Submerge Media is an example of the new breed of music business entrepreneurs who are finding success in the shadow of struggling industry giants.
“Submerge Media is a full-service media company that strives to be an all inclusive media provider for its clients by offering what an in-house creative service department would offer. By integrating a consistent design throughout each medium, Submerge provides their clients professional, recognizable, and unique branding.”
Craig Countryman (video), Josh Davis (audio), and Chip Hayner (graphic and web design) had all been active as independent contractors in the music industry in Nashville while students at Belmont University. While in school they had gained respect for each other’s work and had, from time to time, referred clients to each other. Their original plan was to develop a referral system to support each other as they became established in the industry. But, they began to believe that a company that could integrate audio, video and design services from a single source would be able to offer the music industry the same consistency as when these services had been performed in-house before the recent cutbacks in the music industry.
By bringing audio, video and web-based graphics together in one company, they intended to stand out from the large number of independent contractors working on Music Row in Nashville. They would be able to provide a single “look” to a client’s entire media package and eliminate the hassle of coordinating the various components that comprise the entire music “product.”
Craig, Josh and Chip graduated from Belmont University in May of 2004 and on June 1, 2004 Submerge Media was officially formed as an S-Corporation. The three founders had something else in common beyond their passion for the music industry. All three wanted to build a business that reflected their Christian faith in the work that they performed for each client and they are growing and building their business with a culture that was based on their shared values. However, they do not want to limit their customer base by specializing in the Christian segment of the industry music. They work in all music genres, while keeping true to their Christian faith.
Since all three of them were initially working out of their homes, one of the biggest challenges they faced was communication and coordination of their work. They met face-to-face every Monday and had daily contact by phone, email and text messaging to schedule jobs and discuss business issues. A local coffee house served as their favorite meeting place.
But, increasingly they recognized the need to move into a shared office space. Although these working arrangements had kept their overhead low, it was beginning to create personal strains for each of them and was creating noticeable inefficiencies in their work together. While billable hours were critical for creating cash flow, they also needed time to work on the business. They found that these two demands were often in conflict.
So, in January of 2005 Submerge Media moved into common space that includes a studio for audio production. By finding space away from Music Row (the heart of the industry in Nashville), they were able to stay within their budget. And, by combining a small SBA loan and careful attention to bootstrapping to equip and furnish their new space, they could offer the level of quality that their clients expect from them.
Since moving into their new space, Submerge Media has experienced continued growth in sales and improved operating efficiencies. They seem to have discovered a balance between the need every start-up has to keep overhead low, while at the same time assuring that they have the tools and space they need to be a quality player in the Nashville music industry.
Small Businesses Seek to Finance Strong Growth for 2005
Bankers are by design a rather conservative lot. So when entrepreneurs get all starry-eyed about growth opportunities bankers are usually not a significant part of the financing mix for these high-growth businesses. This seems to be the scenario going into 2005 according to Inc.com.
“Small American companies are raising their revenue forecasts for the coming year, and may avoid bank loans and look into non-traditional financing, a new PricewaterhouseCoopers survey reported this week.
“The survey, which focused on ‘trendsetter’ firms — 360 fast-growing private companies with revenues between million and 0 million — during the fourth quarter of 2004, paints an optimistic picture of the economy. Margins were up for 31% of companies surveyed, and down for just 15%, while 24% increased their prices (7% decreased them)….
32% of those surveyed expect to look at non-bank financing, including angel investors (an option for 18% of CEOs surveyed), venture capital (18%), private placement (15%), and IPO (3%).”
The picture this paints is of optimism and aggressive growth, which is where the entrepreneurs surveyed intend to direct these newly raised funds. The greater focus on non-bank funding reinforces this robust outlook.
Economy Strong for (and because of) Small Businesses
Economic conditions for small business remained strong in the fourth quarter of 2004, according to the Office of Advocacy’s newly released Quarterly Indicators: The Economy And Small Business. The report shows real gross domestic product (GDP) up 3.1 percent in the quarter and up 4.4 percent for the year.
