Entrepreneurial Generation Chooses Different Paths

Every year I have several students who are not interested in entrepreneurship to build their own wealth, but because they want to use the skills and knowledge they learn to start new non-profits related to social causes they care about. This type of entrepreneurship is called social entrepreneurship. The Entrepreneurial Generation (born after 1980) has less faith that social problems can be fixed by government, and would rather find private sector solutions. It is part of the libertarian (with a small “l”, not a capital “L”) streak that is a strong part of this generation’s values.
A new study from the Global Entrepreneurship Monitor finds that this is true for the youth in the UK, as well.

The largest, annual survey of social entrepreneurial activity in the United Kingdom shows that young people are more likely to be social entrepreneurs than any other age grouping. 3.9% of those in the 18 – 24 year-old category would pursue a socially minded enterprise, compared to only 2.75 of those over 55s. Similarly, education is a strong predictor of social entrepreneurial activity, and those in full time education are the most likely group to be SEA active (5%).

My anecdotal evidence from our program would have this number even a little higher, maybe as high as 10%.
Their vision for social entrepreneurship is to create a different kind of non-profit than we’ve seen in past generations. Rather than rely on fundraising and grants from foundations, these young social entrepreneurs are seeking ways to blend free market capitalism with their favorite social causes. They seek to blend together providing service to the community with businesses that create value to the marketplace. They use the profits from their ventures to fund their causes.
I even see more traditional non-profits heading in this direction. A good example is Thistle Farms, located here in Middle Tennessee.

Named for the only wildflower that grows along the roads that Nashville prostitutes frequent, Thistle Farms is the cottage business of Magdalene – a two-year residential community for women with a criminal history of addiction and prostitution. Magdalene was created to provide a sanctuary in Nashville for women in need of a safe, discipline and compassionate community.
The women of Magdalene have chosen to create products that bring healing to their bodies and souls as well as to others. Thistle Farms creates all-natural and organic handmade healing products that are as kind to the environment as they are to the body.

Some social entrepreneurs are even bypassing the traditional non-profit route and creating a for-profit business that funnel the majority of their profits toward a cause. Pura Vida Coffee is a good example of this model.

We believe in a different approach to business. One driven by good rather than greed. One that sees capitalism as an agent for compassion. Pura Vida is 100% charitably owned and all of our resources go to help at-risk children and families in coffee-growing countries build more hopeful futures. The work of Pura Vida is rooted in a desire to empower the poor in coffee-growing regions of the world. We welcome all people to serve with us in partnership.

It is encouraging to see that the Entrepreneurial Generation believes so strongly in entrepreneurial free market capitalism that they are entrusting not only their own economic future to it, but the betterment of our society and culture, as well.

The Danger of Short-cuts in Writing Business Plans

They are available all over. Tools to help write a business plans can be found in books, software programs, and on-line sites. While many of them have some good features to them, for many entrepreneurs these aids become a short-cut.
I can usually spot a plan that has been written using one of the latest software tools or books. Several things stand out:
– They have a predetermined structure, so all plans written using these tools looks the same. I can spot plans using some of the more popular software a mile away.
– They tend to have fairly weak transitions and flow from section to section.
– They have sections that make no sense for some businesses, but people leave them in and try to write something. For example, a section on distribution often makes very little sense for a service business, but it is in the software and it ends up in their plan any way.
– Most importantly, the financial statements are often inconsistent (at best) with the written part of the plan. This is a fatal red flag for most financial backers, including bankers and investors.
Experienced business plan readers do not read the plan in the order it is presented. Typically, they read the plan in this order:
– Skim over the Executive Summary to see if it is even in the ball park for plans they consider.
– Look at the Team to see who is proposing to do the deal.
– The marketing plan is next. And as they read it they are looking back at your income statement to see if the marketing plan explains your revenue forecasts. This is the backbone of any business plan. Think of it this way. The marketing plan and revenue forecasts should tell the same story in two different languages: one in English and the other in the language of business.
– The next step is to look at the operating plan and compare it to the expense forecasts to see if it is consistent, realistic, and complete.
– If they are still interested, they will then look at the financing plan/proposal to see if they like the deal structure.
Remember that they may throw it in the trash at any point in this evaluation. The typical VC, for example, gets hundreds of plans each year. Only a small number get any significant consideration and only a small handful will get funded.
When you develop your plan, work on it in the order that they will evaluate it (other than the Executive Summary, which you write last). Start with market research of the industry, competitive environment and potential customers. Use that to develop a strong and compelling marketing plan. Then forecast your revenues based on the marketing plan. Take your time. This is probably the hardest step of writing a plan if you do it correctly. Revenues are simply price times quantity, but those are two of the most uncertain issues you will face. Do you homework to show that you are making reasonable assumptions.
Then work on the operating plan and expenses. This is usually easier for most of us. However, don’t worry about getting it right down to the last dollar. Too often we waste time on these sections. We feel safer here, so seem to want to work on that which we feel most comfortable with. Be accurate and complete, but never overly obsessive with every last detail.
When you finally put it all together you will put it in the traditional outline that most of the books and software suggest, as that is a fairly commonly expected standard format. But, when you write it free-style as I am suggesting, you have the best chance of ending up with a powerful story that holds together for even the most experienced business plan reader.
Save the money you would have spent on one of those books or software packages and treat yourself to dinner when you finish writing the plan the correct way.

