I have been arguing for some time that it is time to
fundamentally restructure our immigration policy in this country. We need to create a path for aspiring entrepreneurs to come in and help fuel our entrepreneurial economy. A new study from the Office of Advocacy of the SBA reinforces my point.
The study authored by David Hart, Zoltan Acs and Spencer Tracy found that sixteen percent of high-impact, high-tech firms have at least one immigrant founder. Although these firms are concentrated in states with large immigrant populations, in most other respects they resemble high-impact, high-tech firms founded by native-born entrepreneurs.
Moreover, these immigrant entrepreneurs are highly educated and appear to be strongly rooted in the United States. Roughly 55 percent of the foreign- born founders hold a masters degree or a doctorate. In addition, they are more than twice as likely as native-born founders to hold a doctorate.
Furthermore, 77 percent of the foreign-born high-tech entrepreneurs are American citizens and, on average, they have lived over 25 years in the United States. Two-thirds of them received their college degrees here, as well.
“Immigrant entrepreneurs clearly contribute a significant amount to our country’s cutting edge high-tech firms,” said Shawne McGibbon, acting Chief Counsel for Advocacy. “This report outlines these contributions and delivers important new data about immigrant entrepreneurs.”
How
can I prevent my business from being too dependent on one or two key
personalities (e.g., founders) so it can continue to grow after their
departure?
The biggest roadblock to building a team that sustain a business even after the departure of the founders is their hesitancy to delegate.
Letting go is tough for most of us. We have been with our business
all the way through its growth, through the good and the bad times. But
at some point, if we want our business to grow successfully, we have to
begin to delegate. At first it will seem that no one can do what you do
as well as you can. But just like raising a teenager, at some point you
have to begin to let go so they can learn and grow up. Your business
will go through this same difficult transition. If you don’t begin to
let go, you business may never successfully move into its next stage of
development.
Out of the challenge of delegation comes a second issue — “What exactly is the job description for a CEO, any way?”
For many entrepreneurs, this may be their first time as a CEO. That
title means very little in the early days, but as the company grows it
takes on more meaning. Defining your role and your style as the CEO of
your company takes planning and specific effort on your part. It may
even feel a bit awkward at some point, but you have to establish what
your role will be as the CEO. Play to your strengths.
This is often due to the fact that many entrepreneurs start their businesses because they like the
hands-on part of their business. Engineers like to engineer. Furniture
makers like to build stuff. As some point in the growth of the
business, the entrepreneur begins to move away from the hands-on part
of what they company does. This can be a painful and frustrating
period. Keep this in mind when you decide how far you want to grow the
business. It is OK to keep it at a size that allows you to stay in the
hands-on part of what you do.
When building the management team that will take over much of the running of the business, the most common mistake is to hire solely based on people’s skills and experience. The technical ability of the person to perform the job should be the minimum criteria that get them to the first interview. After that, pay most of your attention to their fit with your culture and their ability to continue it into the future.
This requires that you have a clear and concrete understanding of what makes up your culture. Then use this to develop several open ended interview questions that can give you insight into how well they fit with your culture. Don’t asking questions that lead them to answers. Make them vague enough so they have to use their own values to build their response.
For example, assume that bootstrapping is a key part of the culture of your business that you want to ensure will continue into the future. You might ask them the following: “Tell me about a time when you had
to accomplish a task when limited resources were available.” If the
interviewee answers the question 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 not having worked that way
in the past. Or, if she answers by complains about the availability of
resources in her old job, or about how her old boss was always cheap,
that is a good signal that the employee is not have bootstrapping as a
part of her work ethic. On the other hand, if she speaks with
enthusiasm and pride about how she got the job done within the limited
resource available, she would more likely fit into the bootstrap
culture.
John Tozzi at Business Week offers a great suggestion in tough financial times. Open your books to your employees so they can understand the challenges you are facing. Open book management improves accountability for all in the business, enhances decision making by gaining insights from those involved in the day-to-day management, and builds a unity of purpose toward surviving the current economic times.
But open book management must be implemented carefully. From Business Week:
Business owners can’t change to open book systems overnight. First, they have to create a culture where employees want to be involved, and they need tp understand the numbers they’ll be measured on. “When a company is struggling, they do need to be careful how they present this to the employees. They want to lay out the reality, but in a careful way so they’re not just scaring people,” says Kent Forsland, founder and chairman of Designer Doors, an 80-employee, $17 million custom garage-door company in River Falls, Wisc.
Business Week
istaking
nominations for their annual America’s Best Young Entrepreneurs roundup through
Aug. 16. If you know of companies run by entrepreneurs age 25 or younger, you
can nominate them athttp://bit.ly/BWYoung.
They are looking for ventures that are fully
operational–
not just where to order topamax idea stage –and
all of the founders must be 25 or under at the time of nomination. Feel free to
nominate more than one company,and there’s no need to submit the same firmmore than once.
