Red Herring is sponsoring a Summit of over 300 delegates who will come together in Hong Kong August 28-30, 2006 to “discover an exceptional array of entrepreneurs and leading experts from the best technology firms in Asia. Themed ‘Meet Asia’s Innovators’, Red Herring Asia 2006 will present the winners of the Red Herring 100 Asia award.” You can get more information here.
I Told You They are Getting Younger
The Wall Street Journal has an amusing story about how Baby Boomer VCs are trying to get hip and relate to twenty year old hot shot entrepreneurs.
Forty-year-old and 50-year-old venture capitalists — often more accustomed to private jets and second homes than to hanging out with kids in bars — are now heading to beer-soaked parties to meet 20-year-old techies. One investment firm invited entrepreneurs to a hip-hop concert. Another venture capitalist, sensing a networking opportunity, is organizing a bowling team to compete in a new league formed by young startup executives.
Other investors are taking notes at industry tech conferences where panels of teenagers discuss their favorite video-Web sites and cellphone games. Last year, Shasta Ventures of Menlo Park, Calif., commissioned its own research to survey middle schoolers about their personal Internet use. The results, which highlighted the heavy teen use of “social networking” and blogging sites like MySpace.com and Xanga.com, were “very revealing,” says Tod Francis, a 46-year old Shasta partner.
My advice as someone who makes a living working with twenty-something entrepreneurs? Be yourselves! Remember, you are about the same age as their parents in many cases. The more you try to act like them, the more they will roll their eyes and laugh at you when you walk away.
(Thanks to Andy Tabar, one of Belmont’s own young techie entrepreneurs, for passing this along).
Immigration Fuels Our Entrepreneurial Economy, So Let’s Get it Right
There is an interesting policy issue as it relates to immigration that will likely get lost the current emotional debates about illegal immigration.
It is a fact that immigrants are a major source of new businesses in any entrepreneurial age. We saw evidence of this during last big entrepreneurial explosion in the US during the late 1800s (no, class, I did not witness this first-hand). We see evidence of the same thing today in this new entrepreneurial economic age we are now experiencing. From Hispanic Business:
Historically, entrepreneurship in the USA has been highest among immigrants launching grocery stores, construction companies and other businesses serving their communities.
For example, the number of Hispanic-owned firms — many started by Mexican immigrants whether here legally or illegally — soared to 1.6 million from 1997 to 2002, the Census Bureau said this spring. That 31% jump was three times the growth of all firms.
“This is a country of immigrants,” Minniti says. “They replenish the core of the population that is more likely to generate businesses.” Immigrants tend to be younger and have more children, creating generations of future entrepreneurs.
All true. But, that does not remove our obligation to develop a process for immigration that will allow for the smooth flow of new people into this country through an organized and controlled process. Yes, I want to encourage entrepreneurs of all nationalities to come to this country. We need them. We are in an entrepreneurial age in this economy and their energy and drive will help make this a better country. But, those facts cannot be an excuse or be used as a smoke screen for the disorderly and uncontrolled immigration process we now face.
Allow in the immigrants who want to work and can help build this country. We also need to find a better and more systematic way to bring in those who want to come here to be entrepreneurs. The current immigration laws are outdated and do not reflect our need for more new entrepreneurs in the US.
We need to do more than control illegal immigration. We must acknowledge that It is, at least in part, a symptom of an unbalanced supply and demand of human capital in our economy. We need more workers and we need more entrepreneurs. To solve the current problems we face, pull the current immigration system out by the roots. We need both to develop a new set of immigration policies and processes that reflect our new economic age, while at the same time improve the security of this great nation in an age of terrorism.
Politicians seem to have set this whole thing up as an either/or proposition, which it is not. We need to enhance the flow of legal immigration and protect our national security and preserve the rule of law.
(Thanks to John Russell for suggested a discussion of this issue).
