COTC can be visited this week at Jotzel.
Entre-Boomers
We seem to be a little late at everything. Many Baby Boomers took a long time to grow up. Many were late to start families. Now US News & World Report reports that many of my generation are discovering the world of entrepreneurship just as they are about to enter their retirement years.
There are echoes of the 1960s in some of the profiles in this story.
“I just decided if it was my last day on Earth, is this really what I wanted to be doing?” [Franny Martin] recalls. “I mean, I lived it, and being in corporate was great, but that’s not how I would want to be spending my last day on Earth. A really good friend of mine had taken ill–she has passed away now–and I just realized that life is really too short to be doing something that I didn’t want to be doing anymore.”
Some Boomers are looking to entrepreneurship to satisfy their inner self. Some are trying to build additional wealth that they need to live out their twilight years in the manner they’ve grown accustomed to. Others just need the income. Whatever is driving their move into free enterprise, they are doing it in large numbers. Several studies suggest that Boomers are one of the fastest growing group of entrepreneurs. (Interestingly, their children–today’s college aged kids and young adults–are another of the fastest growing groups of entrepreneurs).
Many Boomers are choosing a self-employment, consulting route to entrepreneurship. They gained significant expertise within some specific area, and they become a “free agent” selling their service to a variety of clients. While this can create an income flow, it is not a business model that generally creates a path to wealth.
There is often nothing to “sell” when the boomer entrepreneur really wants or needs to retire. A consulting business is tied to the activity of the owner and has no residual value that someone will be able to buy. A business has value to a buyer if it creates on-going cash flow into the future. If the boomer entrepreneur/consultant retires, the cash flow from his/her consulting activities ends.
Speaking of selling, that is a skill that Entre-Boomers seem to lack. Years of corporate life have taken the hustle out of their skill set, which John Challenger, CEO of outplacement firm Challenger, Gray & Christmas, reminds us is key to entrepreneurial success.
My experience with working with late-in-life entrepreneurs is an alarming over-confidence. They seem to think, “How hard can it really be to run my own small business?”
Trust me, it is a lot harder than most of them realize. And their corporate experience provides little knowledge and experience that helps with the day-to-day challenges of running a small business.
There seems to be a myth that entrepreneurship and self-employment are secret paths to wealth. If these Entre-Boomers didn’t prepare in their working years, they believe that they can start a business when they reach retirement age and it will magically create wealth. It just doesn’t work that way.
Wealth takes time, effort and careful planning to build, whether it be through a job or through your own business. Creating wealth from an entrepreneurial venture is something that has to be engineered into the business model. That is why many experts recommend having your exit plan in mind from the very beginning of the business.
You need be able to build a business that will generate cash flow into the future long after you leave the scene. That is what has value to a buyer more than anything else. They don’t care about assets or reputation unless these things can continue to generate income after they buy your business.
The story in US News cites a study by Merrill Lynch that seems to get to the heart of this entrepreneurial stampede among Boomers.
A 2005 Merrill Lynch survey found that the unpredictable cost of illness and healthcare is by far boomers’ biggest fear. They are about three times as worried about a major illness (48 percent), their ability to pay for healthcare (53 percent), or winding up in a nursing home (48 percent) as about dying (17 percent).
That’s right, we are more afraid of living than dying. We Boomers sure are a curious group…..
Go Patriots!
As a Professor at a small Division I school I can’t help but cheer for George Mason this weekend. As proud as we all are at Belmont just making the tournament this year, I can only imagine what the students, alumni, faculty and staff of George Mason must be feeling right now.
But, my colleague Dr. Larry Hall, Dean of our College of Arts and Science, passed along an article from Slate.com that will make me cheer even louder on Saturday as GMU plays Florida. It seems that both in their basketball and academic programs they are behaving in many ways like a smart entrepreneur.
Opportunity Recognition
GMU has excelled on the court and in the classroom by daring to be different. Its basketball team and academic programs began with the (correct) assumption that they couldn’t hope to compete against the top schools in their fields–say, Harvard Law School or the Duke Blue Devils–by directly imitating their methods. GMU lacks the resources and reputation to recruit McDonald’s All-Americans or Alan Dershowitzes. So instead, GMU has hunted for inefficiencies in its markets.
