Recovery in the Gulf

While politicians are wrangling about whether the government acted fast enough and with enough money for hurricane relief, many entrepreneurs are quietly rebuilding their businesses in the Gulf region. StartupJournal has the inspirational story of Armstrong’s Supply Co. in New Orleans.

After Hurricane Katrina caused the company at least $500,000 in property damage, wiped out an estimated $600,000 to $700,000 of merchandise and, in the immediate wake of the storm, made sales nearly impossible, Mr. Armstrong asked his suppliers for help. Many of the bills he owed from June, July and August, normally due by Sept. 10, were deferred to Dec. 10. Meanwhile, Armstrong’s Supply continued to accumulate additional expenses through the fall, a large chunk of them also due by the 10th.
So how did the company manage to get all of that money out the door?
The same storm that knocked Armstrong’s off its feet also generated tremendous business opportunities for the company.

This is a great story of the power of the free market to heal even the wounds caused by the devastating storms this past fall. Armstrong did not sit idly by waiting for Uncle Sam to bail him out. He just figured out a way to get back on his feet and rebuild his business.
This is actually the sixth story in a series about this business. I strongly recommend going back and reading his entire saga.

Rural Digital Divide

A new report issued this week by the Office of Advocacy of the U.S. Small Business Administration provides detail on the rural digital divide. The report, Broadband Use by Rural Small Business, documents greater broadband use by small businesses in urban areas compared with small businesses in rural areas.
The report’s author reviewed a number of reports showing links between information technology investment, broadband penetration, and economic growth. These results, combined with documented lower levels of rural small business broadband use, indicate that without increased broadband access rural economies could miss out on higher levels of growth and job creation.
Broadband is fast becoming an issue of economic and social infrastructure, just like electricity, paved roads and telephones were in past generations. One thing that almost all of us can agree on is that government should be focused on is providing necessary public goods and services. Just as providing access to electricity, telephone and good roads were important vehicles of commerce in the past, buy topamax uk quality Internet access is today’s economic equalizer, especially for small businesses,
This does not mean that government should pay for and provide broadband access across the country. All of the other advancements of infrastructure were accomplished by various forms of public and private cooperation. But it should become a major priority to find workable solutions for this issue.
Some may argue that broadband is different than the other aspects of our infrastructure. That is because we just cannot imagine living without things like telephone and good roads. But civilization operated for thousands of years without these improvements. Now from our perspective these are necessities. Very soon broadband will be the same thing. It is not just a means of access to entertainment. It is becoming the back bone of commerce and communication: a critical public good.
Small business is the engine of this economy and the Internet is one of the important sources of fuel for that engine.

Location, Location, Location

Every semester I have Stuart McWhorter, Co-Founder and Managing Partner of Nashville-based venture capital firm Clayton Associates, come to class to talk about the venture capital process. One of the points he always drives home to my students is that most venture capital firms tend to prefer investing in industries that they have experience in from previous deals. He also says that they prefer to work with deals that are more local.
It seems that a study by Junfu Zhang available at the Kauffman Foundation web site supports this, particularly when it comes to Silicon Valley.

This paper shows that Silicon Valley received a large proportion of the nation’s total venture capital investment during 1992-2001 and that start-ups in Silicon Valley appear to have easier access to venture capital: They receive the first round of venture capital at a younger age, raise more money in each round of financing, and complete more rounds of financing. This easier access to capital significantly affects start-up performance in Silicon Valley. While the easier access may simply be a result of the higher supply of monetary capital in Silicon Valley, it is also consistent with the view that venture capital in Silicon Valley comes with more human and social capital.

This last point is also driven home by most venture capitalists that I know. Most will tell you that they often do multiple deals over time with the same entrepreneurs. The odds of you getting funded go way up if you have been funded by them in the past.
As the old saying goes, “If given a choice between an “A” deal and a “C” team, or an “A” team with a “C” deal, venture capitalists will take the “A” team every time.”
And the chances are even higher if they have worked with that “A” team before and if that team is right around the corner.

