Risky Business
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It's a Jungle of Regulations on Small Business Out There
Continue reading… 7 CommentsHow would you spend $7,647? That's how much the average business in this country with under 20 employees loses a year for each of its employees because of federal regulations. Thomas Sullivan, the chief counsel for advocacy at the Small Business Administration, testified yesterday before the House Committee on Small Business about ways his office is trying to reduce the $1.1 trillion burden that federal regulations place on businesses. Sullivan also noted that this burden falls disproportionately on smaller businesses. In 2004, the cost of regulations for businesses with more than 500 employees was $5,282 per employee.
The gist of what Sullivan said is that the SBA Office of Advocacy is singling out some of the "low-hanging fruit" regulations to be revised, but it's going to be a slow process, as can be expected of any bureaucracy. Last summer, the SBA launched its Small Business Regulatory Review and Reform Initiative, which each year will come up with a "top 10" list of regulations to be addressed. Sullivan's testimony includes the list of this year's top 10, which contains some nuggets like this:
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Employment Picture: Small Businesses Continue to Outperform
Continue reading… 1 CommentThe early word on July jobs reports has been pretty bad. But according to a report released by ADP today, the small-business sector continues to be a silver lining in the dark cloud of the overall employment picture.
The picture does seem to be much better than was forecast, fortunately. The ADP National Employment Report finds total nonfarm employment grew by 9,000 from June to July. But that number doesn't tell the whole story—that growth was driven by small-business job growth, which masked problems at larger businesses. July saw "essentially flat employment, with small businesses adding jobs and medium- and large-sized companies losing jobs," says Joel Prakken of Macroeconomic Advisers.
Small businesses added 50,000 jobs last month, a big jump up from the 7,000 added the previous month. Small businesses' relative lack of exposure to construction and housing continues to make them more resilient than bigger businesses when it comes to jobs.
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What Does Drug Dealing Tell Us About Small Businesses?
Continue reading… 11 CommentsScott Shane just blogged about a fascinating study by Rob Fairlie, an economist at the University of California-Santa Cruz. Fairlie was interested in entrepreneurship in the black market and how it relates to legitimate entrepreneurship. So he looked at data regarding drug dealers, and he found that they were 10 to 11 percent more likely to become self-employed in legitimate businesses than people who weren't drug dealers.
Now you might say that this should be expected—people with criminal backgrounds might have fewer chances to be hired by someone else, so they have no choice but to work for themselves. But Fairlie crunched the numbers and discovered that structural factors like education and incarceration can't explain the difference. This led him to an explanation that might make some people uncomfortable: The same personality traits and skills that draw people to becoming "businessmen" in the drug trade also lead them to be regular small-business people.
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Cash Flow Continues to Be King
Continue reading… 0 CommentsGood news all around from today's Discover Small Business Watch survey, which covers small-business owners' attitudes and economic situation as surveyed in the middle of July. On pretty much every indicator, things have improved for small businesses—and it all seems to link back to that one magic question, "How's your cash flow?" Last month, 42 percent said that they had experienced cash flow problems in the past 90 days. But that number fell all the way down to 33 percent for this month.
In addition to (or maybe as a result of) all this cold hard cash, small-business owners have found more optimism in the past month. Now, 28 percent think their economic conditions are getting better, up from 23 percent last month, and 17 percent rate the economy as "good" or "excellent," up from 12 percent. Those numbers are around where they were one year ago.
Can we say that fears of a small-business recession should be fading?
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More on Markets as the Way of the Past
Continue reading… 2 CommentsWow—just a week after the Los Angeles Times published its analysis of how the political climate is turning against free markets, the Wall Street Journal has its own piece on the same subject. While this is, overall, a more balanced piece, it still embraces the same false dichotomy that the L.A. Times piece did. An excerpt:
On the state level, California regulators clawed back as much control as they could of the state's electricity market after a failed experiment in deregulation that started in 1998. "Excesses by markets bring the pendulum swinging back toward government," says Michael Peevey, the Democratic president of the California Public Utilities Commission.
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Free Markets Are Passé? Only if You Forget About Entrepreneurs
Continue reading… 1 CommentNews flash from the Los Angeles Times: Free markets are sooo yesterday!
Well, that's not exactly what it says. But L.A. Times staff writer Peter Gosselin sums up his point at the end of this piece as essentially this: The best thing we can hope for to deal with high gas prices, financial turmoil, and other current calamities is "New Deal Lite." He also writes that "the nation and its political leaders have begun to sour on the notion that the current market system is the key to a fair, stable, and efficient society."
