Small Businesses not yet Buying into the Recovery

The economic recovery that some had been predicting over the past months may not be right around the corner, after all. While there are some indications of a strengthening economy, many experts are becoming more cautious about both the timing and the rate of the recovery.

And there is a growing chorus of those who believe that we may actually see a second downturn as part of this recession.

Recent surveys find that small- business owners also are not confident that good times will be returning anytime soon.

SurePayroll’s Small Business Scorecard for April found that optimism among small-business owners has shown some improvement during 2010. However, the authors caution that, “while some good things are happening, until more small businesses start hiring full-time workers — and those workers spend with confidence due to perceived job security — it is not time to declare a full recovery.”

Two specific results from the latest survey of small-business owners taken by the National Federation of Independent Business, a small-business lobby, found that the mood among entrepreneurs remains cautious.

First, job measures in the NFIB survey were very weak, which indicates that there is little hope of an employment recovery coming from America’s small business owners anytime soon. This is not good news as small businesses typically lead national recoveries by creating new jobs one by one.

Second, the survey found that small-business owners have very little intention of making capital investments in their businesses anytime soon. Plans to make capital expenditures over the next few months were unchanged and remained near the 35-year record low.

Only 4 percent of business owners characterized the current period as a good time to expand facilities.

I actually see this result as good news. Entrepreneurs are recognizing the need to be cautious right now. This economic crisis is far from over, so prudence is a virtue.

My advice to business owners is to remain conservative in spending, especially with fixed overhead. They should continue to build cash reserves and avoid taking on new debt whenever possible.

A strong financial position will help ensure a strong market position when the economy moves into a sustained recovery.
Top troubles: cash flow, sales

Author Barry Moltz recently conducted a survey of entrepreneurs to find out what struggles they face.

As expected during a recession, the biggest struggles Moltz identified from his survey were with cash flow (36.3 percent) and weak or declining sales (32.5 percent).

One of his more interesting findings was that even with so many small-business owners struggling to stay in business, only 8.5 percent said that they have lost their passion for being an entrepreneur. While the economy continues to show no clear signs of a recovery, entrepreneurs remain resilient.

This offers the hope that when better times do return, entrepreneurs will be ready to lead the way into a period of economic growth.

(This post was my column in today’s Tennessean).

Steve Blank on Customer Development

Some of you may have been following the writings of Steve Blank on business modeling.  He has been writing, talking, and teaching about business model development since retiring from active entrepreneurship — he also has a great blog.

Here is a talk he gave recently to a conference called the Start-up Lessons Learned Conference.  Here is a short preview of the talk that runs on You Tube:

The full video runs about 44 minutes, but is well worth the time.  Here is a link to the video. 
 
(Thanks to John Wark for passing along this video).

The Gift from the Flood of 2010

There is a pervasive myth that 80 percent to 90 percent of small businesses fail within the first five years. Actually, studies by the Small Business Administration have found that 51 percent of small businesses survive five years and beyond.

Some failure is due to the inexperience of the entrepreneur. If the business owner has not been through a business startup before, or does not have training in business skills, miscues are more likely to result.

Periods of growth can be particularly treacherous as the inexperienced entrepreneur is unable to keep up with the evolving needs the business has for new systems, new processes and additional resources.

We find that those entrepreneurs who have had formal training on how to start and then manage a growing entrepreneurial venture have survival rates as high as 80 percent.

But there always will be a certain number of businesses that fail through no real fault of the entrepreneur. Economic crises, fundamental changes in the market and, as we have witnessed here in Nashville this past week, natural disasters can lead to business failures.

While many businesses affected by the flood will survive, some well-run, healthy businesses will just not be able to recover from the losses they have suffered. Times like these remind me of when our own business was facing difficult circumstances.

I was on a walk with my wife trying to sort through our options. Finally, I said out loud the thought that most entrepreneurs keep to themselves: “What happens if this does not work out? What will we do if the business fails?”

My wife thought for a moment and then said to me, “Remember how happy we were when we were first married? We had nothing but each other, but that was all we really needed. If the business fails, we will still have our family. We will start over from there.”

Thankfully, we made it through that particular crisis. And I always remembered my wife’s wise counsel when we faced future challenging times, as it gave me a certain sense of peace and security.

Bertrand Russell once said: “The most valuable things in life are not measured in monetary terms. The really important things are not houses and lands, stocks and bonds, automobiles and real estate, but friendship, trust, confidence, empathy, mercy, love and faith.”

