Some States Increasing Regulations on Small Business

While the movement for regulatory flexibility for small business is picking up steam across the country, some states are actually increasing regulations impacting small businesses according to Fortune.

Provide an extra six weeks of job-protected family leave. A written accident-prevention plan for even the teeniest business. The most lavish unemployment-compensation benefits in the country. If you run a small business in Washington State, those are just some of the mandates you face-well beyond what the federal government or other states require. “It’s like the frog in the pan. The state government turns the heat up a little each year,” says John Heaton, president of Pay Plus Benefits in Kennewick, which administers payroll and benefit functions for other small companies. “I think small businesses are beginning to feel burned.”

Studies clearer show that more regulations will lead to less entrepreneurial activity. It seems that we may be taking one step forward with regulatory flexibility, but two steps back with this barrage of new regulations in states across the country. Given the number of small businesses operating in multiple states, this complexity will only make doing business more difficult and may discourage expansion in many cases.

Entrepreneurial Showcase: Station West

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Station West is a thriving recording studio and production company in Berry Hill. It has been owned and operated by Luke Wooten since it’s founding in 1998. Luke is a 1994 graduate of Belmont University, who first got interested in the recording industry while still a student interning at Famous Music. His internship developed through a friendship with Carl Jackson, a local writer and producer. Soon Luke had outside sessions, and began freelancing, a practice he continued upon graduation.
Two years after graduation, Luke was asked by Carl to form a partnership with his new publisher. He did, and they benefited from a successful business that ended when the publisher sold their song catalog.
Luke found himself at a crossroads. He was a producer/engineer with no studio. That’s when he found the perfect studio in Berry Hill. Luke was able to use the proceeds he received from his partner’s buyout, combined with a bank loan to purchase the studio.
Business ownership initially created serious stress for Luke. “I had a new studio, two houses, and my second child on the way. I woke up and my left arm was numb, and it felt like someone was sitting on my chest. I didn’t even wake up my wife. I just drove straight to the hospital.”
Fortunately, it wasn’t a heart attack, and Luke was soon back to work. By using equipment leases and leveraging his own knowledge of the industry, he got the studio running and open for business.
“I got the ‘monkey’ off my back after that first year,” he says.
Business at Station West grew over the next three years. The Studio now has six employees. Luke has built a loyal base of well known artists who work with him on each successive project, including country music superstar Dierks Bentley.
“Dierks is a great artist to be associated with. He is a nice guy with a great work ethic who is always professional and dedicated. He’s been known to spend the night in the studio, he’s so dedicated. Having artists like that makes all the difference in the world.”
To accommodate Dierks and other artists, Luke is expanding Studio West into the house next door, building a new studio that will feature surround sound mixing and DVD authoring capabilities. Surround sound DVD is the new paradigm that will change music standards. Most high definition televisions are combined with surround sound and every X-Box, Playstation, and Gamecube will feature the ability to play DVDs and CDs in surround sound. Future generations will grow up especting a higher standard in sound quality and presentation. Studio West will be the first studio in Nashville to offer full range monitoring of 5.1 and 7.1 surround sound.
With the recording industry suffering a slump recently, Luke feels the opportunity for entrepreneurs is better than ever. Outsourcing and downsizing are leading to new opportunities for aspiring producers and engineers, as well as artists and promoters. However, he feels it is necessary to point out the importance of interning and working for other studios to learn the trade and industry. He says that new graduates tend to think that it is just a matter of opening a studio and the business will line up. The truth of the matter is that recording studios generally just barely break even, even when booked to capacity. A studio owner must search for other revenue streams, such as production and engineering to earn a profit.
Through all of his success in business, Luke has made a conscious effort to always make time for his family. He has coached his sons’ soccer teams for seven seasons and has worked to make his facility as family friendly as possible. His kids come in to visit him daily and he encourages clients to bring their children in as well. With the long hours in making a record it is critical to put make time for family.
The recording industry is entrepreneurial by nature, and Luke is no exception. He has ventured into other areas of the business. He has a patent pending for his self-designed diffusion panels (installed in the new studio). He continues to search out new talent, including an up and coming singer/songwriter named Jessica Roadcap. Jessica is a multitalented young woman who also designed a beautiful wall sized watercolor that is prominently displayed in Studio West’s new surround room. (She also happens to be an incoming freshman at Belmont University).

And I Remember Party Lines and Rotary Phones….

