Congratulations to this year’s Belmont business plan winners. Andy Tabar took home first place and the $5,000 Regions Bank award for our entrepreneur of the year for his web business Bizooki. Freshman Cassie Schreiner took the second place $2,000 award for CNS Photography. Emily Swinson took third for her concept plan for Riot! Clothing store.
What’s in a Name?
Some new entrepreneurs give the name of their new business almost no thought. Others agonize over the best name to capture the true essence of their business. I always tended to fall into the latter category. With one new start up we brainstormed and debated for weeks over the best name for our new program. But then, it often takes my family days to even come up with the a name for a new dog.
The Wall Street Journal offers several factors to think about when picking a name.
There’s so much riding on a company’s name. It has to stand out, and be easy to remember and look up. And the pitfalls are many…. [A] bad name can fail to engage customers, or become outdated as the company grows and adds products and services.
Some of their tips:
– Be unique
– Don’t be obscure
– Don’t be mundane
– Make sure it hasn’t been used and is open as a domain name
– And test it out on objective outsiders
Your Mother was Right
Conventional wisdom is that having entrepreneurship in your family is an important determinant of the likelihood that you will also be an entrepreneur.
A new study finds that having friends and associates who are entrepreneurs is an even stronger force behind one’s entrepreneurial aspirations.
I guess our mothers were right. It does matter who we choose to be friends with, after all.
(Thanks to Jeff Williams for passing this along).
The Emotional Ties that Bind Us
Michael Lee Stallard has just released a new e-book on the power of emotional ties in business — he calls it the connection culture. Stallard’s e-book is now available for downloading for free at changethis.com. Here is a brief description from the author:
I want to share something with you I’ve learned over the last decade of my life that I believe can be as helpful to you as it has been to me. In a nutshell, one of the most powerful and least understood aspects of business is how an emotional connection between management, employees and customers provides a competitive advantage. Unless the people who are part of a business feel a sense of connection — an emotional bond that promotes trust, cooperation and esprit de corps — they will never reach their potential as individuals, nor will the organization.
Preparing for Tough Economic Times
My column in this week’s Tennessean offers some tips on how small businesses can best prepare for the possible tough economic times ahead. This will be a new experience for most entrepreneurs in America thanks to the long economic expansion we have enjoyed for most of the past twenty years.
Unlike the last period of stagflation in the late 1970s, we are now in an entrepreneurial economy — 50 cents of every dollar in the economy is generated by small businesses.
Small businesses are always tight on cash flow. And if their inputs of raw materials and other direct operating expenses go up, they may not be able to pass along these costs quickly enough to keep their cash flow positive. And they certainly don’t have large cash reserves to ride out the recession that is part of stagflation.
Can Big Corporations Become Entrepreneurial Again?
Over twenty years ago, I participated in research that looked into factors that made some organizations more entrepreneurial than others. Of particular interest to me was why large organizations differed in their innovativeness and entrepreneurial activities.
We found that in general entrepreneurial organizations differed from what we termed “traditional” organizations in several ways:
– View of the external environment — Entrepreneurial organizations seek to Identify opportunities. They tend to actively seek out change that can create new initiatives. Traditional organizations look at the external environment for threats to their core business, rather than for new opportunities.
– Strategy — Entrepreneurial organizations have a more proactive strategic posture, while traditional organizations take a more defensive position focusing on protecting their core business.
– Control Systems — Traditional organizations control primarily through expense-based budgets, while entrepreneurial organizations also look at longer-term business planning and forecasting to guide the business.
– Structure and Communication — Traditional organizations tend to be hierarchical, centralized and formal, while entrepreneurial organizations are more decentralized and have informal communication flow.
In short, these organizations have fundamentally different cultures.
So the question then becomes can a business that has become “traditional” over time as it grows and matures become entrepreneurial again?
