The American economy
has been, and will continue to be, built by entrepreneurs. If you believe that
entrepreneurs’ voices need to be heard and want to help to educate government
officials about the important role entrepreneurs play in our economy, I encourage you to connect with the Build A Stronger America initiative supported by the Kauffman Foundation. All you have to do is click on the link above and join the Entrepreneurs’ Movement. I did!
The latest survey by American Express OPEN Small Business Monitor reports similar results to the NFIB survey I wrote about earlier this month. Like the NFIB survey, this one also found entrepreneurs to be somewhat more optimistic, but still very cautious.
As someone who teaches lots of aspiring and nascent entrepreneurs from Generation Y, I was interested in the survey’s findings about this group when compared to older entrepreneurs:
Some of this is the optimism of youth and some may be due to the fact that they have never experienced a deep recession before. One of our learning goals in our program is to bring undergraduate students down to a more realistic understanding of the challenges and struggles they will face. This has become a key set of assessment items for our program’s effectiveness.
Entrepreneurship can be stressful enough during good times, but during tough times we see that the uncertainty and struggles resulting from managing the finances of a small business during the recession are taking its toll:
I have been stressing the need to hunker down for some time. Entrepreneurs are becoming more conservative:
With the growth in interest in social entrepreneurship, I am often asked about the status of the B Corporation. B Corporations is a designation for a for-profit venture that has a social mission.
Here is the latest from Nonprofit Law Prof Blog:
The B Corp concept (B stands for social benefit) has not yet, so far as
I know, been adopted by any states, but corporations can dedicate
themselves to a socially responsible future by registering with B Lab,
a nonprofit organization, and agreeing to comply with its dictates such
as committing irrevocably to socially responsible business
activities,taking cognizance of stakeholder concerns, and conducting an
annual social benefit audit and report. If the corporation
complies, it receives what in essence a Good Housekeeping Seal of
Approval from B Lab and can describe itself as a B Corp.
So as of now, this is not an alternative legal form of business entity like an S-Corp or LLC. However, there is lobbying going on in Washington to set up a separate tax category or special tax break for B Corporations. If this happens the states will surely follow and recognize this category of business as a new way to charter a corporation.
I think this would be a bad move. Many social entrepreneurs who choose to set up their venture as an S-Corp or LLC and by-pass non-profit status do so to avoid the hassles of setting up and running non-profits. If we turn the government and specifically the IRS loose on a new form of legal business entity called B-corps, they will become part of the morass that makes up the 70,000 pages of IRS code. I would predict that in a few years we might see thousands of new pages of code dedicated just to B-corps.
The power and utility of all of the new Internet-based bootstrapping options for marketing, such as Twitter, Facebook, and other social media, continues to evolve and grow.
Many entrepreneurs are discovering the power of Twitter as a means for keeping customers up to date on daily specials and sale items, best times to avoid long customer lines, and special events.
But Twitter is also proving to be a tool for keeping customers in the loop when a business is in a crisis. For example, the Wall Street Journal illustrates a new use that entrepreneurs have discovered for using Twitter:
The social-media service — where users send short “tweets” to followers who
have signed up to receive the messages — came in handy for Innovative Beverage
Group Holdings Inc., whose drankbeverage.com site crashed last month after a surge in
traffic following a segment on Fox News for the company’s so-called relaxation
beverage, which contains “calming” ingredients like valerian root and melatonin.
If customers like your product or service, they will generally be tolerant of glitches that occur as your business grows. The most powerful message of the Twitter story above is not Twitter
itself, but the importance of timely and honest communication with your
customers.
While e-mail may seem like a quick way to communicate, for many it is becoming perceived as too slow and antiquated just as snail mail did when e-mail became more common. Twitter can reach people immediately with just the key information they need to know delivered right to their iPod or Blackberry.
And during a crisis in your business, such instant and honest communication can ensure that you keep the loyalty of your community of customers.
One caution — there is not one easy way to communicate. Some people prefer Twitter, some e-mail, some phone calls, some text messages, and some Facebook. When getting contact information from customers find out which they prefer. You may need to maintain a multi-channel approach to customer communication.
(Thanks to Bill Hobbs for passing this idea along).
My friend Rhonda Abrams has a new feature at USA Today. She will be offering a six week series of free on-line articles for aspiring entrepreneurs called “Six Steps to a Successful Small Business.”
In her first article, she highlights how to think like an entrepreneur:
Someone who needs an extremely high level of security might
be challenged by an entrepreneurial lifestyle, yet a lot of people who don’t
think of themselves as embracing risk become entrepreneurs. The key is that
although a successful entrepreneur takes risks, those risks are measured. Though
entrepreneurs frequently go out on limbs, the ones that make it generally test
that limb first to make sure it has a good chance of bearing their weight.
Her series will help aspiring entrepreneurs, even those of you who are accidental entrepreneurs due to the on-going recession, to navigate the start-up process with a little more confidence and understanding of the journey they are facing.
My column this week in the Tennessean explores how to build a bootstrap culture:
When starting a new business, most entrepreneurs have to bootstrap their business — that is, find ways to get things done with limited resources.
But why do so many owners keep bootstrapping even when the cash starts flowing and they no longer have to bootstrap out of necessity?
Bootstrapping over the long term helps keep the business efficient, which reduces the need to secure external financing. This allows the entrepreneur to keep ownership of the business, reduces the need for taking on debt and helps strengthen the business during recession.