A quiet revolution being led by young consumers is underway. Both of my young adult children are a part of this revolution. Many of you may be a part of it, as well.
Red Herring reports on a study by the Yankee group that highlights this quiet, but major change:

“The landline is going the way of the glove-box cell phone,” said Yankee Group’s wireless global practice leader Keith Mallinson. “Plenty of people have them for safety or backup but they rarely get used.”
More than 65 percent of the U.S. population owns a cell phone, the Yankee Group estimates. And the average number of cell phone minutes used by U.S. subscribers grew to 754 minutes per month-almost 13 hours-by the second quarter of 2005, Mr. Mallinson added. Much of that time used to be spent on home phones.
Young adults seem to be leading the trend, with more than 30 percent of 18- to 24-year-olds lacking landlines. In the U.S. population overall, the trend is less dramatic, with one in 10 cell phone users without landlines.

This trend away from the old land line phone is amazing to someone who remembers party lines, Ma Bell, and rotary phones. The big telecom companies have been preparing for this trend for years. And as it continues, this trend will create more and more new opportunities for entrepreneurs to exploit. Just look at all of the consumer behaviors tied to land line phone use and find ways to replicate or improve on them for the new mobile phone world.

Gas Prices Will Continue to Decline as Oil Begins to Flow

One of the major causes of gas prices spiking after Katrina was the uncertainty of oil supply from the Gulf.
Many of the facilities were “shut-in” after the storm due to possible damage and safety concerns. Now that inspections have begun, oil is beginning to flow again.
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At the peak of “shut-in” production on August 30, over 95% of daily oil production and close to 88% of daily natural gas production was shut in for environmental and human safety reasons in the Gulf of Mexico.
As of last Friday, shut-in oil is slightly below 60% of daily production and shut-in natural gas is around 38% of daily production.
Of the roughly 4000 Outer Continental Shelf production facilities, 37 shallow water platforms were destroyed (which produced only about 1% of total production from that region). Four large deep water platforms, which accounted for around 10% of pre-storm federal offshore oil production, were extensively damaged and could take from three to six months to bring back on line. Some pipelines suffered damage that could take months to repair, while others have been inspected, tested, and brought back on line.
According to the Minerals Management Service: “Despite this damage, about 90 percent of Gulf oil production could return to the market in one month, if refineries, processing plants, pipelines and other onshore infrastructure are in operation to receive, prepare and transport it to the consumer.”
(Source: Congressional Joint Economic Committee).

Entrepreneurial Economy Expected to Continue Growth

A new study by the NFIB and Visa finds that growth in the economy should continue through the end of the year.
From Inc.com:

“The fundamentals are looking good,” said William Dunkelberg, the NFIB’s chief economist: “Despite the hurricane and high fuel costs, you can expect the forth quarter to be very strong.”

This report is consistent with most of the other forecasts in the wake of Katrina showing that a recession is not likely even with the economic disruption caused by this storm.

Entrepreneurial Leadership Examined

FastCompany has a special feature on entrepreneurial leadership in their September issue (now available on line). What is interesting to me is that they focus on what I consider to be one of the most important skills that any entrepreneur should learn: opportunity recognition.

What are the elements of this alloy we call “leadership”? Certainly, they include vision and integrity, perseverance and courage, a hunger for innovation, and a willingness to take risks. But in building their list of the top business leaders of the past century, Harvard Business School professors Anthony J. Mayo and Nitin Nohria have unearthed an immutable attribute that’s shared by all of the giants of business: They had an innate ability to read the forces that shaped the times in which they lived — and to seize on the resulting opportunities.

Not all of the 50 great leaders they list are true entrepreneurs, but many are including their top five:
Samuel M. Walton — Wal-Mart
Walter E. Disney — Walt Disney
William H. Gates III — Microsoft
Henry Ford — Ford Motor
John P. Morgan — J.P. Morgan Chase
Although the articles seem to mush great managerial leaders and great entrepreneurial leaders together, it is an insightful set of readings that I highly recommend. Thanks to R.M. Cornwall for passing this along.