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For the Minimum Wage, Place Matters
Continue reading… 0 CommentsEmployers, take note: Today, the minimum wage rises to $6.55 an hour. That's the second of three scheduled increases. Next year, it will go up to $7.25 an hour. But this is just the federal minimum. States have their own laws, which complicate the matter.
Business & Legal Reports, a newsletter publisher, has a handy state-by-state guide to the minimum wage increase. Twenty-five states will see an increase to $6.55, while the other half already have their minimum wages set above that new floor. The highest is Washington State's, at $8.07.
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Because I Said So: Small Business and Nanny Politicians
Continue reading… 1 CommentAny small business that serves a specialized market is going to have to face this reality: no matter how successful the business, some people in its city or town are simply not going to like its products. That's fine. You can't be everything to everyone. But what happens when some of those people who turn their noses up at your business get elected to city council? Be worried. Here's a story coming out of Milan:
Diners hungry for Chinese carry-out or Middle Eastern kebabs in Italy could have their choices limited under a regional law proposed by the anti-immigrant Northern League on Thursday.
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The Roadblocks to Going Global
Continue reading… 0 CommentsAs small businesses continue to explore global markets, it's important to remember some caveats. There seems to be a notion that developing world markets in China and India are not only the next big thing but the only big thing. This article on the "new global middle class" sums up the thinking of professors at the Wharton School of the University of Pennsylvania.
[Diana] Farrell [director of the McKinsey Global Institute] notes that many Western firms focus on services, but that this sector is not as developed among the rising middle classes as consumer goods. "When it comes to services, we're pretty [much in] the early days," she says. One obstacle to reaching new consumer markets with services is regulation in foreign countries. For example, she points to India's restrictions on foreign ownership of retail businesses.
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The Best of Small Biz Blogs for the Week of July 18
Continue reading… 0 Comments- Bob Litan on why the heartland might the great undiscovered frontier for venture capital.
- Kiri Blakeley of Forbes on how entrepreneurship and supermodels mix.
- Zane Safrit blogging on Small Biz Trends with some comprehensive steps on hiring.
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Sarbanes-Oxley: A Chilling Effect on Venture Capital?
Continue reading… 1 CommentHere's something that I didn't go into in my article on venture capital: the role that financial regulation is playing. Sure, it makes sense that given all the financial problems going on in today's economy, venture capital activity would be down. But according to some, this is coming at the worst possible time.
In the wake of Sarbanes-Oxley legislation passed in reaction to the Enron scandals of 2001, "the psychology of the entrepreneur has changed dramatically," say Mark Heesen, president of the National Venture Capital Association. The basic reason is that in a world with Sarbanes-Oxley, everyone who wants to take their company public has to deal with extra paperwork and hoops to jump through. Those costs can add up and sometimes make going public simply not worth it. "Today you have a lot of entrepreneurs who say if acquisition is coming along, I'm taking it," Heesen says. "They say, 'I don't want to deal with all of these accounting rules. It's not fun going public anymore.' They'd rather sell out and go create another company or go play golf."
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Local Coffee Stores Thrive With a Personal Touch
Continue reading… 0 CommentsThe Washington Post reports that while Starbucks is closing stores left and right, smaller local coffee shops are thriving. The report includes interviews with coffee-shop owners around the D.C. area about how they've done it.
Behind the counter, the Java Shack's baristas make the espresso themselves, no matter how many salesmen come through trying to sell Roberts an automatic machine that would steam the milk all on its own. He has said no every time. The person making the drink talks to the customer who ordered it. The scene is what Schultz originally intended with Starbucks, but even he now admits that atmosphere has drifted away as the company has grown.
This touches on some of the same themes that I wrote about a few months back when I profiled Phoenix Coffee, a local chain in Cleveland, as a business that is able to survive in a recession. The key to success for both Java Shack and Phoenix is a focus on skilled employees, as well as customer interaction.
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Green Entrepreneurship Start-Up Ideas Abound
Continue reading… 10 CommentsYesterday I wrote (outside of the blog) that the development of green and clean technology is an area that is still booming for entrepreneurs and will continue to boom. This is a space for entrepreneurs of all kinds, from Silicon Valley venture capitalists to people who might have a day job but want to make some money on the side.
