Up and Running:

Very interesting piece on BusinessWeek.com today, “Is Entrepreneurship Declining.” John Tozzi gets two contrary points of view from two people I’m proud to know and admire: Scott Shane and Steve King. John picks up the right links:

Scott says yes and

Steve says no.

Both pieces are well-written and well-researched. William Blake said, in The Marriage of Heaven and Hell, “anything possible to be believed is an image of truth.” I’ve always liked that quote.

Tozzie concludes:

I can’t argue with the entrepreneurship numbers. But as one of Scott’s commenters points out, you get different trend lines depending on where you start counting. I think there could be an inflection point around the beginning of this decade that reflects growth of new types of ventures. Curious to hear more thoughts on this in comments or on Twitter.

What do you think?

I hope it doesn’t seem like total self promotion–I’ve tried to avoid that as much as possible on this blog–but hey, tomorrow Palo Alto Software is going to give away thousands of copies of Business Plan Pro (and not a light version, the upscale, premier version) for free to Oregonians who want it. I would like to think that’s newsworthy, even if it’s my company.

The video here is my talking for slightly less than three minutes, my summary of what happens tomorrow. If you can’t see it for any reason, please click here to go to the Youtube source.

And for more information, here’s the link to the page at Palo Alto Software that explains what we’re doing and provides a map of the 85 locations (mostly town halls and chambers of commerce, no commercial locations–it really is a free giveaway) where people can go tomorrow to get the software.

It’s just for the one day, tomorrow, July 1. For any Oregonian 18 years or older who goes to one of those locations to collect a download card.

I like the following line in “Love Minus Zero/No Limit,” by Bob Dylan.

She knows there’s no success like failure. And that failure’s no success at all.

Here’s a good look through the window of things going wrong or, at the very least, not as planned.  I happened upon it yesterday morning while drinking my coffee, absorbing the early-morning web on a sunny summer morning in Oregon. It’s called BabbleSoft looking for a new home.

I’m sure it was a hard decision to write about; but I’ll bet it was even an even harder one to make. Posting in entrepreMusings, Babblesoft co-founder Aruni Gunasegaram said she came to the decision during a beach vacation. It’s typical, isn’t it, how things like this percolate in the background and come out when there’s time to reflect? She writes:

Babble Soft, an idea that I started tinkering around with after my first baby was born in 2003 (our first beta web app release was in 2007 and iPhone app in 2009), has reached a point where my partner Nicole Johnson and I can’t do it justice and build it to the company it could be.  We just don’t have the monetary and time resources that a consumer web- and mobile- (iPhone) based product Baby Insights and Baby Say Cheese require to become a household name.  I’ve been working on Babble Soft part time while balancing kids, the house, etc. for most of the company’s life.  I spent a few months full time on it just before I took a day job about a year ago, and now the time has come to find a new home for it.  Nicole has been working on this part time, after hours, as well.

We are both discovering that Building A Web Business After Hours is hard to do with two small kids around.  And doubly hard when two ventures are trying to get off the ground in one household: My husband is starting the pre-K to 2nd grade Magellan School that’s scheduled to open this fall and our resources are also being tied up with that and our kids will be attending the school.

That’s a hard moment in business. Still, much better to recognize it and deal with it than to let it linger on, unsaid, forever. And presumably, there is still hope; she doesn’t say closing down. She’s hoping to find it a home.

You’ll notice, I hope, in the quote above how she has a couple of other things going on as well. And oh, by the way, she’s also director of the Austin Technology Incubator and teaches entrepreneurship at the University of Texas.

I knew a man who let a borderline failing business hang around his neck like an albatross for years, even though he knew he should close it down. Arune Gunasegaram has a lesson for all of us in this brief, and somewhat sad, blog post.

Desire alone, or passion and persistence alone, don’t make a business. Sometimes you have to take a step backward. And go on to something else.

This 18-minute TED talk offers a very intriguing broad view of the changing face of information, media and communication in general as new phenomena–cellphones, Facebook and Twitter–change the way information travels and multiplies.

If for any reason you don’t see this video here, you can click this link to jump to the source as it was posted on YouTube.

Steve King at Small Business Labs posted this morning that U.S. personal businesses grew by almost 1 million in 2007, to 21.7 million, according to the U.S. Census.

Of course that’s before the big economic crash, but still, that’s interesting to me. A personal business is a non-farm business with no employees. The growth in personal businesses fits right in with the research Steve and his company have been doing for Intuit, on the new artisan economy.

The individual experts, consultants, graphic artists, bookkeepers,  designers, programmers and bloggers, among others, are part of this trend. You might be, too.

Sad but true: Compare these two scenarios, holding everything else–the company, its history, its credit rating, its founders’ credit rating and its balance sheet–constant:

• Scenario 1: Company goes to the bank in April with business plan output showing they’re going to need a bridge loan to finance an expansion over the summer.
• Scenario 2: Company goes to the bank on Tuesday needing a bridge loan to meet payroll on Friday.