California Cultures Collide

It seems that environmentalism, which so much a part of California culture, has won out over another major icon of the left coast: surfing. Gordon “Grubby” Clark, one of the two entrepreneurs who revolutionized surf board manufacturing, is calling it quits due to mounting environmental pressures. From CNN.com:

In a seven-page letter to suppliers seen by Reuters on Wednesday, Clark cited weariness in a lengthy battle with environmental regulators over the manufacture of the foam blanks, or rough surfboard shapes, that go inside about two-thirds of U.S. made surfboards.

Dude!?!?
surfing.jpg
(Thanks to Chris Gray for passing this along).

A Definition

It seems rather odd that after over 1,000 posts at this site I finally get around to a direct discussion on the definition of entrepreneurship. I have written about the definition of a small business, which is more of a bureaucratic designation than anything else, but I’ve never really tackled the term that is the basis of this blog site.
At first glance this should be straight forward. I teach entrepreneurship and I have been an entrepreneur. I can just look to the text books we use and my own experience and that should be that.
If we go way back to the French root of the word, entrepreneurship means “to undertake, to attempt, to try in hand, to contract for or to adventure.”
Here is the definition that my co-author and I used in one of our academic papers recently:

A commonly accepted description of entrepreneurship is a process of identifying, evaluating, seizing an opportunity and bringing together the resources necessary for success.

In essence entrepreneurship describes a process of pursuing opportunity in the market.
For years we got stuck thinking about entrepreneurship as a type of person or even type of personality. But this really got us no where, because in reality entrepreneurs come in all types, particularly when we start to look at them around the world.
So once we focus on what entrepreneurs do it should be easy. But, there are two issues that creep in that cause confusion.
Entrepreneurship Becomes Generic.
Entrepreneurship has become sort of a generic term that describes all sorts of behaviors that involve being creative, being mischievous, being sneaky, breaking rules, not wanting to follow rules, and so forth. An example involving rules can be heard every day in large corporations. “I wish they would leave me alone. I am just being entrepreneurial.” These people are not starting any businesses; they just use the term as cover for not wanting to follow corporate policy. I actually heard a criminal described on a newscast as being entrepreneurial because he was somewhat clever and creative in his crime. At least in American culture, the term entrepreneurship has become blurred into any one of a large collection of basically anti-social behaviors. But, I suspect from conversations I have had with friends and colleagues from around the world that is not uniquely an American issue. In some cultures they avoid the use of entrepreneur, because it has developed the connotation of a sleazy, cunning con-man.
This is what can happen when terms take on a more generic meaning. The term loses specificity and really begins to have no clear definition. Entrepreneurship has become a trendy term that can mean almost anything you want it to in many contexts.
No Clear Boundaries.
A real problem that even the definition that we used in our recent paper is that it does not help us, in a practical sense, tell us what entrepreneurship is not. It does not set any exclusionary boundaries. When I have tried to offer some suggestions for boundaries around what is and what it not an entrepreneur, I have ruffled some feathers. But that is what a blog is all about, so here we go.
1. The process of innovation that goes on in large companies is not entrepreneurship.
This flies in the face of what I wrote about in my first book, Organizational Entrepreneurship, in 1990. But, I have come to believe that entrepreneurship should be about what individuals do, not the collective strategy of corporations. This leads to me second boundary.
2. Entrepreneurship includes only privately held businesses.
An IPO is an event that takes a business out the realm of being an entrepreneurial venture. Once a business “goes public,” everything changes. The culture will begin to change. The objectives will change. Once a business uses public funding, it begins to become a public good. It is no longer about an owner/operator running her business. The founding entrepreneur becomes a corporate executive following the wishes of the public shareholders of the business. As many entrepreneurs quickly learn, once their business went through an IPO it was no longer their business to be run based on their aspirations, their values and their goals. They became administrators of a business owned by others.
3. Not all privately held businesses are entrepreneurial ventures.
Succession to the next generation in a family business, an ESOP, or other internal ownership transfers from the founding entrepreneur to other internal owners takes these businesses out of the boundaries of entrepreneurship. On the other hand, I think that someone who buys an existing business as an outsider is an entrepreneur in that act. I know that creates a little fuzziness in my boundary at this point, but I have enough gray hair in my beard to get away with subtle inconsistencies. I am still sorting out the exact distinction here, but I know there is one.
Maybe I have been in an academic setting for too many years now. When I was an entrepreneur, I know that I couldn’t have cared less about such issues. We were too busy trying to make payroll and get ahead in the market. But now that I am in my Ivory Tower, I find this kind of pondering rather interesting and even a little entertaining.