Bootstrapping
Coach Jim Larranaga follows the Moneyball model of recruitment: hunting for the undervalued players–the ones who everyone else thought were too short, too thin, or too fat–and then building them into a team. In its astonishing defeat of UConn, GMU’s players were giving away 4 inches at nearly every position.
Exploiting Under-served Market Niches
From the 1960s into the 1980s, a small university such as GMU could hire conservative and free-market thinkers of true genius for the same kinds of reasons that, in the mid-1960s, a middling school like Texas Western University could recruit some of the best basketball players in the nation, so long as they were black, and win the 1966 NCAA championship. Conservative and free-market economists were so undervalued that GMU could afford the best of them.
So this free-market, entrepreneurial-minded professor from a small Division I school will be cheering like a mad fool for George Mason. Go Patriots!!!
“This Already Feels Pretty Real to Me!”
“Moving into the real world” used to be a standard phrase used as students prepared to leave the protected confines of the university and headed into the workforce. But as a student entrepreneur once told me as she was wrestling with balancing her new venture, class projects, final exams, and a college social life, “This Already Feels Pretty Real to Me!”
A generation ago when people like Michael Dell started a business in their dorm room it was considered an anomaly. Today, it is one of the fastest growing trends on campuses across the country.
I have written before about the Entrepreneurial Generation now populating our classrooms and dormitories. We now have three student business hatcheries for these students, with over 50 students operating 40 businesses on our campus the competition for our space is beginning to heat up. And those are just the students we already know about! More come in almost every week.
Entrepreneur.com offers some suggestions for collegiate entrepreneurs contemplating the transition from owning a campus business to one that can earn them a living when they graduate.
Before you burst onto the post-college business scene, spend time evaluating your product or service, and see if there is a realistic market outside the college environment. Do you have to modify your offering in some way to transfer it to the outside world? Research is key here — while you’re still on campus, use all the resources at your disposal, including entrepreneurship centers and professors whom you can easily turn to for guidance. “Try to find a mentor in a [similar] industry,” says Minor [director of the Neeley Entrepreneurship Program at Texas Christian University]. This mentor can help you plan your transition to ensure you’re fully prepared for the change–and that you don”t miss anything.
Universities are attracting major funding from foundations and donors to build up their entrepreneurship programs. Use the resources at your finger tips to help build a sustainable business.
It might help to liken your transition to that of a college athlete turning pro, notes Justin B. Craig, assistant professor of entrepreneurship at Oregon State University in Corvallis. You’ll be doing everything on your own, so prepare yourself mentally and financially to leave the safety of the college infrastructure, including the fun stuff like free broadband access, phone lines and web space. “The playing field changes–it really gets competitive,” says Craig. “If you take this on, and [entrepreneurship] is going to be your career, make sure you step up. You’re going into the majors.”
But, don’t be afraid of this challenge. In today’s economy, starting a business of your own with the proper education and preparation can be a smoother ride than trying to make it in the cubicle jungle of the corporate world.
Growing Pains
As I mentioned in a post yesterday morning, we had Eric Flamholtz, author of Growing Pains, on campus for a lecture. His book is at the top of my “must read” list for all entrepreneurs.
Here are some highlights from his lecture here at Belmont:
– “What you can’t measure, you can’t manage.”
Developing systems that allow you to collect and track key data that helps you see where your business has been and where it is going is critical to the success of a growing business.
– Set a specific quantitative goal for your business and develop a plan to get there.
Having a clear goal will allow you to understand the infrastructure you will need to develop to reach your goal. It will help you develop specific plans that map the developmental steps your business will need to take as it grows.
– Niches are not always small — they are defensible positions within a market.
Entrepreneurs often equate a market niche with a small business. Actually, many large companies have well developed and well defended large market niches.
– A mission should have a qualitative and a quantitative component.
