A couple of new reports out give some insight into the hot regions for entrepreneurs and the hot markets that VCs are beginning to bet on for the future.
Knowledge@Wharton looks at some of the hot markets of the future. Energy, water, personalized healthcare, and biotech are all on the watch list.
For hot cities, check out the newest ranking of 2007 Entrepreneurial Boomtowns from Inc. St. George (UT), Yuma (AZ), Prescott (AZ), Fort Myers (FL), McAllen (TX), Naples (FL), Las Vegas (NV), Sarasota (FL), Morgantown (WV), and Bend (OR) top their list this year.
(from National Dialogue on Entrepreneurship).
Carnival of the Capitalists
The COTC for this week can be found at Gyaan Sutra.
A Proud Day
Both of our kids graduate from Belmont University this weekend. Congratulations to Russ, Maggie, and all of you in the class of 2007 across the country!
Business or Hobby?
The best sources of ideas for businesses comes from your experiences and interests. Many great businesses have been built out of hobbies and other passions. Often these businesses start very small, as what some call “lifestyle” businesses that eventually create a little income. Over time, the entrepreneur is able to transition from a few evenings and weekends to a full-time business.
But now our friends at the IRS are throwing a kink in this cool way to become economically independent. From StartupJournal:
The Internal Revenue Service is stepping up efforts to prevent taxpayers from deducting losses on activities that aren’t genuine businesses run to make a profit. The problem: It’s not so easy to tell a budding business from a hobby.
Officials say new research shows taxpayer errors in this area are costing the government billions of dollars a year in unpaid taxes. Thus, auditors are “on the lookout” for people trying to deduct losses from hobbies, an IRS spokesman says. To underscore the agency’s concern, the IRS recently issued a fact sheet the spokesman says is aimed at “making sure that taxpayers know and abide by the rules.”
Sure…. We should all expect some poor person turning their craft or hobby into a business to know the over 60,000 pages of “rules” that are the IRS code.
The story goes on to illustrates this point:
But how are you supposed to figure out whether your activity qualifies as a genuine for-profit business? That can be exceptionally tricky. The IRS says you should consider several factors, such as: Does the time and effort put into the activity indicate you intend to make a profit? Do you and your advisers have the knowledge needed to carry on the activity as a successful business?
Another factor is whether you have made a profit in the past. The IRS says it “presumes” an activity is indeed carried on for profit if you have made a profit during at least three of the past five tax years, including the current year. (The rule is different — at least two of the past seven years — for activities that consist primarily of breeding, showing, training or racing horses.)
The IRS has some handy “tips” at their website and there is more information at WorldWideWeb Tax.
Since a part-time business rarely can afford strong outside tax advice, the key is to be cautions and realistic on how you approach your business and make sure to keep very good records. Don’t mix expenses and revenues that may create red flags. And keep good records, including a separate checking account for your fledgling business venture.
Entrepreneurs Speak Up
A recently developed site called TheFunded has created quite a stir in the VC community. The site is for entrepreneurs — and only entrepreneurs — seeking information on possible VC investors. Entrepreneurs share their experiences with various VC firms they encounter on their journey for funding. From the web site:
The Founding Member experienced a bad funding situation and wanted to help others avoid a similar fate. As the idea grew, the Original Members saw real potential for TheFunded to bring some transparency to the venture funding world, which is largely governed by secrecy.
In a post on TheFunded, TechCrunch reports that the site now lets VCs “set the record straight” by posting their profile. But, this is a separate part of the site and does not allow VCs to directly respond.
This type of site gives me some concern. While I am not always a fan of how VCs do their business, this type of forum may easily stray from its objective of providing information about VCs, and instead, also spread misinformation with no chance for direct rebuttal.
Opportunities Bubble in Web 2.0
We are just beginning to see what intriguing opportunities may be around the corner thanks to Web 2.0. I have seen many of them popping up at business plan competitions. A couple of new examples of collaborative services, which are a big part of Web 2.0 activity, have recently come across my desk.
One is called Huddle, which came to me thanks to Natalie Wozniak (an alumna from my University of St. Thomas days) via PSFK:
Huddle has been targeting freelancers, small marketing and creative agencies as well as law firms.
A really interesting fact is that they did not built the app inhouse but managed to bond with a partner and have it developed within four months which is quite unusual for a Web 2.0 startup. But we learned that it works rather well for them and they even managed to receive funding from an angel investor. Huddle now has around 1,500 users from 250 companies.
Huddle is an application that seems to fit perfectly into a business world were constantly changing teams and long-distance collaborations are getting more and more common.