I’m guessing that you’re guessing right. The company in scenario 1 gets the loan, the other one doesn’t. That’s about 10 times out of 10.

What brings this to mind is the New Intuit Future of Small Business Report-Credit Outlook, released last week, titled Where Small Is Going.

The report, the research, sponsored by Intuit and conducted by Emergent Research, comes up with some important (although not surprising) key points:

• Community banks and credit unions can be an excellent and accessible source of credit for small businesses that meet their lending criteria. They want the business and are ready to lend.
• Businesses that can demonstrate the ability to manage assets and cash flow will find credit is still available, although not unlimited.
• Credit availability will remain tight. Even though community banks and credit unions are looking to expand small business lending, they simply don’t have the asset base to replace the large lenders.
• The reality is that the smallest of small businesses–those with five employees or less–often will not qualify on paper for business credit. They’ll need to rely more heavily on relationships with their bankers.

While the new report seems to reflect the continuing recession, the major economic problems we’re all aware of, I think we should also recognize that this is pretty much the long-term condition of banking and small business. Banks aren’t supposed to be lending money to small companies without assets, whether or not they have intriguing business plans. Banks are supposed to be safe. It’s the law.

So one of the things you want to build, as you build your business, is your relationship with one or more local banks. Start with a checking account, if that’s all you can get, but try to get a small loan first and get some history with the bank.

And plan ahead as much as you can. You never want to wait until you need the money badly. Talk to the bank early, and it will be much more likely to help. That’s good business for all.

And yes, I know that’s obvious. But we forget. Reminders are good. We’re all pretty busy these days.

One of the biggest business steps you’ll ever take is adding the second person to your one-person business. Especially if that second person is a partner, co-founder or investor, the difference can be like night and day.

After that, it’s never fully your business again.

This is a lot like the little girl with the curl on her forehead (when she was good, she was very, very good, and when she was bad, she was horrid–an old English rhyme). When they work out well, teams make businesses. But opening up to that next person also means you’ll never make another decision by yourself. You’re part of the team. You’re a player.

In most cases it’s a difficult decision, but one based on fairly obvious questions: Do you want to grow the business? Are you willing to take the risk? How will you feel if you try and fail? Can you share the work, the decisions and the company?

There are rare cases of great one-person businesses. It happens. But usually growth takes people working in teams.

There’s paradox here: On one hand, you want to partner up with people different from you, whose skills fill your gaps and make the company broader. You want different skills and different backgrounds. On the other hand, it’s generally easier to get along with people similar to you. You’ll talk about “fit,” and think about things like working habits, style and compatibility.

Don’t think majority ownership eliminates potential problems, so that you stay in charge. It doesn’t. Minority owners have rights.

And don’t think making people employees instead of partners eliminates potential problems. You’ve started a community, and even though you’re signing all the checks, you’re not alone: You’re the leader of a community. Things have changed. If you don’t care about the other people, there’s no team. And once you care, you’re no longer making decisions alone.

I’m not saying that the one-person business is better. I am saying that the step of going from one to two is crucial.

A friend asked me last week if I know an investor interested in the T-shirt business. I don’t know him well, I don’t know his business, but I’d like to help. So it occurs to me that there’s a predictable series of questions to ask to point a plan in the right direction.

1. Is your business plan investor-friendly?

To interest arms-length investors (meaning not friends and family but people who don’t know you and don’t believe in you already), a business plan has to have an experienced management team, a product and market focus that offers real growth potential (like at least 10X, but preferably 50X or 100X growth in three to five years), and a believable exit strategy. These days the only credible exit strategies are about being acquired by a larger company.

2. If no, you have two realistic choices.

If your business plan doesn’t have all of these qualities, stop here. None of the rest of this applies to you, so don’t waste your time. You have two options:

• Focus on people who know you and believe in you to get friends and family investment
• Scale down so you can bootstrap.

3. If yes, do your homework; find friendly investors

Never, ever use the shotgun approach–mass mailing, e-mails or postings–to find investors. That’s about as bad as taking out “spouse wanted” ads. Instead, use the internet. Look for the right kind of investors, preferably local, preferably interested in and knowledgeable about your type of business.

Never think of investors as money; they are partners. It’s a relationship like a marriage. An incompatible investor, like an incompatible spouse, is a shortcut to hell. One of the biggest fallacies in startups is the myth that getting the money is the goal–not if you have bad partners.

Refinement: Does your plan have VC potential?

Do you have a strong team, strong product, strong market, clear exit, defensible business and a good use for several million dollars? Do you have a good shot at generating a huge return on several million dollars in three to five years? Like 20 or 30 times the initial investment?

• If and only if you can answer “yes” to every one of these questions are you looking for professional venture capital.
• If not, then you’re looking for angel investment.

And either way, whether VC or angels, turn to the web to find investors who are either local, know and like your industry or, better yet, both.

The professional VC firms are relatively easy to find. Do an internet search. You can refine it to add geography (for example, search for “VC Atlanta” or “VC Texas“). You can also find free venture capital directories with searchable entries for geography, industry, deal size or stage preference, starting with the National Venture Capital Association at nvca.org, which has a good directory of other resources.

