Entrepreneurship in Hungary

I am blogging today from Budapest.  The level of early stage entrepreneurship in Hungary is 6.9% according to the Global Entrepreneurship Monitor of 2007. 

That same study showed that about 75% of ventures were opportunity based, while 25% were out of necessity.In talking with people here in Hungary I get the sense that this mix may be swinging toward more necessity based entrepreneurs as the economy here worsens.

According to an EU report, Hungary has the lowest opportunity-based entrepreneurial activity in the EU25.  This same report gives Hungary a low entrepreneurial activity and low entrepreneurial climate score. 

There seems to be a strong cultural component to this, as seen in this conclusion from the EU report:

Similar to the average European respondent, the Hungarian is more likely to prefer being an employee to being self-employed. However, Hungary stands out when it comes to the reasons for the respective preference: Hungarian respondents who prefer being an employee, more often than individuals in other countries, say it is because the right entrepreneurial climate (e.g. lack of a business opportunity, lack of finances or excessive red tape) does not exist. Likewise, Hungarians who prefer being self-employed, more often than individuals in other countries, cite economic reasons for this preference and not the freedom and independence that being self-employed entails.

Blogging on the Road

I trust big corporations only slightly more than I trust big government.

A case in point…..

I have been getting my digital world organized prior to our departure today for my trip with two other faculty and 20 students to the Czech Republic, Germany, Austria, and Hungary.

First, I wanted to be able to have cell phone access.  I went to the Verizon store to see what I would need to do to get cell phone access.  (Note:  I do think Verizon has the best coverage, but they are still a big, clumsy bureaucratic corporation).  On two different visits to the store, I was assured that my phone would work just fine in the countries we would be traveling in. 

When I went there one last time to get the details, I was told that what I was told (if I was in fact told this, according to the new person) was incorrect.  I would need to rent a phone to work in that part of Europe.

So I called support and ordered a phone.  I asked if I should just buy a phone, but was assured that it would be WAY too expensive.

When I went to the Verizon store yesterday, a young man said, “Why are you going to rent a phone?  I can sell you a new one for just a little more that will work anywhere in the world.”  So I bought the phone and shipped the rental back.

Then I asked if I was all set for my laptop with my global modem they sold me.  “All set! Just insert it and you will be good to go,” I was assured.

Being a rather obsessive type, I called global support one last time to make sure I understood what the global modem would allow me to do.

“DON’T use if for anything but e-mails!!  And if you open e-mails do not, what ever you do, open any attachments!  If you blog or go to websites you will use all of your 100 MB in one day,” I was instructed. 

“That really stinks!”, I said to the person on the line.

She told me that if I do use the Verizon modem for blogging I could expect thousands or even tens of thousands in charges.  “YIKES!!,” I exclaimed.

Good thing I never trust what people who work in big institutions tell me!

I tell you all this story so you will be understanding if I don’t blog as much as usual, and as much as I had hoped, during the next three weeks in eastern Europe.

When I find a hot spot or stay in a hotel with Internet I will blog, I promise.  

A Night to Celebrate

We had our Entrepreneurship Banquet for the Center for Entrepreneurship here at Belmont.  It was a night to celebrate the many accomplishments of our students.  We had a full house of students alumni, family, community supporters, faculty and staff join together for this wonderful event — over 130 people attended.

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Here are many of the members of the team we just took out to Anaheim.

Special honors were given to John Price and Sam Dryden and their venture Lifetime Reel, who were named our Student Entrepreneurs of the Year for 2009.

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John and Sam’s business is making family documentaries.  So as a special thank you to the Moench Family, who have endowed our entrepreneurship speakers series, we gave them a certificate to have a documentary done to commemorate their father who was a very successful entrepreneur here in Nashville.

Here are his two sons, Ernie and Lynn, who attend many of the events their family make possible through their give to our Center.

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Well, I am off tomorrow morning for three weeks in the Czech Republic, Hungary, Austria and Germany with 20 students.  I plan to keep up with blogging as best I can.  I have my trusty global modem that — if it works as promised — should give me access through most of our journeys.  Several of the students will be studying International Entrepreneurship on this trip. 

Entrepreneurs’ Spirits are Up

My read of the entrepreneurs here in the Nashville area is that they are feeling a bit more optimistic.  Those who have weathered the storm seem to feel that the worst may soon be over.

The latest national survey from the NFIB seems to support my anecdotal observations, as their Index of Small Business Optimism rebounded in April.

This rebound was not due to hard evidence of economic improvement, but is tied to “soft indicators” — the “feel good” portion of the survey.  Expectations for gains in real sales increased.  

While small business owners think future prospects are brighter, the daily realities show deep problems remain.  Actual employment, capital outlays, inventories, sales and earnings languish at historically low levels.

“At least we seem to be headed in the right direction,” said NFIB Chief Economist William Dunkelberg. “Typically, optimism first returns, then spending follows as confidence builds.  But there are a lot of difficult days ahead, even if April’s data represents a turnabout.”


Accidental Entrepreneurs Share Their Stories

The Wall Street Journal offers five inspiring stories about accidental entrepreneurs:

With the economy tanking, lots of people are striking out on their own. Some
never thought of starting a business until they got laid off. Others kicked
around the idea but never found the time or the passion to pursue it. Now,
launching a start-up seems like a better bet than taking on an endless job
hunt.

Call them entrepreneurs by necessity. And while some of them have waited
years preparing for just this moment, others may not be quite so ready or eager
to make the move.

Read their profiles here.

Selling a Business During the Recession

In my latest column for the Tennessean, I examine the opportunities and risks of selling a business during this recession:

There appears to be an increase in the number of entrepreneurs selling
their businesses over the past few months. Financially strong companies
and cash-rich investors looking for good acquisitions are starting to
move into the market.

