Not just for the young

I continue to be amazed at the trend toward more and more new business formation. Even as the economy picks up, we see experienced executives moving into the entrepreneurial ranks, as seen in this post by Anita Campbell at Small Business Trends. The biggest challenge these executives face is to understand that they are not forming a small, “big business”.
Most of these folks find that to survive in the entrepreneurial realm they must unlearn many things they know from their big business experiences, and more importantly develop many new habits. I had an entrepreneur in my MBA class last night who stressed what a challenge this can be. He began his career moving up the ranks of a large corporation. Then he caught the bug, and decided to strike out on his own.
One day, he needed some Post-it notes, and was ready to tell someone to get them for him. That’s how it worked in his old job, after all. But, wait! There was no one but he and his partner. So, he did what every entrepreneur does: he got in his car and drove down to Office Depot. He also found that he began to write notes on the back of used paper, rather than pull out a clean sheet of letter head as he did when in a big company. He started to stay in Microtels and fly Southwest, rather than stay in the best hotels and fly first class.
Another challenge is that some big business converts find that raising money can be relatively easy. This actually can be a mistake if it is too easy. Too much money is almost as bad as not enough. These new entrepreneurs find it easy to spend this “extra” money on overhead and “lifestyle” expenses. This can burden on a young business by creating too much fixed overhead, which will eventually catch-up with these entrepreneurs. The business cannot grow large enough, quickly enough to cover these fixed expenses. And when they do realize the problem they created, it is often already too late for their business to recover.
But many do make the transition and are now filling the ranks of this growing army.

Working with Attorneys

I visited an interesting weblog this morning called the [non]billable hour. It is written by an attorney named Matt Homann who is trying to change the practice of law–for the good–as he puts it, “one lawyer at a time”. An interesting site for entrepreneurs, as well.
It took me a few tries to find an attorney for our business who really understood entrepreneurs, how we work, and how we need them to work. Don’t give up if you are trying to find a new attorney.
Here are some tips on choosing and working with an attorney that I talk about with entrepreneurs that is based on a great book, The Entrepreneur’s Guide to Business Law by Constance E. Bagley, Craig E. Dauchy:
Choosing an Attorney
1. Understand the advantages and disadvantages of large vs. small firms. Large firms have specialized expertise that can become critical as you grow. Small firms can offer a more personal touch and can be more efficient. Most entrepreneurs need something in between. Understand your needs (e.g., intellectual property, environmental law, employment law, etc.) and make sure they have an expert that can address your needs as these issues arise.
2. Get at least three referrals from people you trust. Your best source is other entrepreneurs.
3. Interview each firm carefully. Think about things such as: personality (you may need to spend a lot of time with these folks during stressful times in your life), how compatible you think the working relationship would be with these folks, their use of technology to make things more efficient (and cheaper) for you as a client, the timeliness in returning phone calls (they will never be more responsive than when they are trying to get your business–so if they are slow now….), knowledge of your industry (not essential, but helpful), do they add networking potential to sources of funding or new business, and finally find out how much they cost and how sensitive they are to your limited budget (be honest and direct–if they are defensive about their rates, run for the hills!).
Working With an Attorney Effectively
1. Talk openly about fee structure for any project and be honest about your budget. Their are more than one way for them to bill, and they should be willing to work with you, especially if you are a newer venture. If not, go to the list above and find a new attorney. Some attorneys will reduce the fees for working with a promising entrepreneur with the hope that as you grow, they will reap the benefits of more business when you can better afford to pay for it. Ask about this!!
2. Your attorney should be willing to let you preparing your own drafts on documents. This can save a lot of money and will result in documents that better reflect your business and your strategies.
3. Organize your meetings with your attorney. Batch issues so you have fewer, more efficient meetings that can cover several issues at once.
4. Be proactive. If you think you might need to talk to your attorney, you probably do. They should let you send a quick e-mail to see if they really need to talk with you about an issue as a regular practice.
5. If you have questions about your bill from them, ask them about it! If they get defensive, you may want to start shopping for a new attorney.
By the way, make sure to get your lawyers to visit Matt’s site. Then talk with them about it–OFF THE CLOCK!

Don’t Fear Failure

Rob at BusinessPundit suggested a post at The Occupational Adventure about failure. It is worth a look. Failure, or the fear of failure, is what has kept many a potential entrepreneur on the sidelines. Failure is something we all have learned from along the way if we let ourselves take some risks. It reminds me of the first time I really got tackled hard in Junior High football. I was really afraid of how it would feel, and although it really did hurt (the guy was the star line backer of the eighth grade team), I learned from it (stay away from his side the rest of the game and go out for cross country next fall).
We can all learn from our own failures. That is an important part of entrepreneurial learning. We can also learn from the failures and mistakes of others (I picked that up and a young age being the youngest of four boys–thanks for all the lessons on what not to do Tom, Scot and Steve). Some of my best lectures center around mistakes and failures I had in business and how I tried to learn from them going forward.