The Anatomy of an Entrepreneur, supported by the Ewing Marion Kauffman Foundation, suggests they have discoverd what makes entrepreneurs tick.
Here is what they say they discovered about entrepreneurs in their study:
The findings dispel the common
notion that entrepreneurs are young college kids starting companies in their
dorms or basements. The reality is that most company founders are experienced,
well-educated and married with children — and they come from middle-class or
upper-lower-class backgrounds.
Here is the problem with that conclusion — they only surveyed 549 founders of successful
businesses in high-growth industries.
So entrepreneurs are only founders of high-growth ventures? No way.
So we should base our decisions on what programs to create to support and foster entrepreneurs based on their findings? I don’t think so.
Are high growth ventures important? Sure, but so are small ventures that usually are started in dorm rooms, at kitchen tables, or out of people’s basements. And there are a lot more of this type and they have been much better job creators than their larger counterparts that are the focus of this study.
High growth firms in high growth industries are usually backed by venture and/or angel capital. These folks only put money behind experienced entrepreneurs. So of course they are going to be older, more educated, and more experienced.
At
its core, the America’s Most Promising Companies project is about getting
capital to entrepreneurs who need it. Many go wanting, especially in this
credit-starved economy. With that in mind, how does America‘s financial infrastructure
need to change—if at all—to make sure deserving entrepreneurs have access
to precious funding? For that matter, what are the keys to raising money, in
this or any economic environment?
I find it very worrisome that there is movement toward more government intervention in financial markets that serve entrepreneurs. Pumping more money into the SBA to prop up businesses that cannot support that debt is bad policy and a bad business decision. And now we hear that venture capitalists are trying to get their cut of government funding through the bailouts. Venture capital investment is, by definition, a high risk affair. If VCs can’t raise money through private offerings it seems to me that there is a good reason — their expected returns have become too risky. We don’t need to throw tax payers’ hard earned money into poorly performing funds.
Truly deserving ventures can still get funding, although it has gotten a bit more complicated and challenging.
Equity funding is still flowing. The amounts are less and the money can be harder to find, but it is still out there. Entrepreneurs need to be prepared to be able to offer more proof of concept. The giddy times of dreams and ideas getting money thrown at them are over for now. Do what it takes to prove you have a viable business — find customers who will buy your products or services. This will take more self funding for seed money and more bootstrapping to get the business off the ground so you can demonstrate to investors that your business really works.
Debt markets for entrepreneurs are going back to basics. This is a good thing, I must say.
Traditionally, bankers have operated with a business model that tries to minimize risk. They are responsible with protecting the deposits held in their banks. Many banks strayed too far away from this in the recent past, but they are returning to their old ways of doing business.
Businesses must be able to qualify for bank credit on their own standing. This has very little to do with the things that get entrepreneurs excited about their own business, such as opportunity, upside potential, and vision. To a banker, a bankable business is one that will pay back its loans with very little chance of anything going wrong. So rather than getting excited about untapped markets or product innovations, bankers look to three main factors:
Is there adequate cash flow?
Bankers define “adequate cash flow” not as being just enough excess cash each month to cover monthly loan payments, but significantly more than enough excess cash flow. Also, bankers want see this cash flow already occurring, not projected in the future within a business plan. That is why bankers are usually not the best source of funding when you first open your business. Get a track record and some cash flow and you will find that bankers are much more receptive.
Can owners pay back the loan if the business cannot?
Personal guarantees from the entrepreneurs who have the personal net worth to pay off those loans is the second line of defense for banks.
Is there collateral?
The reality is that banks don’t want to try to collect your accounts receivable, sell your inventory, or liquidate your equipment – and they certainly don’t want to run your business. Don’t assume that such collateral is what banks like to see in a business loan proposal. Collateral is considered the last resort for covering a loan from a banker’s perspective.
The financial markets will improve for entrepreneurs as the financial prospects of their ventures improve. Private sector efforts to improve the efficiency and effectiveness of financial markets for entrepreneurs, such as angel networks, web resources, and projects like America’s Most Promising Companies can help, but the wounds in this economy will take a long time to heal.
For the second year in a row I am teaching in a program put on by Advance Innovative Education put on in Baton Rouge, Louisiana. The program is called “Redesigning Lessons, Re-envisioning Principals (RPRL).”
I am conducting a two day workshop that is part of a year long program. My sessions are on how entrepreneurial practices and
principles can be applied to educational organizations. The participants include some new and many aspiring school principals. Yesterday they learned how to think like an entrepreneur through identifying and assessing opportunities.
I made them just not “think out of the box,” but actually “throw away the box.” When we only think out of the box we stay too close to our old ways and keep really close to the box that represents our old thinking. And it is too easy to jump back into the box as soon as things get just a wee bit uncomfortable. We cannot open our minds to real opportunity for change if we stay tethered to old ways of acting and thinking.
Being with these highly motivated educators gives me hope for the future of educational in the US.
