Category Archives: Entrepreneurship

Minority Entrepreneurship & Mentoring Needs

Minority entrepreneurs like Rene Diaz are playing a bigger role in America’s growth story. Diaz was featured in a Forbes magazine article last year about the growing impact of minority entrepreneurship. In 2010 immigrants accounted for nearly 30% of new business owners in the United States, versus 13% in 1996, according to the Kauffman Foundation. Nationally, 40% of minority-owned businesses are owned by Hispanics, and about 28% each by Asian- and African-Americans.

Urban futurist Joel Kotkin provides unique insights into what drives the increased rate of entrepreneurship among minorities. Those who are immigrants, he argues, are far more likely to start businesses because they are risk-takers in general, as evidenced by their willingness to pick up and move. Kotkin and a couple of other researchers were asked by Forbes magazine to examine the immigrant entrepreneur phenomena across the top 52 metropolitan areas. Based on rates of self-employment, housing affordability, income growth and migration, immigrant entrepreneurs tend to prefer sprawling, heavily suburbanized regions, many of them clustered in the South and Southwest. Cities in these regions (Raleigh-Cary ranked 22nd on the list) are usually characterized by cheap rents, affordable space, job growth, strong immigration and general economic health. Traditional hotbeds of entrepreneurship have not fared as well among minority entrepreneurs (San Francisco was 35th, Minneapolis, New York #39, Boston#45, San Diego #48,  San Jose #46, and Chicago #50, all in the same strata as cities like Detroit, Cleveland, and Milwaukee), largely due to the affordability issue.

North Carolina is now 6th in the country in number of African-American residents and 11th in Hispanics. North Carolina has seen a boom in its Hispanic population, with the percentage of total residents growing by 111% over the past 10 years. Locally, we have seen many minorities move to our area due to a stronger economy than other parts of the country. As these newcomers begin to start businesses, we expect our market to look very different.  From 2007 to 2011, Hispanic-owned businesses in North Carolina grew from 9,000 to 21,301, according to the census and the Latino chamber. The Research Triangle Park is also home to a large and growing Asian population, with the two biggest subgroups being Indian and Chinese. There are now an estimated 200,000 minority-owned businesses in North Carolina, increasing at a rate of 50-60% every five years.

Minorities own 15% of all businesses, but 20% of franchises nationally.

Why are minorities attracted to franchise concepts?

Survival rates among minority-owned businesses ranked highest among Asians, and Asians were the only minority population whose rate surpassed the general population.

Why do non-Asian minorities struggle to attain similar survival rates?

We think the answers to these questions are actually one-and-the same. The franchise concept is attractive because it comes with a business plan, a blueprint as to how to make an idea profitable, complete with templates for each and every category of decisions to be made. When the business is not a franchise, it is imperative that the entrepreneur find a mentor and other key resources to guide the preparation and implementtation of a solid business plan as well as the other key decisions. Perhaps the Asian-Americans are doing a better job of this than others?

 

American Restaurants Struggle to Stay Alive

Back in the late 1980s, the Turnaround Management Association was birthed out of a research project conducted at the Kenan Institute of Private Enterprise at the University of North Carolina at Chapel Hill. As the lead researcher, I had the opportunity to personally pull together a bibliography of articles about businesses whose travails were significant enough to hit the national headlines in various business publications. From the research, we published a monograph and wrote articles about best practices that appeared in 46 national business periodicals in our first 18 months of existence as a trade association. As I and other involved with the Association moved on to other pursuits, TMA moved off campus, starting gaining momentum in chapter development, and now enjoys international members as well as domestic. One of the publications of TMA is the Journal of Corporate Renewal. The Journal‘s lead article for May discusses the struggle of restaurants in the United States to remain profitable.

Some interesting facts from the National Restaurant Association are cited:

  • Restaurants account for 4% of GDP
  • 10% of the U.S. workforce is employed in the restaurant industry
  • 50% of adults have worked in a restaurant
  • one-third of all workers had their first job in a restaurant
  • 48% of the average household’s food budget goes to restaurants (vs. 25% fifty years ago)

The bankruptcy filings of a number of restaurant chains since the recession began in 2008 is but one indicator of a model that is teetering on the brink of survival. The photo above is taken from a Food Network show entitled Restaurant Impossible, wherein Robert Irvine turns a restaurant around in 48 hours. The menu is revised, customer service issues are addressed, $10,000 of strategic remodeling is performed, the revenue and costs are examined for opportunity, and the restaurant owner is challenged to run the business at a profit going forward.