My experience in working with many large businesses on this is that very few are willing to take the concerted and long-term efforts necessary to truly change their culture. Most often, they simply asked me to “make their managers more entrepreneurial.” But, without a supportive culture for innovation and entrepreneurship, these efforts are doomed to fail from the beginning. A few organizations have been able to change to a more entrepreneurial culture, but the larger the business the harder it becomes to make such a fundamental transformation.
My best advice is this — if you have an entrepreneurial culture make every effort you can to preserve it. You do this by:
– hiring people with entrepreneurial orientations and who already practice “entrepreneurial thinking.”
– reward innovative and creative actions independent of immediate success or outcomes.
– delegate, delegate, delegate.
– lead by example, making sure your words and actions speak loudly about your commitment to being an entrepreneurial business.
The Best Innovation Policy
I have been working with a graduate student on a project that is looking into government programs to encourage angel investment that he is conducting for a national angel network group. He sent along an article published last fall in the Economist that said the following:
First of all, stop spreading money around trying to clone lots of Silicon Valleys….
However, there is an even more important factor than money: culture. Nokia’s success was not the result of far-sighted planning or subsidy by the government of Finland. One Nokia executive confides: “The biggest boost to our firm was the deregulation that followed the second world war and the government’s avoidance of protectionism.” One of the most innovative things Nokia did was to spot that the handset could also be a fashion accessory. And coming from such a small and open market, it was forced to think globally.
Secondly, governments keen to promote innovation need to look out for market distortions and over-regulation that can be stripped away. Entrepreneurs can face an uphill battle legally, and not just culturally, in many countries.
As the headline of this story reads, “The best thing that governments can do to encourage innovation is get out of the way.”
This is one graduate student who has been paying attention to his professor!
(Thanks to Jeff Williams for passing this along).
The Reality of Selling a Business
You get a call from someone who says that they are interested in buying your company. Your heart races and you get a tingle of excitement. Could this be it? Is it your time to finally cash in?
Slow down! You have a long road ahead (or maybe a very short road to nowhere in most cases).
BizScoops has a very clear summary of the many steps in a typical deal process. It is a great framework to help an entrepreneur understand the process of selling the business.
It is a rocky road, even at its best. When we got prepared to start the process of selling our health care business, I was lucky enough to have an attorney who gave me a strong dose of reality about how many deals fail along the way. It helped keep me grounded in what can be one of the most emotional rides of your life.
It all usually starts with a letter of inquiry. The first time you get one, the temptation is to start counting all the money you are about to get. But, hold on to your hats. This stage is about as serious as a smile and a wink at a singles bar. Any company in an acquisition mode will be spreading these around all over the place trying to get a bite. About 90% of the time these inquiries go nowhere.
If the flirtation process of the inquiry moves ahead, next will often come some sort of letter of intent. This is kind of like a promise to go steady. Both parties agree that they are seriously interested in seeing if this can move ahead. Often there is a promise of exclusivity required, but most sellers try to avoid this to keep the buyer honest and hopefully drive up the selling price with a little good old competition. More often than not, the buyer prevails in this and the seller has to promise not to entertain other offers, at least for a little while. Somewhere in this stage the basic form of the deal starts to take place. There are confidentiality agreements that allow the buyer to get enough information to float a trial offer. Remember, the deal almost never gets better for the seller past this point, so this is where you need to negotiate hard. About 50% of the deals that get to the inquiry and deal formation stage fail to make it any further. (If you are keeping score, we are now down to 5% of those initial inquiries still being active).
Next comes due diligence. This is like the stage when he or she gets to meet your parents, find out what you really keep in your sock drawer, learn what you actually make and what you spend your money on, and decide which family you are going to spend Thanksgiving with each year. The buyer will want the right to go through all of your contracts, all of your personnel records, all of your corporate minutes, and do anything else they can possible think of to dig stuff up about your business. It is an intrusive process to say the least. At this point you will likely have to share with your employees and customers that you are thinking of selling, if you haven’t told them already. And the worst part is that your employees and customers may get all concerned over nothing, as about 50% of deals fail during due diligence. (We are now down to about 2.5% of the deals still being alive at this point).
