Because I believe in the power of free enterprise and the good it can create for a society, I get discouraged when reading about collusion between large corporations and government to limit or even eliminate competitive markets. Such is the case in the story told in an article in Forbes by Scott Woolley about the radio broadcast industry.
“For decades the radio industry has crushed incipient competitors by wielding raw political muscle and arguments that are at once apocalyptic and apocryphal. Radio station owners, who formed the National Association of Broadcasters in 1923, have won laws and regulations that have banned, crippled or massively delayed every major new competitive technology since the first threat emerged in 1934: FM radio.”
While television and the recording industry have been transformed by the digital age, radio broadcasting has used its duplicitous relationship with politicians of both parties to freeze out new technologies and the entrepreneurs that have tried to make an entry into “their” market.
It now appears that satellite radio may have persevered long enough to have some chance of breaking through the eighty year anti-competitive, anti-entrepreneurial government/corporate blockade. XM and Sirius may create the crack in the armor that will finally let the competitive marketplace work in this industry. If they succeed, watch the floodgates of innovation open. Devices that create convergence with digital networks, super cell phones that provide information like real time traffic reports, internet radio that really works, and replay devices like that work like TiVo for radio are just some of the innovations on the horizon.
However, the fight for entrepreneurial competition in radio broadcasting is far from being won. “If you can’t compete, get a bill to outlaw the competition. The NAB may yet win this battle.” Sadly, there are numerous other instances of corporations and entire industries that try to stifle the very economic freedom that gave them birth. And there is no shortage of politicians from both parties eager to help.
As a footnote, this piece also is a good example of why it is so difficult for large corporations to “become entrepreneurial.” While wonderful new opportunities for innovation are springing up all around them, innovations that could lead this industry to new heights, all the broadcast giants see are threats and their strategy is to protect the status quo at any cost.
Strong Growth in Consumer Spending and Business Investment
Q2 of 2004 saw significant economic growth in two key areas: consumer spending and business investment. Entrepreneurs blazed the trail in the current economic expansion, and now the other major segments are following this lead.
“The Bureau of Economic Analysis (BEA) announced today that the gross domestic product (GDP) grew at a seasonally-adjusted annual rate of 2.8 percent during the 2nd quarter of 2004. Major contributors to growth during the 2nd quarter were consumer spending and business investment. Over the past year, GDP has increased by 4.7 percent. Average quarterly growth during the 1990s was 3.3 percent.
Highlights:
* GDP grew at a seasonally-adjusted annual rate of 2.8 percent during the 2nd quarter of 2004. GDP increased by 4.5 percent in the 1st quarter of 2004.
* Major contributors to GDP growth in the 1st quarter were consumer spending, which increased by 1.6 percent, and business investment, which increased by 12.1 percent.
* Business investment, the lack of which drove the economy into recession, has now increased for 5 consecutive quarters.
* A wider trade deficit (the difference between exports and imports) subtracted more than a percentage point from overall growth and offset the upward revisions to consumer spending and business investment.”
Source: Congressional Joint Economic Committee
Focus
Focus.
Many of the entrepreneurs I have helped over the years have heard this word from me time after time. In fact, when you visit my office you see a picture of an island golf green with that single word at the bottom. Be clear about what you are in business for, and stick to it. Scattered strategies rarely work well for start-ups.
StartupJournal.com offers some more insight into the importance of focus in this artcle by Bob Rosner.
“Once each of these companies established a core mission, that mission became the driver of all operations. It was promulgated in corporate communications; it became the basis of employee promotions and evaluations; it guides corporate goals, objectives and strategies. Obviously, these companies haven’t turned their backs on other areas: they all value customers, employees, product quality and innovation. But by making one area their primary focus, they’ve given clear, unifying direction to the organization.”
VCs Busy in Q2 of 2004
National Dialogue on Entrepreneurship summarizes several reports issued by the National Venture Capital Association (The full reports are available as pdf files at the NVCA site under “Industry Stats and News”. Click on the July 27, August 3 and August 9 links).
VCs were increasingly busy investing early stage deals, which means that they are more optimistic going forward. When the economy is poor, VCs focus on later stage deals that have a more proven track record. In Q2 of 2004 VC investment in later stage deals is flat. Where was there money going instead? To early stage deals that have more risk, but more potential return if economic times are thought to be positive going forward. VCs are bullish!
There was also increasing M&A activity for VCs. By liquidating more of their current investments, VCs have more cash to put into early stage ventures. Success with realizing gains from current investments will also attract more new money into their funds, or support the creation of new funds. So not only are VCs bullish, they will have pockets full of cash ready to fund more and more deals.