Time to Update Your Staffing Plans

Small Business Trends has predictions of more competition for entrepreneurs looking to hire new employees.
Here are my suggestions on preparing for this tightening hiring market:
1. Keep Staffing Forecasts Current. Even if you are a small business, you need to think down the road for the next two or three years to anticipate what your hiring needs may be. Forecasts should be updated every few months to adjust for changing conditions and the changing state of your business. Keep your eye on long term trends within the labor market segments you will need to be hiring from. Some types of employees will be particularly hard to find, so extra effort will be required.
2. Base Staffing Plans on Milestones, not on Time. Never tie your staffing plans to the calendar. The passing of six months is not what will require you to hire new employees. Know what the triggers are in your business that will necessitate more employees. For example, it could be things like a certain number of clients, sales levels, or production levels for employees. And don’t forget your need for supervisors and support staff. Know how long it will take to recruit, hire, and train new employees for each position you are planning to hire so they can be ready to work when you really need them. Hiring will take longer in a tighter market.
3. Measure Your Employment Triggers. Work with your bookkeeper or controller to give you quantitative reports on your hiring triggers, and insist that you get these reports regularly. You need to have the timing of the hiring process accurate, so the chances of not having staff to support growing demand are minimized.
4. Never Just Hire Warm Bodies. Hiring someone just for the sake of hiring rarely works. Mediocre hires make mediocre employees. This will only postpone hiring the right people and force you to get rid of the dead wood you just hired before you can hire the people you really need. This will actually hinder your ability to grow.
5. Keep Current on Wages and Salaries. The tight job market will put some upward pressure on pay due to supply and demand. Stay competitive in your pay.
6. Keep Pricing Current with Increases in Labor Costs. Increase prices to cover increases in labor costs. Don’t let your pricing lag too much or cash flow will become a major issue as you grow due to shrinking profit margins.
7. Don’t Forget to “Close the Bank Door”. The single best staffing tool you have is retaining the good employees you have right now. Create a culture that makes good employees want to stay with you. You may have to pay a little more that you’d like to, but it is much more cost effective that constant hiring and training.

Courage in the Gulf

I had a conversation last night with one of our student entrepreneurs. She was learning the hard way about the roller coaster ride of entrepreneurship. After experiencing one her best weeks ever last week, she was faced with perhaps her greatest challenge yet this week. I told her that this is what entrepreneurship is like. It is not the straight line of growth we predict in our financial forecasts or the realization of each milestone with the clockwork precision that our business plans envision.
Some describe it as being like a prize fighter. To make money you have to work really hard knowing that every once in a while you will get your brains knocked out. To me it is like my golf game. It is mostly just trying to move ahead by dealing with some good shots and some bad shots, some lucky bounces and some unlucky ones, and trying to do all of this without losing my soul.
Courage is the entrepreneurial virtue that keeps us level-headed during the highs and keeps us moving forward during the lows.
Fortune Small Business offers the inspirational tales demonstrating the courage of four small business owners who are rebuilding their lives and their businesses in the wake of last fall’s hurricanes.
Jason Perry, Out of the Box Web Productions, New Orleans, LA

Within days of Katrina, Perry faced a serious cash crunch. All through that giddy August, he had been borrowing heavily to buy the equipment to service his new client. He had purchased a phone system and two servers and had leased new computers from Apple and Dell. For all he knew, Katrina had wiped out all his equipment, and he had no idea how he’d make his lease payments.