Finally, if you make it through due diligence, comes the closing preparation. This is kind of like the final preparation before going to the alter, including negotiating a prenuptial agreement. Remember the old saying “the devil is in the details”? This has never been more true than in the closing process of selling a business. This is where the lawyers from both sides kick into overtime, fighting over the specific terms of the sale. Of course at this point you are ready to say, just get it over with! But, those details that your lawyer wants you to focus on and pay attention to really matter. Why? Because the deal is not really over at closing. There are hold-backs of money, warranties, and sometimes earn-outs that all can lead to major problems post sale if you are not careful during preparation of the closing documents. When your attorney says to pay attention, be patient and listen, you better pay attention, be patient and listen. If the sale of your business is not handled properly, the next stage is litigation, where all of that money you made selling the business can still be at risk. (Another large chunk of deals can fail during the closing process, leaving only about 1-2% that make if from initial inquiry to a final closing).
The moral of this tale is to be realistic, be informed, and be prepared when you enter into the exit stage of your business. And remember that while falling in love is great, it is a long way to the altar.
Cynicism about Free Enterprise
The cynicism of publications like the New Yorker toward free markets and free enterprise never ceases to amaze me. The New Yorker published an article this month by James Surowiecki titled “What Microloans Miss” that states the following:
This vogue has translated into a flood of real dollars: institutional and individual investments in microfinance more than doubled between 2004 and 2006, to $4.4 billion, and the total volume of loans made has risen to $25 billion, according to Deutsche Bank. Unfortunately, it has also translated into a flood of hype. There’s no doubt that microfinance does a tremendous amount of good, yet there are also real limits to what it can accomplish. Microloans make poor borrowers better off. But, on their own, they often don’t do much to make poor countries richer.
Oh really?
We know that to build entrepreneurial economies we need to build a culture that supports and encourages entrepreneurs. Microloan programs are reshaping the culture of several third world countries by supporting thousands of new entrepreneurs who are building grassroot capitalism among populations who knew only desperate poverty. The only income that many in these societies ever received were handouts — be they from government agencies or NGOs. Microloans have given them a path to economic freedom.
It takes time to build wealth. And real wealth comes from free enterprise. Are microloans the answer to transform an economy? Of course not. But they are a critical step in building long term transformations. Microloan programs are not just jobs programs, or worse yet, mechanisms for the redistribution of wealth from one country to another. Instead, they are creating a cultural seedbed for economic freedom and independence.
The “richness” of a country is not just measured in GDP. Microloans are making societies richer by creating hope, independence, and pride among thousands of “micro” entrepreneurs. And over the long run this will surely create monetary wealth in the countries that benefit from these efforts.
Thanks to Andy Tabar for passing this article along.
Exits Rarely Look Like They Were Originally Planned
Mark Cuban has some wise advice for start-ups at his blog called Blog Maverick. His first three rules for start-ups all deal with the power of passion and commitment:
1. Don’t start a company unless its an obsession and something you love.
2. If you have an exit strategy, its not an obsession.
3. Hire people who you think will love working there.
His commentary on exit strategies might stir a few feathers. I would say that to some degree he is right. If your only objective is a quick exit, you may end up being a unprepared if things don’t go the way your plan predicts (Imagine that!!).
It also reminds me of the advice that I received early in my health care business start-up. Remember that when you run a race your goal is never the finish line. Good runners will tell you that you that to win you must give everything you have for the entire distance of the race. To accomplish this you should imagine that the finish is well past the finish line on the track.
Businesses rarely follow the script of the business plan, especially when it comes to exits. You may end up running a company for a lot longer than you had planned. Make sure it is a business that you are passionate about and that you can commit to for the indefinite future.
(Thanks to Jon Beckmann for passing this along).