Know How Your Customer Thinks and How They Act
One key aspect of effective marketing for entrepreneurs is to learn how their customers think. By learning how to “think like your customer” you have a better chance of developing accurate revenue forecasts and more effective marketing plans. Every good bootstrapper has mastered the art of getting into their customers’ heads and using this knowledge to get the most bang for their precious marketing dollars.
But, an article at StartupJournal reminds us of another important lesson. What customers say is not always reflective of what they really believe and how they will actually behave. Customers may say things to us that are based on what they think is socially acceptable and politically correct. But, they do not always act on what they say.
In the StartupJournal piece we find out that all of the talk by consumers about being environmentally sensitive and aware does not always lead to a decision to buy.
Running an environmentally friendly business can be a good way to distinguish yourself from competition in your area and create a niche, and that’s especially true with today’s growing concern about global warming. But be careful of assuming that just because you’re “green,” consumers will naturally be willing to throw more greenbacks your direction.
After all, look at how many failed attempts McDonald’s has had when trying to react to the stated preference from consumers for healthier foods. Time after time, even though they offer “healthy choices,” we go back to our Big Macs and fries — albeit maybe with a Diet Coke. We say we want healthy food, but when we pull up to the drive-thru what we really order is what tastes really good at a reasonable cost. And what still tastes best to us is fried and fatty.
If you want to have a “green” business or offer healthier foods, do so because you think it is the right thing to do, and not because you think it is trendy and will increase your profits. Equating ethics and social responsibility with better business performance misses the point and rarely holds true over the long term. We should never do what we think to be the right thing because we get some reward (at least not some earth reward). We should do the right thing simply because it is the right thing to do. And know that you will still need to compete on what customers really look for: value, convenience, service, quality, special features, and so forth.
Small Business Sees Glass Half Empty
In a new survey from NFIB just released this morning, small businesses have expressed their pessimism over where the economy is headed. Since they now generate 50% of the GDP, their concerns deserve our attention.
Small business owners’ plans to create jobs and plans to spend on capital have significantly declined. While this is prudent for their long-term survival, as it protects their cash position in a possible economic downturn or recession, it will hurt economic growth in the short run. Small business has been the job creation engine and has been particularly strong in capital spending over the past few years of the current (or should I say, most recent) expansion.
It is clear this is a proactive move on the part of small business owners to slow commitments to new jobs and new equipment, as they are reporting that their profits are still strong. Although there are positive signs that this will not be a very long down turn, at least for now small business is seeing the glass half empty.
Carnival of the Capitalists
Carnival of the Capitalists can be viewed at Fat Pitch Financials.
When Selling a Business be Realistic, be Informed, and be Prepared
Kauffman’s eVenturing site just posted a new collection of articles and tools related to exit planning.
Let me frame all of the excellent technical information available at this site in the context of the reality of the sale process. It is a rocky road, even at its best. When we got prepared to start the process I was lucky enough to have an attorney who gave me a strong dose of reality about how many deals fail along the way. It helped keep me grounded in what can be one of the most emotional rides of your life.
It all usually starts with a letter of inquiry. The first time you get one, the temptation is to start counting all the money you are about to get. But, hold on to your hats. This stage is about as serious as a smile and a wink at a singles bar. Any company in an acquisition mode will be spreading these around all over the place trying to get a bite. About 90% of the time these inquiries go nowhere.
If the flirtation process of the inquiry moves ahead, next will often come some sort of letter of intent. This is kind of like a promise to go steady. Both parties agree that they are seriously interested in seeing if this can move ahead. Often there is a promise of exclusivity required, but most sellers try to avoid this to keep the buyer honest and hopefully drive up the selling price with a little good old competition. More often than not, the buyer prevails in this and the seller has to promise not to entertain other offers, at least for a little while. Somewhere in this stage the basic form of the deal starts to take place. There are confidentiality agreements that allow the buyer to get enough information to float a trial offer. Remember, the deal almost never gets better for the seller past this point, so this is where you need to negotiate hard. About 50% of the deals that get to the inquiry and deal formation stage fail to make it any further. (If you are keeping score, we are now down to 5% of those initial inquiries still being active).
