Jeff Cornwall - Dr 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.

Welcome to the Club

I have had a lot of questions about the future of entrepreneurship education in light of the current economic hard times. After all, aren’t people going to be nervous about launching a new business right now?

My experience has been that we will continue to see a brisk business as young people see few prospects in the traditional corporate career path.

In fact, even experienced business professionals are also seeing entrepreneurship as the best option for them in a bleak job market.

From MarketWatch:

Business ownership is an ideal way to parlay proven business skills into a road of self-sufficiency. With economic indicators pointing to a lengthy recession, continued corporate downsizing, and growing unemployment, the New Career Economy is today’s reality. In good economic times and bad, the small business owner has been and will continue to be the backbone of our economy. And historically, when there is trouble in the corporate sector, it tends to serve as a launching pad for would-be entrepreneurs.

So to all of you new entrepreneurs out there — welcome to the club! I know many “accidental” entrepreneurs who started their ventures due to losing their jobs during previous recessions who have never thought of going back to a corporate career. You may not have intended to become one of us, but we are delighted to have you with us. We are here to help!

Recession Update from Main Street

I have been waiting with some angst for the November NFIB survey of small business owners. The results were released this morning. Overall, these entrepreneurs are not optimistic about the near future, as indicated by the Index of Small Business Optimism which recorded the fourth lowest reading in the 35-year history of the survey.

So what do the specific items tell us?

While this is a significant recession, at this point it does not appear to be as bad as the two other major downturns of the past half century.

Employment

The reduction in work forces in these small businesses seems to have taken a pause. The decline in average employment per firm dropped slightly in November, but was not nearly as bad as September and October. 43% of those surveyed hired or tried to hire. This seems remarkably high when compared to the corporate sector, where the news is about hiring freezes and layoffs. Interestingly, even with the increase in overall unemployment in the US, finding the right people is still a problem. 72% of those trying to hire reported few or no qualified applicants for the job openings they were trying to fill.

The outlook for employment in small business suggests that we have not hit bottom in this recession. Over the next three months, only 6% plan to create new jobs, and 17% plan workforce reductions. This yields a seasonally adjusted net-negative 4% of owners planning to create new jobs, one of the lowest readings in survey history.

While this is not good news, these findings are not as low as occurred in the 1974-75 or the 1980-82 recession periods.

Capital Spending

The frequency of reported capital outlays over the past six months rose two points to 56% of all firms, still at recession levels, but still not as bad as we saw in the 1974-1975 downturn. These entrepreneurs are spending a little more on new equipment and new fixtures and furniture. They are spending a little less on new automobiles.

Overall, spending is weak, but the frequency of outlays has improved for the last two months and there is a slight increase in planned capital spending over the next few months.

Inventories and Sales

Small business owners continued to reduce inventory levels to adjust to slower sales.

Earnings

The net percent of owners reporting higher profits deteriorated further in November. Seasonally adjusted, those reporting declining earnings trends outnumbered those with gains by 38% percentage points

Profitability is the second worst showing in 35 years of survey history.

Inflation

Nothing tends to kill inflation like a recession. Price pressures vanished in November. However, many of the structural causes of inflation are still present, so we need to keep an eye on inflation as the economy rebounds.

Credit

As the economy weakens, loan demand from small business owners continues to decline.

My Take

While this is a bad recession, for entrepreneurs there is no indication that it is any worse than the last two deep recessions over the past fifty years. We survived these tough times and will survive this one.

Small business owners are approaching these tough times with a prudent hand:

· They are focusing on cash.

· They are reducing debt.

· They are tightening inventory.

· They are being cautious about their overhead expenses.

While business failure will increase, the entrepreneurial spirit is still alive and well. Our entrepreneurial core should keep us from falling into a deeper recession. New venture formation will help lead us to the recovery that we can expect by early 2010.

Bootstrapping Resource

My new textbook titled Bootstrapping is now available for pre-orders. What started out as a single chapter in our book Entrepreneurial Financial Management (second edition of this textbook is due out this spring), grew into a full book that is part of the new entrepreneurship series from Pearson/Prentice-Hall.

