“If Anything Matters then Everything Matters”

If you recognize the quote in the title of this post, then you have probably read The Shack, by William Paul Young.

If you have not read this book I highly recommend it.  It is not a book about entrepreneurship, per se, but it is about life and what is really important in our lives.  So I guess, in a way, it is about how we choose to conduct ourselves as entrepreneurs. 

One of my favorite quotes from this book comes from a conversation between Jesus and the protagonist of the book named Mack.  Jesus says to Mack the following about why we work:

Men, in general, find it very hard to turn from the works of their hands, their own quests for power and security and significance, and return to me.

Thanks to Robin Anderson, Dean of the College of Business at University of Portland, for handing me a copy of The Shack when I was there to give a talk on our new book a couple of weeks ago.  I recommend you order a copy of your own.

Four Factors Determine How Entrepreneurs Should React to the Economy

(This post ran as my column in this week’s Tennessean).

Given the continued bad economic reports, many entrepreneurs are trying to understand how they should react to the changing conditions. The best answer is — it depends.

How you should position a business for the coming months boils down to four key factors: cash flow, debt load, financial trends and the condition of your specific industry and customers.

As I have written many times before, cash is king. But what does that mean in practical terms?

Given the uncertainty of the economy, entrepreneurs should try to keep enough cash on hand to cover at least 30 days of monthly expenses. Businesses that sell on account should keep an eye on accounts receivable. If customers are taking longer to pay, it will eventually put a strain on cash flow.

I have also been encouraging entrepreneurs to pay attention to debt load. Make sure there is more than enough cash flow to cover monthly bank payments. Also monitor your total debt load using the debt to assets ratio (total debt divided by total assets). In today’s climate the lower this ratio is the better — so try to keep this ratio to less than 0.20.

There are also several key financial trends that need monitoring. Are sales growing or declining? How about profits?

Some businesses will expand

Finally, the condition of your industry and customers will play an important role in determining how you should proceed. If what you sell is a necessity or you offer a greater value than your competitors, you may be somewhat insulated from worsening conditions.

For example, Emma is an e-mail marketing company in Nashville. Emma is gaining new customers even in the current economic decline. They have found that some businesses are seeking ways to advertise and promote at a lower cost with a higher impact.

On the other hand, if your sales are part of a customer’s discretionary spending, keep in mind that your product or service will be the first to get cut or postponed. That is why businesses that sell business office equipment, home furnishings, cars, electronics, and so forth have recently fallen on hard times.

If your business is weak in all four of these areas, it is highly vulnerable to possible failure if conditions don’t improve very soon. Although failure is not inevitable, be realistic and seek counsel from your bankers, attorneys and other advisers.

If your business is weak in some of these factors, it is time to pay attention to the basics — cut overhead, pay down debt, and take good care of the customers you have so you don’t lose any more ground.

However, if your business is relatively healthy in all four of these areas, it may be time to seek opportunities for growth through marketing and even acquisition.

Social Entrepreneurship Program

We launched one of the first undergraduate majors in Social Entrepreneurship in the country here at Belmont this fall.  Dr. Bernard Turner is our new faculty member who is leading this program.  We already have a large group of students who have either declared the new major or are seriously considering switching to it.  I am co-advising these students with Dr. Turner.  What an amazing group of young people looking to channel entrepreneurial skills toward creating social change.

Small Business Job Creation Engine Sputters

According to the SBA, small businesses have created about 78% of all new jobs in the US over the past twenty years.

For the first time, October’s ADP Small Business Report reports a net loss of jobs in the small business sector of our economy: 

  • Total small business employment: -25,000
  • Goods-producing sector: -36,000 small business jobs
  • Service-providing sector: +11,000 small business jobs

Teaching Entrepreneurs

Chad Moutray of the SBA Office of Advocacy posted a Linked-in survey on his recently released paper that examines education and self-employment.

Most of the responses suggest that while classes offer a certain set of important knowledge, what is learned outside of the classroom is what matters most. 