There is a growing interest in how business principles — such as
competition and entrepreneurial innovation — can help fix what is
ailing the educational system. Of course we are seeing a huge resistance from teachers’
unions and many schoosl of education in universities. But, parents, business
owners, and civic leaders are beginning to say “enough is enough.”
My column in this week’s Tennessean looks at key financial information you need on your dashboard to help you navigate these challenging times:
It’s beginning to look like we may be in this recession for quite some time. Even if your small business has survived to this point, it still could be financially vulnerable to the continued sluggishness in the economy.
Unfortunately there is no single number or financial measure that can fully assess the threat a business faces. It is important to keep your eye on several key numbers and ratios. When put together these are referred to as a financial dashboard — an easy-to-read series of figures that gives a good overview of how a business is faring.
The first category of figures that should be on your dashboard each month helps assess how well you are managing debt. A ratio that bankers pay particular attention to is times interest earned, which assesses how well your business can cover its loan payments owed to the bank.
The percentage of your assets financed through debt is another key ratio. Finally, the overuse of credit card debt can make a business more vulnerable.
The second category on your dashboard should assess the strength of the cash position of your business. Never forget that “cash is king.” Monitor your cash reserves carefully.
Vic Alexander of KraftCPAs recently advised a class of entrepreneurs that I was teaching to have enough cash on hand to cover at least 45 days of expenses. If customers pay on account, monitor the average age of your accounts receivable.
Finally, looking at the ratio of cash to current accounts payable each month is another good test of the strength of your cash position. Watch your suppliers
Your business is also dependent on the financial health of suppliers and customers. Add some measures to your dashboard that help you monitor them, which can include:
• The number of suppliers that still let you buy from them on credit.
• The increase in new customers you are able to attract each month.
• Your ability to attract returning customers.
• Your dependence on a few large customers.
• Revenue trends from month to month and compared to the same time last year.
• If you carry inventory in your business, watch it closely from month to month to ensure that you are not building excessive inventories.
My friend, Dr. George Solomon, a professor at George Washington University, and I have put all of this together in an online assessment for Entrepreneur magazine that walks you through each calculation.
When done correctly, I am a big fan of charter schools. Some states, like Tennessee for example, stack the odds against charter schools. But, when the laws are fair for charter schools that are an amazing catalyst for educational change. I wrote my book From the Ground Up as a guide to help charter schools and other innovative education start-ups navigate the business side of running independent schools.
Belmont alumnus Andy Tabar sent along a link to an article at Cleveland.com about a charter school in his home town of Cleveland, Ohio that has chosen to have an entrepreneurship theme to their curriculum:
The first eighth-graders to graduate from Cleveland’s Entrepreneurship
Preparatory School are true survivors.
E Prep, as the charter school is known, opened three years ago with 124
sixth-graders, but only 46 students persevered to graduate on Friday. Getting to
that point was not easy. The school’s regimen sends the frivolous packing.
I have not written about a golf metaphor for entrepreneurship in quite a while, but the US Open from this past weekend offered an important lesson.
No matter how good you are or how well you prepare, there are certain things that can happen that are totally outside of your control. The golfers who got the bad end of the weather this past weekend at the US Open experienced this first hand. Some of the golfers played their early rounds in constant rain and windy weather. Others, due to their tee times, played with little or no rain — just a soft and receptive course awaited them after the rains ended.
Was this fair? That is not the point. It is, as they say, what it is.
I tell my students that we can help them manage about 80% of the causes for failure in their businesses.
About 40% of failure happens because the entrepreneur jumped into a business that was doomed from the start. They did not properly assess the opportunity prior to launch. Rather, they impulsively moved ahead with little forethought.
About 40% of failure happens because the entrepreneur is not ready for success once it happens. Growth is a dangerous time for a small business — just ask any banker. If you are not prepared to properly manage and develop your business as it grows, you will soon join the legions of entrepreneurs who failed due to their own success. They did not create the systems, grow the team, or secure the resources necessary to deal with the growing pains that sink so many promising ventures. We try to prepare our students with the skills and knowledge to manage their growing ventures successfully.
But then there is that other 20% of business failure. This failure comes from what you cannot predict nor plan for. Call it uncertainty, risk, or just bad luck. Sometimes things happen to even the most skilled and prepared entrepreneurs that are totally outside of their ability to manage.
My favorite example of this is an old diet supplement that used to be on the market — it was called Ayds. The product was growing nicely until a deadly disease with the same sounding name crept into our consciousness — AIDS. The sales of the product plummeted. The spread of a deadly disease with a similar sounding name is nothing that could have been predicted, and there was very little they could do to adjust in time once people stopped buying the product.
This is why I put the Serenity Prayer, or as I call it the Entrepreneurs’ Prayer at the end of most of my syllabi for my classes:
GOD, GRANT ME THE SERENITY TO ACCEPT THOSE I CANNOT CHANGE, THE COURAGE TO CHANGE THE THINGS I CAN, AND THE WISDOM TO KNOW THE DIFFERENCE