So What’s the Big Deal About Inflation?

Talk of inflation has the Federal Reserve taking swift action and has sent the stock markets tumbling. What’s the big deal?
Many entrepreneurs have never had to do business in an age of inflation. In fact, the last bad inflationary period we had was almost thirty years ago. Since then, careful control of the economy with interest rate policy has helped to keep things in check.
Recently, many small business owners have begun to feel the pinch of inflation. Health care costs, fuel costs, and many raw material costs due to the many hurricanes of last season are pushing up prices on almost everything. Add to that labor shortages in key areas, and you have the recipe for inflation.
During times of inflation in the past we were still in the old economy and big companies could pass along the increased prices to consumers, who due to stronger unions in those days were able to push wages higher to keep up. If their ability to raise prices fell behind, they had lots of cash reserves and knew that they could soon catch up. They just laid people off, shrunk inventories, and tight supplies then pushed up prices. All of this would continue until the economy ran out of gas. We then had a recession to cool things off.
But, we are now in an entrepreneurial economy. Small businesses are always tight on cash flow. And if their inputs of raw materials and other direct operating expenses go up, they may not be able to pass along these costs quickly enough to keep their cash flow positive. And managing cash flow is not their only problem. From the AP:

Raising prices is a difficult process for many small businesses. Every increase potentially makes them less competitive, and raises the possibility that customers might go elsewhere.

Since everyone will be experiencing inflation if it happens, small businesses will have a little more room to raise prices than they are used to. But, if we have a period of inflation in our near future, it will be different that we’ve seen in the past.
First, some of the major causes of inflationary pressures right now are not within the ability of the Fed to control. Many of the top oil producers in the world are not the most reliable governments right now. Iran, Russia, Venezuela, Nigeria, and Saudi Arabia are all among the top 10 exporters. Some or all of these countries could decide to use oil as a weapon and hold back supply. If that happens, our current gas prices would seem like a nostalgic memory from days gone by. There are predictions of several more years of bad hurricanes. Some say even one more bad season is more than our economy will be able to take.
Second, we are in a much more open, global economy than we have been in the past. When we had inflation in the mid-1900s, everyone was faced with the same pressures and all could raise prices in relative harmony. Inflation is quite variable around the world, and therefore foreign competitors might not face the same inflation rates that we do in the US. That would put us at a huge price disadvantage.
Third, China and India are lurking. Both countries see themselves as the potential economic superpowers of the next century. They are big enough, strong enough, and centrally controlled enough to potentially use inflation and a weak economy in the US as wedge to gain advantage in the world economy.
So what can a small business do these days to try and weather this storm?
– Keep overhead low.
– Build cash reserves to buffer short term price increases that precede higher prices on your part.
– Watch your margins carefully. Worry about growing profits, not sales.
– Don’t lock into long-term contracts that have narrow margins with large customers.
– When inflation heats up even a little, be aggressive with frequent small price increases rather than waiting and trying to catch up at some point with one big jump.
– Pay down variable interest loans ASAP. As long as there is inflation, interest rates will keep going up.
(Thanks to RM Cornwall for passing this idea along).

