Dr Jeff Cornwall

I have written before about the risks of going into business with friends. But what if you find yourself becoming friends with employees you hire in your business? This is the question that one of our student entrepreneurs asked while we were chatting in my office the other day. He had observed other young entrepreneurs becoming buddies with his employees and wasn’t so sure that was a good practice.
In a small business becoming friends with employees is natural. A small group of people working closely with each other toward common goals often develop friendships. You all suffer together through the trials and travails of start-up and early growth, which can create strong bonds. We know that facing common adversity is powerful for building teams. Such camaraderie can be a critical element in building a strong culture in the business and in creating loyalty among your staff.
But it is important for the entrepreneur to keep certain boundaries as such friendships develop.
No matter how strong the team becomes, the entrepreneur is the one person who is ultimately responsible for the outcomes of the business — the one who personally has everything on the line. Hard decisions will have to be made at critical points in the growth of the business. And no matter how hard it may be, the entrepreneur must make the best decision for the future of the business even if it may not be in the best personal interest of all the individual employees.
Although employees can become intensely committed to your business, they are never as invested in the business as the entrepreneur. At some point to them it is just a job. Even if they become your friends, their loyalty will have its limits and at some point their self-interest will kick in. While the entrepreneur has no real ability to exercise a better option if one comes along, any and every employee does.
There are certain things you should never share with your employees, even if they have also become your friends. Because they become your friends you may feel that you can share with them your deepest fears about the business. This is a mistake. First and foremost you are their leader. It is your job to communicate confidence and commitment to the vision, even when times are tough. You need to be what I call their emotional shock absorber through the tough times. They will know when things are not going well. Your confidence and commitment will be what can keep them on task doing what needs to get done to make it through rocky times. If you share your fears and doubts as you might with a good friend, you run the real risk of creating a climate of hopelessness and defeat in your company.
To understand what friendships between employees and entrepreneurs are all about, we have to understand the root of friendships in business. Some are true friendships — they transcend and outlive the limits of the business relationship. I wrote a while back about such a true friendship between my father and his mentor. While their friendship began through work, it endured for many decades after their work life together had ended.
Some friendships at work are more instrumental in nature. Being your friend is part of the whole package of employment or some other business relationship. At its core it is a friendship tied by economic bonds.
The difficult aspect of friendships in business is that you never know which type is which. Is it a true friendship or an instrumental one? Most entrepreneurs who have been through an exit, be it through a sale or through closing a business, talk about how very quiet the phone can get after they exit the business. Many comment how much more open their social calendars become.
The good news is that those who remain friends are people who are truly your friends. One entrepreneur told me how surprised he was as to who these true friends were. They were not the people who had seemed so intensely connected to them when they were in their business. Rather, it was people who had seemed a bit more on the periphery. So we may never really know which are merely instrumental until the economic nature of the friendship is severed.
At the end of our discussion my advice to the student entrepreneur was that it was okay to become friendly with employees, but to maintain certain limits. It is alright to socialize, but remember that you are the owner and the boss 24 hours a day, seven days a week. It is not unlike the parent/child relationship as the child moves into early adulthood. While parent and child find their relationship can evolve more and more into one of friendship, their remains a certain boundary based on their familial relationship. Friendships with your employees need to also have these boundaries.

Max McGee, entrepreneur and former Green Bay Packer, passed away after a accident at his home this past weekend.
Max McGee was an unexpected hero of the first Super Bowl (although at that time it wasn’t yet dubbed the Super Bowl). He was a back-up player who had no expectations of playing. The story he told was that he spent most of the night before the game partying with old friends in New Orleans. But play he did, catching a pass from Bart Starr to score the first touchdown ever in Super Bowl game.
Max was a successful entrepreneur and angel investor. He was one of the founding investors in the company that created the Chi Chi’s chain of Mexican restaurants. He was also a generous philanthropist. He and his wife created the Max McGee National Research Center for Juvenile Diabetes to help raise money for diabetes research.
Rest in peace, Max.

