Entrepreneurship Focus Groups

We have recently conducted Entrepreneurship Planning Focus Groups in several communities in Missouri and Illinois.  The Planning Focus Group is a facilitated, focused discussion and workshop with a community’s elected officials, city administrative staff, Chamber of Commerce, and key business leaders.  Among the communities where we have conducted the Focus Groups, we have seen three key outcomes.

1.         Consensus

One of our objectives for conducting the Focus Group is to build consensus among the varying entities, businesses, and individuals that are involved in economic development in a community.  The process has provided a platform in which wants and desires as well as grievances and challenges have been aired.  In about two-thirds of the Focus Groups we have facilitated, consensus has been reached by the end of the two hour process.  In some cases, the Planning Focus Group is the first time many of the participants have been included in a formal planning process.

2.         Goals

Our experience has been that many communities do not have specific, measurable economic development goals.  Most individuals and entities in the community know what they want economic development wise; jobs, new businesses, a revitalized downtown business district, more tax revenue, more support for new and existing businesses, and the holy grail of all economic development; a new manufacturing plant.  Through the focus group process we have seen these wish lists crystallize into specific goals based on the community’s strengths, weaknesses, and the resources the community can put forth.

3.         Plan

We believe that one of the reasons for a community to host a Planning Focus Group is that the results will provide the basis for the development of an Economic Development Strategic Plan.  That has been the case.  In two of the communities where we have conducted the Planning Focus Group, specific strategic and tactical plans have been developed to achieve the economic development goals that were identified through the focus group process.

Finally, in moderating these focus groups I have had the opportunity to meet (and question) many, many individuals who deeply care about their about their community’s economic health.  I have been told that many of these people have left the Planning Focus Group excited, encouraged, motivated, and ready to help.  They have taken ownership of economic development in their community, not passed it off to their mayor, city manager, or economic developer.  That’s pretty encouraging.

For more information about the Entrepreneurship Planning Focus Group:  http://ventureadvisors.org/Focus_Group.htm

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St. Louis hits the Tech Startup Map

St. Louis has come a long way in the past couple of years.  Please take a few minutes to read this excellent article that David Strom wrote for IT World (David has volunteered for both our St. Louis and Highland entrepreneurship programs).  It sums up many of the factors and community efforts that have put St. Louis on the startup map.

http://www.itworld.com/it-management/371685/learning-st-louis-entrepreneurs

The article is about IT startups.  But whether your community is large or small, it applies to any business sector.

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Traits of Successful Entrepreneurs

In an earlier article I pitched the ideal that all of the successful entrepreneurs that I had come in contact with had one key factor in common; they had taken the time and energy to write a business plan.

In a recent conversation with an attorney who is also one of our volunteer mentors, we were discussing what successful entrepreneurs had in common.  She said that in her experience the number one trait or factor that successful entrepreneurs possessed was that they were humble or non-defensive.  In other words, they recognized what they didn’t know, were not afraid to ask for help, and they listened to the advice that mentors and other advisors gave them.

It’s true.  I have had the opportunity to work with over five dozen entrepreneurs during the past couple of years.  In both our Missouri and Illinois programs, the entrepreneurs that seem to succeed don’t have all the answers and deliberately seek help to find them.

Yet at the same time these humble entrepreneurs are also leaders with the vision to take their ideas and turn them into thriving and growing businesses.  Many of them are hiring employees for the first time (a very scary proposition), signing personal guarantees on their commercial loans, and entering into agreements with customers in which they must depend on employees or vendors to help them fulfill.  It takes a certain type of individual who can assume the risk of a startup, yet be humble enough to recognize that they don’t have all the answers.

My attorney colleague’s second trait of successful entrepreneurs?  They have a 5 year plan that is written down, reviewed, and revised each year at a set time, i.e. goal setting.  And third, they are fiscally responsible.  That means that they know or want to know their cost structure and want to understand how cost drives price.  They have a budget that helps them to meet the prices they must have to be competitive and still cover ALL their costs, including how they pay themselves.

