have a high degree of competence the day they walk across the stage at graduation and become alumni.
Ethics. There is a growing backlash against the arrogance and gluttony of business leaders. In preparing the business leaders who will most likely lead us out of this mess, we need to help them understand their responsibility as stewards of the resources they have been given to work within their ventures. But, I believe that they have an even bigger responsibility. We need them to become stewards of the free market system. Market capitalism as we know it is under intense scrutiny due to the foibles of so many business leaders. We have to regain the people’s trust in free markets. We must train not only competent entrepreneurs, but good entrepreneurs.
Inspire. If past patterns hold true, we can expect more students looking to entrepreneurship as a career path. They look at the job market and see very little opportunity, so they turn to us to find their own way in the economy. We will no longer have only self-motivated, highly driven aspiring entrepreneurs in our classrooms. We will have many more who are reluctant entrepreneurs. More than in the past we will have to inspire our students that there are opportunities and that they do have what it takes to be successful.
I look forward to reconnecting this week with my USASBE friends and colleagues as we tackle the challenges we face in preparing our students to help lead us out of these difficult times.
Dear Lord I want to thank you for what You’ve done for me For all these many blessings In a world that’s caught in grief and misery No matter where I wander I ‘m always in Your site and so my thanks to You, My Lord upon this Christmas Night
If all my prayers aren’t answered then Lord, I understand There’s others more deserving Others Lord who need a helping hand I pray you’ll guide and keep me Ever near the light And so My Deepest Thanks My Lord Upon this Christmas Night.
I will be spending the next few days with family as we celebrate Christmas.
If government is going to get more involved with the economy — OK, OK, since government is going to get more involved with the economy — the new administration should take a look at the plan proposed by Bill George (former Medtronic CEO and now a professor of management practice at Harvard) published at Business Week. George asserts that his plan “will jump-start the innovation economy by providing built-in long-term growth, redistributing wealth without punishing the wealthy, and creating millions of well-paying jobs.”
My column for the Tennessean this week is the third in a series on managing cash flow:
My previous two columns have examined why the phrase “cash is king” is so true and what steps entrepreneurs can take to improve their cash flow.
So what is the purpose of building up cash reserves? Think of your cash reserves as four pools of funding with four distinct purposes.
The first pool of cash is to plan for those large expenses that are not part of regular monthly expenses, but are critical nonetheless. Examples are quarterly tax payments, annual equipment replacement purchases, or large seasonal marketing campaigns.
Create a calendar of these payments and put cash aside to build up enough to cover them.
The second pool of cash is used to better manage the natural “lumpiness” of cash flow. The reality is that the rate that cash flows into a business is never smooth and predictable. Some businesses have to pay for products to be made or for services to be provided well before they actually get paid. Other businesses may have seasonal sales swings, such as many retail businesses that have most of their sales in November and December.
This second pool of cash should be used to create your own internal line of credit to help navigate the natural “lumpiness” of cash flow.
Be ready for the unexpected
Think of the third pool of cash as your emergency fund. This pool should be large enough to cover at least a month of day-to-day expenses. This will help cushion you from events such as an unexpected loss of a major customer or a major disruption of your business.
I remember one year in our health-care company when we lost about two weeks of sales in the aftermath of a hurricane in September, followed by the loss of about 10 days of sales due to a major ice storm in January. Cash reserves are what got us through those tough times.
The final pool of cash is for an “opportunity war chest.”
Recessions create many opportunities for financially strong companies. There may be opportunities to acquire a competitor’s business that’s been weakened by the economy or to expand and fill the void left by a competitor’s failure.
It may actually prove to be a good time to expand the business — real estate prices, the cost to rent space, equipment expenses and labor costs will all be lower.
Develop an annual plan to forecast all of the needs for a cash reserve.
Create a separate bank account to keep these funds segregated from the cash needed for day-to-day operations.
And make regular and frequent transfers into this account whenever possible to ensure that the funds will be available when you need them.
I offered the invocation for the hooding ceremony of our graduating MBA students last evening. Let me offer it to all entrepreneurs as a prayer for the new year:
Lord, we thank you for these entrepreneurs and business leaders.
We pray that they understand that their work on earth should never be just a career, but a true vocation that connects their faith to all they do in the work.We pray that they remember that true integrity is to find God helping us to live as He intended us to live in all that we do:in our family, in our community, and in our work.
We pray that they always remember that real Courage is the courage to the right thing even under the most difficult circumstances.It is the courage to treat all people justly, even in difficult economic times like these.