The other is called PartnerUp, was just launched within the last few weeks. From Mike Anderson, Senior Information Architect:
PartnerUp is a free online service which helps entrepreneurs, small businesses, and people who have an idea or are interested in starting a business find business partners, advisors, board members, executives, and skilled professionals. And, the web site helps those who are interested in getting involved in businesses find opportunities to get involved in the above capacities.
Basically, our goal is to help people who have ideas but need people with certain skills or experience find the people they need to make their idea a success.
What excites me about start-ups in the Web 2.0 space is that many of them have the promise to have both good revenues and healthy cash flows. Plus, they require much less start-up capital than most of their Internet ancestors.
Concerns on the Economy
Once again entrepreneurs seem to be getting a bit grumpy about the economy according to the latest poll just released by the NFIB.
Capital spending activity by small firms remained lethargic. The frequency of reported capital outlays over the past six months was flat at 60 percent of all firms. Forty-three percent reported spending on new equipment, 23 percent acquired vehicles, and 13 percent improved or expanded their facilities. Seven percent acquired new buildings or land for expansion and 13 percent spent money for new fixtures and furniture.
Just 29 percent of owners plan to make capital expenditures over the next few months — down four points from March, reflecting pessimism among of owners about the prospects for economic growth.
Twelve percent of the owners expressed the view that the current period is a good time to expand facilities, unchanged from March and a rather weak showing. A net-negative 8 percent expect business conditions to improve over the next six months, down a point from March but typical for the later stages of an expansion. A net 14 percent expect higher real sales, unchanged from March and eight points below January.
Other signs of their pessimism can be seen in inventories, which are down in this survey, and a general avoidance of taking on any new debt.
What makes matters worse is that the pesky demon known as inflation just won’t go away either. This is what has given me the most heartburn about our economy over the past year.
Also, the SBA Office of Advocacy released the updated Quarterly Indicators: The Economy and Small Business today, which indicated that overall economic growth slowed in the first quarter of 2007.
Small Business Lending Profitable
Small business lending may not be such a bad deal for banks after all. A new study released by the SBA Office of Advocacy investigates the contribution of relationship lending to the value of banks by estimating the market premium placed on the small business loan portfolios of banks. Small business lending was found to be a profitable market niche, especially, for small publicly traded banking organizations in the United States. This evidence suggests that at least for small banks, the added revenue associated with relationship lending exceeds the added information costs associated with evaluating and monitoring small business commercial and industrial loans.
My Generation and My Kids’ Generation
My wife and I, two people squarely in the middle of the Baby Boomer Generation, have two great soon-to-be-college-graduate children who are squarely in the middle of the Entrepreneurial Generation (or as it is also called, Generation Y). Several recent studies seem to indicate that these two generations are leading the charge in the entrepreneurial economy today. So I read with great interest a new study released this week by OPEN from American Express about these two entrepreneurial demographic groups.
Here are a few highlights from this latest study:
– 36% of Generation Y small-business owners would jump right back into the entrepreneurial game even if their businesses fail, and surprisingly, 24% of Baby Boomers would do the same.
– Belief by both generations that America is worse off now than when they were kids
– More Baby Boomers say they are naturally energized than their Gen Y counterparts (50% GenY vs. 60% BB) but BB drink, on average, 1 extra caffeinated drink/day (2 GenY vs. 3 BB).
– On average, both groups work 10 hours/day and get 7 hours of sleep at night.
– Both groups agree free trade is a benefit to American entrepreneurs (72% for Gen Y and 69% for Boomers).
– 66% of GenY say they are tech savvy vs. less than half of BB (47%); 88% for both GenY and BB believe experience is more important than tech savvy.
– Both groups agree BB have the edge (59% GenY vs. 66% BB) because of experience.
Tennessee Small Business Events in May
There are three small business and entrepreneurship events coming up in Tennessee this month that are worth taking a look at.
The Small Business Chamber (a fairly new organization based out of Tennessee) is hosting two events.
The first is the Memphis Business Fair on May 15th at the Memphis Marriott. This event includes a “luncheon, Seminar, Business Expo and heavy networking opportunities all at one time — one place — and scheduled into a few jam packed hours.”
The second is a quarterly membership meeting in Nashville on May 17.
Interested small business owners are welcome. I will be speaking on the challenges of growth at both of these events.
I also want to make folks aware of an event that will be held on the Belmont campus on May 14th. Nationally recognized social entrepreneur John Sage, founder of Pura Vida Coffee, will be speaking at 6:30 that evening. His for-profit venture is used to fund non-profits around the world. This event is free and open to the public and will be held in the Massey Board Room.