Finally, she suggested an anti-success trait, which relates to the third success trait.  She called it self-discipline or lack of self-discipline.  Specifically that they don’t use the till (their business bank account) as their personal piggybank.  Entrepreneurs should treat themselves as employees and view their draws as money they have earned just like any other employee.  They should plan their draws on paper, just like budgeting anything else.

So, do you know someone who is humble, sets written goals, and is fiscally responsible with self-discipline?  He or she is likely a good candidate to achieve success as an entrepreneur.

What do you think?

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Are you a Netflix community?

Netflix started in 1997 with, what was then, a pretty innovative approach to movie rentals.  Customers would join, paying a monthly fee, and then go online and select the movies they wanted to watch.  Netflix would then mail DVD’s to their customers along with a return envelope.  What was really innovative was the fulfillment system they created to manage the millions of DVD’s they were shipping through the postal service.

Then things changed.  As high speed internet service became more prevalent people wanted to stream movies, not wait a couple of days for a DVD to arrive.  So Netflix changed, they jumped into the streaming movie business.

Then things changed again.  Several competitors also jumped into the streaming movie business and severely cut into Netflix’s business.  So Netflix changed again.  In 2011 they went into the content business by creating “House of Cards” with Kevin Spacey.

Wall Street and Hollywood both rewarded Netflix.  Netflix’s stock price is over $260 this week (up from a 52 week low of $56 per share) and the Academy of Television Arts & Sciences gave Netflix 14 Emmy nominations, a first since it was the first time that a show that had never been aired on traditional broadcast TV was nominated.

So how is it that Netflix has been able to survive while a company like Blockbuster couldn’t?  Is it that Blockbuster’s core business was about traditional brick and mortar retail while Netflix was purely online or via the Postal Service?  No because Blockbuster went into the DVD by mail business too.  Or is it really because Netflix took a bold and innovative step in 2011 by going into the content business?

In the economic development arena I see parallels between communities and these two entertainment companies.

I have been to several “Blockbuster” communities recently.  These are towns where the shoe factory or auto parts factory or the (fill in the type of manufacturer here) has closed up and moved the jobs to Mexico or Asia.  In these Blockbuster communities the economic development effort seems to mean two things; waiting, hoping, and praying that the company that closed will come back or that some other manufacturing company will move in and re-create those good manufacturing jobs.

These Blockbuster communities have all the tools available to them; TIF’s, tax credits, enterprise zones, business districts, etc.  They have capable Economic Development Directors who can attract grant funding from a number of state and federal agencies.  What they don’t have are jobs or companies that will create jobs.  They are like Blockbuster was in the late 90’s and early 2000’s, trying to make an outdated business model work in a highly competitive market that was rapidly changing.

I have also been to several “Netflix” communities.  Instead of trying to make an obsolete, brick and mortar model work, they tried something new; they went into the content business.  I equate Netflix’s content development with starting businesses in a community.

Like Netflix’s move into content, a community supporting business startups is risky.  There are no guarantees and a failure can severely damage a community’s ego.  Netflix has survived, in part, because it is innovative and it starts new product lines (businesses).  The successful communities I see today are not only surviving but thriving because they are innovative in their approach to economic development.  While they would like companies to move into town, and they have the same tools available, they are doing everything in their power to encourage and assist entrepreneurs to startup businesses.

The numbers don’t lie; many of this county’s large, established, and successful companies eliminate jobs; startup companies and small businesses create jobs.  Something else I have noticed; when an entrepreneur starts his or her company in a community, they keep it there.  There is very little risk of the company (and the jobs) moving.

So whether you are an entrepreneur, a city manager, or an economic development director; is your community innovative like Netflix, or is it like Blockbuster, trying to catch up with the changes in the market?

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Entrepreneurs and Accountants

Sometimes we struggle in our mentoring programs to get the entrepreneurs we are assisting to really focus on some of the basic numbers that drive their business.  All too often the sole focus is on the top line or sales.  Many entrepreneurs do not have a handle on cost of goods, other variable expenses, and their fixed expenses.  As a result, they think they are doing great because sales keep increasing, however, in reality they are losing money every month.

