Theme for the Day — Bootstrapping

Yesterday ended up being a “bootstrapping” kind of day.

In my class during the day, Clint Smith, co-founder of Emma, talked to my students about his company and its growth.  He told my students that bootstrapping is best described as “you don’t get it until you have to have it.”  He went on to say that with that comes a trade-off.  “It takes longer to get out ahead of your growth.”  So patience is a virtue that bootstrappers must have as they build their businesses.  Good advice!

Then last evening I met with a new group of local entrepreneurs, called Better Bootstrap,  who are getting together once a month to talk about all things bootstrapping.  This was their first meeting and about two dozen people showed up — a great initial group.

The group heard from local entrepreneur, Ernie Clevenger, who co-founded a company called Care Here.  It has grown from a highly bootstrapped start-up into a very impressive operation.  Since they had no money during their launch, they had to find creative ways to bootstrap their company, which establishes in-house medical clinics for employers.  This is not the typical kind of business one might think of to bootstrap, but they did, and it has yielded remarkable results.

The group then shared some of their own bootstrapping challenges and got some useful feedback from their fellow entrepreneurs.

The Better Bootstrap group is something that I think could and should serve as a model for other communities.  Bootstrapping entrepreneurs, just like any business owners, need help, advice, and wise counsel.  The problem is that they often cannot afford to join typical business organizations.  This group charges no dues — you just have to agree to try and buy a little food at the restaurant where they hold their meeting.

Tech’s Future in the Recovery

Tim Jackson, Canadian entrepreneur and venture capitalist, offer his thoughts on our economic future in an interview by Gordon Pitts at ReportonBusiness.com.  Here is a sample of what he had to say:

So if you are laid off from your job and have a business idea, what do you do?

You beg, borrow, steal and you get it going – and you find a customer.

I know that sounds overly simplistic and there are certain companies where you need a venture-backed business because it will take three or four years to develop the technology. But traditionally, businesses have been started by designing something or creating a service or a product.

Then you went and sold it, and you used the revenue from the first customer to get your second customer and improve the product slightly. The revenue from the second customer was used to improve it again and you get the third customer.

We saw 300 companies last year [and funded two] and the vast majority should never have been looking for venture capital. Our advice is just go and start the company. Go and sell this. If you have something people will buy, they will partner with you and you can build a business.

Great advice not only for the accidental entrepreneur, but anyone starting a business.  Your goal is never to raise money — it is to build a business.  If you are successful at that and eventually need funding, it will follow.

Recession Catches Up with Small Business

The ADP Small Business Report released today shows that 284,000 small business jobs were lost in March. Declines in March and previous months indicate that the resiliency displayed by small businesses earlier in the recession is no longer apparent compared to medium- and large-sized enterprises.

 

The ADP Small Business Report is a subset of the ADP National Employment Report:

 

  • Total small business employment: – 284,000
  • Goods-producing sector: – 111,000 small business jobs
  • Service-providing sector: – 173,000 small business jobs

Best Small Cities for Entrepreneurs

My adopted hometown of Franklin, TN (a suburb of Nashville) has made Business Week’s list of best cities for entrepreneurs to start-up businesses. 

Here is what one local entrepreneur had to say about Franklin:

“It’s a very vibrant, growing community with a good education system and with people who are very attuned to the importance of quality of life, family time, and balancing that with careers and business. Once you identified a top candidate and bring them here, any negative perception that they may have had about coming to a small town in Tennessee is really overcome once they’re here and they see the community and they get the feel for the quality of life.”
-Sam Lynch, founder and CEO, biotech development company BioMimetic Therapeutics

I would agree.  In choosing to move here almost six years ago it was the entrepreneurial culture of the area that, in large part, drew us to Nashville. (Not to mention golfing almost year around).

The Hidden Costs of Financing from Family

My column in today’s Tennessean looks at the challenges of taking financing from family:

In good economic times, 85 percent to 90 percent of capital for small businesses comes from friends, family and the entrepreneur’s own funds.

But during times of tight credit or recession, family members may be one of the few sources of funding for most startup entrepreneurs.

When taking funding for a business from family members, it’s critical that everyone involved fully understands what they are getting into.

Family members provide funding for many reasons. Some are motivated by altruism — they just want to help the entrepreneur get started and be successful. Others can be driven by greed — they see the investment as a way to ride on the entrepreneur’s coattails to fortune and fame.

But no matter what the reason for a willingness to provide financial assistance, defined boundaries and clear expectations must be clearly established.

Here are some rules of the startup road:

• Never take money for a business from a family member as a “gift.” It should be treated either as a formal loan or investment.

Present the interested family member with a formal business plan, which should be discussed in full detail.

• Any loan from a family member should have a formal loan agreement that defines interest rate and payment terms. To help the entrepreneur, payments can be delayed, but interest should accrue during this time and eventually must be repaid.

The Internal Revenue Service publishes the current minimum interest rates at its Web site, www.irs.gov/ (just enter “interest rate” into their search feature).

• Do not structure any loan without interest. There can be tax consequences for all involved if such a loan is not set up with acceptable interest charges.

