The latest semi-annual survey American Express OPEN Small Business Monitor was released today. Overall, the mood of small business owners is not good. Fewer entrepreneurs see the economy improving with expanding
opportunities for their business when compared to the findings of six months ago (18% vs. 26% last fall).
A couple of the specific findings show some modest improvements over the past six months:
Nearly half of small business owners (48%) plan to make capital investments in their businesses, nearing spring 2008 levels (53%) when investment plans began their steady decline;
More than one-quarter have plans to hire (28%), up from the historically low twenty three percent in fall 2009;
One bright spot on the subject of sentiment is among younger entrepreneurs, 72% of whom are optimistic about their business prospects and the economy. This is consistent with other findings I have reported on and with our own observations as entrepreneurship educators.
The SBA Office of Advocacy released two reports today related to retirement planing in small businesses.
The first report,written by SBA economist Jules Lichtenstein, looks at planning by small business owners for their own retirement.
The author’s results offer substantial evidence for concern that business owners are not saving enough and that their retirement savings may be inadequate. Some of the findings:
Individual-based (outside work) retirement account ownership, contribution activity and employment-based participation (at work) among business owners are low. IRA ownership rate for business owners is only about 36 percent, and only one-third of business owners with an IRA contributed for the 2005 tax year. Less than 2 percent of business owners own a Keogh plan. Only about 18 percent of business owners participated in a 401(k)/Thrift plan.
Business owners are more likely to own or contribute to retirement accounts if they are older, non-minority, educated, have more established business(es) (e.g., larger, older, profitable), and own more than one business.
Having a micro-business with fewer than 10 employees reduces the probability of an owner having a 401(k)/Thrift plan from 17.4 percent to 10 percent, all else equal.
A second study released by the SBA looks at employee participation in retirement plans in small businesses. Some of the highlights of this study, authored by Kathryn Kobe, included:
Almost 72 percent of workers in small companies have no retirement plan available through the company; an additional 9 percent have a company-sponsored plan available but do not participate. Only 19.5 percent of workers in small private sector companies report participating in a retirement plan.
Age, marriage, and educational attainment positively affect the likelihood of participating in a firm’s retirement plan. This holds true for full-time and part-time workers.
Defined benefit plans are most likely to be sponsored by large businesses; almost 32 percent of workers in large firms report the availability of a DB plan compared to 25 percent of the workers in small businesses. Defined contribution plans are the type of plan most often reported by both groups. About 75 percent of small business workers and 70 percent of large business workers report that their firms sponsor such a plan.
One of the reasons why smaller firms may not offer retirement plans to their workers is the cost of setting up and running a retirement plan. Workers who do not participate in employer-sponsored plans frequently cite eligibility requirements and an inability to afford contributions as reasons why.
A number of government programs have sought to simplify retirement plans in order to encourage more small businesses to sponsor them. These efforts have met with limited success and come with a cost.
Given the increasing strains and questionable viability of social security going forward, both of these studies should cause concern given that 50% of Americans now work for small businesses.
Lee Turley has a good post at his site Journey of an Entrepreneur. While selling is an important skill for any entrepreneur, you have to truly believe in what you are selling and believe in your ability to sell:
“If your product is awesome and you’re still hesitant, then call a potential
customer right now! We must learn to take action and not just think. It doesn’t
matter if you get rejected… you haven’t lost anything… but you have gained
courage and if you’re smart you’ll find out why they said no so that you can
improve next time.”
A post by Jonathan Ortmans, president of the Public Forum Institute, at Entrepreneurship.org led me to reflect on the changes we are seeing being ushered in America. Ortmans made the following observation:
“We have long been aware that American education is struggling to stay competitive. We also know that the development of entrepreneurial skills, such as opportunity recognition and prudent risk taking, are not prioritized in most U.S. educational institutions. Developing tomorrow’s talented, capable innovators is a challenge that will require entrepreneurially-driven improvements in education at all levels.
“Programs that introduce students to the possibilities of business creation are few, but they have proven that they can open up new horizons for talented kids and unleash an entrepreneurial drive would otherwise lay dormant.”
But just where does the American entrepreneurial drive that we take for granted come from? What is the source of the entrepreneurial flame that burns so brightly in the students who come to programs like ours at Belmont? The answer is our culture.
Since our founding, our culture was fostered by our freedoms. We created an economy based on economic freedom that rewarded self-reliance and ingenuity, rather than family power and birthrights as had been so common in the histories of our founding fathers and mothers.
