Entrepreneurship on steroids. That is what I call entrepreneurs who are consumed with raising as much money as they can, as fast as they can. When we confuse the means (raising capital and securing other needed resources) with the ends (building a sustainable business), we see entrepreneurship run amuck.
The goal of entrepreneurship is not simply to find the next big thing to lure venture capital or make a mad dash to a public offering. It is to create a venture that creates income and wealth for the entrepreneur and allows the entrepreneur to pursue other goals in life through this economic activity, be it creating more jobs in a better place to work, offering a better product to the customer, or making the world a little better place. The goal of entrepreneurship should be to build a good business — with legs — that will help build this entrepreneurial economy.
So on this theme I offer you one of the funniest, albeit somewhat depressing due its truth, videos I have seen in a long time: Here Comes Another Bubble v1.1 – The Richter Scale via YouTube.
(Thanks to Bruce Schierstedt for passing along this gem!)
Even Home-based Businesses Need a Plan
Recent estimates place the number of home-based entrepreneurial ventures in the US at around 13 million. A recent article at the Wall Street Journal suggests that home-based businesses need a plan as much as any other entrepreneur. But rather than being used to secure financing, this plan should be used to keep sanity and order in your home office.
Alvah Parker…a career transition coach…suggests at-home entrepreneurs write a detailed business plan that includes not just projections for the business itself, but also specifics on how you’ll manage working from home. This includes laying out a regular work schedule and describing in advance how you’ll handle specific scenarios, such as if a friend or relative calls during working hours or your child interrupts during an important phone call. You might even designate a time during the day or evening for household tasks, errands or recreational activities you’d otherwise be tempted to do during work hours.
And that reminds me… it is 2:30 and my plan for the day at my home office is to stop writing and take a walk with my wife and our dogs. I need to stick to my plan!
VCs Still Bullish
If you’ve ever interacted with a VC you might find it hard to imagine them feeling bullish about anything, but the latest survey released by the NCVA paints VCs as having a fairly optimistic outlook for 2008.
Venture capitalists are forecasting an active year for the industry with high growth in the CleanTech sector, an improving IPO market and fewer venture firms in 2008. These predictions are among the top line findings of the NVCA 2008 Predictions Survey. The results also show concerns about global investments in certain regions including China. Additionally, the industry believes fund sizes will become larger and returns for limited partners of venture capital funds will improve in both the short and long term horizons.
Vote for Andy
One of our students here at Belmont is a finalist for this round of ideablob.com voting. If you haven’t been to the site, think of it as a monthly American Idol for business ideas with voting taking place at the website.
Andy Tabar is one of our student practicing entrepreneurs trying to build his web-based business. It is easy to vote. Just go to the ideablob.com website and register. After you have go back to the main page for ideablob.com and vote for Andy’s entry “Expand my global tech company” idea. Please go to ideablob.com and vote for Andy!!
Happy New Year!
Here is a blessing for 2008 for all entrepreneurs around the world (with apologies to those in Ireland, to whom this may sound vaguely familiar):
May the market rise up to meet you.
May cash flow always be at your back.
May customers shine warm upon your face,
and opportunities fall frequently upon your venture.
And until we meet again,
May God hold you in the palm of His hand.
Here’s to another trip around the sun! Happy New Year!
Reading Income Statements
When you deal with something almost everyday it can become second nature to you. So it is with financial statements for those of us who pour over them in business plans, financial forecasts, and case studies. But for many entrepreneurs, even some with surprisingly large companies, financial statements are difficult to digest and interpret.
My column in this week’s Tennessean offers some tips on how to begin to understand and better utilize the information contained on a monthly income statement.
It is important to look beyond the numbers presented in the income statement and examine the percentages that each of those numbers represents. Look at major expenses every month to see what percentage of sales is being used to pay for each expense. Entrepreneurs who train themselves in how to read their income statements carefully will begin to see trends that will help them make decisions and solve problems within their companies.
What’s in a Title?
I have always tended to believe that the titles we assign to positions in our businesses are a cheap currency we can use to attract and reward employees. There were many times over the years that I actually asked a prospective new hire to suggest to me the title that would best fit what they would be doing in the position. As long as it helped accurately communicate what they did to other employees and outsiders that they interacted with in their work, I tried to be rather flexible.
The Wall Street Journal has a story that show just how far some companies take create titles:
Princess paysalot (payables, purchasing and asset manager), cultural curator (office manager) and supreme sorceress of syntax (copywriting team lead) are among the jobs at privately held board-game maker Cranium Inc….