So why don’t they get it?  One reason is that many entrepreneurs hire an accountant to set up and maintain their books.  Every week or month the entrepreneur then sends their accountant copies of their sales receipts, bills from vendors, register tapes, etc. and the accountant does the rest.  The accountant tells the entrepreneurs when taxes are due, how much to withhold from paychecks, and whether their checkbook balances.

Frequently, what the accountant is not doing is raising red flags.  For example, if sales in May were $12,000 and payroll was $11,000 that would suggest that something is seriously wrong; particularly if employee time is billed to individual customer jobs.

I don’t mean to “blame” the accountant here.  Often, the fault lies with the entrepreneur because they are trying to save money on professional fees and only want the bare minimum of support.  Or, they are five months into their startup before the hire an accountant and the accountant has to spend a lot of time and energy just getting the company’s books caught up.  Or, the entrepreneur simply doesn’t get it.

We have started a new feature in our entrepreneurship programs; a one-on-one “numbers meeting.”  One of our mentors will sit down with the entrepreneur for a two or three hour session to work through the basics.  What are the monthly fixed expenses?  What is cost of goods sold?  What is the gross margin?  The result is a simplified pro forma P&L.  So far, each time we have done this there has been an “Ah Ha” moment.

In one case assisting a food production company, the owner told us that her cost of goods was $10.00 per case.  We sat down with a calculator and all of her vendor invoices and did the math.  Ingredients, labor, packaging, labels, case packs, were all calculated on a per case basis.  The result was the actual cost of goods was $21.00 per case and her gross margin went from the $20 she thought she was generating to $9.00.  Her accountant never brought this up because she was hired to do bookkeeping and to prepare tax returns.

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Entrepreneurship Roundtable – Top 3 Takeaways

The Entrepreneurship Roundtable is a peer advisory that we have created that helps solve economic growth challenges through entrepreneurship.  Our first two Roundtable meetings were held in Springfield, Illinois and Jefferson City, Missouri over the past week.  Participants included mayors, city administrators, and economic developers.  For more information about the Entrepreneurship Roundtable: http://ventureadvisors.org/Roundtable.htm

Here are the top three takeaways from the discussions:

1.         Economic Development Priorities

The communities that participated in the Illinois and Missouri Entrepreneurship Roundtables were quite diverse with populations ranging from 3,000 to 25,000.  Some of the communities were rural agricultural communities while others were adjacent to major metropolitan areas.  Some were thriving while others were not.  The economic development priorities, however, were quite similar:

  • Job Creation
  • Job/Business/Resident Retention (particularly young people)
  • Retail Development
  • Develop Entrepreneurship, Entrepreneurial Spirit
  • Recruit Employers, Businesses
  • Redevelop, Revitalize

There seemed to be widespread agreement that creating an entrepreneurial culture or ecosystem will lead to more startups, more success, and job creation.  Some participants indicated that they felt that ALL new job creation will likely come from startup companies in their communities.

2.         Entrepreneurship Champion

In both the Illinois and Missouri Entrepreneurship Roundtable meetings one of the things that came through loud and clear is that for a community to develop an effective entrepreneurship ecosystem, there must be a champion.  A community ecosystem is made up of many parts, people, organizations, and programs and there needs to be someone (or something, such as a program or group) leading the whole process.

That champion could be a mayor, city manager, economic development director, head of the Chamber, or a business leader.  Too often, while various entities in the community are interested in entrepreneurship and startup companies, they are all moving in different directions and have different priorities.

(The challenge that St. Louis faces is that while we have (literally) over three dozen programs targeted at and providing benefits to entrepreneurs, there is no person or entity leading the community wide effort.  Arch Grants seemed to be emerging as that leader, however, they recently fired their Executive Director so we’ll have to wait and see what comes next.)

3.         Downtown Business District

Unless your community is truly a bedroom community, the first thing a visitor, prospective employee, or company you are trying to recruit to your community looks at is your downtown business district.  What does your business district convey?  Is it vibrant, attractive, well maintained, and occupied?  Or is it vacant and deserted?  Or somewhere in between?