The contents:

PART I THE ART OF BOOTSTRAPPING

Chapter 1 Introduction to Bootstrapping

Chapter 2 The Essentials of Bootstrapping

PART II BOOTSTRAPPING TECHNIQUES

Chapter 3 Bootstrapping Key Fixed Costs: Overhead and Capital Purchases

Chapter 4 Staffing and Human Resource Bootstrapping

Chapter 5 Bootstrapping Through Efficient Processes

Chapter 6 Bootstrap Marketing: The Start-Up Venture

Chapter 7 Bootstrap Marketing: The Growing Venture5

PART III MANAGING A BOOTSTRAPPED BUSINESS

Chapter 8 Start-Up Financing and Day-to-Day Cash Flow Management in a Bootstrapped Business

Chapter 9 Creating and Sustaining a Bootstrap Culture

Here is a blurb from the publisher:

With a focus on practical techniques, entrepreneurs learn how to stretch resources and thrive on lean budgets. The text focuses on bootstrapping techniques for a variety of ventures-from small, family-owned businesses to high-growth upstarts. While this book treats the subject of securing initial financing for the start-up venture, it also fully explores how entrepreneurs manage and sustain the business as it grows.

Keeping a Steady Cash Flow

My column from this week’s Tennessean:

A previous column examined reasons why managing cash flow is critical in today’s tough economic times.

Remember, there are some basic steps that can be taken to help ensure that cash will continue to flow into your business in a consistent and timely manner.

The first step to bolster cash flow is to improve operating profit margins. In today’s economy improving productivity is the best strategy for improving margins.

Generally, in a small business productivity can be improved through one of two means. First, focus on improving the utilization of your physical resources. Idle equipment and space present an opportunity to improve sales without adding to fixed costs. Second, push for greater productivity from your employees; you need to find ways to get more revenues from your current staff.

It is wise to bring employees into this planning. Be honest with them that times are tough and that if productivity improves it helps to protect everyone’s jobs. They will often have the best ideas on how to improve productivity.

The second step is to make sure to target better customers to increase sales. The tendency in a down market is to chase any and all customers. But some customers are definitely better than others. Focus on customers who have been stable and reliable in their businesses. Spend marketing efforts on keeping these customers happy and loyal.

It’s cheaper to keep the customers you have than to chase wildly after new ones. Also, when you pursue new customers go after those who will give you higher profit margins.

The third step is to cut overhead. It is your enemy more than ever before. By lowering your overhead it lowers your break-even point, which is critical if sales soften.

Cut out the extras

Look long and hard at every non-operating and non-revenue generating expense. Agonize over any addition to overhead such as more space or more administrative staff. Get back to your bootstrapping roots.

Finally, your customers are also feeling the impact of these tough times so their buying behaviors will change. If you offer credit to your customers, it is important to keep a close eye on accounts receivable. Stay on top of it; don’t wait too long to take action if a customer is slowing down payments.

You may have to put more pressure on them to get paid on a timely basis. Even good customers who get behind on payments should be put on a cash basis for future sales. As much as you might want to help them out, you are not a bank.

How to develop a clear plan for your cash once it starts to build will be the topic of my next column in this series.

The Spirit is Alive and Well

This week’s job reports are indeed chilling. This really is beginning to remind me of the late 1970s into the mid 1980s when we experienced a long period of mostly down economic times. Small business had been our one bright spot in job creation, but with this week’s ADP Small Business Report found that small businesses lost 79,000 jobs in November, the largest decline in more than seven years.

Although our cup no longer runneth over with economic growth, I do firmly believe that the glass is still half full.

I see the energy in young entrepreneurs in the classroom. I saw amazing creativity this week at the Bloblive Nashville event we hosted at Belmont. I see the determination of the entrepreneurs in groups like EO (Entrepreneur Organization) who are sending 75 people to Belmont today to learn about how to grow and expand their ventures. And I see the enthusiasm that comes from the continued growth in readership of this blog. This what gives me hope for the future.

2009 will be a year of working to survive for some, but also a year of opportunity for many if they keep using their entrepreneurial wit and skill.

Ramping Up Your Start-up

Susan Schreter at seattlepi.com offers several useful tips on how to speed up the time to positive cash flow for new start-ups, which means income for the entrepreneur.

