Summer Reading

National Dialogue on Entrepreneurship offers their suggestions for your summer reading. Here are a couple of their favorites:
A Whole New Mind: Moving from the Information Age to the Conceptual Age, by Daniel H. Pink. Riverhead Books, 2005.
This book takes a new look at the impacts of outsourcing, arguing that entrepreneurial growth will come from artists, designers and innovators.
The Past and Future of America’s Economy: Long Waves of Innovation that Power Cycles of Growth, by Robert D. Atkinson. Cheltenham, UK: Edward Elgar, 2004.
“Atkinson argues that we are in the midst of a major technological shift that has only just begun. While economic change is all around us, our political systems and our policy ideas have not shifted in response. Atkinson recommends that policymakers embrace ‘growth economics’, a whole range of policies that nurture entrepreneurship and innovation.”
I haven’t read this one yet, but it is on my summer list. It is an $85 book, so you may want to wait for my review in a few weeks. Let’s hope his list of policy recommendations begins with less government involvement….
Check out NDE’s web site for all of their recommendations.

Even Gates is Paying Attention to Small Business

Fortune Small Business has a story about Microsoft hiring anthropologists to study small businesses. Why? It seems that they finally noticed that this where the growth is in our economy. Fortune 500 companies are relatively flat in their growth, while entrepreneurs continue to add jobs and spend on the capital needs of their firms, including hardware and software.
“Their fieldwork is far removed from the popular perception of the anthropologist as lantern-jawed adventurer in baggy shorts and pith helmet, canoeing up the Amazon in search of the proverbial lost tribe. But there is a certain correspondence between Microsoft’s research agenda and the work of those old-time anthropologists, many of whom were funded by colonial governments that needed to understand their native subjects in order to rule them more effectively. The modern version of this knowledge-power dynamic is Microsoft, a multinational technology colossus that hires anthropologists who study the natives in order to sell them more software.”
Be careful Bill Gates–I hear the natives are restless!

Even Declining Markets Contain Niches

Having been in the mental health industry for many years (and in business with two trained psychoanalysts), I was intrigued by this example at StartupJournal of a furniture maker finding a niche within the market of traditional psychoanalysis, which has seen significant decline since the advent of managed care. It seems that even though there are not as many analysts as there used to be, they still need couches. Entrepreneurs seem to find opportunity everywhere and anywhere!
As the old joke goes:
When the entrepreneur was a young lad growing up on the family farm, he had asked Santa for a pony one Christmas. After all the presents were opened that Christmas morning–no pony! I little while later his parents spotted him in the back yard digging in a large pile of manure.
His parents shouted, “What are you doing out there??!!”
The future entrepreneur looked up, smiled, and replied, “I just know if I dig deep enough there is a pony in here somewhere!!”

VCs and Angels Share Negative Opinions About Each Other

When you talk to angels about venture capitalists and venture capitalists about angels you can sense a certain uneasiness about their relationships with each other. Both need each other, but they have a very different way of doing business and often very different expectations from a deal.
National Dialogue on Entrepreneurship has a link to a paper that looks at the relationship between VCs and Angels. Interestingly, both respond that they have had a negative experience with the other at a rate of 58%. This is an important finding since they tend to overlap on so many deals these days. Entrepreneurs need to understand that while they may have both angels and VCs in their deal, they are likely not going to be on the same page on every issue that comes along. Through in a banker and it can get really confusing. The entrepreneur can end up trying to mediate between several differing perspectives, while at the same time needing to please all of them.

Employment Stats

The Bureau of Labor Statistics released data on May’s employment situation today.
Highlights of today’s employment situation report:
* 78,000 new payroll jobs were created in May, following a much larger gain of 274,000 in April.
* The unemployment rate (calculated from the household survey of employment) edged down to 5.1% in May, from 5.2% in April. Last May, they unemployment rate was 5.6%.
* The unemployment rate remains below the averages of each of the past 3 decades.
(Source: Congressional Joint Economic Committee).

Assessing Opportunities

I have written before about the risk of jumping too quickly into writing a full-blown business plan or even impulsively launching a business. A key skill that successful entrepreneurs learn is to more efficiently and quickly assess possible opportunities before they make extensive commitment of time and money. It allows them to weed out ideas that don’t have a good chance or working. In effect, it gives the entrepreneur a chance to fail on paper.
I have entrepreneurs examine three basic questions to assess opportunities:
1. Is there a MARKET? Examine the size of the market to make certain that you only need a small portion of the market as customers to make your business work. Make sure that they are interested in, and more importantly want and need your product or service. You don’t have time or money as an entrepreneur to educate them. Begin to get an idea of how much they will be willing to pay. Too many times this becomes a last minute guess by the entrepreneur.
2. Is there a MARGIN? Figure out the basic economics of the business. How much will the product or service sell for and how much will it cost to produce the product or offer the service? At this stage you should really look for opportunities that offer at least a 50% margin. Generally, when all is said and done this will typically result in actual profits of about 15-20% once the business plan is developed and all of the true costs are determined.
3. Is this for ME? There are many periods during the growth of the business when the entrepreneur needs a true passion to carry them through. This is not just a simple financial investment. It becomes much more personal and emotional than that. Many entrepreneurs tell us that the profit part of the business opportunity is only one of many reasons for launching their businesses. It also helps to build a business that takes advantage of your experiences, knowledge and skills.
These three basic questions should become the first thing you do when you look at an idea for a new business. If the idea passes this test, it offers real potential as a true business opportunity and should be pursued further toward a possible launch. Using opportunity assessment will help increase your success rates with business start-ups. It will also help you deal with an idea and move on if it does not seem to offer a good chance of success. That is, it helps you clean up the mental clutter of too many business ideas floating around in your head.