Flamholtz offered the example of Starbucks’ mission statement from 1994:
To establish Starbucks as the leading retailer and brand of coffee in North America by the year 2000, by creating distinctive daily coffee experiences for our customers wherever they live, work or play.
2 Billion + 2000 Stores = 2000
– Companies compete not just with products and within markets, but through their operating systems, management systems, and culture.
Wal-Mart offers the same basic products in the same markets as K-Mart. Any questions?
– “You make your own luck by being prepared.”
What is the Most Influential Book?
I have read more books about entrepreneurship than I could possible even count. But a very few stand out for me. There are some that have stood out because they were inspirational, while others provided very useful with important how-to’s. A few even made me laugh (sometimes due to the author’s intent…).
But one book has stood the test of time as being the most influential book for me first as an entrepreneur, and more recently as a teacher of entrepreneurship. Growing Pains, by Eric Flamholtz, helped me find my way through an incredibly challenging time of rapid growth in our business. It has also changed the way I think about teaching entrepreneurship. I no longer think of what we do in Entrepreneurship education as helping people start businesses, but rather helping them start and grow sustainable businesses.
We have the pleasure and honor of having Professor Flamholtz here at Belmont today. I look forward to sharing new insights on managing growth with all of you from his lecture.
What is the most influential book for your entrepreneurial career?
VCs do not Look Long Term
There are those out there who believe that all real entrepreneurial activity comes to us thanks to venture capitalists and their funds. But a story from Red Herring illustrates how limited their interests, and therefore their impact, are due to the investment criteria they use to evaluate deals.
Despite the promise of cleantech like biofuels and water purification technologies, some venture capitalists say it can be tricky to invest in the field because it doesn’t necessarily offer the fat and easy returns that make them drool.
The challenges aren’t obvious from the numbers. Cleantech investments in North America grew 35 percent to $1.63 billion in 2005, according to the Cleantech Venture Network, the industry monitor that held the Cleantech Venture Forum conference in San Francisco last week.
But some of the most promising clean technologies just don’t fit the classic VC model of a six-year exit with returns of 10 times the original investment, industry watchers said.
So while VCs do play an important role in our entrepreneurial economy, keep in mind that they only fund a fraction of a percent of new businesses formed each year, they are rather selective on the types of businesses they like, and as this story shows they can have a very near-sighted view of the world.
Small Business Week
We will be recognizing the contributions of small business in our economy and society during Small Business Week, which will be April 9-15, 2006.
Here are some quick facts about small business in America from the Census Bureau:
Small Businesses With Employees
– There were 5.3 million business establishments with fewer than 10 employees in 2003. Among these businesses, 3.9 million employed fewer than 5 people.
– There smallest of our small businesses employed 15.9 million in 2003.
– In 2003 there were 796,000 businesses in the retail trade industry that employed fewer than 10 people. Another 652,000 were in professional, scientific and technical services, with 595,000 in construction and 500,000 in health care and social services.
Nonemployer Businesses
– They generated $830 billion in receipts for 2003, up from $586 billion in 1997. These nonemployers, often “mom and pop” corner stores or home-based businesses, comprised more than 70 percent of all businesses.
– There were 18.6 million nonemployer businesses in 2003.
– There were 1 million nonemployer businesses added to the nation’s total between 2002 and 2003.
Franchise or Grow it Yourself?
I wrote a post a few weeks ago about the pros and cons of choosing to buy a franchise as a way to start a business. A new study from Cornell Hotel and Restaurant Administration Quarterly linked by Docuticker looks at franchising from the other side of the relationship: the franchisor. It found that two types of restaurant chains benefited from using a franchising model to grow.
The use of franchising by the manager-scarce and money-scarce franchisors supports the concept that youthful companies take up franchising to gain access to resources in an economical fashion.
Using a franchise model helps push the cost of development onto the franchisees allowing more rapid growth.
Businesses that had more experience and more resources tended to favor, and performed better, by growing their businesses through company owned stores. Given the headaches that can come with franchisee relations, it is probably wise to only use a franchise model when resource scarcity offers no other alternative.
Carnival of the Capitalists
COTC can be found at Decker Marketing this week.