Another great site for a VC search is thefunded.com, a database of entrepreneur reviews of dealings with venture capitalists and angel investors. Membership is free for entrepreneurs.

(Hint: you probably don’t want to buy lists of venture capitalists, because most of this information is available free. Sometimes a hundred or so bucks can save you time, which might make it worth the expense; but unfortunately there are a lot of sharks in the listings-for-sale market. Be careful.)

Angel investors are harder to find but still findable. Do a web search for local angel groups, talk to your chamber of commerce, ask the nearest Small Business Development Center, ask at local business schools at nearby colleges and universities.

It’s still easier to get an investor’s attention if you first get an introduction from somebody he or she knows, no doubt; but even without that, if you do the research first and find investors with local or industry interest, the odds of getting a hearing increase dramatically.

And for angel investors, there’s also the Harold Lacy strategy of asking everybody you can think of who they know who might be interested. It takes the edge off asking directly for an investment and, if you know enough people, it can actually work.

Recession or not, the Silicon Valley Insider’s chart of the day shows Broadband Thriving Despite Economic Collapse:

I enjoy the chart of the day; it’s almost always interesting and usually informative. I really like a good business chart as a way to see a lot of information quickly.

My thanks to Steve King and Carolyn Ockels of Emergent Research for this slide show of their small business trends predictions for this year. I’m a regular reader of Steve’s SmallBizLabs blog. This collection is class food for thought.

(Note: reposted from Planning Startups Stories)

Every startup has its own natural level of startup costs. It’s built into the circumstances, like strategy, location and resources. Call it the natural startup level or maybe “the sweet spot.”

1. The Plan

For example, Mabel’s Thai restaurant in San Francisco is going to need about $950,000, while Ralph’s new catering business needs only about $50,000. The level is determined by factors such as strategy, scope, founders’ objectives, location and so forth. Let’s call it its natural level. That natural startup level is built into the nature of the business, something like DNA.

Startup cost estimates have three parts: a list of expenses, a list of assets needed and an initial cash number calculated to cover the company through the early months when most startups are still too young to generate sufficient revenue to cover their monthly costs.

It’s not just a matter of industry type or best practices; strategy, resources and location make huge differences. The fact that it’s a Vietnamese restaurant or a graphic arts business or a retail shoe store doesn’t, by itself, determine the natural startup level. A lot depends on where, by whom, with what strategy and using what resources.

While we don’t ever know for sure–because even after we count the actual costs, we can always second-guess our actual spending–I do believe we can understand something like natural levels, somehow related to the nature of the specific startup.

Marketing strategy, just as an example, might make a huge difference. The company planning to buy web traffic will naturally spend much more in its early months than the company planning to depend on viral word of mouth. It’s in the plan.

So too with location, product development strategy, management team and compensation–lots of different factors. They’re all in the plan. They result in our natural startup level.

2. Funding or Not Funding

There’s an obvious relationship between the amount of money needed and whether there’s funding, and where and how you seek that funding. It’s not random; it’s related to the plan itself. Here again is the idea of a natural level, of a fit between the nature of the business startup and its funding strategy.

It seems that you start with your own resources and, if that’s enough, you stop there, too. You look at what you can borrow. And you deal with realities of friends and family (limited for most people), angel investment (for more money, but also limited by realities of investor needs, payoffs, etc.) and venture capital (available for only a few very high-end plans, with good teams, defensible markets, scalability, etc.).

3. Launch or Revise

Somewhere in this process is a sense of scale and reality. If the natural startup cost is $2 million, but you don’t have a proven team and a strong plan, then you don’t just raise less money, and you don’t just make do with less. No–and this is important–at that point, you have to revise your plan. You don’t just go on blindly spending money (and probably dumping it down the drain) if the money raised, or the money that can be raised, doesn’t match the amount the plan requires.

Revise the plan. Lower your sites. Narrow your market. Slow your projected growth rate.

Bring in a stronger team. New partners? More experienced people? Maybe a different ownership structure will help.

What’s really important is that you have to jump out of a flawed assumption set and revise the plan. I’ve seen this too often: You do the plan, set the amounts, fail the funding and then just keep going, but without the needed funding.

And that’s just not likely to work. And, more important, it is likely to cause you to fail–and lose money while you’re doing it.

Repetition for emphasis: You revise the plan to give it a different natural need level. You don’t just make do with less. You also do less.

Lora Kolodny has a nice piece on How to Win a Business Plan Competition in last week’s New York Times.

Since their advent in 1984, when the University of Texas at Austin held its first “Moot Corp,” business plan competitions have proliferated within academia and beyond. More than 50 American colleges and universities host them. So do corporations, nonprofits and government economic development offices.

As you know if you’re reading this blog regularly, I’ve been a judge at several of these, including Moot Corp. I try to post about them on this blog, because I think they offer great experience to entrepreneurs.

And Lora does a real good job, in that piece, of summarizing. It’s definitely worth reading.