I am teaching a class this fall in which the students are sent out in teams to consult with small business owners mostly from the inner city. My students are doing wonderful work with these entrepreneurs and seeing first hand how free enterprise can make a difference in the economy of the heart of Nashville.
A new study published by the SBA documents the dynamics of America’s inner city economies, which are larger and more active than is generally understood.
State of the Inner City Economies: Small Businesses in the Inner City reports that small businesses are the greatest source of net new employment in inner cities. They comprise more than 99 percent of inner city business establishments and they generate 80 percent of the total employment in those areas. In all, America’s inner city small businesses employ about nine million people, or eight percent of the U.S. private workforce.
“This report demonstrates that local entrepreneurs are not only the backbone of inner city economies but their strongest source of new jobs,” said Steve Adams Region I Advocate for the Office of Advocacy and formerly the Director of the Center for Urban Entrepreneurship at the Pioneer Institute. “Policy makers should take note of these findings showing that supporting new and established entrepreneurs in inner cities should take priority in their urban development strategies.”
The report notes that inner city businesses are similar to business in the rest of their Metropolitan Statistical Areas, exhibiting similar startup and bankruptcy rates. It also found that inner city job growth was concentrated in service industries, mirroring the trends in other areas.
Start-ups Get More Early Stage Funding
Angel investors are directing their money toward more start-up ventures, according to a study reported in Red Herring.
Angel investors are funding more early-stage startups this year than at any point since the Internet boom….Innovators who meet with angels are twice as likely to get funding this year than two years ago, a study shows. In 2005, angel investors backed 21.8 percent of the companies they investigated, up from 10.3 percent in 2003, according to a study by the Center for Venture Research. (emphasis added)
In a related story Red Herring also has a Q&A interview with fund managers from a group that invests in early stage businesses. It provides some interesting insights into their investing strategies.
We think that early-stage opportunities now are some of the best we’ve seen since the fund’s founding 22 years ago….There are areas like semiconductors, which are continuing to change the world. There is the enterprise. There’s the rise of open-source and on-demand software models like AJAX, the transfer of applications to mobile devices, and so on….We’re not into trend investing. We tend as a fund to be into the picks and shovels, and looking at applications that are less sexy, but high growth.
More money that is being targeted toward clear and simple business models. Let the good times roll!
Small Business Owners are Still Optimistic
The latest small business poll has been released by the NFIB and in spite of what you hear in the media, things are still looking up.
The back-to-back hurricanes that slammed into states on the Gulf of Mexico left massive damage in their wake, but barely scratched the nation’s overall small-business sector. According to the September NFIB Small Business Economic Trends survey, the outlook among entrepreneurs remains upbeat for continued solid economic growth.
The small businesses surveyed reported continued plans for new job creation and new capital spending. Since small businesses in the US make up 50% of total employment and 50% of GNP, this is good news for continued economic growth.
Thanks!
If I have a blogging mentor it is Bill Hobbs. Bill got me into this about two years ago. He walked into my office and asked me if I wanted to blog. Since I had no idea what blogging was, I was more than just a little uncomfortable. Once I realized that it had something to do with the Internet (Whew!!), I decided to give it a try. The visitors to my site have grown from a handful in the first few months to several hundreds a day from around the world today. Bill had coached and guided me all the way.
Bill has decided to take break from the daily grind of blogging.
Today I am announcing major changes to BillHobbs.com, effective immediately, that will alter this blog’s content and its role in the blogosphere for the foreseeable future. The short version: I am putting my writing of political commentary on indefinite hiatus. I am not, repeat, not completely shutting BillHobbs.com down or disappearing from the blogosphere. I am merely taking a break from what has become a rather time-consuming and uncompensated hobby in order to put more focus on my family, my career, and an increasing workload of blog-related consulting for corporate and political clients.
Thanks, Mr. Hobbs, for all of your support and help.
So Now What Do I Do?
We hear all of the horror stories about lottery winners who end up broke and miserable. Large windfalls of money can be difficult to manage if we are not prepared. I see some entrepreneurs face similar challenges as their businesses suddenly create drastic increases in monthly cash to the owner or windfalls of wealth from a sale.
I met with a former student who is facing the possibility of winning one of life’s lotteries with his business. A sudden opportunity is creating the possibility of significant profits over a very short time. But, he seems to have his head on straight. He is already planning to use this influx of capital to help build his business.
So why are some people better able to handle situations like this? I believe most of them were brought up with an understanding of how to manage money. I also believe that they were raised with values that were not as materialistic as others. To them money is not the end, but rather a by-product of working hard and living a good life.
Scott Burns (free registration required for this site) suggests that we look to a popular book, Getting Rich in America, for some answers on how to put wealth in its proper perspective.
Here are the eight rules from that book and my thoughts on them (for what they are worth):
1. Think of America as the land of choices.
Each choice we make can affect our character. What kind of business we do we choose to start? Who do we choose as our business partners? How will we treat our customers and our suppliers? How will running our business have an impact on our family? Virtues are simply habits we form by doing what is right.
2. Take the power of compound interest seriously.
Start saving when you are young. A dollar saved when you are twenty will be worth so much more when you retire than a dollar you save when you are fifty. As I wrote about recently, many baby boomers did not learn that lesson and are trying now to make up for lost time.
3. Resist temptation.
As may father always says, “Pigs get fat and hogs get slaughtered.” Don’t spend money until you have it, and don’t waste it on things that cost a lot but have very little value. Be frugal.
4. Get a good education.
If you are an entrepreneur, learning about the process of entrepreneurship will almost double your odds of success. But beyond that and more importantly, a good education will make you a more interesting person and a better citizen.
5. Get married and stay married.
Amen.
6. Take care of yourself.
I began to have some health issues as our business grew very rapidly and we began to look at options to sell. Stress takes its toll on you. My brother says I aged in entrepreneur years during that time, which he says are about like dog years.
7. Take prudent risks.
Successful entrepreneurs are not gamblers, but they will take risks that are well thought through and well planned for.
8. Strive for balance.
If you follow rule #5 you will only be married once. You only have one chance to be a good parent. Good friends take work.
You can and you should be so much more than an entrepreneur in your life.
COTC is Now a Terrible Two
Happy 2nd Anniversary to COTC!! It is fitting that BusinessPundit (one of my all time favorite sites) is hosting on this auspicious occasion.
Keeping it Simple
Very few entrepreneurs start their business out of true innovation and even fewer out of true invention. Most of us apply simple solutions to simple markets needs.
Randall Rothenberg, director of intellectual capital at Booz Allen Hamilton, offers his insights to this premise from a marketing perspective in an excerpt from a new book to be released soon The Big Moo: Stop Trying to Be Perfect and Start Being Remarkable (edited by Seth Godin).
– Imitation Across Industries Is More Efficient and Effective Than Blue-Sky Creativity and Innovation.
Take what has worked in a different market or for different customers and apply in a new place. Ride the wave of change that is already at work rather than trying to create a new wave.
– The Energy Isn’t in the Idea; it’s in the Execution.
Vince Lombardi would tell us that plays do not happen on the chalk board. It takes blocking and tackling to move the ball down the field. (Sorry, but after our first win — finally — I had to work the Packers in some how).
– You Must Create True Believers Before You Can Win New Converts.
Your best sales people are your own customers. Word of mouth is something that entrepreneurs want, but it takes “true believers” to make it happen. You have to create the “true believers” in how you execute your new business.
I got the link to this article from National Dialogue on Entrepreneurship. They seem to be disheartened by these arguments. They want to keep the focus on the high growth, high potential ventures that so enthrall most academics I know. Hey guys, get with the entrepreneurial economy, which is mostly made up of simple, yet powerful market solutions.
Self-employed Ranks Grow
Ben Cunningham passed along a press release from the census bureau about the self-employed:
The number of businesses with no paid employees grew from 17.6 million in 2002 to more than 18.6 million in 2003, a growth rate of 5.7 percent, according to a report issued…by the U.S. Census Bureau. This represents the biggest rate of increase in self-employment since the Census Bureau began releasing such statistics in 1997; the rate during the 2001 to 2002 period, 3.9 percent, was the previous high.
The usual line I hear at this point is something like this, “OK, but these are just laid off people who got thrown into self-employment.” And while this may be true for some, I am seeing more and more people who choose to start a one person business due to lifestyle issues or even because they can actually become better off financially on their own. And even if they are laid off corporate types, hey, they are using free enterprise to move on in life which is not a bad thing.
What are they all doing? There are some interesting findings:
– Some examples of industries with impressive nonemployer business growth are real estate appraisers, 19.1 percent; nail salons, 15.9 percent; landscape architectural services, 14.6 percent; software publishers, 14.4 percent; clothing accessories stores, 12.9 percent; bed and breakfast inns, 8.5 percent; carpet and upholstery cleaning services, 7.5 percent; and confectionery and nut stores, 6.5 percent.
– Four economic sectors accounted for almost 60 percent of nonemployer receipts — real estate and rental and leasing ($176.0 billion, or 21.2 percent); construction ($126.4 billion, or 15.2 percent); professional, scientific and technical services ($102.9 billion, or 12.4 percent) and retail trade ($80.5 billion, or 9.7 percent).
Many of the self-employed I talk with like working alone. Some have had businesses with employees in the past, but the headaches of government regulations made them decide on a different business model.
Ideas From Everyday Life
“But, where do I find an idea?”
Many aspiring entrepreneurs may have the passion to strike off on their own, but they sometimes lack the business idea to make it happen. Most of the time they are trying too hard to find the “next Microsoft” or invent the “next iPod.”
The best business opportunities I typically see come from things people know something about. It is like Dorothy in the Wizard of Oz discovering how to get back to Kansas; the answer was right in front of her all along.
StartupJournal provides a couple of good examples in recent articles posted at their site. The first is a woman who turned a grocery shopping annoyance into a business:
Missy Cohen-Fyffe’s business began when other moms gave her unsolicited feedback as she strolled down grocery-store aisles with her son riding in blanket-like protection in the shopping cart.
“I just didn’t want my son biting on the gross, grimy metal,” she said of her Clean Shopper invention.
Seven years and four employees later, Cohen-Fyffe has turned her crafty idea into a full-time career: selling the Clean Shopper and other baby products from her New Hampshire home base.
The second example is of a woman who turned her hobby of tennis into a new business and a new career:
Ms. Parker targeted a tiny but lucrative market: the sticky “overgrips” that some tennis players wrap around their racket handles. Overgrips cost a few cents to make, yet they retail for about $2 each. Full of naive optimism about her prospects, Ms. Parker hoped to turn a drab-looking product into a fashion accessory that might catch the public’s fancy.
Don’t over think of ideas for new businesses. The best ideas come from our work experiences, our hobbies, or our everyday lives. Find something from your experiences that is also a need for others. There may be competition, but they just do not quite take care of the need. Or if you are lucky, it may be a niche that nobody has discovered. Either way, solving everyday problems that you understand is the best path to your first business venture.
What Competition?
Those who read business plans on a regular basis begin to see certain patterns that immediately send up red flags. One of the most common that I see is a when the entrepreneur downplays, or even dismisses their competition. Sometimes it is due to lack of careful research, sometimes it is due to tunnel vision, sometimes it is arrogance, and sometimes it is due to denial. But whatever the cause, ignoring the competition is most often deadly for a new business.
Jack Trout offers some good tips on how to look at your competitive environment at Forbes.com.
1. Avoid a Competitor’s Strength and Exploit His Weakness
This reminds me of the classic entrepreneurial strategy from Peter Drucker: “Hit ’em where they ain’t.” If you notice weaknesses in your competitors your customers will likely see the same things. And if it is something that really matters to the customer, go after it and use it to your advantage.
2. Always Be a Little Bit Paranoid About Competition
If it feels like the competition is watching you, they probably are! They will adjust their strategy to counter moves you make. The start-up of a business is just that: the start. Competition is not a race to the starting line.
3. Competitors Will Usually Get Better, If Pushed
Just like in sports, competition will make your opponent better. That means you will also need to work at getting better at what you do and what you offer to the customer.
4. When Business Is Threatened, Competitors Aren’t Rational
Remember that the two responses of a threatened animal are fight or flight. In business, competitors rarely fly, so get ready for them to fight. The fighting response is not always well planned. It is usually instinctive and impulsive.
I recommend that business owners use a tool called a competitive matrix. It is really quite simple. Along the top of the matrix list the 3-6 primary criteria that customers use to choose either your product/service or your competitors. Think like your customer.
Then along the side of the matrix list each of the main competitors seeking the same customers as you. Again, keep the list to about 3-6 of the toughest competitors you will face.
Then inside each of the squares of the matrix describe how well each of the competitors addresses each of the needs of the customer. Be objective and be descriptive.
This should not be a one time exercise. It should become the way you continually monitor what each competitor is doing in the market and how your customers’ tastes and preferences are changing.
Never take your eye off the competition and never underestimate what they can accomplish.