“The New Normal—GET USED TO IT. The legacy of the financial crisis will be overregulation and slow growth.” These are the words of Mohamed A. El-Erian, CEO and award winning author of When Markets Collide, in a recent article in BusinessWeek. El-Erian went on to say; “…some may want to deny the new reality. That’s a mistake. But being caught in a regime shift with backward-looking beliefs and operating models, is much worse.”
Without a doubt, things are going to change dramatically over the coming years and we will be doing business within major new concepts. It can be exciting, or devastating, depending on how well we adapt to change.
So, because it is the weekend, I thought I would include something from one of my favorite entrepreneurs, Mark Johnson. This is one of the first performances Mark and his crew put together after he brought some of the “Playing for Change” musicians to the U.S. for a tour.
With more and more boomers joining the ranks of the unemployed—added to the growing number of retirees whose portfolios have diminished (or disappeared)—we see a large block of “older” people searching for work. Actually, many of this older group are looking to become entrepreneurs…to experience that nagging drive to start a business that they ignored when they were in a comfortable job, or had all the retirement money they thought they would ever need. But, what chance does this older group stand against the energetic, well-educated, and creative younger entrepreneur?
Well, quite good actually. Consider if you will, that Herb Kelleher was 40 when he started Southwest Airlines; Gary Burrell was 52 when he cofounded Garmin; Harlan Sanders was 65 when he started franchising KFC; and entrepreneur Mortimer Levitt’s last book was titled “96 And Too Busy to Die” (he wrote his first book “How to Start a Business Without Losing Your Shirt” when he was 75).
Not to discourage young entrepreneurs—they are the key to America’s business future—but entrepreneurship does not belong just to the young. The Ewing Marion Kauffman Foundation of Entrepreneurial Activity reports that there are twice as many business founders over 50 than there are under 25.
To be successful, an entrepreneur does not need to produce an earth shaking new product that will change the lives of mankind. Richard Branson did not invent a new product, he improved a process, and Fred Smith simply improved how packages were delivered. Just because you don’t invent a new high tech gadget does not mean you won’t be successful. You can certainly replicate businesses that are already successful (that’s what franchising is all about). Or, you can simply turn your dream into a successful business, like Fraser Doherty (SuperJam), or Justin Esch and Dave Lefkow (Bacon Salt). There are no limits to imagination.
So, there you are…anyone of any age can start a business based on whatever their dream is. Don’t be intimidated because you have never started a business—there is lots of help available…and never tell yourself you’re too old to start a business (or too young for that matter).
Venture capitalists rely primarily on an Initial Public Offering (IPO) for their big payday, but now, because of the recession, that window has been slammed shut. Does that mean venture capitalists are temporarily out of business?
Absolutely not, according to a recent report by PricewaterhouseCoopers. Venture capitalists have simply modified their strategy to accommodate the current economic conditions. As a result, U.S. venture capital investing has remained within historical norms through the third quarter of 2008. In fact, venture capitalists entered into more deals in the first three quarters of 2008, than in the same three quarters of all years since 2001. The trend for venture capital investments is up…and so should be the spirits of any company looking for venture investments.
In addition, the major changes the venture firms are making are likely to work better for most new companies, such as:
The life cycle of the average investment is now longer (due to lack of IPO exits). Earlier venture investments were planned to end in four or five years—now they are looking at eight or nine years. This means that venture firms may invest additional capital, over a longer period, to assure continued growth of your company until “payday.”
On the front end of the life cycle, the venture firms are typically investing sooner in the seed and early stage start-up phase. This means they may initially invest smaller amounts than they might have in prior years. This is good news for many ready-to-start companies.
Of course, the requirements for acquiring venture capital is about the same as they always have been—that is, a great idea, and an outstanding management team. Oh yes, you also must have a willingness to work harder than you ever thought you possibly could. Venture capital is not for everyone, and it is very difficult to obtain, but for those companies that need a sound investor to help grow their business, venture capital is necessary—and available.