Technology and Growth

Anita over at Small Business Trends posted a summary of a survey conducted by Yahoo Small Business. It looks like technology is on small business people’s minds these days. Although the survey is sponsored by Yahoo, it was conducted by Harris. It still could be slanted by Yahoo’s involvement, but is interesting even with this possible bias.
“In a survey of over 1,000 small business owners, the following activities were listed as the most beneficial to the growth of their company, in order of importance:
Having or establishing an online presence (35%)
Having or obtaining dedicated business email (30%)
Increasing online advertising (30%)
Hiring more employees (19%)”
Technology can certainly level the playing field a bit, and can create opportunities that could not exist without its support. However, just as I used to tell small businesses that not all of them needed to be in the Yellow Pages (most usually thought they did), not all businesses today need to have a web presence.
Think like your customer.
If your customers look for your type of business in the Yellow Pages then be there with your advertising (restaurants still get much of their business from this source of information). If they look for your type of business on the web, then that is where you should be.
This is a transition time, however. Many businesses are finding that they have to cover multiple media for their message as customers are not all using the same source for product/service information. Some customers within the same target market are more technologically inclined while others still are not.
In this case, think like your customers.
NOTE: If you found the relatively low priority for hiring interesting, as I did, make sure to read my post from yesterday.

Economic Foot Soldiers

During the last economic expansion entrepreneurs constantly battled to find workers. Staffing shortages were the major challenge that the entrepreneurs who I was working with complained about. This recovery has created a new challenge: supply shortages.
Why are inventories so low? Businesses have been slow to ramp up production during the current expansion even though the economy was clearly picking up. Just this past weekend, I was talking with small businessman who said that even though their revenues had increased dramatically this past year they still had not really expanded their work force since their post 9/11 layoffs. They were falling behind on some orders, but he was still not sure they should add staff or inventory.
The current expansion has seen an unusually slow employment recovery. Why? In large part it is because we are still waiting for the other shoe to drop. Entrepreneurs remember that after the 9/11 attack, those businesses that were already running lean and tight were the most likely to survive the dramatic shock on the economy that followed. There is a general, yet usually unspoken fear that there will be another ?event?. So they are being very cautious. They don?t want to be caught with large inventories and bloated payrolls if the terrorists strike again. Entrepreneurs have a general sense of confidence in the economy, but they just don’t trust that events will allow it to continue.
This caution has led to the current shortages in supply. As the economy has gotten red hot, the capacity is just not there to meet the growing demand. Russell Sheldon, a senior economist at BMO Nesbitt Burns in Toronto, states in a commentary published in the Nashville Business Journal that these shortages are widespread. ?Inventories at all stages of production plunged relative to sales in the initial months of this year. All three levels – manufacturing, wholesalers and retailers – are very short on inventories.? I see it in my neighborhood where construction has slowed due to material shortages, while demand for new houses is stronger than it has been in years.
Sheldon and other economists warn of what these shortages can create. It is demand-pull inflation. Many entrepreneurs had not experienced an economic downturn before the recession that began in early 2001. Even more of them have not known of the challenges that inflation can create for business leaders. The last serious period of such inflation was 1979, when we saw prices grow at a double-digit rate. I remember, as I had just finished by MBA in finance from Kentucky and very few of us in that graduating class could find meaningful work.
Hopefully the Fed can keep inflation in check this time. We learned from the inflationary periods of the 1960s and 1970s that panic over rising prices only made inflation worse. So we all must do our parts to keep inflation under control. Knowing why we are facing this challenge may help toward this end.
But, things are no longer as predictable and simple as they once were. The attacks of 9/11 were aimed directly at our economic system. And they got a direct hit. We are at war. The war has come to our shores, and the enemy intends on attacking the very foundations of free enterprise and our way of life. In many ways, entrepreneurs are the economic foot soldiers of this part of the war. And much more is at stake than simply their businesses.

Even well connected start-up can find financing a challenge

This story in the Tennessean tells the tale of experienced entertainment industry executives trying to launch a start-up. As evident from this stroy, connections and name reconition alone are not enough to bring money to the table.
“(Carl) Kornmeyer, who was heavily involved with The Nashville Network and CMT during his Gaylord tenure, has decided to build a company from scratch in a big way, one seeking somewhere in the neighborhood of 0 million. The venture, called New Shoes Media, is exploring digital cable network and programming opportunities.”
They are hoping to raise the money though local sources here in Nashville, but may end up chasing venture capital as well.
One piece of advice from this humble blogger: think about your “story”. This is especially important as one moves away from the locals who know you. Why do I raise this issue with this start-up? Well, here is how they say they got the name for their new company:
“The company’s name came before Kornmeyer, however. It reflects the gamble they are taking. ‘Come on, baby needs a new pair of shoes.’ And the dice go rolling across the table.”
Not a part of the story that most experienced investors want to hear. Prudent risk taking is what they are seeking in deals. Rolling the dice is normally not the business they are in with their financing deals.