We pray that they never forget that all they are given in this life comes from God, so they should be prudent stewards of all of His gifts.
We pray that they temper their drive to succeed in their careers – keeping time for their spouses, their children, their families, their friends, their community, and of course, for God.
We pray that while they may attain great power in their careers, that they remain humble.We pray that no matter how successful they become that they always see the face of Jesus in everyone they meet in their work.
Finally, we pray that we never lose faith, even in difficult times like these.Jesus said, “I am leaving you with a gift–peace of mind and heart. And the peace I give is a gift the world cannot give. So don’t be troubled or afraid.”
We pray that we never forget that God gives us peace, even in the worst of times.
All of this we pray in the name of your Son, Jesus Christ.
In a follow-up to the post I wrote yesterday, the Nashville Post has a story today that confirms my outlook for bank lending to entrepreneurial ventures in 2009.
The credit crisis taking its toll on parts of Nashville’s banking sector could be setting the stage for a clear 2009 division of the haves and the have-nots.
A NashvillePost.com analysis of Federal Deposit Insurance Corp. third-quarter filings shows that four of the top nine banks based in Middle Tennessee or doing most of their business here trimmed their loan portfolios from July to September.
Such is the case with community banks all across the country, although in some markets small business lending has come to a complete stop.
Geert used my analysis from yesterday as support for his assessment that this “tight lending environment will be with us for a while.”
However, the surveys of business owners are all beginning to tell us the same story — most entrepreneurs are not really looking for new credit right now, anyway.
So what will be the watchwords for financing entrepreneurial ventures in 2009?
Bootstrapping
Angel investments.
I have had some interesting conversations with several small business friendly bankers over the past couple of weeks. They are telling me that with the tight margins created by the interest rate cuts, they will be very stingy with new lending for entrepreneurial deals during the foreseeable future. And that was before the recent cut by the Fed.
Family and friends will be tight on investing in new deals as their investment portfolios have tanked. They no longer feel wealthy, so will not be as interested in altruistic investments into high risk start-ups.
The number of partners listed on some VC Websites is already quietly shrinking. Some new VC funds are having difficulty raising money and even existing funds are running into problems collecting commitments from strapped limited partners.
The carnage on Wall Street is having a trickle-down effect on venture capital firms. The limited partners who typically invest in VC funds–university endowments, pension funds, investment banks, other institutions, and wealthy individuals–are short of cash right now. Harvard’s endowment lost $8 billion in the past four months alone. Many limited partners simply cannot honor capital calls from VCs. (When a VC firm creates a new fund, it does not collect all the money at once. Instead, it receives promises from limited partners that they will invest when the capital is needed).
Angel investors seem to be in a little better shape. Those who work with angels tell me that deals are still being funding. They see opportunity in the current market for significant long term returns. They tend to have a longer time horizon than VC firms and have only themselves to be accountable to for the deals they fund. This backs up a recent report from Angel Capital Association which stated:
Angel group leaders report in a recent survey by the Angel Capital Association (ACA) that investments have decreased this year and will decline as well in 2009 compared to 2007 due to the current recession. However, some angel groups have increased their investment activity this year and believe they will make additional investments in 2009 as new opportunities arise from difficult economic conditions.
And those new opportunities also will be what prudent bootstrapping entrepreneurs who know how to get the most out of every dollar can pursue over the next couple of years. As Rick Newman points out at US News:
But recessions are times of “creative destruction,” and while the destruction tends to dominate the headlines, new opportunities often sprout as companies seek new ways to grow and those resistant to change drift into obsolescence. Plus, recessions end. And when this one does, we’ll all be ready for a party–on a careful budget.
The John Templeton Foundation hosts a series of “Big Questions” discussions. They ask each question to leading scientists, scholars, and public figures.
The responses to this question really get to the heart of the current debate about the role that free markets and capitalism played in today’s economic woes. I would encourage everyone to ponder the responses these folks offer, as we need a more informed debate about what really has been going on and where we go from here.
I will offer my thoughts….
Free markets are morally neutral — neither good nor bad. What brings morality into free market activities are the actions of people.
People’s decisions and actions become habits. First we choose to lie, but eventually if we continue to lie we become a liar. Virtues are habits, and these habits shape our character over time.
It is time to stop blaming morally neutral systems for what we do and who we become. Ultimately, we become good or evil through our own actions and decisions that are taken through our own free will.
It is time to take a long, hard look at our culture; for it is there that we find our shared sense of right and wrong. We must stop the folly of deferring morality to governmental policy and regulatory control.
(Thanks to my colleague Harry Hollis for passing along the Templeton link).