Ours was this economic system that shaped our values over the generations. We celebrated those who succeeded, holding them up as icons of what was possible for all of our citizens.
We have added the likes of Hewlett and Packard starting an industrial empire out of their garage into the stories that informed our culture. Even more recently, the stories of technology companies like Dell that started in college dormitories have become part of our folklore.
But now our public policy is moving toward the next stage of a fundamental shift that threatens this part of our culture. We are seeing self-reliance being replaced by entitlement. We are seeing the creation of wealth and economic success being vilified. Property and wealth are no longer things created out of nothing by entrepreneurial individuals seeking opportunity in the market, but public goods to be doled out by government and its armies of bureaucrats.
I fear that the current generation coming into the workforce — the so-called Entrepreneurial Generation — may be the beginning of the end.
The children being born today will know an America where society and government are expected to provide for them and to solve their every problem.
I truly fear that the entrepreneurial flame that has burned so brightly in this country will begin to dim.
Those of us who teach entrepreneurship cannot ever teach the entrepreneurial drive and the spirit of free enterprise. I am only successful because those who come to our program have that drive deep in their core values.
I can teach how to evaluate opportunities in the market, but I cannot instill the drive to do so. I can teach how to assess and manage risk, but I cannot build a class to train students to have the entrepreneurial spirit that seeks the rewards that come from risk-taking.
Entrepreneurship will not go away, but it will not be the fundamental part of our culture and our economy that it has been in the past.
There is still time to protect the entrepreneurial flame, but it is already beginning to flicker.
Here is my final thought from the Economics Blogger Forum….
One of the economists in attendance here today said that while he respected the enthusiasm of people sounding their voices through the Tea Parties, “populists rarely have ideas for effective economic policy.”
After hearing the bickering about economic policy nuance throughout the day today, it is clear that economists have little understanding about the day-to-day hardships being faced by small business owners on Main Street.
It it is time to listen to the economic wisdom of the populist entrepreneurs across America when they tell the government, “Let us keep our money and get out of our way!”
We had a rather spirited discussion in a small group breakout late this morning session here at the Economics Bloggers Forum here in KC. It centered on what really caused the recession. The argument was made by Michael Mandel (formerly of Business Week) that we had very few real technological innovations introduced into our economy since 1998. What is interesting to me is that this may partially explain why we are seeing no entrepreneurial job growth pulling us out of the recession. In all past recessions it has been entrepreneurs who have kindled new growth. The argument may be that there is no real base of new technology to build from to jump start a recovery.
The good news is that Bob Cringely asserts that there is a technology seedbed out there that may yet spur long-term growth.
I am blogging from the Economics Bloggers Forum today at the Kauffman Foundation in Kansas City. As a non-economist what I have taken away from the discussion so far this morning is that the long term economic forecast is pretty bleak, and that few of the economists can agree on what has happened to us and what we need to do…..
I have tried a different approach to business planning with my students this semester.
While I have defended business planning in the past, I also recognize that it is often not used effectively. People rush into planning without making sure they are writing a detailed document about something that can actually make it in the market. I also see that people who move into writing a business plan too quickly can get lost in the details.
It is this second issue that has led me to add a new step in business plan development for my students (and with the alumni I work with, as well).
I have integrated a step between the cursory opportunity assessment process and developing a full business plan.
The step is based in large part on the ground breaking work of Osterwalder and Pignuer on business modeling. It has proven to help them see how the moving parts of the business fit together and work (or don’t!) before they dive into the details of planning.
Here is the assignment (this can serve a s good outline for anyone planning a venture):
A new survey of small business owners by Brother International Corporation found that small business owners are still hunkering down.
The survey revealed that more than half (53 percent) of small business owners believe stockpiling cash is the best strategy for surviving the current economic climate, as opposed to investing in their business. This is a wise and prudent strategy right now. The economy is a long way from recovery and more shocks could be in our future. Cash is the best cushion against uncertainty.
The same survey showed that the majority of small business owners (79 percent) will strive to make their company more efficient this year. Bootstrapping is back in and is a great path to higher cash reserves.
Additional results from the survey include:
15 percent say they would give up 10 percent of their company in exchange for a guarantee that they’d be protected from negative economic effects in 2010.
51 percent of small business owners find that their stress level is at the highest it’s ever been, or higher than usual, as a result of the economic climate. In fact, close to half (48 percent) of small business owners think about their business while trying to fall asleep.
65 percent of small business owners believe they put in more hours than if they worked for someone else.
50 percent of small business owners enjoy the flexibility that comes with “being your own boss”
35 percent enjoy being able to pursue their passion.
