Data on Entrepreneurial Venture Survival Rates

Ask an average group of people what the survival rate is for entrepreneurial ventures and the figures you usually get are 10-20%. The truth is much rosier than common wisdom assumes.
As reported by the National Dialogue on Entrepreneurship, a new study from the Bureau of Labor Statistics “examines the survival rates of new businesses started between 1998 and 2002. It finds that 66% of new establishments started in 1998 were still operating two years after they started; forty-four percent were still operating in 2002.” The only sector that showed significantly lower rates was the dot.com group, which crashed during this time. Factoring that group out and we are getting closer to the 50% figure that most experts believe to be an accurate estimate.
Studies examining entrepreneurs who have had training and/or education in entrepreneurial skills consistently show a much higher success rate (as high as 80-90%).

Living Trusts are Tool for Family Business Succession

Succession planning in a family business involves several critical issues, one of which is transferring ownership through a family trust. NFIB has a good summary of this approach.
“A living trust is an estate-planning device that bypasses probate. It’s a separate, legal entity, like a corporation. While you are alive, you would be the trustee and beneficiary of the trust. You would run your business just as you do now. The only difference? A trust that you control would own the business.
“Because it is your trust, not you who owns your business, there would be nothing to probate after your death. Because your child is the successor of the trust, or the beneficiary, he or she would end up owning the business without going through probate.”

He’s on a Mission

Mission statements can be a real conundrum for most entrepreneurs. They are so excited about what they do and want to capture every little detail when asked, “So, tell me about your business.” So in response, many an entrepreneur will go on, and on, and on…..
The key is to capture your business in a succinct, yet powerful statement that can communicate to the world who you are. Now there is a blog site, Man on a Mission, dedicated to mission statements. It is a great place to explore examples of mission statement and good practices in developing your own.

More on Changes in VC Focus

In addition to the shift to niche markets and start-ups I wrote about yesterday, Entrepreneur.com says that there is a definitive shift away from just high-tech toward more low-tech and even no-tech investments by many VC firms.
“Behind the headlines, many VCs are investing in low-tech (or no-tech) companies that offer prospects of rapid growth, job creation and excellent economic return. In fact, well-managed companies in any industry can score VC dollars if they know where to look.”
They offer profiles of three examples: a supplier of “air-powered guns called “markers” for the sport of paintball”, a sewing company, and a cosmetics company. An interesting read and a good lesson in what investors really want: growth potential and sound leadership.

Attracting Key Staff

Growing companies find the need to add key managers, but often find it hard to offer competitive salaries. Does that mean they cannot compete? Not necessarily.
One of the ways that smaller companies can compete for staff is to make them convenient and flexible places to work by offering perks that employees want. StartupJournal has a good overview of the types of conveniences that many growing companies offer, including on-site laundries, haircuts or car services. Many of these the employer simply has to make them available, as the employees pay for the actual services provided, so the cost is minimal.
There are other ways to attract good talent. I found that just listening to what the employee really wants and being flexible in how you structure the offer and the job can be very effective.
There was a manager I wanted to hire to run a new program we were starting, as he was one of the best in our industry. He worked for a large, national company. I knew I could not match his salary, but I did not give up.
I got to know him and found out what he was really looking for in his career and in a job. He wanted to have more control over his department. That was easy as we were small and our structure was quite decentralized. He wanted to have some real ownership in the business he worked in. We could do that, too, as we set up separate corporations for each new program we started and we had already planned to offer a small ownership stake for the right manager.
There was one more thing he wanted, however, and it was clear it was a deal breaker for him. His current employer had very strict rules on vacations and holidays. He was a Viet Nam veteran and had wanted to go to Washington, DC each Veterans Day to remember his fallen comrades. His current employer’s rules did not make it possible to guarantee that, and he had missed the last two Veterans Day observances. So, in my offer I promised him that he would be guaranteed Veterans Day and one work day on either side of it off each and every year (they were counted as vacation days). That was all it took to convince him that we were the best place for him to work. He came to work for us taking a significant cut in base salary from what he had been making before.
I also find that being able to work in an entrepreneurial company with a team that is excited and committed to what they are doing attracts many managers to smaller companies. So when you interview prospective management candidates make sure to use your team as not just part of the interview process, but to sell the prospective employee on the benefits of working in your company.
Finding management talent in the first place can be a daunting challenge. For example, where should you look to find a Controller, a Marketing Director, or a Human Resource Manager for your company? I recommend using your network. Talk to your CPAs and your attorneys. Talk to your advisory board. Talk to other entrepreneurs that you know. Talk to people you trust in your industry. That is usually the best way for entrepreneurs to get a good pool of candidates for their growing businesses.

Venture Capital and Foreign Investments

Red Herring reports on a new study issued by Deloitte and Touche on foreign investments by VCs.
“The vast majority of U.S. venture capitalists plan to keep their investments inside the United States….Only 20 percent of VCs planned to increase investments outside the U.S. over the next five years.”
Actually, I was quite surprised to see that there are 20% of VCs who would consider overseas investments. The VCs that I know well tend to favor limiting as much extraneous risk as possible, as there is enough business risk in each deal. Therefore they tend to favor specific industries that they know well to minimize their industry risk. Many also limit the geographical reach of their investments, which allows them to keep closer watch over their stable of companies.
International investments add multiple layers of risk that most VCs just do not want to add to the mix. The fact that one in five would invest outside the US tells me that there really is a large overhang in many firms. That is, they have more cash than they can invest in their traditional profile. So we see more VCs chasing start-ups and now a significant number investing overseas.

VCs Venturing into New Territories

More venture capitalists are moving into new territories. The majority of VC firms still stick with established ventures looking for later stage funding, but some are starting to specialize in niche financing markets.
National Dialogue on Entrepreneurship points out that there is a shift to more VC funds going into start-ups. There are a significant number of start-up focused VCs listed in the Entrepreneur magazine Top 100 Venture Capital firms.
The challenge for start-ups getting VC money is that VCs are, by nature, very impatient. They want growth rather quickly and they expect you to hit your projections and hit them on time. If not, they will fire you and hire someone they believe can make your concept meet their expectations.
NDE also links to the web site of a VC firm that is focusing on funding businesses wanting to franchise a business model. From the web site:
“Franchising Ventures Group is comprised of a group of individuals who have extensive experience in business-building, franchising, marketing, and finance. In the course of investigating an array of possible business ventures and market opportunities, they became convinced that many companies had great potential for franchising but that most would never reach that potential.
“The reasons were twofold: one, these businesses lacked the capital to mount an effective franchise marketing campaign, and two, they did not have adequate management personnel to both manage the original business and develop, market and manage a franchise program.
“To us, the next step was obvious – form a venture to provide the capital and the skilled management needed to create, market and manage franchise programs in a joint effort with companies that had the potential for great success.”
Franchising a business concept is a risky endeavor, with litigation rates quite high even with successful franchises. Franchisees get restless and quickly believe the fees they pay are not worth what they get in return. So if you pursue VC funding for a franchise be ready to be stuck between a rock and a hard place as the VC expects quick growth and each of your growing number of franchisees expect you to treat them with specialized attention in return for the fees they pay you every month.