Macro trends in the recent few years towards buying more groceries or becoming value-conscious have definitely affected the top and bottom lines of many restaurant owners. Franchises, which account for about half of the restaurant revenues produced nationwide, have really taken it on the chin. Franchisees who own one or only a few stores have inadequate access to capital these days. Another big factor is the conflict of interest in most franchise agreements that are based on sales volume. The franchisor can implement discounting programs to increase traffic and sales volume, but the franchisee has less and less profit as a result of the agreements.

What can be done? Turnaround experts recommend a process of performing store-level profitability analysis, followed by benchmarking against peer stores. These analyses can highlight purchasing/inventory issues, training issues that are evidenced by waste, and theft/shrinkage that depletes the operator’s assets needed to produce a return.

There are many good consultants who can help a restaurant owner sort through the challenges and create a plan for growth and renewal.

Secret Judo Guides Start-Up Success

What do you know about martial arts? Here’s a few things I found through a combination of sources:

  • Karate – is a series of punches, blocks and kicks that focuses on strength and offensive techniques; a primary theme is to either put or catch the opponent off guard and then attack.
  • Tae Kwan Do – incorporates many aspects of karate, but with more emphasis on the use of feet and spinning/flying kicks.
  • Jujitsu – uses strikes, kicks, strangles, locks and takedowns to disarm the competition, still aimed at offensive techniques for the most part.
  • Judo – uses throws and its intent is to avoid an opponent’s strength while redirecting its power to one’s benefit.

Tom Tunguz (whom I have quoted before), in his blog Ex Post Facto, encourages entrepreneurs to recognize the highlights of  judo philosophy  in never trying to fight strength with strength, and to find ways to maximize leverage. Tom also references Peter Thiel (from a series of lectures given at Stanford Graduate School of Business) who describes the use of a “secret” to secure a unique niche within your target market. The “secret,” though is not as one would think, but instead “something just not widely believed to be achievable or feasible. In other words, it’s an insight, a thesis that isn’t widely held.” The Secret becomes the “flywheel” of Jim Collins’ strategy – a series of well-executed small decisions that others find it near impossible to duplicate. For many entrepreneurs, the choice of distribution channels is a ripe field for building out one’s “secret.”

Tunguz writes of distribution:

Many companies are now using distribution as their secret – mobile app stores and Facebook Open Graph enable startups to access hundreds of millions of users in ways that incumbents simply aren’t prepared to leverage. Expensify uses mobile app stores to acquire hundreds of thousands of SMBs in ways that their market’s incumbent, Concur (market cap $3B), simply can’t copy. Branchout is building a massive job network on top of Facebook to compete with LinkedIn. If LinkedIn were to copy Branchout, they would marginalize the value of their existing network because LinkedIn would cede their graph to Facebook – an example of the classic “innovator’s dilemma.”

In order to remain relevant, (solve the innovator’s dilemma), entrepreneurs must find a way to continue to grow new ideas within their organizations, less their businesses become to mainstream and lose their uniqueness. This is where/how moving to principles-based strategy trumps reliance on a skilled technician and his or her own suite of strengths and abilities. Continue to recognize what strengths competitors have, then find a way to use those strengths against the competition and towards one’s own competitive advantage!

How Raleigh Can Learn From Chile

In the May issue of Entrepreneur Country, Joe Haslam of Stratemic Capital enlightens readers about the start-up scene in Chile. Most Americans know Chile for its rich produce, not its economic strength in South America, and definitely not for the ecosystem that has been created for entrepreneurship that is paying off handsomely.

Going back to the 1970s, Chile has taken a progressive stance on key economic decisions. Milton Friedman and a number of his associates from the University of Chicago inspired free market systems that have been customized by local conditions. Nicolas Shea and Vivek Wadhwa in the past decade have sought to make Chile a destination for entrepreneurship. Shea attended Stanford University and set about to do a Southern hemisphere version of Silicon Valley. Wadhwa challenged the start-up model of some groups who provide office space near a university and hope for something wonderful to happen. Instead, he advocates a people-centered approach:

To create a tech center like Silicon Valley, you need to first attract smart entrepreneurs from all over the world. Then you have to create entrepreneurial networks; instill a spirit of risk-taking and openness; and build mentoring systems. You also need to provide seed financing to start-ups. The money is easy; everything else requires a change in culture that usually takes decades.