How to do the latter? Here's an interesting story about a French entrepreneur who has created a website revolving around the feverish interest in hybrid and other environmentally friendly cars. She says she spends only three hours a day on the site.
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Small Biz Owners Say 'Thanks, but No Thanks' to Economic Stimulus
Continue reading… 4 CommentsSome polls on President Bush's stimulus plan have shown that most people don't plan to do much with their stimulus checks. Can we finally write the epitaph for the plan? American Management Services, small-business expert George Cloutier's organization, released a survey today that finds that 78 percent of small-business owners think their stimulus checks are "useless."
Another interesting finding—49 percent said they do not know which of the two major presidential candidates have the best policy proposals for small business. Sens. Barack Obama and John McCain take note: The small-business vote is still very much in play.
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Best of the Blogs for Small-Business People, Week of July 11, 2008
Continue reading… 2 CommentsBusiness Pundit interviews Boston Consulting Group's Hal Shirkin about how global competition is only going to get fiercer.
Yaro Storak of Entrepreneurs Journey explains how to blog to "prelaunch" a new product and bring attention to it.
Want more evidence that consumers are paring back their spending? Even rock show tickets are dipping from their usually astronomical prices.
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Trouble for Small-Business Owners in Minnesota
Continue reading… 1 CommentA survey conducted this June by U.S. Bank finds that 46 percent of small-business owners in Minnesota report lower revenues this year compared with 2007. In addition, 74 percent say they think the economy is in a recession.
For readers who are more familiar with the North Star State than I: Any reason that Minnesota's economy might not be representative? I do not believe it's been hit especially hard by the housing bubble burst. Housing price appreciation was moderate, relatively speaking, in Minnesota leading up to the crash.
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Is Peer-to-Peer Lending a Solution for Start-ups?: Q&A with Paul Dholakia of Rice University
Continue reading… 6 CommentsWith the increasing scarcity of bank loans because of the economy's credit crunch, entrepreneurs are thirsty for new sources of capital. One such alternative is peer-to-peer lending, in which people lend other people money directly, without the involvement of a financial institution. Transactions take place online, incorporating elements of social-networking sites. Websites such as Prosper.com and Kiva.com connect borrowers and lenders, and the prize on the table is investments.
Peer-to-peer lending sites tap into the popularity of social networking on the Web, hoping to imitate the success of MySpace and Facebook. But there is concern that these sites could fizzle out in popularity, as many Web start-ups do.
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Will Entrepreneurs Save the World?
Continue reading… 1 CommentThere's a big discussion going on about the role of government and capitalism in addressing social ills like poverty and disease, and it's a discussion where I think entrepreneurs, even small-time ones, can play a critical role. Creative Capitalism is a blog where some brilliant minds are talking about Bill Gates's argument, made at the World Economic Forum in Davos, Switzerland, that philanthropy alone can't solve the world's problems. Free-market capitalism is also required. Many of the responses are hopeful and optimistic about capitalists' role in promoting social good, but we also hear skepticism from former Secretary of Labor Robert Reich, who writes of a "false hope in the private sector."
This reminds me of an interview I did with John Kao last year about his book Innovation Nation. He made a number of interesting points about how America is losing its status as leader in producing innovative technologies. But what surprised me was how much he measured America's commitment to innovate based on how much the federal government is doing, ignoring the private sector.
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Finding the Opportunity in a Troubled Industry
Continue reading… 2 CommentsI interviewed Jim Blasingame about the "emotional recession" that can be more dangerous for small-business owners than an actual recession in the economy. I think this article in the Frederick News Post, a local paper in Maryland, illustrates what Blasingame was talking about:
Greenwood owns the Isuzu division of Grimes Truck Center in Frederick. The business sells Isuzus and services all makes of commercial trucks. The company boasts a half-million parts inventory.
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Wal-Mart Reconsidered
Continue reading… 8 CommentsWhen I blogged about Wal-Mart last week, I got some nice skepticism in the comments section regarding the suggestion that Wal-Mart is not a ravager of local businesses but could in some instances be a boon to them. For example, "Dan from CA" said, "I have experienced first hand when ever large corporations like Wal-Mart, Costco and Home Depot come into a neighborhood. It always has hurts the small business."
He's definitely expressing the conventional wisdom. And the idea that Wal-Mart, with its severely discounted prices, is a force that few small businesses can compete with makes intuitive sense. But it's often the case that our intuitions don't hold up against evidence.