The time has never been better for new company start-ups, and in future posts I will be giving some guidelines on how to prepare to seek venture capital.
In their November 2008 issue, Fast Company magazine featured an interview with Jim Sinegal, CEO and cofounder of Costco. While most retailers are whining about the economy, in August Costco had an increase in same-store sales of 9%. The reason for this is very simple; there are no secret programs, or special incentives to buy there…just good old-fashioned business sense. Here are the key points in Jim’s interview that we can all learn from.
Don’t gouge your customers. The interviewer pointed out that some suppliers still balk at Jim’s policy of not marking products up more than 15%. So much for supply and demand marketing.
Treat your customers well.Jim: “Customers shop with us for value. They don’t shop with us for cheap prices on cheap merchandise. They expect us to deliver value on quality….The final analysis is, the customers vote at the checkout.” This is something for all of us to remember.
Treat your employees well. Wall Street complains that Costco treats its customers and employees better than they do their shareholders. They pay their workers an average of $17 per hour, and 90% of health insurance costs, for both full-time and part-time employees. Yet, revenues have grown 70% in the last five years, and their stock has doubled.
Know your competition.Jim: “Hardly a week goes by that I’m not in a Sam’s.” Do we study our own competition that closely?
Try new things. Sales on Costco’s e-commerce site are expected to hit $1.6 billion this year, a 33% increase over 2007. Coffins are one of their big e-commerce sellers. Who would have thought?
Do not be afraid to fail.Jim: “You don’t have enough space in your magazine to talk about all the things that we’ve tried that didn’t work out.” How bold are we about trying new things?
Manage by walking around.Jim: “You know, there certainly are days when I’ll visit 12 (stores). I will be traveling to our warehouses every single week between now and Christmas…I try to approach the visits from the standpoint of the customer. Does the building have the right goods out? Is it well stocked and clean and safe? Nothing is a bigger turnoff than poor housekeeping.” Spending quality time with our customers and employees is going to be one of the keys to surviving this recession.
Be innovative.Jim: “We just reconfigured our cashews. They were in a round canister, and we put them in a square canister. It sounds crazy, but we saved something like 560 truckloads a year of that one product.” In today’s chaotic world, innovation is not optional.
Keep overhead low. Jim answers his own phone and sends his own faxes. I read somewhere else, a while back, that Jim uses the same desk, in the same small office where he started 25 years ago. Many of us can take a lesson from that.
Obviously, Costco is a reflection of its CEO and the values he brings to his business. But then, aren’t all our businesses a reflection of the values of the owner?
There has been quite a bit of chatter on the Internet lately about Michael Gerber’s book, The E-Myth Revisited. In his book, Gerber proclaims that unless you have employees, you are NOT an entrepreneur. Without hiring employees, you are merely a “technician” doing what you always did. He goes on to say, “The purpose of going into business is to get free of a job so you can create jobs for other people.” This should come as shocking news to the 21.1 million non-employee businesses (70% of the total) in the U.S. (not to mention the world).
No, I do not believe Gerber’s premise for a second. Dozens of blogs and web sites offer definitions of what an entrepreneur is. There are also multiple dictionaries with definitions of the title, entrepreneur. They all say pretty much the same thing. Here is a compilation of those definitions:
An entrepreneur is a person who organizes and operates a business, usually with considerable initiative, while taking on greater than normal financial risks in order to do so.
Michael offers a very good approach for growing a business by hiring employees, but I think he does a real disservice to the majority of small business owners who do not want to take on employees, or do not intend to grow beyond a certain point. These are the same businesses that pump a trillion dollars a year into the United States GDP. I can’t imagine what the world contribution is.
Being an entrepreneur is hard work and takes a lot of time, passion, money, and intestinal fortitude to become a successful businessperson. I believe every shop owner; every market vendor, every home-based business owner, and every non-employee business owner in the world fulfills the above definition and deserves to be called “Entrepreneur.”
Helping aspiring entrepreneurs and new business owners