“Economic conditions for small business continued to be strong in the fourth quarter of 2004,” said Dr. Chad Moutray, Chief Economist for the Office of Advocacy. “And for the year, GDP growth of 4.4 percent is good news for small business. In the fourth quarter alone businesses added over 600,000 net new jobs. The outlook for the small business economy remains bright.”
(Source: SBA Office of Advocacy).
Small Business Optimism Remains Positive for 2005
NFIB released its first small business optimism index for 2005. The results were off a little bit, but still remain relatively positive.
“The survey, NFIB’s ‘Small Business Economic Trends,’ shows that while optimism among owners dipped 2.4 points in January (to 103.7), that reading is one of the strongest in 30 years. Owners continued to report new job creation (although at a slower rate than in the fourth quarter) adding a net 0.07 workers per firm over the past three months. Employment increases were noted by 15 percent of those responding to the survey, while 11 percent reduced jobs.”
Arkansas Governor Enacts Regulatory Flexibility
Arkansas small businesses will face a friendlier regulatory environment, thanks to an Executive Order signed by Governor Mike Huckabee. The executive order gives Arkansas’ small businesses a voice in the state’s regulatory process.
“Arkansas’ small business owners now have a seat at the table when regulatory decisions are made,” said Thomas M. Sullivan, Chief Counsel for Advocacy. “When their voice is heard, better decisions are made, and that means more jobs and growth for Arkansas.
The executive order implements elements of small business friendly regulatory legislation. The order encourages entrepreneurial success by requiring state agencies to consider the impact of their policies on small business before they issue final regulations.
By listening to small business, state agencies can ensure that small business resources spent on overly burdensome new regulations are instead available for hiring new employees and making new investments. At the same time, agencies still meet their regulatory goals, such as higher environmental quality, greater travel safety, better workplace conditions, and increased family financial security.
(Source: SBA Office of Advocacy).
Two Reports on Entrepreneurial Development Released
American City Business Journals issued their report on entrepreneurial hot spots.
Their methodology is quite simple.
“ACBJ used a four-category formula to rate local climates for small businesses, defined as companies with fewer than 100 employees. The categories were:
* Number of small businesses per 100,000 residents
* Change in the number of small businesses from 2000 to 2002 (the latest year for which official figures are available)
* Change in private-sector employment from 2000 to 2002
* Change in private-sector payrolls from 2000 to 2002”
You can link to a complete Excel file of the large markets, medium markets, and small markets.
In another report, the CFED issued their 2004 report card on states that they consider to be friendly to entrepreneurial development. But this report, as I pointed out last year, is fatally flawed in its operationalization of what constitutes “entrepreneurially friendly.” Rather than base their rankings on true entrepreneurial activity, as in the American City Business Journals report, it is based on their own big government agenda.
CFED includes such measures as “income disparity between rich and poor”, payroll employment rates, research funding allocated to universities, and other measures of government spending and just plain general meddling.
The evidence of what stimulates entrepreneurial activity, however, is to the contrary. Government actions get in the way of entrepreneurial development. CFED doesn’t focus on entrepreneurial activity for most of their report, just those things that are part of their socialistic leaning policy agenda.
But nothing reinforces my assertions on the wrongness of their report than their honor roll:
Earning all As is:
* Connecticut
Earning As and Bs are:
* Delaware
* Massachusetts
* Minnesota
* New Hampshire
* Oregon
* Virginia
Most of these are “big government” states, which is what their report card really measures.
Carnival of the Capitalists
Catallarchy is this week’s host of COTC.
Entrepreneurial Showcase: The Access Group
“Entrepreneurial Showcase” is a new feature of this site, in which we will take a closer look at some of the entrepreneurial ventures founded by Belmont alumni and students.
The first Belmont entrepreneur to be showcased is Charles Hagood (MBA, 1993) who with his partner Mike Brown, founded The Access Group (TAG) in 1996. TAG specializes in lean manufacturing consulting, plant relocation, engineering services, industrial engineering, architecture and design, and maintenance reliability services.
After completing an MBA in 1993, Charles Hagood was still working as an industrial engineer in the aerospace industry. He had just been promoted to program manager of his company’s largest project, the V-22 Osprey Aircraft, becoming the youngest program manager in the company’s history of a military program. But even with this success, Charles began to realize that he did not want to work for a company for the rest of his life. What he really wanted was to work for himself.
So Charles soon left his employer and began work on his business plan. Mike Brown, who had been his supervisor, shared a similar entrepreneurial aspiration and eventually joined Charles as a co-founder of TAG.
Obtaining the first client in a consulting business proved to be a significant challenge, as they had nothing tangible to show potential clients. During their initial start-up, they decided to save as much of their precious self-funded working capital as possible. They decided to work out of Mike’s basement and garage, with their PCs set up on folding tables they had purchased at Sam’s Club. Charles joked that “Mike’s Chihuahua became our Vice President of Security,” as he announced the arrival of each UPS, mail delivery or visitor to their “corporate headquarters.” Hagood added, “We were broke but were having a blast. We were never worried that we’d make it. The question was when.”
Over the next several years TAG did become a successful venture, expanding their services and growing their staff. They never gave up their bootstrapping mentality, focusing on organic growth with very little use of outside funding.
TAG was named a Music City Future 50 company in 2001 and 2003, Chamber Business of the Year, and ranked the 15th fastest growing company in the mid-south by Nashville Business Magazine during this time.
An important part of the mission of TAG for Charles and Mike, is to not only make their lives better through the success of the business, but the lives of those around them better by giving back. Church sponsored mission trips are a regular occurrence for TAG employees and their families. TAG pays for the expenses related to these church sponsored mission projects for all employees and in some cases their family members. TAG employees and family members have participated in three to four mission trips a year around the world, including Asia, Africa, and the Appalachian region of the U.S.
Charles is currently moving TAG beyond its traditional focus on manufacturing with the formation of an affiliate business Healthcare Performance Partners. This new company focuses on helping health care companies apply lean techniques to their work environments.
Impact of Regulatory Flexibility Act
I have written several posts about the movement to enact regulatory flexibility legislation at the state level using a model similar to the Regulatory Flexibility Act enacted at the federal level. The intent is to assure that regulations no longer place a disproportionate cost on smaller businesses. A new report shows the impact that the federal act has had. Small business has seen significant savings on needless expenditures related to their compliance with laws passed with large corporations in mind.
“Federal agencies that listened to the voice of small business early in the regulatory process saved America’s job creators over $17 billion in 2004, according to a report issued today by the Office of Advocacy of the U.S. Small Business Administration. Report on the Regulatory Flexibility Act, FY 2004 details federal agency compliance with the Regulatory Flexibility Act (RFA). The RFA requires agencies to consider the impact of their rules on small entities and examine significant alternatives that reduce it.”
This is $17 billion now available to grow small businesses, hire employees, add equipment, and reward entrepreneurs for the risk they take by investing in their businesses. It adds fuel to the engines of our entrepreneurial economy.
The State of Exit Planning
All who work with entrepreneurs nag them about the need for an exit plan. Some are too busy. Others find the process too overwhelming. Still others are in denial.
Inc.com cites a study just released by PricewaterhouseCoopers that reveals how many entrepreneurs really don’t have any exit plan in place or even in mind.
“In its survey of 364 CEOs of fast growing, privately-held companies called the ‘Trendsetter Barometer,’ PricewaterhouseCoopers found that 65% of the respondents said they planned to leave their company within 10 years. When asked about their exit plan, a majority of the respondents (51%) thought they would leave via a sale to another company. A measly 3% minority said they were counting on an IPO payoff. The survey’s finding that CEOS have exit plans is hardly surprising: the fact that 43% of the respondents said they had done little or no succession planning is.”
The findings did not surprise me. In fairness, fighting the daily battles that is entrepreneurship can cause many to slide exit planning way down the to-do list. When you are up to your behind in alligators it is hard to remember that you are there to drain the swamp. But, exit planning is important for every entrepreneur. I hope as more entrepreneurs are educated in the process of building successful ventures that we will see more pay attention to this ultimate goal for any private venture. Every entrepreneur must exit at some time–one way or the other.