These are hard words to accept when your business or home has been destroyed. Our daughter and her husband suffered tremendous property loss as the Harpeth River inundated Bellevue.

But our family has received an incredible gift as a result of this tragedy. The help, generosity and support of neighbors, co-workers and students from St. Cecelia — where our daughter teaches — have overwhelmed us.

The kindness exhibited by so many of our fellow citizens here in Middle Tennessee has helped to remind us all of what is truly important.

My thoughts and prayers are with all of the small-business owners who have been affected by the flood. And my thanks goes out to all of you who have volunteered to help to ease the pain experienced by the victims of this tragedy.

(This post ran at my column in the Tennessean today.  My thanks to all who have sent their thoughts and prayers during these difficult times.  Your comments and e-mails warmed my heart and will never be forgotten.)

Reaction to Pink Slip? Bootstrapping to a Business Model

My Friend Ami Kassar (formerly with ideablob, which died when Advanta went bankrupt) offers a great bootstrapping story.  Fresh off his pink slip from Advanta, Ami used bootstrapping to navigate his way through using the market to help refine and develop his new business model behind his venture MultiFunding.

From the Philadelphia Daily News:

To start up quickly and cheaply, MultiFunding used WordPress as its blogging
platform (“so we can evolve it,” Kassar explains). He and his partner printed a
scant 100 business cards apiece, he says – then scrapped them and reprinted a
micro-batch when they realized that their corporate tagline was off-message.

“We found our office as a sublease on Craigslist,” he says. “We moved in and
the phones were here and the Internet was here, and we got going.”

Baby steps for newborn companies: “I think you have to start with your idea,
then break your idea into steps,” Kassar says.

Step one, he says, is to “sort out what the fundamental economic proposition
of your idea is and what it would take to prove it….”

“Then find a way to execute it as inexpensively as you can. Then, in
two-month or three-month increments, you can say, ‘OK, I’ve learned this or
proved this. What is the next step?’

Ami offers great lessons for any start-up.

Venture capital firms think small to help startups

Venture capital firms and angel investors around the country are trying a new investment model. Rather than target a small number of high-potential entrepreneurial companies with very large investments, there is a growing trend of investing smaller amounts of seed capital, called microfunds, with several entrepreneurs all of whom have promising ideas.

The venture capital firm Solidus Co. has pulled together a group from the Nashville entrepreneurship community to create a microfund to support local entrepreneurs and to help accelerate the growth of startups in the Middle Tennessee area.

JumpStart Foundry is focusing on very early-stage concepts. Over the next 12 months, the microfund intends to select 10 to 14 entrepreneurs for the program who will receive financial, business and technological support to accelerate their businesses’ growth.

Each of the selected concepts will receive $15,000 in equity capital and set up special arrangements with participating partners for marketing, accounting, legal and technology services.

In addition, three members of the group will use their knowledge and experience to mentor the entrepreneurs and accelerate the success of the projects.

In return for this investment, JumpStart Foundry will receive a collective 10 percent ownership in the common stock of the company.

JumpStart Foundry has made two investments so far.

The most recent is a collision detection system, called WreckWatch, developed by Vanderbilt University computer science students.

WreckWatch uses a smartphone connected to the cellular phone network to reduce emergency response times to an automobile accident. WreckWatch utilizes a smartphone’s onboard sensors, such as a GPS receiver and accelerometer, along with special software to detect and report an accident to a remote response center.

The WreckWatch team will use the funding from JumpStart Foundry to optimize its algorithms through further research and testing.
Why it may work

Townes Duncan, president of Solidus, explained why he believes this fund will make an impact on the local startup environment.

“Traditional venture capital funds require investments to be at least $1 million to $5 million in size. This amount of capital is often much more than an entrepreneur can effectively utilize at the very early stage of concept development,” Duncan said.

According to founding member Scott Kozicki, the JumpStart Foundry name is meant to be symbolic of a two-fold mission.

“The fund intends to help launch or ‘jump-start’ emerging new business concepts. Further, we will also act as a foundry by leveraging our experienced group of founders to help mold the concept into an exciting, emerging business.

“To complete our offering, Jumpstart Foundry will also establish partnerships with local organizations to offer important business services at either free or dramatically reduced pricing for the fund’s investments.”

JumpStart Foundry offers Nashville entrepreneurs a chance to take their ideas from the whiteboard to the market.