Wadhwa and Shea launched Start-Up Chile at the beginning of 2011. Here’s the concept:

  1. Anyone from anywhere can apply
  2. Winners would be required to move to Santiago, Chile
  3. A one-year visa is provided to facilitate entrepreneurship
  4. $40,000 in seed capital is offered as a prize
  5. The Chilean government would NOT take an equity stake

When Haslam met with the director of Start-Up Chile and a representative from CORFO, the government agency tasked with improving competitiveness in global markets, he asked a lot of questions about how the program was put together. They admitted that bureaucracy had to give way in recognition of results.

  • The website for the contest received more attention than the official national tourism site. 
  • Visitors of the program spent about as much in tourism dollars as the awards themselves.
  • Well-known entrepreneurial icons are “dropping in” on the Chilean scene these days.
  • 1600 applications from 70 countries.
  • 220 foreign start-ups in Chile now, employing 180 locals and 143 abroad.
  • $8 million in VC money has been raised by the first batch of award winners.

Chile has realized some important economic development principles. Notably:

  1. Start-ups are a strong job creation tool.
  2. Large companies are more costly to attract and retain.
  3. Diverse populations experience economic growth.

Earlier this past week, we blogged about Pittsburgh’s Experienced Dreamer contest to attract entrepreneurs to town.  Whether the locale is Santiago, Pittsburgh, or Raleigh, the principles work. We need to do all that we can to foster entrepreneurship–it just may be the key to a healthier world economy!

On a purely local note, Innovate Raleigh has followed some of the steps in the blueprint. We need help from Raleigh Wake Economic Development, mentoring organizations like EntreDot, and fresh sources of seed capital. Additionally, more collaborative workspaces like some of the incubators in our area (Cary Innovation Center being an example) will help foster the natural network nurture necessary. We can do this–but it requires “all hands on deck!”

 

 

Too Young to Merge?

The folks over at Under30Ceo provide a great service to young entrepreneurs in discussion after discussion about the top issues faced. In one of today’s articles, The Daunting Task of Merging Companies as a Young Entrepreneur,” Jordan Guernsey (founder of Molding Box) discusses how youth can be both an asset and a liability in merger negotiations and assimilations. He also speaks candidly about how valuable a merger can be under the right circumstances. His point/counterpoint:

 

Why Age Can Be an Entrepreneur’s Problem

Obviously, with experience comes expertise. I’d pick a dentist with 30 years of experience to do my root canal over a recent college grad still clutching his diploma. The same philosophy applies to young entrepreneurs. They commonly lack the knowledge and experience necessary to developing a successful startup.

Another common age issue stems from what I like to call “The Good Old Boys Club.” This club is comprised of traditionally minded career entrepreneurs who have been in the business for years. It’s intimidating to think of discussing mergers with these types of individuals. This is because established entrepreneurs view upcoming young professionals as needing to prove themselves. It’s a rite of passage. Basically, young entrepreneurs are forced to break down this wall and build a sort of trust in the entrepreneurial community by showing what they can achieve.

Why Age Should Be an Entrepreneur’s Advantage

It can be frightening for young guns to approach an established company with merger opportunities. However, my experience has shown that young entrepreneurs can actually have the upper hand in these situations. For example, young professionals are still willing to take on huge risks for huge rewards! Their spirits have not yet been broken by failed ventures, and they are willing to take a gamble with mergers. Great ideas generally don’t come from cynical entrepreneurs.

Furthermore, those just entering the entrepreneurial world can offer fresh perspectives, and are not held down by The Good Old Boys’ way of thinking. This acts as their competitive advantage over entrepreneurs who have already been around the block. Utilize this fresh viewpoint to see potential merger opportunities that others may have skipped over. If a business strategy doesn’t work out, young entrepreneurs still have the energy and tenacity to bounce back quickly.

In order for a merger to work for you, you must have polished skills in forging alliances and making good decisions quickly. The pressure to grow and expand makes a merger look appealing. The “gut check” is whether you are willing to give up some control in order to meet your growth objectives.

Molding Box acquired another company in order to offer additional services desired by customers. With a legacy of 10 years of operations, the acquired company brought instant credibility.  Other young ‘treps should not underestimate the value of perception.

Make sure that your cultures and values are well-aligned, however, or you may end up worse off than pre-merger as the transaction has to be reversed.  A target with a strong leadership team and solid brand equity can be a tremendous asset in your own search to establish “street presence.”

“Let no man despise your youth.” It’s an old saying, but very relevant to the young entrepreneur.  You prove you belong when you make good strategic decisions-regardless the age!