Silicon Valley VC Confidence Still Strong

The University of San Francisco has just released Q3 results for their Silicon Valley Venture Capitalist Confidence Index. While down slightly from Q1 of 2004, the “Index level of 4.05 in this latest quarter is still very favorable and portends a continued strong Bay Area entrepreneurial environment.”
Previous higher index values were based primarily on optimism about a potential recovery. And while the recovery is not quite as robust as the VCs had hoped for, the relatively high index this quarter is based on hard figures that they seem to really like.
“In the previous two quarters confidence appears to have stemmed mainly come from high expectations of an impending recovery which would include the opening up of IPO markets, better macro economic numbers, increased corporate spending, and the rise of many innovative technologies that were not funded during the previous year. In the current quarter, however, investor confidence appears primarily based on the assessment of real business factors such as strong M&A momentum, low overhead costs, and an increasing number of start-up activities.”
These “real business” factors are much more reliable indicators of actual economic growth.

Entrepreneurship as a Process

When assessing possible opportunities, entrepreneurs should avoid the pitfall of getting too rigid in their plans. I challenge all entrepreneurs to really understand the fundamental sources of the opportunity they are pursuing. What are the macro forces and the industry trends that have created the potential opportunity?
Macro forces can go all the way up to economic, social, cultural, political, technological issues that are shaping the industry. This may require some additional research, but will pay off over time. Often the reason there is a new opportunity in the first place is a result of these forces being in constant flux and change. As Peter Vaill calls it, a state of perpetual white water. So, the very changes that created your opportunity can move past you and make your business obsolete if you do not continue to adapt, evolve and innovate.
Entrepreneurship should be an on-going process, not a one-time event.

Advice That I Never Think I’ll Follow

Startup Journal offers an interview with Tom Peters. Now I must admit that I’ve never been a big fan of much of his work, but this quote from him is just, well, bizarre.
“SJ: Peter Drucker is famous for asking businesses, ‘What business are you in?’ What question do you think every business should ask itself?
Peters: ‘Why should I fall in love with you?’ You see, I’ll add the passion to the Drucker thing. To me it’s a big deal. Say I’m running a business and I’m trying to choose an accountant. And so I have 27 interviews and my question to you isn’t, ‘Are you a competent accountant?’ — that comes later on — but, ‘Why should I fall in love with you? What’s going to make this a glorious relationship?'”
Now I’ve hired a few accountants in my day, and I can promise you that this is not a question that I would ever ask. And if I ever did, most accountants I know would be out the door before I finished the question.
Sure, you want them to be interested in what you do, seem motivated to work with you, and understand how to work with small businesses. And rather than ask 27 of them about “falling in love with them,” find two or three through your network and find out which one will be the best fit for you and where your business is headed.
Maybe its time for Tom Peters to hang it up!

Working at Home is Now Mainstream

Just pay attention when you visit your local parade of homes this year. Home offices are now standard features in many new homes. Once destined to set up shop in the basement, dining room, kitchen, etc., home offices are now just part of the floor plan.
StartupJournal tells us that this was not always the case, however.
“(M)any white-collar telecommuters and self-employed professionals used to go to great lengths to hide the fact that they worked from home. They would change the word apartment to suite in their address. They borrowed conference rooms from friends for meetings with clients. They even had other people leave the outgoing message on their answering machine to give the impression of having a secretary. A barking dog, a honking car or a crying child while they were on the phone would leave them wide-eyed and white-knuckled until they were sure no one had noticed.”
But, now working at home is common. In fact, it could even be considered chic.
“These days, however, 25 million people in the U.S., or 19% of those in nonagricultural jobs, work from home at least occasionally, according to the Bureau of Labor Statistics. The practice has become socially acceptable and even desirable.”
The big caution as we’ve talked about more than once before at this site: set boundaries between work and non-work in the home!

Small Businesses Still Optimistic

September was the 18th straight month that the small business optimism index from the NFIB was positive. Does small business optimism matter? According to another study by the NFIB it may well be important.
“Research shows that small-business owners vote. A nationwide survey sponsored by NFIB in 2002 found that amongst small-business owners, 84 percent were ‘extremely’ or ‘very likely’ to vote.”
Specifically, the small business optimism index was up 1.5 points from August, with plans to build inventory leading the way.
“The percent of owners intending to continue stocking their shelves soared to the strongest reading since the mid-1990s. Those actually increasing their stocks climbed a point to a net 2 percent, even with strong sales trends. The net percent of those reporting positive sales rose to 8 percent, adding to a six-month run in reports of higher sales–the strongest since 2000. But expectations for improved sales in the near future ebbed a few points to a net 23 percent–still a solid figure.”
Capital spending was also looking strong among small business owners. This is important economically, as capital spending helps in sustaining a recovery.
“Looking ahead, 23 percent believe now is a good time to expand facilities—up three points from August levels and five points above year-ago figures. More than one-third–36 percent–said they expect business conditions to be hotter six months from now, a hike of four points over August.”
Credit conditions for small business and earnings both remain strong, as well.