Next comes due diligence. This is like the stage when he or she gets to meet your parents, find out what you really keep in your sock drawer, learn what you actually make and what you spend your money on, and decide which family you are going to spend Thanksgiving with each year. The buyer will want the right to go through all of your contracts, all of your personnel records, all of your corporate minutes, and do anything else they can possible think of to dig stuff up about your business. It is an intrusive process to say the least. At this point you will likely have to share with your employees and customers that you are thinking of selling, if you haven’t told them already. And the worst part is that your employees and customers may get all concerned over nothing, as about 50% of deals fail during due diligence. (We are now down to about 2.5% of the deals still being alive at this point).
Finally, if you make it through due diligence, comes the closing preparation. This is kind of like the final preparation before going to the alter, including negotiating a prenuptial agreement. Remember the old saying “the devil is in the details”? This has never been more true than in the closing process of selling a business. This is where the lawyers from both sides kick into overtime, fighting over the specific terms of the sale. Of course at this point you are ready to say, just get it over with! But, those details that your lawyer wants you to focus on and pay attention to really matter. Why? Because the deal is not really over at closing. There are hold-backs of money, warranties, and sometimes earn-outs that all can lead to major problems post sale if you are not careful during preparation of the closing documents. When your attorney says to pay attention, be patient and listen, you better pay attention, be patient and listen. If the sale of your business is not handled properly, the next stage is litigation, where all of that money you made selling the business can still be at risk. (Another large chunk of deals can fail during the closing process, leaving only about 1-2% that make if from initial inquiry to a final closing).
The moral of this tale is to be realistic, be informed, and be prepared when you enter into the exit stage of your business. And remember that while falling in love is great, it is a long way to the alter.
Everything You Ever Wanted to Know About Small Business
The SBA Office of Advocacy offers up lots of statistics, many of which I use frequently at this site and in my classes. They have a great summary of these statistics from 2001-2005 in their new report appropriately if not creatively titled, Frequently Asked Questions.
Commit it to memory so that the next time one of your “corporate type” friends scoffs at your “cute little business” you can let her know that businesses like yours have generated 60-80% of new jobs annually in th US over the last decade. You can even point out that, who knows, she may be coming to you looking for a job sooner than she could ever imagine.
Niches with Legs in Entertainment
Many of us have been writing about the revolution that is taking place in the entertainment industry. The dinosaurs of the industry are becoming extinct — they just haven’t realized it to this point. They are fighting back with brilliant long-term strategies like lobbying Washington for more protection and suing 16 year old high school girls for downloading.
And the little mammals, entrepreneurs of all shapes and forms, are quietly and efficiently taking over music and entertainment. Each of these entrepreneurs are finding their own little niche. And many of these niches seem to have legs — they are not flashes in the pan like we are used to in this business, but rather seem to go on for a long time.
In his new book, The Long Tail: Why the Future of Business Is Selling Less of More, Chris Anderson argues that these entrepreneurs are ushering in a new age in entertainment. It will be much less about blockbusters and much more about profitable offerings that are targeting to a specific, and very loyal, audience. Chris Anderson writes an interesting blog called The Long Tail.
The New Yorker offers a review of Anderson’s book, which I plan to read over my break between our summer and fall sessions.
(via the Economist’s View)
Happy Independence Day!
IN CONGRESS, July 4, 1776.
The unanimous Declaration of the thirteen united States of America,
When in the Course of human events, it becomes necessary for one people to dissolve the political bands which have connected them with another, and to assume among the powers of the earth, the separate and equal station to which the Laws of Nature and of Nature’s God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation.
We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.–That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, –That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness. Prudence, indeed, will dictate that Governments long established should not be changed for light and transient causes; and accordingly all experience hath shewn, that mankind are more disposed to suffer, while evils are sufferable, than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security.–Such has been the patient sufferance of these Colonies; and such is now the necessity which constrains them to alter their former Systems of Government.