Just having assets
such as buildings, land, equipment and even inventory is not what
creates value. Those assets must have the ability to continue to earn
profits for a new owner. It is the prospect of those future profits
that gives a business its real value.

The
simplest way to think about business value is this: People are buying
your business’s ability to generate future profits. Typically, the
value is based on a multiple of profits. Historically, valuations have
been about three to eight times annual operating cash profits (ignoring
things like depreciation, corporate taxes and interest expenses) with the most typical multiplier being about four.

If
a buyer offers a multiple of profits of four, and your business has
operating cash profits of $100,000, you can expect a valuation of about
$400,000.

Since
it is a buyer’s market right now, you need to set realistic
expectations going into any discussions about a sale of your business.
I am hearing that there has been about a one-point drop to a multiple
of three times profits.

What does that mean? Just like home values, your business’s value has dropped by about 25 percent, all things being equal.

But remember: The other part of the valuation equation is the profitability of the business.

How to prepare

Most
entrepreneurs have reported a significant drop in their profit margins
over the past year. So, that means that the drop in values could become
much greater than 20 percent or 25 percent if profits are also down. My
advice is as follows:

Understand
what drives the value of a business. What multiple you are likely to
get is based on your projected growth, the health of your industry, the
strength of your customer base projected into the future, and specific
strategic advantages that you may be able to offer the buyer.

Know your number. If you need a certain amount of money from your
business to retire, have that number in mind going in. If the market is
not supporting that value right now, you might want to wait until a
later time. Use that time to improve your profitability so that when
the economy picks up your operation will have an even greater value.

Seek expert advice. Work with your certified public accountant and
an attorney who specializes in mergers and acquisitions to understand
the process and to help set realistic expectations. This will be money
well spent.

Realize
that deals change. Once the buyer gets into due diligence, the price
may drop. Once they learn more about the business, they may lower their
projections for what they believe your business can earn for them in
the future.

Be
prepared for this, and know how much you are willing to go down ahead
of time. Be ready to walk away if the price they are willing to pay
drops too much.

Don’t
let your emotions lead you to take an overly discounted price — buyers
can smell desperation and will use that to their advantage by trying to
drive down the price during due diligence.

The
odds are that about one out of 50 inquiries about buying a business
will lead to an actual sale. Keep a level head and don’t even dream
about how you’ll spend all of that money until you get it in the bank.

Small Business Lending Working without SBA Interventions

Are markets getting out ahead of government intervention when it comes to small business lending?  It seems that small business lending is starting to heat up, but the SBA is mired in the complexity of trying implement their part of the “stimulus.” 

From the Wall Street Journal:

The increased activity comes despite the fact that the SBA has been slow to
implement some measures aimed at stimulating lending and loan sales on the
secondary market. The agency missed a March 4 deadline to create a secondary
market specifically for 504 loans, capped at $3 billion. The government hopes
this will facilitate the buying of bundled 504 loans….

The SBA had said it plans to finalize the regulations by June, but an
announcement may come this month. The agency says the delay is the result of
sophisticated financial modeling and complicated legal-documentation changes
that need to be made in order for these new programs to work.

I see two possible outcomes once the SBA gets its act together.  Neither are particularly encouraging and they are not mutually exclusive.

One outcome would be the flood of small business lending that the administration wants.  That will inevitably lead to a small business loan bubble that will surely pop sometime in the not too distant future.  Too many small businesses will be given loans that they cannot afford.  The SBA programs often put social agendas ahead of economic ones, just as we saw with the home loan disaster fueled by government meddling in those markets.

The other possible outcome is that the bureaucratic complexity will bog down SBA programs,adding nonproductive costs to the lending process.

Since the markets are working on their own, why not step out of the way?  After all, as blogger Matthew Bandyk from US News points out, 58% of small business owners have no interest in SBA loans.

Business Start-up Rates Slow in 2008

According to the latest annual Kauffman Index of Entrepreneurial Activity, although entrepreneurial activity was slightly up in 2008 when compared to their 2007 report, there were some worrisome signs about the economic engine of the US economy. 

While low and moderate income potential businesses were up, high income potenial businesses decreased from 2007 to 2008.

Specific increases in entrepreneurial activity were identified among the following groups:

  • People between the ages 55 to 64
  • Immigrants
  • Latinos
  • Asian Americans

People in the Midwest had a decrease in entrepreneurial activity. 

Specific states with the highest entrepreneurial activity were Georgia, New Mexico, Montana, Arizona, Alaska and California.  While states with the lowest entrepreneurial activity rates were Pennsylvania, Missouri, Wisconsin, West Virginia, Iowa and Ohio.

Among the fifteen largest metropolitan statistical areas, Atlanta had the highest entrepreneurial rate, while Philadelphia had the lowest rate.

Unlike other studies that capture young businesses that are more than a year old, the Kauffman Index captures all adults ages 20 to 64 when they first create their businesses, including both incorporated and unincorporated businesses, and those who are employers and non-employers. The Kauffman Index defines entrepreneurial activity as the percent of the adult population who start a business as their main job each month.

USASBE moves to Belmont

 

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I would like to be the first to welcome the United States Association of Small Business and Entrepreneurship (USASBE) to Belmont University.  We will be hosting USASBE here at Belmont through early 2011.

We are delighted to have USASBE on our campus.

A big congratulations to Becky Gann, who will serve as the USASBE Interim Executive Director.  Becky has served as the Program Coordinator for our Center for Entrepreneurship since I arrived here almost six years ago.  I will miss Becky’s steady hand running our co-curricular programming in the Center.

Thank you Becky for all you have done for our students!!

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