(This post ran as my column in today’s Tennessean.  Note:  I am a co-founder of Jumpstart Foundry, but do not have an equity stake nor do I invest in any deals coming to this group).

Listen Up!

My friend Rhonda Abrams has a message for Washington in her latest column at USA Today:  “Listen up, government: Small business is most trusted group.”

From her column:

“Be proud, small-business owners! You’re now the most trusted group in America. Listen up, federal government! You’re neglecting small business — and most people think so.

“According to the just-released study by the highly respected Pew Research Center, small business is the most trusted institution in America. More than churches. More than colleges. More than technology companies. And certainly more than labor unions or large corporations.”

Strong Showing

DEX team 2010.jpg

Belmont students had a strong showing earlier this week at the Collegiate DECA comptitions, Delta Epsilon Chi.

Out of the 1500 students from 250 universities, our students had 17 national winners out of the 28 students we took to this event:

2nd Place National – Financial Service Management – Justin Wood (Sr, Finance)
2nd Place National – Restaurant Management – Clark Buckner (Fr, Entrepreneurship)
3rd Place National – Entrepreneurship Challenge – Kirstin Long (Sr, Entrep & Mktg) and Sarah Beairsto (Entrep, Soph)
Top 8 National — Entrepreneurship Challenge – Eric Carroll (Sr, Entrep & Mktg), Justin Wood (Senior, Finance), and Corey Griggs (Sr, Entrep)
Top 8 National — Entrepreneurship Challenge – Aubree Phillips (Jr, Entrep), Kallie Robertson-Smith (Sr, Entrep) and Lexi Nash (Sr, Entrep & MBU)
Top 8 National — Entrepreneurship Challenge – Mandy Thompson (Jr, Mktg), Catharine Hooks (Jr., Entrep), Emilie Lico (Fr, Entrep)
Top 10 National – Entrepreneurship Business Plan – Susan Harbison (Sr. Entrep)
Top 10 National – Entrepreneurship Business Plan – Corey Griggs (Sr, Entrep)
Top 10 National – Design Presentation — Kallie Robertson-Smith (Sr, Entrep)
Top 10 National – Sales Management Presentation – Jerrell Harris (Soph, Entrep)

Congratulations!!

Where the Best Ideas Come From

Most entrepreneurial start-up don’t come from some magical “ah ha!” moment of inspiration.  They come from our daily lives.

The best ideas from business come from our work and training, our knowledge and educational background, and from our personal experiences. 

BNET has an inspirational story of an entrepreneurial idea that came from personal experiences.  It is the story of Kirby Best, who happens to be right here in Nashville:

“My wife was diagnosed with breast cancer 10 years ago. She’s fine now, but we had four little boys at the time and her illness was a blow to all of us. The chemotherapy triggered early menopause, and one of the side effects is hot flashes or night sweats. You perspire heavily, and the bedding gets very wet. And once you’re wet, and the flash passes, you get that awful clammy, cold feeling.

“I had experimented with some of the early wicking material, and remembered I had some clothes made of this material from the 1980s. I asked my wife to just try sleeping in this material. I said it would wick away the moisture and keep her dry. All of a sudden she could sleep at night. It transformed our life.”

(Thanks to Bill Hobbs for passing this along).

Entrepreneurial Inspiration

I am here in Louisville with twenty-eight of our Belmont students at the annual International Career Development Conference of the collegiate division of DECA, Delta Epsilon Chi.

Interest in entrepreneurship continues to be strong at this conference.  I was amazed to see the high level of interest this year in the conference-long event called the Entrepreneurship Challenge.

Each year the students participating in this event are given a specific prompt and told to develop a new business that takes advantage of the issue in the prompt.  Here is this year’s challenge:

“The Challenge is simple–create a business concept that capitalizes on the new Louisville Downtown Arena currently being built right next to the Galt House Hotel. NOTE: Your business concept, whether it’s a product or service, may not be “located” inside the arena itself.”

The student teams will be making their initial pitches this afternoon in a speed dating style format developed by my friend George Solomon from George Washington University. 

The top teams from the preliminary rounds will then refine their pitches for the finals tomorrow.

The entrepreneurial energy and the optimism of these students is motivational to all of us involved with the event.

Let me share a little entrepreneurial inspiration with all of you this morning.  Ben Cunningham sent along a video that was posted at Club for Growth that brought a smile to my face this early morning: