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Small Business

What’s The Key Issue Facing Small Business? Access To Capital

Cash-flow issues continue to plague America’s small businesses, according to a survey of 300 members of the National Small Business Association.

Forty-three percent of small-business owners reported being shut out of funding during the past four years and nearly one-third had to reduce payroll.

We have seen this pattern in survey after survey. While access to capital has always been a challenge for small businesses, the “great” recession has made it more difficult than ever for small businesses to gain access to the capital they need.

In our work, we have found that the small business community includes 6 million small employers with 43 million employees.

Small business owners want to create jobs, innovate and grow the economy. Improving their access to capital will be a key to increasing employment growth in the U.S.

Interest Free? No Thanks

President Barack Obama's proposal to increase small-business lending is "an interesting idea" but does not take into account signs that small businesses do not want to increase their debt, Catherine Rampell writes. "Just increasing the supply of credit available to businesses won't be enough to jump start lending. Businesses have to want that credit, too," Rampell writes.

Having recently completed a series of focus groups with small business owners, I can attest that this is very true. Most businesses are looking for payback in 18 months or less and do not want any long term debt obligations regardless of the attractiveness of the offer.

The Enthusiastic Business Owner

USA TODAY is launching a six-month series that will follow the progress of several entrepreneurs who are starting new businesses. Experts say the entrepreneurs behind the wine business, peanut sellers, home inspector, Botox provider and high-end property rental firm that were selected from among 1,800 applicants to the Small Business Challenge have one thing in common: enthusiasm.

If you want to be a successful business owner, enthusiasm is a must. I would also add patience, a thick skin, and determination as a few other necessities.

Sun Belt Small Business Growth

According to a new study from Portfolio.com and American City Business Journals, Austin Texas is the best metropolitan area in the U.S. for starting a small business. The city's population growth, employment rate and burgeoning small-business growth helped it earn the No. 1 spot. It was followed by Baton Rouge, La., Raleigh, N.C., Charleston, S.C., and Portland, Maine.

Last place… Detroit.

Sad to see that my hometown of Nashville came in at #28, but that is an improvement over last year’s ranking of 33.

I Am The “IT” Department

Technology makes this a great time to be a small business. Rapid advances of technology have made it easier for small business owners to compete with the "big boys" on a newly leveled playing field.

From online postage to inexpensive accounting programs to easy web hosting and development, small businesses can operate nimbly, effectively and on par with larger competitors.

Want a great example? Barbara Heinrich, owner of Local Motion in Minneapolis, built her own mobile-phone application through BuildAnApp to display her hours, location and pictures of new arrivals. Several services have cropped up recently to help small businesses develop iPhone applications so that they can participate in the mobile market including:

If you are looking for a tool to maintain regular contact with customers that are on the go, you should probably check out one of these tools. Remember, you don’t have to be Southwest, CNBC or Amazon to have your own iPhone app.

Eating What You Kill

Chris Brogan, president of New Marketing Labs and the co-author of Trust Agents, offers up some great advice for new business owners.

  • Focus on what you need to drive the business, not the “trappings” of a company.
  • Keep your metrics simple, and focus on value.
  • Use sweat instead of credit.

In business for just one year, New Marketing Labs is not only profitable, they are growing. These three key are definitely part of their winning formula. For me, working within your means and staying very lean are keys for success.  It’s nice to see that others agree.

Do You Know What’s Around The Corner?

"Regardless of how you go about innovating, make sure you're continually pursuing the next thing, because a company's commitment to staying relevant must never cease," writes Steve McKee, president of McKee Wallwork Cleveland Advertising.

As McKee notes in the article, you must understand how customers view and interact with your brand or service to understand what’s next for your business. And knowing what’s next is the only way you can stay ahead of the competition.

Customers and markets are always changing and staying ahead of the curve is imperative if you want to stay in business.

Many businesses start out as innovators, win awards, and over time fall behind.

Just like mutual funds, past performance does not guarantee future results. Even if you have customers tied up in long term contracts, you will eventually have to convince them to renew. Will you have something new and innovative to share or will you be relying on your previous service and relationship?

Continually innovating and growing will not only keep a business relevant; it will also give customers another reason to stay.

Saying Goodbye Is Never Easy, But It Can Be Profitable

Letting someone go is one of the most dreaded and difficult tasks that a small business owner will encounter.

Firing a customer is doubly difficult.

In this tough market, many small businesses are cutting loose demanding, resource-draining customers who want deep discounts or pay their bills late.

Dropping these "high-maintenance" clients reduces frustration and allows entrepreneurs to devote their time to more profitable clients.

So how do you know if you need to fire a customer?

If you have customers that don't get the value that you are adding, don't appreciate your service, or have unreasonable demands, you should think long and hard about continuing the relationship. 

Not only do these types of customers eat up a lot of time, they do not create any positive word of mouth for your business. They also frustrate your staff. By forcing your employees to deal with these people, you are sending them a message that their professionalism, values or sense of quality don’t matter.

Letting a customer go is never easy, but sometimes it just has to be done.

Hope, prayer and a charge card

Credit cards have always been a source of credit for startups, but other options are disappearing as banks withhold traditional loans and fail to buy into the Small Business Administration's loan-guarantee program. The 22 big banks that received government-bailout funds have cut their lending to small businesses by $8 billion since April when the government made them start reporting it.

Almost 60% of small business owners have used a credit card in the past year for business capital, according to a recent survey by the National Small Business Association (NSBA). In contrast, 45% of those polled had a bank loan. As traditional loans dry up and lenders such as JPMorgan Chase hoard cash and build reserves or just file bankruptcy, business owners are doing what they always do. They are finding another to way to succeed and to make things work.

On Demand (Free Agent Society)

Face it, we are all free agents.

iTunes and iPods forever changed the music industry. You can use Shazam to recognize a song playing on XM in a restaurant and download it immediately.

We can go to Hulu and watch 30 Rock or Family Guy whenever we want.

We can download movies to our DVR from Direct TV anytime we desire.

Thanks to the Kindle, books are now on-demand and Apple’s tablet PC will only fuel the market for digital readers and book downloads.

And now, like Major League Baseball players, workers are now realizing that they too are free agents and on-demand.

The New York Times small business blog offers up some great advice on managing a career. In short, manage it like a small business. With so many people unemployed or fearful of being laid off, human resources experts are recommending that workers think of their careers as small businesses because the market for temporary and contract work has picked up.

Social-networking sites, "cloud computing" and mobile communications likely will produce a "surge of entrepreneurs," says Jim Jonassen, head of Jim Jonassen & Associates Venture Search.

Just like a baseball team in need of a left-handed hitter who can hit with power, employers in need of PHP programmer with banking experience or a sales team that needs a specialist in selling to government agencies are signing players who fit their needs for a finite amount of time and just when they need it.

In the new world order, growing and cultivating employees for the long-term is going the way of AOL. Developing your personal brand and product, is now the new norm.

For baseball players, salaries and revenues exploded especially for those with exceptional or specialized talents. The new job market along with everything we buy or consume is quickly becoming on-demand and at the whim of buyer.

It will be interesting to see if salaries increase and how much movement occurs as the economy improves. I’m betting it will for workers who find their niche and realize their true value.

Create Your Own Space

Two leading schools of thought on how to handle competition involve rallying to crush a rival or joining forces to combat a bigger threat. But this BusinessWeek post considers a softer approach: owning a small, but narrowly defined, unique place and, by definition, negating competition.

Creating your own niche, creates your own market and definitely limits the competition. It also allows you to own your market.

Keeping The Dream Alive

Great story of a quality product and persistence. Greg Snell developed the Winepod, a $4,500 contraption for making wine at home, which seemed like an idea full of promise just a few years ago in a very different economy. But then the recession hit, venture capitalists backed away and entrepreneur Greg Snell had to lay off all his employees and move the business into his home. It was a rude awakening for a company that once boasted $4 million in funding, but Snell expresses confidence that a less-than-$500 version, due out next summer, will keep the dream alive. CNNMoney.com

Some of the greatest qualities of entrepreneurs is self-confidence, determination and a belief in what they do. I have no doubt that one day; I will be buying a Winepod. It does illustrate the need for researching your market and preparing for storm clouds. In a great economy, $4,000 for a higher end market probably seemed achievable. In this market, a $500 price point and quality that is “good enough” will probably keep the dream alive.

Making Your Own Way To Happiness

Self-employed business and factory owners scored the highest in the most recent Gallup-Healthways Well-Being Index, a statistic that has psychologists touting the significance of personal freedom at work, control of time and ability to respond to hardships like the recession.

Seeking out enjoyable work and finding a way to do it on your own terms, with some control over both the process and the outcome, is essential to fuel satisfaction and contentment. This is one of the main drivers for entrepreneurs and business owners.

Now more than ever, this a lesson employers need to take into account.  With layoffs and longer hours, it is important for employers to take heed of these lessons and find ways to give their employees some sense of control. Next year, the employment situation will improve and your employees will be seeking these types of opportunities.

Preparing now to hold on to your talent would be a very wise move. They will remember how you treated them during the rough times.

Charge It And You Will Go Out Of Business! Really?

A lot has been made over the past few weeks about a study based on data from Ewing Marion Kauffman Foundation that has been interpreted by many as an indictment of using credit cards to fill a startup firms' equity gap. The study, by Robert Scott of Monmouth University (using Kauffman’s data) found that “every $1,000 increase in credit card debt increases the probability a firm will close by 2.2 percent.”

The study was based on a regression analysis of data from the Kauffman Firm Survey, which tracks a sample of new companies from the 2004 cohort of American start-ups.

Scott A. Shane, writing on the You’re The Boss blog on the NY Times site, correctly punches a few holes in this widely reported assertion, offering up another plausible meaning.

Another interpretation of the study’s results is that entrepreneurs whose businesses aren’t doing well tend to run up credit card debt faster than entrepreneurs who are doing well because they need to get cash somewhere. Because companies that aren’t doing well are also more likely to fail, we see a correlation between business failure and the size of credit card debt.

In research, things are rarely this easy, simple, or black and white. Shane correctly attempts to point out that correlation does not imply causation. Correlation can be a hint, but rarely are things as simple as saying that using a credit card for business financing will cause small business failure.