Amen!

While I am proud of our Entrepreneurship classes here at Belmont, the experiential opportunities that we offer outside the classroom (for example, our hatchery program for our practicing entrepreneurs and our campus-based businesses) makes at least as big of a contribution in preparing our students to be entrepreneurs.

Entrepreneurship is best learned through experience.  To make that experience more powerful, it needs to become a part of the education process.

Chad reflects on this discussion at his blog: 

The lesson for those of us who advocate small business ownership is not that formal education is useless (although some respondents did suggest that).  It is clear that collegiate education serves a vital role, especially in terms of providing communication, team-building, and basic managerial skills.  Yet, a bachelor’s degree only takes you so far.  That is true for those who seek self-employment and also for those who choose to work for someone else.  After passing the hurdle of an earned degree, the rest is up to the individual.  Successful entrepreneurs are those which can translate the lessons of others into new and exciting opportunities for themselves.

My only argument is that these aspiring entrepreneurs should not wait until their formal education is finished to translate their passion into creating new businesses.  Don’t think of it as a sequential process — first the education, then pursue opportunity.  By integrating experience into education the entrepreneurs become even better prepared for a long and successful career.

Taking Care of Your Customers

Now more than ever it is time to take good care of your customer.  New customers are hard to come these days, and any lost customer will be much harder to replace.

A great example of the right way to treat customers comes from my wife’s cousin Ted and his wife Sally.  They own a grocery store in a small town in Wisconsin.

Over the past few months they have seen a strong increase in sales.  It seems that with higher gas prices people have not been as willing to travel to nearby larger cities to shop at the larger chain and big box grocery stores.

They are not taking this windfall of new business for granted, however.  They are doing everything they can to retain these new customers and turn them into loyal “regulars” in their store, through great service and by creating good value.

A very wise lesson for all of us in these difficult economic times.

Pathfinder Closes Series A

Congratulations to Pathfinder Therapeutics, Inc. (PTI), a medical device company focused on the development of “surgical GPS” systems for the abdomen, announced that it has closed on a Series A financing.  Everyone Nashville is excited that this company will be growing right here where the technology was born.

We at Belmont are particularly proud about this announcement as Dr. Jim Stefansic, COO of Pathfinder, is an alum of our Massey School MBA program!  It was a pleasure to be able to work with Jim on this project in its early stages while he was a student in my classes.

 

Some Reasons We Plan

My MBA students just finished up presenting their business plans last evening.  Here are some lessons they learned about why the process of business planning is so important (beyond the obvious external reasons tied to financing):

  • Business planning helps finds the things we don’t know about the details — attracting customers, staffing, managing inventory, and so forth.
  • Business planning tests your desire, your passion and your resolve.
  • Business planning helps to determine if all potential partners understand their roles, the time and financial commitment required, and the risk.  It allows us to discover important points of disagreement or incompatibility before it is too late.
  • Business planning can show us the true potential of the business — sometimes this is a pleasant surprise and sometimes it is a real disappointment.  If approached honestly and diligently, it is a true process of discovery.
  • Business planning lays bare the holes in your business model, your team, available resources, and your implementation plans.

Why We Reach Across Campus

A new study by Chad Moutray with the Office of Advocacy of the SBA shows why so many of us are trying to reach across college campuses to teach about entrepreneurship.

College graduates who specialize in social science tend toward self-employment as compared to those with bachelor’s degrees in other subjects, according to a working paper released today by the Office of Advocacy of the U.S. Small Business Administration.  The paper used data tracking a group of university graduates from the class of 1993 through 2003.

 

What is very telling is why these students want to be entrepreneurs.  It, once again, helps dispel the myth that entrepreneurship is “all about the money.”

 

Moutray found that a student’s motivation as measured by a series of “values” questions in 1993, closely tracked with employment decisions a decade later.  For example, those who valued job-security were more likely to be government employees, those who desired intellectual challenge were likely to work in non-profits, and those who did not highly value prestige and status were more likely to be self-employed