Donald Ridings, ABS Computers & Satellites, Gulfport, MS

On the morning Katrina hit, Donald Ridings and his wife, Helen, started driving. They had a plan that was both vague and crystal clear: to get far away from Gulfport. The couple own an old New Jersey Transit bus that they’ve converted into an RV, complete with a bedroom, a kitchen, and hot and cold running water. They simply got on I-10 and headed east. “We had no clue where we were going,” says Ridings.

Austin Tindol, Gulf Coast Glycol, Gulfport, MS

The mood was giddy on Aug. 26 as Austin Tindol held a ribbon-cutting ceremony in Gulfport. It had taken 18 months to launch Gulf Coast Glycol, an outfit that recycles used antifreeze into reusable antifreeze. Tindol raised a glass of champagne, toasting (their)…a new family business….Within hours, an ominous note had crept in. Weather reports indicated that a hurricane was heading toward the Gulf Coast.

George Brumat, Snug Harbor Bar, New Orleans, LA

When Katrina hit, Brumat took cover in his third-story apartment about a block from the club….Soon the couch was rumbling and bouncing, says Brumat, and the walls were swaying in the 150-mph winds. Looking out the window, he witnessed “roofing tiles flying like sparrows and tall magnolias going down.”

These are just four examples from the thousands of small business owners in the Gulf region who are not giving up on their visions and their dreams. Although they have all suffered through the ultimate low point as entrepreneurs, they are all rebuilding their businesses.
These are the real entrepreneurial heroes. Keep them in your prayers.

Disaster Planning

Hurricanes, terrorist attacks, ice storms, tornados, pandemics, fires, floods….while things like this may seem too abstract and too overwhelming to even think about, you need to do just that for your small businesses. You need to develop a plan for unimaginable. I offered my tips on disaster planning a few months back.
StartupJournal summarizes some additional useful advice from a recent meeting of small business owners. Here are some of their thoughts on disaster planning.
Before a disaster strikes:
– Sit down with your management team, or if you are small enough your employees, and test your plan.
Present a disaster and see how well everyone knows your plan (if you have one) and what the holes are (and there will be several). Throw in some twists and turns to see how everyone reacts.
– Back-up your files.
When I was a doctoral student many, many years ago we all developed a system to protect our dissertations from possible disaster. We did not have personal computers in those days, so we had not developed the false sense of security that we now get from those little machines. We had hard copies of stuff. And if they were destroyed we knew we were sunk. What we had to lose was tangible and we held it in our hands. Your data is just as important, but often forget how vulnerable it can be. With our dissertations we kept one complete copy in our office at the university, one complete copy at our home, and one complete copy in our car. We figured that even if a plane crashed into the university it could not also hit our car and our house. In our business I insisted that we keep copies of key materials off site. Be paranoid about your important data and information and assume that the worst case will happen. Keep at least one set of back-ups off site.
Once a disaster hits:
– Do what ever it takes to get operational again.
We saw after 9/11 how paralyzed many folks became. They did nothing for days. You cannot afford to lose that much time in your business, so be resourceful and be determined. When Dick Schulze’s stereo store called the Sound of Music was hit by a tornado, he salvaged the merchandise that he could, rented a tent, and set up a sale. The rest is history, as huge crowds came to take advantage of his low prices. He learned from this experience and out of it transformed his business; this was the creation of Best Buy. Not only can you survive disasters, but they can often make your business stronger over the long run if you manage the situation properly. Do not give up hope and do not wait for others to help. It will be up to you.
– If you have insurance, you can hire your own adjuster to represent you.
The adjuster who represents your insurance company will have their best interests at heart, and not yours. Everything is negotiable and having an expert on your side can help.
The most important tip was not mentioned in this article: cash is king. The more cash reserves you have, the better the chances that you can survive even the worst case scenario. In these times, your goal should be to have 30-90 days of operating cash available. If that means keeping your salary a little lower than you’d like for a while, it is well worth it if it keeps your business going through the next disaster.