Disaster Planning

As in the wake of 9-11, we have seen businesses paying more attention to their disaster plans in the days after Katrina. Red Herring has telling examples from the technology sector.
Here are some suggestions on how entrepreneurs can prepare for disasters:
1. I would suggest for any business that the cliche’ “Cash is King” has never been more true. After Katrina, there will be a prolonged period where many businesses almost ground to a halt. Having cash reserves will allow businesses to make it through the initial economic paralysis. Thirty days cash reserves (enough cash to cover essential and fixed expenses) would be my minimum recommendation. Even ninety days of reserve would not be too much to have at this period of time. One business owner recently told me that the new goal that many are setting is six months of cash on hand.
2. Good advice any time is to manage overhead carefully. Overhead pushes the breakeven point of any business higher. If sales suddenly drop off for an extended period of time, a lower breakeven point that results from lower overhead expenses can soften the impact of any economic shock.
3. Whenever possible, avoid fixed, long-term commitments that are part of a static business model. Any major shock on a market may require new business tactics, strategies or even models going forward. One reason that the American auto industry reacted so poorly to the oil shock in the 1970s is that they had built their businesses assuming a very static business model. It literally took them years to undo this model and adjust to the new reality that they faced. They had to be able to react much more quickly to changing customer preferences, and operate in a market with many new competitors where there used to be only three.
4. Build in flexibility in all decisions. Understand that you may need to quickly undo some decisions. Make this as easy as possible for you to accomplish.
5. Watch and manage your inventories carefully. Certainly you should not choke your business growth, but don’t go overboard with purchasing either. Purchasing raw materials or other inventory using volume discounts may not be wise. Be as “just in time” with your inventory as possible.
6. Think through the ‘what ifs’ and create contingency plans. These need to be major plans for how your operations will be handled given a variety of scenarios, and minor plans that deal with the day-to-day safety and security of your employees and customers.
7. Look ahead. It is critically important to try to look beyond any single event, no matter how devastating. Believe in yourself, your business, and the system that makes it possible. People in the Gulf region will need bold leaders, which are now seeing will not come from the politicians, but within the grassroots of our economic system. Be strong, be brave and be confident and others will follow.

The Full Economic Impact of Katrina

The Congressional Joint Economic Committee has released their assessment of the full potential impact of Katrina.
Here are some of the highlights regarding energy costs:

– 1.4 million barrels per day of offshore crude oil production has been “shut in.” This represents about 91% of daily oil production in the Gulf.
– Natural gas production shut in is 8,345 billion cubic feet per day, or 83% of daily gas production.
– At least 7 drilling rigs are adrift and 8 refineries have been shut down. This development has been estimated to have idled between 1.8 and 2.3 million barrels a day of refining capacity, a little above 10% of the nation’s total.
– Katrina has disrupted the importation of 1 million barrels of crude shipped to refiners through the Louisiana Offshore Oil Port.
– Because the crude oil market is global in nature, effects on global oil prices from the millions of barrels per day of lost Gulf production will be spread out geographically and over time. This will reduce, somewhat, the near-term impact on crude oil prices.
– This is not true, however, of highly localized gasoline markets and the national natural gas market.
– The price of the near-term futures contract for crude rose $2.61 a barrel on August 30, reflecting pessimism about the consequences of Katrina for crude oil production; the January through March contracts rose to over $70 a barrel. In recent days, crude futures prices have subsided somewhat, reflecting an easing of concern about effects of shutdowns of petroleum platforms in the Gulf of Mexico.
– Crude prices are more than 50% higher today than a year ago, but would need to reach $90 a barrel to surpass the inflation-adjusted highs set in the early 1980s.
– Based on futures data, traders believe that crude oil prices will be around 6% higher in October than they would have been without the damage done by the storm.
– Retail gasoline prices have risen above $3 a gallon in many localities, and some analysts speculate that near-term retail prices in some localities could be pushed as high as $6 a gallon. Retailers have responded to the potential of severe near-term supply curtailments by increasing current prices to ration existing supplies.
– (However), based on futures data, traders believe that gasoline prices could be close to 20% higher in October than they would have been without the storm.
– Also based on futures data, traders believe that natural gas prices could be close to 18% higher in October than they would have been without the storm.
– The administration has responded to the energy difficulties that have arisen as a result of Katrina’s damage by using the Strategic Petroleum Reserve, as it was designed to be used, to ease temporary but serious production and delivery shortfalls resulting from a catastrophe. However, more crude will not provide much help in the near term from difficulties derived from the Katrina-induced shutdown of 8 refineries.

Here are some of their thoughts regarding a possible recession:

Will the energy price effects of Katrina put the U.S. into a recession? Most analysts agree that the answer is “probably not.” The event was a tragic special event. Historically, while difficult to measure, the impacts of major regional hurricane damage on the national economy have been minor. Lost production from the damage is often, over time, offset by increased production from rebuilding.
However, in contrast to most hurricanes, Katrina imposed substantial disruption in a region that accounts for around 25% of the nation’s oil and gas production.
To the extent that persistently elevated energy prices are born out in the future, we will increasingly see purchasing patterns in consumer durable-goods spending and business investment spending change, with substitutions occurring away from relatively energy-intensive goods toward more energy-efficient goods.