microbusiness: too many to ignore (photo by annia316)

One of the biggest problems I have when reading other people’s work on startups and small businesses is that dratted word entrepreneur.

Sometimes, writers and researchers use the word to refer to anybody who sticks their neck out and starts a business. It can be a nonemployer or a microbusiness or a larger small business, that doesn’t matter. For folks like that, everybody who is self-employed is an entrepreneur.

On the other hand, there are the folks who only want to use the word to refer to folks who take the traditional start a firm, grow in fast, sell it for a tidy profit of a few million or so, rinse, lather, repeat. They generally pay no attention to anybody except the 4% of U.S. firms that take the fast growth gazelle route.

Everybody else is chopped liver.

Now, most of the time, the folks from the Kauffman Foundation fall under that second category. A lot of years ago, when I was originally connecting with them, we mutually noted that we might see some overlap but most of the time their interests did not coincide with mine.

Except when it does.

So, it has taken me until to take a look at Kauffman’s recently released study, The Coming Entrepreneurship Boom (PDF), because I thought it concerned itself with the second perspective rather than the first. And that’ll teach me to jump to conclusions about my buds at Kauffman.

As you can probably guess from the title, the study’s author, Dane Stangler, predicts that the U.S. will emerge from the current recession quite strongly because it may be “on the cusp of an entrepreneurship boom — not in spite of an aging population but because of it.”

Turns out that, in spite of the sexy image of the swashbuckling 20-something daredevil risk-taker launching one fast-growth gazelle after another, most of the new business formation that has happened between 1996 and 2007 was brought to us at the hands of the 55-64 year old crowd.

Or, to put it more accurately, the 55-64 cohort had a higher rate of entrepreneurial activity than the 20-34 cohort — one that was, in fact, roughly a third higher. That trend is exacerbated by the fact that long term employment, such as our grandfathers knew (”40 years, a watch and a pension”), is very much a thing of the past.

[Note: Immodest as it may be, I can't help pointing out that I wrote pretty much the same thing -- and more -- about the entrepreneurial trends I was seeing back in 2004, in The Entrepreneurial Economy.]

The paper notes that these demographic trends and business formation rates are not a new way of being but merely a one-time occurrence. I’m not sure if I agree with that, though. And, on a certain level, I’m not sure that it matters.

As Strangler puts it in the conclusion of this report, “We will see increasing numbers of new, smaller firms as they compete and cooperate; challenge incumbents; and, perhaps, rise and fall at faster rates.”

Regardless of who they are or how old they are, a lot of Americans are going to be starting new firms in the years to come. Most of those new firms will be nonemployer businesses; they will be viewed by most as independent contractors, lone economic actors that contribute little to GDP individually but can be a huge force collectively.

And, of course, the question that nobody at all answers is this: what will be the impact of all this entrepreneurial activity on the economy as a whole?

Most of this is not going to be gazelle-style stuff; most of it will be microbusinesses, growing just enough to support its owners and employees. All things considered, there might be something to be said for slow (if not sluggish) growth. Small and sustainable are ‘in’ and eventually public policy will have to catch up.

I guess now might be a good time to place bets about how long it’ll take our nation’s leaders to figure all this out.

Something to ponder over the weekend. Happy Friday, folks!

With unemployment already at 9.5 percent and likely to exceed 10 percent, much higher than White House officials predicted back in February, Mr. Obama has been facing attacks that his $787 billion stimulus program was either too timid or wrong-headed or both. Now, just five months after Congress agreed on the plan, with only a fraction of the money actually out the door, Washington is debating the need for a second round of stimulus amid economic and political crosscurrents.

I suppose it would be politically incorrect of me to suggest that we Americans would do ourselves a big favor by developing a somewhat longer time frame than the average toddler. Federal lawmakers are already engaged in spending ridiculously enormous sums of money that will put our great-great-great grandchildren up to their eyeballs in hock.

Do we really want more of that?

I get that people are in pain but can we at least give the original recovery plan a chance to kick in (money get out the door)?

Of course, the reason that everybody is breathing down the President’s neck about this is because of the fact that a bunch of people have lost their jobs and a bunch more are going to lose their jobs. People want to see the unemployment numbers turn around, and they want to see it yesterday.

Unfortunately, as I pointed out in my article for the OPEN Forum Blog (published yesterday), the unemployment rate is a lagging indicator. Those new jobs are not going to materialize until the recovery is well underway.

That sort of stuff is not likely to play well with the nation’s employees but, once again, it pays for business owners (including microbusiness owners) to be aware of the good economic signs that have been coming down the pike.

Never mind what the lagging indicators are doing. The leading indicators have been climbing for the past two month!

I have a feeling that Joe Schmoe, regular working guy, will continue to suffer for some time yet. But I also have a feeling that independents, nonemployers, microbusiness owners — we are all going to start seeing a definite uptick very soon.

That’s for them as hasn’t seen it already.

photo by loomingy1

I was going to write about something else today, but this caught my eye.

To quote Dr. Jeff Cornwall, “Scott Shane is at it again.”

Dr. Shane is a professor of entrepreneurship at Case Western. People keep asking him to write about small business, which I find kind of odd because, if we judge him by his writing, he does not like them at all.