In addition, continuing to bootstrap helps build a stronger cash flow. And the stronger the cash flow, the higher the value of a private business. Bootstrapping, therefore, helps build wealth for the entrepreneur by increasing the value of the venture as it grows.
An entrepreneur has to get everyone in the organization to become a bootstrapper. This requires the creation of a bootstrapping culture throughout the company. Entrepreneurs should communicate a consistent message about bootstrapping. Highlight its importance in every form of communication, ranging from informal conversations with employees to formal communications such as newsletters, annual reports and policy manuals.
A consistent message reinforces the importance of bootstrapping behavior.
For example, include a feature in every company newsletter about an employee who was the “bootstrapper of the month,” offering a story of how he or she accomplished a task with minimal resources. Remember, storytelling is a fundamental part of building a culture in a business.
However, remember that your actions need to reinforce your message about bootstrapping. The leaders of a business should bootstrap at every opportunity to serve as a role model and demonstrate their commitment to bootstrapping.
Building a bootstrapping culture also requires careful recruiting of new employees. When bringing new people into the business, look beyond their technical skills and experience to fill the position. So, if you want a bootstrapping culture to flourish, find out if prospective employees fit into a bootstrapping way of doing business.
Ask the right questions
One approach to evaluating the fit of prospective employees is to develop open-ended interview questions that assess their bootstrapping temperament. For example, you can ask all the applicants the following: “Tell me about a time when you had to accomplish a task when limited resources were available.”
If the interviewee answers by saying that she always had more than enough budgetary support in her old job, it might be difficult for her to adapt to a bootstrapping environment. Or, if she answers by complaining about the lack of resources in her old job, or about how her old boss was always a cheapskate, it’s a sure sign that this person will not have bootstrapping in her blood.
On the other hand, if she speaks with enthusiasm and pride about how she got the job done within the limited resources available, the candidate is a perfect fit.
To keep bootstrapping alive as a company grows, entrepreneurs must create a culture in which bootstrapping is simply “how we do business around here.”
I quick follow-up on my post from yesterday about small business employment trends….
Denny Dennis with the NFIB Research Foundation pointed out to me that the data from the Bureau of Labor’s Business Employment Dynamics (BED) report adds additional worrisome clues into the state of job creation among entrepreneurial firms.
Typically, small business creates modest employment growth during recessions, while big businesses have massive job losses. However, the BED data indicates that this recession is seeing small business is creating fewer jobs than large businesses.
The SBA Office of Advocacy has issued an update of their Small Business FAQ. There are some worrisome changes in some of the statistics.
The small business job engine is sputtering. For several years the SBA has estimated that about 78% of new jobs in the U.S. have been created by small businesses over the past several years. They now estimate this figure to be about 64%. I would predict an even further plummet over the next two years. These are running averages, so it takes time for the numbers to shift. However, I must admit that this sudden drop took my breath away when I read it.
The small business foundation of the economy is weakening. The SBA estimates that in 2007 the small business birth rate is about 627,200, which is the lowest level in the past five years. I am worried what the 2009 figures will show, although this number includes self-employed. That number may be up due to the high unemployment rate. But, for the first time in the past several years, business closure rates and business bankruptcy rates exceed the business birth rate. This is alarming. We also need to keep our eye on the Census estimate of the number of small business that have employees. It was at 6.0 million as of 2007 estimates (if the future estimates really will have any credibility with the new policy that is moving the Census Bureau directly under the control of the White House).
And what about survival rates? The jury is out on this. We will have to wait until 2011 to have any meaningful data on business survival rates. The baseline going into this economic downturn — that may be turning into a full fledged small business collapse thanks to the policies of the current President and his predecessor — is 69% survival rate two years out and 51% survival rate five years out. Again, we have to rely on the Census for these estimates, so not sure how they will spin the future statistics.
If I hear one more report about a jobless economic recovery I think my head will explode. There is not real economic recovery without job creation. Talking about a “jobless recovery” is a classic spin that politicians from both parties use when the economy gets stuck in a long-term slump.
The latest from William Dunkelberg, chief economist for the National Federation of Independent Business, indicates that the slump is, indeed, going to be with us for quite a while:
“Small business owners in August reported a decline in average employment per firm of 0.8 workers (seasonally adjusted) during the last three months. August’s figure was unchanged from July, but a big improvement from the record loss of 1.26 workers posted in May.
“Six percent of the owners increased employment by an average of 2.5 workers per firm while 22 percent reduced employment an average of 3.9 workers per firm (seasonally adjusted). The job generating machine is still in reverse. The BLS recently reported unusually high job losses in the small business sector, due in part to terminations and failures. As can be seen in the chart below, the reduction in labor costs (e.g., jobs) has been huge. This explains the recently announced impressive productivity numbers; if employees are fired faster than sales fall, output (sales) per hour will rise. Hopefully, this job cutting has been overdone and will produce a faster than expected recovery in employment (once consumers start spending – retailers and restaurants are in tough shape). Manufacturing is improving, but that will not budge the employment numbers.”
“Eight percent (seasonally adjusted) of small business owners reported unfilled job openings, down 1 point from July. Over the next three months, 13 percent plan to reduce employment (down 1 point), and 7 percent plan to create new jobs (down 1 point), yielding a seasonally adjusted net 0 percent of owners planning to create new jobs, a 3 point improvement over July. Not seasonally adjusted, net job creation plans were negative in all industry groups except the professional services and the wholesale trades.”
If you have not seen the Jeff Bezos video at youtube, you need to. He
boils down what he has learned from Amazon into eight simple principles. (Thanks to MyVenturePad for passing this along).