Once again this semester I had Charles Hagood, co-founder of the Access Group and Healthcare Performance Partners, come into my class to close out our unit on bootstrapping. (Here is an overview of his talk from last semester that offers several great tips on creating a bootstrapping mentality). Charles and his partner are great examples of what bootstrapping can accomplish building a highly successful business.
This semester he added a new point to his talk that is often overlooked by entrepreneurs once they get beyond the start-up phase. They get out of their bootstrapping habits, get a little lazy, and start spending cash on things that are not going to create sales or take care of customers.
Something like this happens with a golf swing. We start scoring well, and soon forget all of the subtle little things that got our swing to that point in the first place. We assume it is now natural and get a little lazy. That is why professional golfers never stop working on their swing. They hit thousands of golf balls every day. They know that without constant attention to the details of their swing it will not hold up. The same is true in how we manage the scarce resources of our businesses.
Being prudent stewards of the cash we have in our business takes the same concentration and attention to details. Once the cash starts coming in, we relax and think we can go on cruise control. But just like with a golf swing, bad habits and laziness can creep in to take you off of peak performance. And then when your business hits a tough patch or a crisis hits, you are not as ready to meet it as you thought you were.
For Charles this was 9-11. They had gotten out of their bootstrapping ways — not completely, but enough so that when the economic aftermath hit their business, they could see all of the ways in which unnecessary costs and lazy habits had evolved int their business. Luckily, they got back to their bootstrapping roots, and eventually came back stronger than ever.
Never lose that bootstrapping edge. Every dollar you can save while still achieving the desired result makes you more competitive, strengthens your business for the future, and builds your wealth.
Success Rate Urban Myth Even Passed on by Academics
My friend Rhonda Abrams blogged last week about an interview she heard with a professor from a “distinguished university” (that may have been the problem right there):
I recently heard a professor from a distinguished university say on the radio that 90 percent of new businesses fail.
To me, that’s like hearing fingernails scraping on a blackboard. I’ve looked at statistics of business births and deaths closely, and I know of no credible study showing anything close to a 90 percent failure rate.
She is correct.
Credible studies show success rates five years out (the normal time line for such studies) to be around 50% +/- 5%. And as I’ve said many times, smaller studies of those who have gotten trained and educated in the process of starting and growing a business find success rates as high as 80-90%.
This urban myth is perpetuated by the histrionic media who loves find evidence of doom and gloom even when it isn’t real, and by ignorant and uninformed “experts” who are too lazy to do the research needed to find out the truth.
(Thanks to John Russell for passing this along).
Are Angels Changing Their Strategy?
StartupJournal reports on a study from the Center for Venture Research at the University of New Hampshire that reaffirms a trend that we have been observing for a while now. Angel investors seem to be shifting to later stage deals. Rather than providing seed funding, which has been their bread and butter investment, angels are now doing deals that were once the focus of VCs. And VCs are shifting to even later stage deals.
A few years back 75% of angel money was seed investments in start-ups. in 2005 it had dropped to 48%. It is now around 40%, according to this report.
But before we panic and predict the end of the entrepreneurial economy we need to step back and look at the context of all of this.
– There are more angel investors than ever with lots of cash. There are only so many seed deals to go around that meet their requirements for investment.
– Some angels are gathering in packs, called angel networks, that are mimicking venture capital firms in many ways, including more pooling of funds on deals and professional management. It is not surprising that this also includes developing investment strategies that look a lot like those of venture capital firms.
– Angels that do smaller deals are off the radar. They are hard to get data on in the first place because there is no formal reporting mechanism. Add to that their intense desire for privacy, and it is no surprise that we are seeing mostly the larger deal angels working in networks.
– Our entrepreneurial economy is dynamic. As the percent of GDP that is created by smaller companies surpasses 50%, we can expect that there are more deals that have grown to need more capital. Supply follows demand. We must also take into account that it is beginning to look like success rates are climbing for new ventures, due to both a favorable economy and better education for the entrepreneurs.
Here is my fear from this report. Policy makers and politicians eager to get their claws into the entrepreneurial part of the economy will use this to say, “We have a crisis!! We need to develop programs for government seed capital funds or the economy will stumble.” Or how about this one: “We need to get control of this to make sure we understand what it going on so we can enact effective legislation. It is time to call for registration of private equity placements so we can track all of this.”
Mark my words — we are moving toward socialized entrepreneurship. Our government is no longer ignoring our entrepreneurial economy and once they pay attention to it, can not leave it alone.
Reflections on a New Minority
Married couples are now a minority in America, according to a recent article in the New York Times.
Reflecting on this, columnist Cal Thomas puts at least some of the blame where it belongs — on those of us who are the Baby Boomers:
My generation has been obsessed with making money and acquiring things in place of investing necessary time on marriage and children. The message the kids get is that if marriage is mostly about accumulating wealth and acquiring stuff, they can do that without getting married.
Family trees are beginning to resemble kudzu….
The Entrepreneurial Generation (those 25 and under) places the blame in the same place (see Michelle’s comment on this post as an example of how they feel). They want to try to work hard on both their careers and their families. For the sake of both our culture and of this great country, let’s hope they get it right…
Small Business Owners Still Optimistic
According to a semi-annual survey, American Express Small Business Monitor, small business owners remain optimistic about growth. 43% expect to see growth in their small businesses. This is only down a bit from 49% a year ago, which given all of the doom and gloom in the media is pretty remarkable. Unemployment is down, inflation worries are easing, interest rates have stabilized, but you would think we are entering the next Great Depression. Some of this is a continuing focus on the old economy by the media and politicians. They still want to measure only half of what is going on in our economy and ignore the half that is made up by small businesses. One note on this survey — it was taken when gas prices were still high and there were scares about heating costs. I wonder what the same survey would now show with lower gas prices and forecasts of cheap natural gas prices this winter.
Construction Industry Strong
Despite what you are hearing, construction remains a strong sector of the economy. This is particularly true among small businesses in the industry. From the NFIB:
The construction industry is still stronger than the overall small-business economy and has slowed the economy only as it converges to the performance of the rest of the small-business sector. There are many reasons for this, including the fact that it will still be a good housing year, following record performances in earlier years. Furthermore, business construction remains strong, so firms find work in endeavors other than building new homes and condos. There will be work in New Orleans and the hurricane-affected region for some time to come.
Building Customer Loyalty Through “Good Karma”
We had the pleasure of welcoming Clint Smith, who is co-founder of an e-mail marketing business called Emma, to one of my classes this week. Just four years old, this Nashville-based business has had impressive growth. At first glance it would seem that they must have built their growth using their own systems — that is, through e-mail marketing. However, this is not the case, as their system is based on permission — it is not a spam model. Their system is designed to take contacts that a business already has, and develop a customized system to communicate with them through e-mail. Therefore, as Emma is a new business, they did not have existing businesses to e-mail to. Therein was their challenge.
The approach Clint and his co-founder Will Weaver took to marketing was efficient (like any good bootstrapper strives for) and personal. Clint refers to the personal part of their approach as “karma marketing.” They also clearly understood their target market, and designed all of their efforts toward reaching those clients.
The founders of Emma defined their customers from the very beginning as small business and non-profits for which “style” matters. They targeted specific types of business that fit their profile, such as design agencies, non-profits, artists, music venues, universities, and “cool stores and hangouts.” And they targeted cities where they believe that style matters.
They filled their message with wit and humor, and made it have a personal feel. Here is an example from Emma’s website from one of the profiles of a staff member (and former student of mine):
Sara works with small businesses who’ve expressed interest in using Emma to help interact with their customers or members. “We’re interested,” they may have said, sometimes adding an exclamation point on the end for emphasis. And so Sara gives them a tour, often regaling them with tales of Nebraska along the way. Did you know they have a replica of Stonehenge made out of cars? Carhenge. Kid you not. Sara wields a degree in Music Business and Marketing from Belmont University, where she was a member of the (nationally ranked) Belmont Speech and Debate Team and the Belmont Service Corp and the Student Advisory Board and president of her student council in high school. It really is amazing what you can learn about people when you actually read all the way to bottom of their resumes.
Surprisingly, they use very traditional print media for much of their own marketing efforts. They send out postcards to targeted businesses and they use print ads in alternative weekly newspapers. They do some advertising on local public radio stations, as this is the best outlet for their target customer profile. They also go to their target cities and set up events and “chats” at popular local watering holes, inviting existing customers and prospects.
Emma builds good “karma” with existing customers with techniques that are simple, personal and powerful, building strong customer loyalty along the way. Here are some of their tools:
– Visa gift cards (with the Emma logo on it) for referrals, sent in hand written thank you notes
– Free Emma tee shirts for any customer who asks for one
– Discounts for anyone who takes Emma with them to a new employer (called “friendly discounts”)
– Sponsorship for selected customer events
They also have a program called “Emma Twenty-five”. Each year they ask existing customers to nominate non-profits that need Emma’s system, but cannot afford to pay for it. Emma picks the twenty-five most worthy and gives all of them free e-mail marketing services to keep in touch with their contact base — and they get this for free for as long as they need it.
Why is Emma so successful? They know who their customers are and how best to reach them. Once Emma has them as clients, they find as many ways as they can to make them feel good about working with Emma — they focus on building loyalty through building “good karma” about Emma as a service and as a company. And they work hard and have fun doing it. A good formula for any small business trying to grow.
Breaking Down Silos
For the past several years business schools have been busy trying to break down the functional silos that had developed over the years in response to the silos in corporate America. In reality, business schools have tended to be followers mirroring the corporate world that supported them. So when the corporate world began pushing cross-functional teams, business schools tinkered with their curricula in an a attempt to “integrate” across the functional silos. However, traditional b-schools have fostered even more entrenched specialists than we have even seen in business organizations.
There are now some attempts underway at some Universities to not only break down the silos, but to get us off the farm in search of new ways of thinking and new ways of acting. Metacool has a post on a Business Week article that shows the innovation that can occur when we really reach across campus by drawing from Design Programs to improve innovative problem solving.
I have been blessed to work at two universities that allowed me to reach across campus. And believe me, this is not an attempt for me to show the rest of those academics what business schools can teach them. Quite the contrary. At the University of St Thomas I had the pleasure of working with Professor Michael Naughton from Theology. He helped me to truly integrate Christian Social Teaching into how I think about, teach about, and write about Entrepreneurship. Here at Belmont University we have a more ambitious project, funded by the Coleman Foundation, to reach all across campus to find linkages.
We are working with Art, Music, Design, Music Business, Political Science, English, Theater, Health Sciences, Audio Engineering, Video Engineering, and many others. And although we do this to help integrate entrepreneurship, self-employment and free enterprise with these disciplines, I take even more back with me from what I learn from these students and their faculty. I use what they teach me in what I do in my classes and in my writing every day.
(Thanks to James Shewmaker of Qwerty for passing this along)
Nobel Prize Winner on the Entrepreneurial Economy
The 2006 Nobel Prize winner in Economics, Professor Edmund S. Phelps, is a strong supporter of free enterprise and entrepreneurship. In a recent Op Ed piece from the Wall Street Journal, Phelps outlines two basic economic systems prevalent in the Western world.
Several nations–including the U.S., Canada and the U.K.–have a private-ownership system marked by great openness to the implementation of new commercial ideas coming from entrepreneurs, and by a pluralism of views among the financiers who select the ideas to nurture by providing the capital and incentives necessary for their development….This is free enterprise, a k a capitalism.
The other system–in Western Continental Europe–though also based on private ownership, has been modified by the introduction of institutions aimed at protecting the interests of “stakeholders” and “social partners.” The system’s institutions include big employer confederations, big unions and monopolistic banks.
Phelps argues that the private-ownership system of the US has drifted away from what was its purest form. And the further we drift the bigger the risk that we will lose the entrepreneurial engine that powers our economy. We have seen this economy drift more toward the kind of system we see in Western Europe. He asserts that companies like Microsoft, those that have not only vast economic power but also political power, are a “deviation from the model.” As Schumpeter showed us, a dynamic economy requires free markets that allow newcomers to come in and participate in its evolution and growth. Owning capital and wealth does not make one an entrepreneur. Entrepreneurs are the newcomers, the disruptors, who fuel dynamic economic development.
This is an important time to listen to the words of Professor Phelps. Our economy is more dependent on true free enterprise and the work of real entrepreneurs than it has been in over one hundred years. This is no time for us to embrace the kind of socialized entrepreneurship we see in much of Western Europe. Government should not be in the business of institutionalizing economic winners. It should, instead, be the protector of the economic newcomer entrepreneurs, who if we let them, will create our economic future.
(via National Dialogue on Entrepreneurship).
A Hopeful Sign?
Small business hopes rebounded in September as the National Federation of Independent Business Small-Business Optimism Index rose 3.5 points to a more normal level of 99.4.
“This confirms the slowdown in the economy anticipated in the July survey — down, but not out,” said NFIB Chief Economist William Dunkelberg.
The Index, bouncing back to near its 30-year average, was lifted by positive movement among six components including the outlook for an improved economy, favorable earnings and higher sales. Inflation pressure also eased.
Small business owners surveyed continue to plan on supporting jobs in the economy. Job creation plans held firm at this survey’s near-record levels from August. They also plan to spend on capital, which is a very good sign compared to previous months. They are still concerned over inventory levels, as signal that they are still somewhat cautious.