I am pretty involved with Highland Illinois and as a result, frequently reference Highland.  Highland’s town square/downtown business district is 100% occupied with six restaurants and a variety of retail and commercial entities.  Highland has bucked the rural trend; it’s growing not shrinking.

Yesterday I was in Dixon Illinois in the northwestern part of the state (lots of corn fields!).  Dixon’s large downtown business district is 95% occupied.  The impression you get is that Dixon is an exciting and growing community.  The restaurants and retailers had patrons in them, the parking spaces were full, the streets are well maintained and include landscaping and hanging planters, and the riverfront redevelopment includes a very cool park and event space.  As a business owner, I would want to be located in Dixon because it conveys success (Highland too!).

In our Roundtable discussion several ideas were presented on how to get older, main street structures “rehabbed.”  In our upcoming Fall Entrepreneurship Roundtable’s we will focus on ideas to get business (entrepreneurs) into those spaces.

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Education as a Metaphore for Entrepreneurship

I recently watched a TED talk by “education and creativity expert” Ken Robinson who discussed the 3 principals crucial for the human mind to flourish — and how current education culture works against them.  As I watched, I realized that much of what Mr. Robinson was saying about the challenges of our American system of education also applies to how communities, economic development agencies, angel investors, venture capitalists, and bankers view (and treat) entrepreneurs.  The talk was titled “How to escape education’s death valley” and can be seen here:  http://www.ted.com/talks/ken_robinson_how_to_escape_education_s_death_valley.html

The three principals are:

  1. Human beings are naturally different and diverse.
  2. Curiosity drives human life flourishing.
  3. Human life is inherently creative.

For the first principal, Mr. Robinson asks the parents in the audience that if they have two children or more, he would bet that the children are completely different from each other.  It’s true.  No two kids are alike.  However, he states, education in the U.S. is based on conformity, not diversity.  Schools are encouraged to find out what kids can do across a very narrow spectrum of achievement, i.e., standardized tests.

I have met many entrepreneurs over the past several years and no two have been alike.  In fact, no two have had the same goals, dreams, or aspirations.  One question then is; is our community’s entrepreneurial ecosystem, like our community’s educational structure, based on conformity instead of diversity?  An entrepreneur who starts a coffee company to support a local arts program for developmentally disabled individuals is every bit as relevant as a tech startup creating a new Smartphone app.  Yet our community’s “ecosystem” tends to view the coffee entrepreneur as a charity because the only measure of achievement are the standardized tests; return on investment, cash flow, quarter to quarter profitability.  Not adding value to someone’s life through art (or by employing some of the disabled clients of the program).

According to Mr. Robinson, the second principal that drives human life flourishing is curiosity.  “If you can light the spark of curiosity in a child, they will learn without any further assistance.”  He then discusses education and teachers and whether a child is actually learning, and the role of testing.  While these things should support learning they often obstruct it.  So instead of curiosity we have a culture of compliance.  Routine algorithms instead of imagination and curiosity.

How many times has someone said to us “I’ve got a great new way to…” and we immediately think of all the reasons it won’t work.  It won’t fit into the system, the existing process, the existing culture.  Our cities and counties are like that.  Investors and banks are like that too.  Too often we are looking for the path or plan that has been proven, already done.  Yet the world continues to change and that path already taken is no longer relevant.

Finally, creativity.  One of the roles of education is to awaken and develop the powers of creativity.  Instead, what we have is a culture of standardization.  The “high performing” societies, in terms of education, individualize teaching and learning.  They recognize that it’s the students who are learning and the system has to engage them, their curiosity, their individuality, and their creativity.  So too with entrepreneurs and the many incubators, accelerators, mentoring programs, competitions, grants, and other well intentioned programs in our communities.

To quote Mr. Robinson:  “So I think we have to embrace a different metaphor. We have to recognize that it’s a human system, and there are conditions under which people thrive, and conditions under which they don’t.  We are after all organic creatures, and the culture of the school is absolutely essential. Culture is an organic term, isn’t it?”

The question then is:  “What is the culture of our community in terms of how it embraces or stifles entrepreneurs?”

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