Entrepreneurial Pillow Talk

The dynamics of any family business can be a challenge, but they can differ widely from family member to family member within any given family. For example, my brother and I were successful together in business as partners and had a great working relationship. My wife and I had a small, part-time business together while in college, which although successful, helped us learn that we did not want to be in another business together with both of us actively running things. We went our own ways in our careers, although she has always been my most important advisor in all in all of my business deals. We have been blessed with a wonderful marriage for twenty-six years and counting. My father was always my other most important outside advisor.
StartupJournal has an good summary of the issues married couples face when they go into business together. One of the most common rules in family business is learning to keep family and business issues distinct, and keep as few issues as possible from becoming family business issues. This can be most challenging for husbands and wives.
“Still, family-owned businesses must deal with specific — and potentially messy — issues. On one hand, they often benefit from loyalty and stability. Everyone has a vital stake in the business. On the other hand, dissension over money or child rearing might spill over into, say, a meeting to discuss marketing with a colleague. There might be a divorce or an incompetent brother-in-law on the payroll.”
As with any business partnership, think about who you take on as business partners very carefully, thoroughly, honestly, and objectively. This is never truer than it is with family business partners who are spouses. Ask the difficult questions and talk about the challenges and problems that being in business with family will create.
The best rule I ever heard from married business partners: no business talk in the bedroom–ever!

Creative Tool for Bootstrap Marketing

Small Business Trends has an article by Kare Anderson on the growing trend for businesses large and small to partner together to reach common customers.
“It reflects a growing trend of organizations joining forces with others who serve the same kind of consumer. Together, they have discovered that they can act quickly to offer extra value, convenience or other stand-out benefit.”
How does it work? Here is an example of two businesses partnering to reach the same customers while spending fewer total dollars:
“T-shirt designer Tami Minatelli was able to exhibit at nine street fairs this summer without paying for her booth space. A new manufacturer of a unique, no-stain suntan lotion paid for Tami’s booth.
“Why? Because she wore their lotion and her T-shirts, with a sign above her head, describing her original painting-on-cotton method and the lotion’s ‘do no harm’ guarantee. Next to burn protection, that’s the biggest concern of people who use suntan lotions.”
It is a great tool for bootstrappers who want to get the most out of tight marketing budgets. And, both partners win by saving money, enhancing their messages with the possible synergy of each others’ product or service, and by reaching more customers.

Try, Try Again: Tech Boom 2.0

I am proud to say that none of the students who studied with me in the late 1990s fell into the get-rich-quick scheme that was known as the dot.com craze. My students knew that my view of true entrepreneurship was that it was not just a mechanism to feed off of greed and raise a bunch of money that had no real purpose just because you could.
True entrepreneurship is about addressing real needs, building value, creating jobs, fueling the economy, building strong communities, and creating real wealth for those who take on the risk of investment. I told my students that they could start a dot.com if they like, but if they wanted my support (and a reasonable grade) they had to start one that met those criteria. None ever did. At the time I took some heat from many of my fellow academicians, but I stuck to my guns on this one and I think that time proved me right.
Om Malik, who has had his work in a variety of business publications including Forbes, writes a piece in Business 2.0 titled “The New Road to Riches:
How to get ahead in the postbubble world: Build a company cheap. Flip It fast. Repeat.”
When I first read this title, the words of Pres. Reagan came to mind, “Here we go again!” But read on. The techies finally are beginning to understand true entrepreneurship in Version 2.0 of information technology start-ups.
“(It) is part of an emerging breed of here-today, bought-tomorrow startups that are sprouting with minimal funding, flowering briefly, and being gobbled up by far bigger companies. In many instances, these built-to-flip outfits forgo — or sometimes can’t get — money from venture capitalists. They instead create shoestring operations focused on the rapid development of narrow technologies to plug gaps in existing product lines or add useful features to existing products. Then they look to a deep-pocketed patron to scoop them up.”
Instead of raising money just because they can, these folks are now looking for real opportunities, bootstrapping them, and finding a way to help them grow. While I am a little concerned about the “flipping” part, at least they are getting the first steps right this time.
How big is this trend? “By the end of September, there will have been more than 5,300 tech acquisitions in 2004, based on research from Mergerstat.”
My hope is that those who get bought up and then are locked into employment deals with big tech companies will begin to become restless with the corporate life. Maybe Version 3.0 of the tech boom will actually see entrepreneurs who actually want to build companies that have legs and will build value over the long term. Then we may really see a Renaissance of technology companies fueling sustainable economic growth. True techie entrepreneurs: what a concept!