The “cool” factor is one driver behind the trend. “Whenever someone sees my business card, they say, ‘Wow, you must work for a really cool company!'” says Mr. Tait, whose company has about 80 employees.
Recruiting may be another. “When compared to other companies, it makes us stand out,” says Robert Stephens, founder of Geek Squad, a 24-hour technology-services provider acquired by Best Buy Inc. in 2002. Some jobs at the company: counter-intelligence agent, double agent, mission controller, covert operator and public defender. Mr. Stephens calls himself chief inspector.
As long as a title does not misrepresent what someone does, cause too much confusion, or delegitimize the company to the outside world, have some fun!
I wonder what the university would think about this title for me — The Pied Piper of Free Enterprise…..
Entrepreneurs as Community-builders
Entrepreneurs today are not only the builders of our new economy, but also have the potential to help rebuild our society and culture. Here is one simple example of how entrepreneurs can be true community-builders sent to me by Ben Cunningham. From Deleware Online (via Crave Online):
[Pedro] Toala was paralyzed in June 2006, when kids tipped over the portable toilet he was using in a Wilmington city park. His spine broke when he fell….
[M]ost of [his] split-level house was inaccessible to a man in a wheelchair. He could not eat dinner with his family or go into the backyard with his son. Just getting in through the front door was difficult.
Early this year, Cher Przelomski and The Planning Factory, a special events company, decided to investigate how they could help the Toala family as a way of celebrating the firm’s 25th anniversary. The group first tried to interest producers of ABC-TV’s “Extreme Makeover: Home Edition.” When ABC officials declined, Przelomski and her colleagues organized their own version.
About 70 contractors and 60 volunteers responded to revamp the entire home and make it not only more accessible, but more beautiful, energy efficient and functional. Pettinaro Relocation provided a furnished apartment for the Toalas to live in until the work was complete.
The family was able to move back into their remodeled home in time for Christmas.
Merry Christmas!
Bootstrapping to Keep Control
Many entrepreneurs do not want the added complexity of having to manage the expectations of outside investors and the demands placed on a business by banks. In this case it is not that the entrepreneur cannot raise outside funding — as discussed in my previous post on bootstrapping. There are many cases of businesses that could have fairly easily raised external funding, but the entrepreneurs made a conscious decision to use bootstrapping techniques to avoid any need for such funding. These entrepreneurs just do not want outsiders — be they investors or bankers — significantly involved in their ventures.
There are several reasons behind this concern:
– External equity funding creates dilution of the entrepreneur’s ownership in the business. Equity financing reduces the ownership percentage of the founding entrepreneurs, thus reducing their share of any profits and any wealth created through the venture. The business must get that much larger for them to reach the financial goals that they had originally established for their business.
– Equity investors can sometimes turn out to be less than scrupulous individuals — commonly known as sharks. Sensing the entrepreneur’s vulnerability, these investors will demand much more of an ownership stake than the deal actually requires, based on their investment. They can also intend from the very beginning to force the founding entrepreneur out of the business once they have taken financial control.
– Adding equity investors complicates the interpersonal dynamics in the company. Many entrepreneurs report that partnership relationships can be even more complex than a marriage. The commitment with equity investors is long-term and in reality, indefinite.
– Significant debt financing can make a business much more susceptible to downturns in the economy. If a downturn occurs and profits decline, large payments on loans can become difficult or impossible to meet. A similar business with less debt will have more excess cash flow, without the large debt payments, to cushion the blow of declining revenues and profits.
– When a business is sold, the entrepreneur is required to pay off all debts before any money can be distributed to the owners. Since taxes owed on the proceeds of the sale are typically calculated without consideration of any debt that must be paid off, entrepreneurs who have relied heavily on debt have been known to have little or no money left after the sale of their businesses.
– Bankers impose many restrictions on a company as part of the terms of large business loans. These restrictions may limit the entrepreneur’s freedom to make some decisions on major issues affecting the business, such as expansion, payment of dividends to shareholders, or compensation of management.
– Most debt issued to entrepreneurial ventures requires personal guarantees by the entrepreneurs. These guarantees mean that if the business defaults on its debt, the entrepreneurs will be personally liable for those loans. The bank has the right to come after personal assets to pay off the loan. Avoiding personal guarantees of business loans has proven to be a compelling reason for many entrepreneurs to use bootstrapping to avoid the need for bank financing.