As I mentioned in an earlier post this week, we were privileged to have Dr. Michael Morris and Dr. Arthur Brooks (both from Syracuse University) on our campus this week. During their campus-wide address they talked about the emerging field of Social Entrepreneurship.
Social Entrepreneurship involves any organization, profit or non-profit, that has a social mission. Syracuse is one of the schools that already offers coursework. Belmont is planning to role out a full undergraduate minor in Social Entrepreneurship next fall (pending a few more approval steps).
Mike Morris stressed that it is important to keep in mind that entrepreneurship is entrepreneurship no matter what the organizational context. I could not agree more. Our program will have students taking a wide array of our standard entrepreneurship classes. We will be using the social entrepreneurship classes as a vehicle to interject experiential and service learning.
He outlined a few key facts on the growth of non-profits in the US:

– From 1996 to 2007 numbers of 501(c)(3) nonprofit organizations registered with the IRS grew from 1.09 to 1.48 million.
– The nonprofit sector has emerged as a vitally important element in the overall fabric of society (Verma et al., 2005).
– However, NPO failure rates are also up

Arthur Brooks went on to give a working definition of social entrepreneurship:

Process of creating value by bringing together a unique package of resources to exploit an opportunity, in pursuit of high social returns.

He pointed out that while there are about 1.5 million non-profits, there are about 9 million grassroots social enterprises that are not organized as a formal non-profit. He believes that this is reflective of American society. Continued citizen independence requires private solutions to social problems and unmet needs and that social entrepreneurship expresses the American identity.
Syracuse University has a fascinating social entrepreneurship that it integrated into their curriculum called the South Side Entrepreneurial Connect Project:

Syracuse University is located directly east of the economically and socially depressed South Side of Syracuse, New York. The South Side has been hurt more severely than any other area in the region by the systemic decline of the Greater Syracuse economy over the past two decades. Many factors contribute to the severe cycle of economic and social depression on Syracuse’s South Side. Similarly, a host of factors require substantive attention if the cycle is to be broken and the South Side is to experience a renaissance. These factors range from housing to education, and from economic well-being to human and social support services. Its residents have referred to the area as an “economic desert.”
And yet, we believe that significant change is possible, that there are valuable assets on which to build, and that the key to sustainable economic development is entrepreneurship. On balance, larger companies within the Syracuse metro area are not likely to expand significantly in the coming years, and few established firms are likely to relocate operations to the area given the region’s contemporary tax, regulatory, labor, and operating cost environment. This set of conclusions is even truer when it comes to Syracuse’s South Side. As a result, the solution rests with organic development through the creation and growth of entrepreneurial firms on the South Side. Entrepreneurship is the key to empowerment.

I am excited to see the launch of our new program become a reality next fall. Hopefully we can develop programs that have a similar impact.

Adam Smith blog writes about a new program that allows people to make direct microfinance loans. The program is called Kiva. From their website:

Kiva lets you connect with and loan money to unique small businesses in the developing world. By choosing a business on Kiva.org, you can “sponsor a business” and help the world’s working poor make great strides towards economic independence. Throughout the course of the loan (usually 6-12 months), you can receive email journal updates from the business you’ve sponsored. As loans are repaid, you get your loan money back.

Why participate in such a project? Tom Clougherty at Adam Smith explains it this way:

The great thing about microfinance is that it is based on the philosophy of the hand-up rather than the handout. As I wrote for the GI: “Microfinance is not a top-down solution to poverty, it is a bottom-up approach that aims to empower the poor, harnessing their individual aspirations and abilities and creating an environment in which they can realize the true benefits of the market economy.” That’s why microfinance has been so successful where traditional aid has failed to make an impact.

A new survey released by UPS finds that most of America’s small and mid-sized businesses have failed to explore the significant growth opportunities offered by an increasingly global economy. Specifically, 67 percent of the nation’s small-to-mid-sized enterprises (SMEs) are still relying solely on the U.S. economy. This figure is surprisingly low given the increasing ease of importing and exporting in today’s economy.
Of the 33 percent reported participating in any cross-border trade, 15 percent are importers, nine percent exporters, and nine percent do both.
Survey respondents cite many reasons for not engaging in international trade, including a perception that it is too risky, a lack of knowledge about international markets, unfamiliarity with customs regulations and disinterest in expanding business beyond U.S. borders.
Among businesses that either import or export, 45 percent perceive global trade as a benefit while 18 percent see it as a disadvantage. 52 percent say global expansion will help them remain competitive or create an opportunity to increase profits. One out of every four believes that global expansion could lead to competition that will cut into profits.
The results regarding global trade represent the initial findings of a survey that will be released in full later this fall.
UPS Business Monitor has previously released small and medium enterprise studies on businesses in Asia, Latin America, and Europe