Her suggestions and my comments:

Specialize. Articulating at least one special area of expertise helps target and secure first customers. It works because customers prefer to select vendors that they think offer exceptional service value.

I also like to encourage specialization because it helps you get your message out to the market more clearly and more quickly. It also helps with word-of-mouth, as people are more likely to remember you if you are known for something specific and share that with others. “If you need X, call ABC Company — that is what they do.”

Call rather than advertise. Advertising costs money that cash-strapped entrepreneurs just don’t have.

Bootstrap, bootstrap, bootstrap!! Not only does calling only cost your time, it makes a personal relationship with your customers, which in today’s market conveys “value.”

[Do] what customers love or need to have done. I know a disheartened, long-unemployed executive who started up a window-cleaning business targeted at homes with big cathedral ceilings. The idea came to him when he looked at the dirty windows in his own home. He bought a few ladders and cleaning supplies, then cold-called within upscale neighborhoods….These days, his business employs a full team of window washers.

Very true. Find pain in the market and create a solution to ease that pain.

Compare opportunities. Can you take home more money in a startup business than working part time at The Home Depot, Starbucks or Costco — companies that offer health insurance benefits to part-time employees? Because few entrepreneurs can accurately predict the speed of first-income generation, consider working at a part-time job while revving up a new business.

One of my favorite bootstrapping techniques is “don’t give up your day job.” Find part-time work that complements the schedule what you are trying to start up. For example, if your new business is a day-time operation, find an evening job.

Changes in Immigration Policy can Spur Economic Growth

Want to give the economy an entrepreneurial shot in the arm? Immigration may be part of the answer.

Most studies find that immigrants are more likely to be entrepreneurs or self-employed than the population as a whole. The Philadelphia Business Journal reports on yet another study that adds more support:

About 220 businesses, employing 900 workers, occupy the six-block stretch of 52nd Street between Arch and Spruce streets in West Philadelphia.

Overwhelmingly, they are immigrant-owned, reported the Welcoming Center for New Pennsylvanians, which hopes a study released this month will bring attention to the contributions being made by immigrants to the city’s struggling commercial corridors.

Immigrants have accounted for nearly 75 percent of the area’s labor growth since 2000 and, when compared to native born, more are employed (73 percent versus 71.5 percent) and self-employed (10.7 percent versus 7.9 percent), according to a new Brookings Institution study, “Recent Immigration to Philadelphia: Regional Change in a Re-Emerging Gateway.”

Over the past several decades we have looked at immigrants as a source of cheap labor and our policy — or lack thereof — has reflected this.

To help create jobs and growth we should open our doors to entrepreneurs from around the globe. Current policy makes it difficult for entrepreneurs to enter the US legally. We should be actively recruiting immigrants who want to come to our system of free enterprise to start their businesses, just as we did to bring in the scientists we needed in the 1950s and 1960s to help fight the cold war.

The last great entrepreneurial economic boom was created in large part by first generation Americans and sustained by a large, but controlled, wave of immigration that helped to build an economy that last through most of the 1900s.

In addition to a “green card” for immigrants coming here to work, the US also needs another card (let’s color it a “red card” for urgent) to support the flow of legitimate entrepreneurs looking for the freedom this country offers to business owners.

Bloblive in Nashville!!

Bloblive Nashville!!

It’s time to grab the mic and bounce your fun, wild, money making, world changing idea off your fellow big thinkers. Come share your idea and help develop someone else’s. Join us for a bloblive session where inspiration is guaranteed. We’ll supply the food, you just bring that big brain of yours.

This event is open to everyone — all you need to do is register for this event here

December 3, 2008 (7:00 PM – 9:00 PM)
Belmont University
Beaman Student Center, Rooms A&B (free parking is available in the Curb Center parking garage).
Nashville, Tennessee
Doors open at 7:00 PM – Idea sharing and collaboration begins at 7:30 PM

Managing by Faith

The Entrepreneurship Research and Education Network of Central European Universities (ERENET) has just published its latest issue of Profile, which examines the role of faith and beliefs in doing business from a wide array of authors from around the world. Mike Naughton and I wrote a piece for this issue based our work together in our Good Entrepreneur Project. (You can purchase our latest book on this topic, Bringing Your Business to Life, using this link).