The misuse and misreporting of research and data continues to grow, and the lack of reporting staff and tight deadlines at most news outlets only contributes to growth in these misleading stories. And in this case, that’s a shame. I’m not a proponent of using credit cards for business financing, but in certain cases, it is a justifiable albeit expensive stop gap. Scaring small business owners away from what might be a valid solution to a short term need with pithy black and white axioms is both lazy research and lazy reporting.

American Express OPEN? Nope Closed

Talk about shooting yourself in the foot. Crain’s New York details American Express’s latest dumb move. Looking to shore up their risk and loss rates, Amex is freezing, lowering and closing the credit lines of many small business owners who have never missed a payment. And they are doing it without warning.

From Crain’s, Andreea Ayers, founder of Tees for Change, who says her profit has been undermined because she couldn't make a large purchase and she wasn't informed in advance that her credit line had been cut in half. "I understand that they're trying to protect themselves in a bad economy," Townsend says. "I just feel like they're lumping all their customers into one group, as opposed to looking at them individually." Crain's New York Business

American Express has invested a lot over the past few years in their American Express OPEN site. Targeting small business owners, the site provides forums and information for a group that generally dislikes American Express. For retailers and restaurants, credit card fees are universally hated and this is particularly true for small business owners. For small business owners, Amex is usually considered the worst in terms of fees and potential hassle.

So after courting the market and trying to make amends, what do they do? Completely undermine any good will that they might have earned and basically cement the view that they are unfriendly to small business. No amount of PR or marketing in an improved economy will undo this perception.  

Why Discounting Stinks

Having talked with many small business owners over the years, I can honestly say that pricing is one of the toughest challenges they face. There is always a sense among business owners that they are pricing themselves out of business or leaving money on the table.

Steve McKee, president of McKee Wallwork Cleveland Advertising, says discounting products destroys brand equity and profitability, but there may be times when discounting can be done wisely "to achieve a limited, well-defined objective." In his discussion of how to discount products wisely, McKee notes: "If you start playing the discount card too much, you're sending a signal that you don't believe your product or service is worth it. And if you don't believe it, who will?" Businessweek

Surcharge Would Hit Small Biz

For many years, health care has been the number one issue for small business owners. Taxes come in a close second. To pay for health care reform, Congress is proposing an increase in taxes that would hit small business pretty hard.

The House Democrats' health reform bill would charge individuals and households with $1 million in annual income a 5.4% surtax to help pay for health care coverage for the uninsured; those earning $500,000 to $1 million would pay a 1.5% surtax, and those earning $350,000 to $500,000 would pay a 1% surtax. It would also hit all but the smallest businesses with a penalty equal to 8% of payroll if they fail to provide health insurance to workers. It is no secret that we need health care reform, but increasing taxes and regulations on already struggling businesses is not a solution. WSJ

Why Small Biz Prefers Local Bankers

One writer calls for banks to stand up and do what's right for small-business owners. "It's easy to understand why banks would push to recover whatever they can immediately from small companies facing insolvency, considering the cost and time involved in doing workouts with companies that may not be viable in the long term," writes John Tozzi. BusinessWeek/The New Entrepreneur

It is times like these that remind small businesses owners on the value of working with smaller local banks. Workouts are more common for small banks, and the officers of smaller banks tend to put more value on relationships. Larger regional banks spend a lot of time during good economic times on ways to pickup small business customers. Many of their actions today should make it abundantly clear why they find it difficult to penetrate and hold onto the SMB customers.

Banks Encourage More Bankrupt Companies to Liquidate

More than 100,000 companies—about one in every 270 American businesses—have landed in bankruptcy court since the downturn began 18 months ago, according to data compiled by Oklahoma City-based Jupiter eSources, which tracks bankruptcy filings through its AACER database.

With a 40% annual increase in bankruptcies, some banks are encouraging companies to liquidate their assets rather than launch turnaround plans. Two reasons for the push: Consumer spending is expected to continue to lag, and credit remains tight. BusinessWeek

Three Major Headaches For Small Biz Owners

Mention the words Visa, Mastercard, and American Express to a small business owner at your own risk. To say that credit card companies and interchange fees are unpopular is a bit of an understatement.

According to NACS a convenience and petroleum retailing group, credit card fees cost U.S. convenience stores $8.4 billion, compared with $5.2 billion in store profits in 2008.

NACS recently held a news conference in Florida to call attention to the reintroduction of the Credit Card Fair Fee Act in Congress. The group supports the bill because it would give small businesses more negotiating power with banks that issue credit cards over interchange fees.

In addition to a legislative solution, another glimmer of hope for small biz rests with Revolution Money. Founded by Steve Case, Revolution Money is an alternative payments company that seeks to change the way people pay by providing secure, easy and flexible payment solutions. Founded in 2005, they are challenging the traditional payments industry model by offering a low-cost debit based payment card network.

I’m not big on legislative solutions to business issues, but something clearly needs to be done. Here’s hoping that Case’s group puts some heat on Visa, Amex and Mastercard and small business owners catch a much needed break.