Tag: entrepreneurial

Outlook Uncertain

In addition to some not so good hard economic data coming out lately, there is a growing pessimism among entrepreneurs and those who pay attention to entrepreneurs in our economy.

As I wrote last week, the latest NFIB survey of small business owners does not paint a rosy picture of their mood. The results of the survey are out this morning and once again we see a decline in their optimism this month.

“A second consecutive month of decline in small-business optimism does very little to encourage further confidence in a strong economic recovery,” said NFIB Chief Economist Bill Dunkelberg. “Owners simply find no reason to be optimistic about the future and therefore they find no reason to pick up the pace of spending and hiring. It’s difficult to know exactly why the outlook for small firms is in decline; but it’s a safe bet that political and economic uncertainty–about the deficit, the threat of inflation, rising energy and health care costs–are at top of the mind for most small-business owners. Who is going to stay positive in this turbulent political environment?”

The Kauffman economics bloggers (of which I am one) also share the lack of optimism found among business owners.

“Uncertain” continues to be the word they would use most to describe economy.  In fact, 85% view current economic conditions as “mixed” or “facing recession,” up 8% from first quarter of 2011.  And if that isn’t enough, 32% believe the country is doing “worse” than official statistics show.

Small business owners are putting their pessimism into action, or should I say a lack of action according to the NFIB survey.

Only 50 percent of all firms reported making capital outlays last month,
down 1 point from the month prior. The percent of owners planning
capital outlays in the next three to six months fell 3 points to 21
percent, a recession level reading. 

Money is cheap, but most owners are
not interested in a loan to finance equipment they don’t need. 
Prospects are still uncertain enough to discourage any but the most
profitable and promising investments.  A wise position to take from my perspective.

We are seeing many small business owners begin to take action to deal with inflation.  (I know, I know…what inflation, if we believe the government’s cooked and filtered inflation statistics).  In April, a net 12 percent reported raising average selling prices, a 3 point gain from March and 23 points higher than last September. A net 24 percent planned hikes in average selling prices in April.

So what do business owners and economists agree on?  More recessionary times yet to come, coupled with the new reality of inflation.

Enhanced by Zemanta

A Good Business Attorney is a Key Resource for Start-ups

One of the first bits of wisdom my father shared with me many years ago was that a small business needed “a strong three-legged stool” to support it. The three legs should consist of a strong attorney, a CPA and a business banker.

To save money, many startup entrepreneurs cut corners on legal work. With all the use of do-it-yourself legal websites, many entrepreneurs seem to be questioning whether they need a personal relationship with an attorney.

“Every business is different, and that is equally true for their legal needs,” said Chris Sloan, an attorney with the Nashville office of Baker, Donelson, Bearman, Caldwell & Berkowitz. “For the truly simple, small, mom-and- pop types of businesses, you may be OK with a do-it-yourself approach. But if you are expecting a lot of growth, or have partners, an off-the-shelf approach is often a poor fit.”

I tell entrepreneurs that when it comes to partnership/shareholder agreements, you can pay your attorney now or pay him a lot more later.

“There’s a reason why we call partnership disputes ‘business divorces,’ ” Sloan said. “They can be just about as nasty and emotional at times.

“The best way to avoid that is with an agreement that addresses issues like decision-making, dispute resolution, what happens if someone dies or wants to leave, and how and when to shut or sell the business.

“With a good agreement, you accomplish two things. First, you avoid a dispute down the road, and second, you have a chance to preserve the personal relationships.”
Shape the issues

“First, find a business lawyer,” Sloan said. “Many lawyers cannot think outside of the law school approach of spotting every issue and addressing it. Those are not business lawyers.

“A good lawyer also has the heart of a teacher; they should be able to explain things in a way that the client can understand them and feels comfortable. How they do this also gives you a good indication of how they will write, how they will negotiate and how they will interact with another party.

“Lastly, remember that lawyers are like doctors; there are many different areas of expertise. Just like you wouldn’t go to an internist for open heart surgery, you shouldn’t go to a public securities lawyer or a litigator for startup work.”

One attorney with whom I worked in my business past used to say that he wanted me to first shape the issues we were working on for him from a business perspective, and then he’d do the lawyering.

Sloan agreed with this advice.

“My job isn’t to say, ‘Do this. Don’t do that.’ It’s for you to tell me your business objective, and for me to advise you on the different ways to accomplish it and the risks associated with each one.”

A strong legal foundation is one of the three legs of the stool supporting a small business. My subsequent columns will examine the other two legs of the stool.

Enhanced by Zemanta

Go Belmont!

National finalists 2011.jpg

For the past eight years I have had the pleasure of taking our students from Belmont University to the International Collegiate DECA competition. 

This was the largest Collegiate DECA Event ever, with about
1,500 international competitors. 

Of our 28 Belmont participants, we had 20 end up in the
finals today.