“All of the data point to continued good news in the VC world. First, VC investments in Q2 2004 reached $5.6 billion, continuing the growth pattern of the past two years. VC firms backed 761 companies—with roughly 30% of them in the early growth stage—during this period. Fundraising by VC funds has been stable, with much of the Q2 2004 fundraising focused on new funds that plan to back early stage companies. Finally, VCs may soon be enjoying the opportunity to exit from some of their earlier investments. Merger and acquisition activity grew again in Q2 2004, marking the fifth straight quarter of growth in the number of firms acquired.”
High Growth Entrepreneurs: “Help Wanted”
The Young Entrepreneurs Organization (YEO) is a group of “business professionals, all of whom are under 40 years of age and are the owners, founders, co-founders, or controlling shareholders of a company with annual sales of million or more.” In many cities, this group represents the leading edge of high growth entrepreneurs. This group is clearly an economic bell-weather.
In a recent poll of their membership, they found that 84 percent were planning on hiring in the next few months, and 11 percent indicated that they plan to hire at least 10 employees this year. Even more see growth in their companies over the next year, with 92 percent expecting sales to grow this year compared to last year.
“Mark Comiso, owner of Sunnyvale, California-based Liquid Digital and president of the YEO Silicon Valley-Bay Area Chapter, is one that fits this trend. ‘I’ve sold one company, started a new one, bought capital equipment, and plan to hire at least two or three more people this year,’ explains Comiso. ‘Overall, these statistics are a very good quantification of the increased chatter I’ve heard from the business owners that I know.’ Comiso adds, ‘I was personally surprised to see that many are hiring — the number was almost unanimous — but it is representative of what is going on in our space.'”
This study was reported in the National Dialogue on Entrepreneurship.
The Dust Settles on Google Going Public
For some of us, it was a sad day. Google went public and left the ranks of privately held companies. While they may believe that they can maintain their culture, over time it will change. They will be owned by large institutional investors who will have it no other way. Their shares will be traded by computer programs that look at short-term numbers, which couldn’t care less about Google’s unique management style. But, what’s done is done.
Red Herring has an interesting piece on the rather clumsy (see, I told you they would have trouble with the rules for public companies) public offering. “On the surface, Google’s auction was mired by confusion and complication at every turn, ranging from inconsistent bidding rules from underwriters to concerns that the company would face erratic and irrational bids for its stock.”
Although many CEOs yearning to go public were hopeful that Google could break the control of the investment bankers, alas, it really didn’t work very well. The market does not have some deep pool of individual investors being blocked out of the IPO process.
“Mr. Hornik says that if the auction process had truly been a success – where the auction determines how much people are willing to pay for shares – Google’s price would not have jumped on its first day of trading. He adds that Google would have been no better or worse off if it had used the traditional IPO process, and questions whether the auction process might have alienated institutional investors from investing in the future.”
Entrepreneurs, Entrepreneurs Everywhere
As our fall semester starts it seems that I cannot take a few steps without bumping into another student entrepreneur. Om Malik blogs about more reports on this amazing social phenomenon. The recent theory by cynics on many campuses was that this trend would come to an abrupt end when the job market picked back up. Well the job market is back up, but entrepreneurial activities on campuses across the country continue to explode.
Entrepreneurship on college campuses is not a passing social trend born out of necessity. It is a fundamental transformation that could shape the American socio-economic system for years to come.
Carnival of the Capitalists
Carnival of the Capitalists is over at Mobile Technology Weblog this week.
Entrepreneur Confidence Surges
“Entrepreneurial confidence increased 13% in the second quarter of 2004 as compared to the first quarter of 2004 and an impressive 33% from the same quarter a year ago, according to the Entrepreneurial Confidence Index (ECI) from vFinance, Inc.” This dramatic improvement in entrepreneur’s confidence was reported at BusinessWire. This data can be tied to increases in financing and can be linked to the improvement in the household job survey this year. Entrepreneur confidence leads to a willingness to assume the risks associated with more debt and higher payrolls. Let the good times roll!
Defense Contracts Not Just for Halliburton
Small business is benefiting from defense related contracts, as seen in this Department of Defense release.
“Prime contract awards during fiscal 2003 to U.S. small business concerns totaled $42.0 billion, compared with $33.3 billion for 2002. Defense awards to all U.S. business firms totaled $187.5 billion during 2003, compared with $157.1 billion during 2002. Of the $187.5 billion awarded by the DoD to all U.S. business concerns during 2003, 22.4% of the awards were made to small business concerns, versus 21.2% in fiscal 2002. The increase is attributed to greater small business participation in acquisitions related to ships, services, construction, commercial items, and other major hard goods.”
This article was highlighted by the National Dialogue of Entrepreneurship.