• If the money comes in as an investment, the family member is now the entrepreneur’s partner. This means they have certain rights that any shareholder has in a privately held business, which can include approving certain major decisions, such as the sale of the business.

Send reports

All investors should be provided with complete financial data at least once a year.

If the business makes a profit, they probably will owe taxes on this profit. All of this must be made clear before any investment funds are accepted.

Whether the money is treated as a loan or an investment, the entrepreneur should regularly communicate good and bad news. Provide regular quarterly or even monthly summaries that include any significant accomplishments, challenges and major events.

All of these steps will help keep issues that are business related as strictly business, and issues that are family as family matters. After all, Thanksgiving comes every year. Don’t let a business deal spoil the family dinner.

True Hope

I don’t get my hope from anyone in Washington, DC.

I have the joy of working each day with young entrepreneurs who are brimming with true hope and optimism about the future.

Today I spent the day leading 72 students at Centennial High School in Franklin, Tennessee on a full day of what we call the Entrepreneurial Challenge.  It is an exercise originally developed by my friend Dr. George Solomon at George Washington University.

Twenty four teams each comprised of three students developed ideas based on the theme:  “Find a business opportunity that can be started in Williamson County that take advantage of or is able to thrive in the current economic downturn”

All of the teams did a wonderful job.

The students came up with their ideas, researched them to turn them into viable opportunities, and then perfected their pitch all in about four hours.  They then pitched to various entrepreneurs from the community for several rounds.

The winners where three young women who came up with a business with the following mission:  “To provide informational and enjoyable cooking programs to kids and teens which promote a healthy lifestyle with affordable life changes.”  Their proposed venture would both teach low cost options for kids to make health meals at home, thus saving money in these difficult times and addressing their concern with obesity among young people. 

I left the school feeling a lot more hopeful about our future.

A Good Day for Lifetime Reel

Right after John Price and Sam Dryden won our business plan competition, they found out that the Nashville Business Journal had run a story on their business in today’s edition.  From that interview:

What’s the most interesting project your company is working on right now? We’ve been so blessed to work with the clients we have filmed so far. A lot of Nashville’s roots have been captured on film, and I am honored to have been the person to document them. To be honest, every “Lifetime Reel” produced is interesting to us. We hear the most interesting things from our clients.

What circumstances led you to your current position? I launched this business when I was a sophomore at Belmont University. I felt led to give the opportunity of having a loved one’s life on film after seeing how it affected my own family. I was already studying in the entrepreneur department at Belmont and realized that this was going to be my business model.

Business Plan Pitches

We held our annual Belmont University Center for Entrepreneurship Business Plan Competition today.  Our top student entrepreneurs made their pitches for a total of $8,000 in prize money to help support their entrepreneurial aspirations. 

 

John Price and Sam Dryden shared their business, Lifetime Reel, which produces family documentaries.  The idea came from a project John produced about his grandfather.  John completed the documentary shortly before his grandfather passed away.  John and Sam are both Entrepreneurship majors.

 

Chris Dorsey, a Music Business major, presented a social venture that he is a part of called the Umkulo Project, which came out of a service learning project he and others were involved in during a study abroad in South Africa.  The Umkulo Project seeks alleviate the affects of poverty by providing the opportunity for African children to experience the hope that music education can bring.

 

Dale Clay, also a Music Business major, is founder of Red Winter Productions.  His business composes custom wedding music, film scores, and music for advertising.

 

Cassie Schreiner is a double major in Graphic Design and Entrepreneurship.  Her business, CNS Photographic Design, took second place in last year’s competition.

 

Hannah Miller is a classic academic overachiever, double majoring in Business and Spanish, with a minor in Theater.  Her presentation was on The Everlasting Tea Party.  Hannah’s business offers a Tea Party in a box for little girls to enjoy the creative play that she enjoyed as a little girl hosting her own tea parties.

 

Noah Curran is majoring in International Business with a concentration in Entrepreneurship.  Noah is building a social venture called Real-8 that will bring Christian entertainment, including music, theatrical productions, and motivational speaking to churches across the country.

 

And the winners are….

 

3rd place and $1,000:  Cassie Schreiner

2nd place and $2,000:  Hannah Miller

1st place and $5,000:  John Price and Sam Dryden

 

 

 

2009 Business Plan Competition for website 2.jpg

 

Here is what one of our judges had to say about the competitors this year:

 

“It is such an amazing luxury for entrepreneurial creativity to be fostered in an academic environment like that of Belmont.  I am consistently impressed with the depth of knowledge their students have when they graduate regarding the direct applicability of classroom studying to ‘real world’ doing.  Belmont professors are also entrepreneurs so they respond quickly to an ever-changing business environment, which gives their students a clear competitive advantage with regard to everything from concise and effective communication (or pitching) to price points and economics.  I wish I had the opportunity when I was in college to learn about being an entrepreneur.”

 

Kind Regards,                                         

 

Rachael D. Qualls

Founder and CEO

Angel Capital Network

 

Congratulations to all of the finalists!