Congratulations to all of our International Winners:

Business Plan Event:

1st Place:  Tim Smith

3rd Place: Jake Jorgovan

Entrepreneurial Challenge:

2nd Place:  Jerell Harris, Areej Rabie, Josh
Gilreth

3rd Place:  Kathleen Bond, Matt Madden,
Lindsay Ricker

Top Ten:  Mandy Thompson, Hillary Unis, Jenna Owen

Sales Management:

2nd Place: Jerell Harris

Restaurant Management:

2nd Place:  Clark Buckner (second year in a
row)

Top 10:  Max Magura

Finalist:  Julia Cecere

Business Ethics:

Top 10: Lindsay Ricker and Kathleen Bond

Finalist:  Aubree Phillips and Charles Williams

Retail Management:

Finalist:  Hillary Unis

Bringing Values into Vision

Many entrepreneurs talk about integrating their values into the vision for a new business. But some take it one step further and actually build a business model based on their values.

Green Truck Moving Co. is a Nashville-based startup that is integrating the founders’ commitment to the environment and the community into the mission of their company.

The founders have implemented environmental practices that include using more eco-friendly fuel in their trucks, recycling and reusing moving materials, operating a virtually paperless business and using recycled materials. “While not all consumers are typically inclined to buy solely off a company’s values — say eco-friendliness — it is important to make consumers understand the potential impact it could have in their own community,” said co-founder and Belmont University MBA student Emmanuel Reed.

“We feel our values will help us grow our business, because it is not just a selling point. We have to walk the talk and have our values drive and inspire the people within our organization.”

They also commit to plant two trees after each move they perform for their customers.

As the business expands, they have plans to go even further in pursuit of environmental values. Green Truck Moving is developing rentable, reusable containers made of recycled material to replace traditional moving boxes.

Another example of integrating values and vision is a new business called Mattress Works.

This startup, founded by a group of Belmont students, exists to provide employment opportunities for the homeless and to divert waste from landfills through deconstructing and recycling used mattresses.

“We developed Mattress Works out of our passion to encourage environmental sustainability and create social change in the community,” said co-founder Emily Hollingsworth.

Mattress Works has secured used mattress suppliers and scrap buyers for two trial runs. It has processed about 160 mattresses between the two pilot operations. This served as proof of concept, which allowed it to test the viability of the business model and identify any weak spots.

After working out some kinks, the founders are moving forward with Mattresses Unlimited as their first supplier, and they are negotiating a contract with a second supplier.

“Our end goal is to transfer the ownership of the venture to a homeless man who has been trained as part of the Mattress Works team, embodying our belief in the power of entrepreneurship to facilitate change in the lives of others,” Hollingsworth said.

Hollingsworth is leading a team of students presenting Mattress Works at the Texas Christian University Values and Vision competition this week.

For a growing number of entrepreneurs, starting a business is more than just a vehicle to making money. Entrepreneurship is a path to pursue their values through the vision they create for a business.

Learning Business Hands-on

Two of my friends are helping to organize a summer camp for high school students to learn more about business through a week of experiential learning.  I will be participating as one of their guest instructors.  It will be held here in Nashville from July 17-23.

The Managing Ourselves Camp is an immersion in a working organization of the students’ own making under the leadership of experiential learning expert Dr.
John Miller,

The Managing Ourselves Camp is an excellent chance for high school students to challenge
their teamwork and leadership skills, strengthen their understanding of how
successful organizations work and learn about academic and career paths that
match their talents.

And They Said it Would Never Work

A few years ago we received a seed gift from a donor who has now become our major benefactor for the Center for Entrepreneurship here at Belmont.

He and I had a conversation about what the gift would allow us to do.  He deferred all decisions to me, but did make a challenge.  He said that he hoped that we could find ways to leverage his gift.

What a lot of entrepreneurship programs do to leverage gifts is to set up venture funds.  They make investments in student and alumni businesses with the hope that these investments will pay off big returns.

But that model does not work in our Center.  We have our unofficial “Life Time Warranty” which states that we never take ownership or consulting dollars from any students or alumni no matter how successful their businesses become.  We will always be there as their teachers and mentors.

So we came up with a different model.  We called it our Runway Loan Program, in which we would make $25,000 loans to student or alumni businesses that needed help and showed good potential.

Here are the terms:

  1. Zero percent interest
  2. Repayment of principle tied to cash flow (very small percentage so as not to bleed cash)
  3. Non-recourse loan
  4. Once principle is paid back a gift agreement kicks in which says they will give our Center a gift of 1% of the revenue of the business we supported that continues until the business is sold.  At that point we get 1% of the proceeds of the sale.

When I presented this model to a couple of national meetings I did not get a very warm and fuzzy response.

I was told, “They will never pay it back without teeth in the agreement.” 

And I heard, “No entrepreneur is going to give up 1% of revenues in perpetuity for a measly $25,000!!”

Well, they were wrong on both counts. 

We had strong interest for our initial round of two loans. 

Yesterday the first of the two loans, this one made to Just Kidding Productions (video company, whose founders also started the apps company Aloompa), was paid back to us in full.

Loan Payback edit 1 small.jpg

And thanks to the on-going generosity of  our donor, we will be making many more Runway Loans for years to come!

Business Model Demands Patience

Author and entrepreneur Steve Blank describes the business start-up process as having two phases.

In the first, entrepreneurs learn about their customers and what they want. This can be thought of as a series of experiments with real customers. It eventually leads to a business model that can be used to build a sustainable venture.

Once we learn what our business model needs to be, we can begin the second phase, which includes attracting more and more customers and building a company.

It is essential that we take our time before moving to the second phase to make certain we’re building our company around a business model that can lead to successful growth.

Nashville-based Aloompa is a great example of a business that’s taking its time to get things right.

In a visit to my business school class at Belmont University, two of the founders, Kurt Nelson and Tyler Seymour, told how they developed the business model for this relatively young company.

The original vision was to develop apps that would allow streaming of live videos directly to the iPhones of concertgoers. But this proved to be more difficult than they thought. However, their experimentation with the business model led to recognizing a more promising opportunity that still involves apps for music events.

They approached the Bonnaroo music festival about developing an app for attendees. To prove to Bonnaroo that the app would be something of value, they gave away the first year’s version.

They used that first year to prove that the app had value and to test what features fans at the festival truly wanted.

Their success with Bonnaroo led to the sale of more music festival apps. With each new app they continued to engage the market, all of which helped them learn more about their business model and their customers.

A big, early breakthrough for Aloompa occurred when they were asked to develop a new app for country artist Kenny Chesney. This showed them that their business model could be much broader than just developing apps for music festivals.

They still weren’t finished experimenting with what their emerging app business could become. Recently, they moved into developing apps for the Rally to Restore Sanity staged by comedians Jon Stewart and Stephen Colbert, as well as for the popular conversation game Table Topics.

Nelson said Aloompa isn’t ready to hire a full-time staff and build an organization. The partners are keeping operations lean and flexible because they expect the business model to continue to evolve.

The Aloompa story illustrates that even when the market seems to be accepting a new venture, and sales start to grow, owners still shouldn’t move too quickly to formalize the business. Be patient. Continue to experiment with customers. Tinker with the business model until you’re ready to scale up the venture.

Rethinking Goal Setting

If business plans are marvelous works of fiction — and they most often are — then the specific financial goals that they are tied to are fairy tales.

Don’t take this wrong.  I am a strong advocate of building a business that meets your aspirations.  You need to consciously engineer your financial and non-financial priorities into your business model.  But when I start reading plans with specific multiples of EBITDA tied to an exit event a few years out I cringe. 

Even VCs know that only 10% of plans they fund (which can be as few at 1% of plans they receive) will probably meet the goals stated in the business plans for their portfolio companies.  And yet, almost every entrepreneur seems to think their plan will hit its numbers and reach their specific goal.

I think more of us should take the approach of goal setting that Ami Kassar has set for his business MultiFunding.  From his blog:

I often get asked the question “Ami, what is your goal for MultiFunding ?”  People want to know “how big” I want the company to be, who do I think will “buy it” one day, is this a “lifestyle business”, or do I “want to take it public one day.”  My answer is that our goal for the first year was to survive, which we did.  My goal for the second year is to be able to keep the company growing at a pace where we can maintain excellent customer service, and to be able to make a good living while I do it.

Business models evolve as we learn from the market where our business really needs to be and what it can really achieve.  You’ll be a lot happier as an entrepreneur if you set realistic goals, especially for the early stages of the business.

Once you get traction, then you can start to set more specific goals that reflect a growing knowledge about the market and your customers.  And you can more realistically temper these potential goals with your non-financial goals including those shaped by the time you want for your family, friends and community.

A Mixed Outlook

The Kauffman Foundation has connected what they consider the nation’s top economics
bloggers.  Although not all of us are economists, we all write our blogs with commentary on economic policy and/or trends.

Each quarter they survey us to see where we think things are in the economy.  We are an eclectic bunch, with a variety of journalists, academics, consultants, and just good old fashioned pundits.

This quarter the group was slightly more positive than the past quarter. 

Although 77 percent continue
to describe the economy’s overall condition as “mixed,” “facing
recession,” or “in recession,” 23 percent now believe the
economy is “strong and growing” or “strong with uncertain
growth”.

Here is the word cloud from our open ended response to the state of the economy:

word-cloud.gif

This survey was from a few weeks ago.  Wonder what renewed inflationary pressures, record federal deficits, and unrest around the globe will do to change our collective perspective next quarter…