Young Entrepreneur Comes Out of Retirement….At 23

I saw this article in our local paper yesterday and it made me think about my post from the other day about entrepreneurs starting younger and younger.

Ephren W. Taylor II has a success story like no other.
Not many people can claim at the age of 23 that they have “come out of retirement” to become one of the youngest CEOs of a publicly owned corporation, but that’s exactly what he has done.

And I thought that having a large numbers of 22 and 23 year olds coming out of college to begin their careers as entrepreneurs was an amazing. This young man makes them look middle-aged.

When he was 12, Taylor’s first company designed 3-D computer games. Later, at the age of 17, he created a dot.com job search business for teens and college students. At the time it had a value of $3.2 million.

Taylor now splits his time between running two corporations, taking a third one public, extensive community and charitable work, and spending time with his wife and two children.
One of his companies is Amoro Corporation, which he took public in this past spring.
Its mission:

Amoro Corporation is a publicly-held investment development group dedicated to “Empowering Communities With Socially Conscious Development.” Our focus is to create affordable housing for homeowners, especially in urban environments.

And the secret to his success?

“You have to visualize success. You have to see it coming.”

The Art and Science of Negotiation

Entrepreneurs negotiate at every step along the way. We negotiate with:
– Our spouses when we get their blessings to pursue our dreams.
– Our investors and bankers who provide of the funding.
– Our customers when they agree to trust us over those they have done business with in the past.
– Our suppliers.
– Prospective employees.
– Landlords.
– The community and local governments.
Kauffman’s eVenturing has put together a new collection of materials on negotiation for entrepreneurs. It is a must read set of materials for all entrepreneurs.

Why Wait

The old advice used to be “go and work for someone for several years before you try and start a business.” The thought was that you needed to learn about business, grow up, save some money, etc. Young aspiring entrepreneurs were discouraged from jumping in too quickly.
I rarely hear that kind of advice any more. We see growing numbers of young people leaving college and starting successful careers as entrepreneurs. Many even are starting their entrepreneurial careers while in school.
StartupJournal has some great advice for young, aspiring collegiate entrepreneurs (written by a young intern, but the way). Use your flexibility and low cost of living as part of your opportunity, leverage the resources and expertise that being a student entrepreneur can offer, and view your early experience as part of your education.
(Thanks to John Russell for suggesting this article).

Employment Up in May

The Bureau of Labor Statistics (BLS) released a report today on employment and unemployment for May. Unemployment fell to 4.6% in May. Non-farm payroll employment increased by 75,000 net new jobs last month, bringing the total of new net payroll jobs over the past 12 months to 1.9 million.

Time is….Opportunity

Find something that irritates a lot of people, and you have found a source of opportunity. From dailynews.com:

An Associated Press poll has found an impatient nation. To get to the point without further ado, it’s a nation that gets antsy after five minutes on hold on the phone and 15 minutes max in a line. So say people in the survey….”If you ask the typical person, do you feel more time-poor or money-poor, the answer almost always is time-poor,” says Paco Underhill, an authority on what draws and drives away shoppers.

Find a way to reduce people’s wait time, for example by a new process or a new technology, and you may be on to a booming new business.
(Source: newsalert).

Home-Based Business Bonanza

One factor that many attribute as an engine of our entrepreneurial economy in the US is our culture, which has over time supported individualism, creativity, and self-determination. A study released on Wednesday by the SBA Office of Advocacy shows evidence of our grass-root entrepreneurial spirit. America’s 1.6 million homebased sole proprietors generate $533 billion in annual revenue. The report finds that the average homebased sole proprietor earned $22,569 in net income on about $62,523 in revenues. These businesses are primarily service related, including administrative support services, information services and construction related services.
Add to this the 1.9 million non-homebased sole proprietorships (those that rent space) that generate an average of $38,243 in net profits on $178,194 in revenues and we are talking a major and growing force in this economy.
These sole proprietorships are the breeding ground for many of our future corporations and LLCs, so the growth and success of these smallest of our small businesses is vital.