He certainly doesn’t like microbusinesses.

He does not appear to like people very much, either.

He is quoted in an article in CNN as saying this:

From a societal point of view, if you have a group of people who do something that makes them happier but less productive (which the data support), and you aggregate that, then entrepreneurship is an economic drain. If the goal of the policymaker is to make everybody in your country happy, then let everybody start businesses.

But most policymakers seek to create jobs and promote growth. If that’s your goal, you want to stop all these people from starting marginal businesses that don’t go anywhere and devote the resources to encouraging high-growth companies.

Setting aside the statistical sleight-of-hand Shane uses to support his argument (which Dr. Cornwall deals with much better than I ever could), let me get this straight.

Dr. Shane thinks that policy makers should discourage the citizens from pursuing happiness. Evidently, the pursuit of happiness may be an iconic cultural phrase for our country and it may be quite poetic, too, but it’s an economic drain and should be done away with, if possible.

After all, everybody knows that there mere happiness of mere people is wholly unimportant and, in any relevant circumstances, should be sacrificed for economic growth.

What the heck is the matter with this man? I wonder if he kicks puppy dogs, too?

(Or maybe he is just wandering around being inhuman and controversial in order to sell books?)

And, just out of curiosity, what is the point of all that growth? Clearly, its purpose is not to make people lives better, since we don’t care about their happiness. Or is something wrong with my logic?

Live well = Be happy

So, we want the economy to engage in cancerous growth at the expense of the happiness of mere people in said economy for what reason?

What is the point of all that growth? Ever-increasing standards of living?

What if there is a point at which the “mere people” are no longer interested in increased standards of living? What if they prefer an improved standard of life?

And what if they discover (as so many of us have) that, beyond a certain point, the fevered pursuit of economic growth is incompatible with the very human and humane pursuit of happiness?

What do you think would happen, Dr. Shane, if we put it to a vote? After all, last time I checked, we live in a democracy.

Would the American people prefer policies that help them do what they want to do (like the home office deduction, which Shane thinks we should get rid of)?

Or would the prefer policy to get rid of those in favor of policies that would make the economy grow more … bearing in mind that recent history demonstrates that the rising productivity tide has not lifted all boats?

I’m sure it all looks lovely on paper, Professor.

Maybe you should get out more often.

One of those chores is funding the federal government for fiscal 2010.

Yes, fans, we still have all those appropriations bills to get through. And, as usual, they are quietly getting done, far away from the hype and the poop-flinging proponents or opponents of health care reform or whatever the Obama Administration’s priority-du-jour may be.

On the House Appropriations Committee, the subcommittee charged with (among other things) marking up the SBA spending bill has already passed same on to the full committee for action. Said action is expected to take place today.

According to a press release from Subcommittee Chairman Jose Serrano (D-NY), the SBA’s budget represents an opportunity to ensure that “capital and other assistance gets to small businesses and low-income communities — not just to the large and the wealthy.”

Which, parenthetically, sounds like we’re talking about rich, fat people but I’m sure Chairman Serrano, if he were here, would undoubtedly say, “Oh, you know what I mean!” And, in fact, we do — poor word choices notwithstanding.

The subcommittee funded the SBA at $848 million. Serrano says that’s $248 million more than last year, that it includes level funding for the SBDC network at $110 million (reduced in the Administration’s budget request to $97 million) and “a boost,” without a number attached, for the PRIME grant program (no doubt singled out because of its target beneficiaries: low-income communities).

House Appropriations Committee Chairman David Obey (D-WI) expects the Financial Services and General Government Appropriations Bill (which contains funding for the SBA) to come to the floor of the House on July 17th.

Of course, all this fast action from the House is nothing new. What of the ever-sluggish Senate?

The relevant subcommittee is chaired by Senator Dick Durbin (D-IL). Of note is that another member of this subcommittee is Small Business and Entrpereneurship Committee Chairwoman Mary Landrieu (D-LA), which would seem to bode well for the SBA budget at the hands of this subcommittee.

The relevant appropriations bill is also scheduled for markup this week — on Wednesday to be precise. We’ll see how close their bill is to the one that will be passed by the House Approps Committee today.

I am happy, because new microbusiness firm size data always makes me happy.

In fact, you may possibly remember my lament about having to wait for these numbers. (Lament = fancy way of saying “whine”)

Well, the wait is over.

If you don’t feel like waiting, I’ll tell you that nonemployers increased in number by almost a million in 2007, up 4.5%. For the rest, you’ll have to listen to the podcast.

The other item majorly on the agenda this week is health care reform. There are a few things I have to say about that in this week’s podcast and I’m going to say a few more things here.

First, be aware that I am not necessarily arguing in favor of the public option. Personally, I think that everybody who is engaged in the health care reform debate is barking up the wrong tree, principally because none of them seems able to travel very far outside ideas and concepts they are used to.

I’ve been saying for years that we need to separate the ideas of health care and health insurance. You can tell that we haven’t because of the way people object to public insurance by saying they don’t want the government in charge of their heath care.

(Hint: You are in charge of your health care. Unless you are incarcerated, that doesn’t change – no matter what happens to the system.)

What I am seeing here is a bunch of public option opponents (bankrolled, I suspect, largely by the insurance industry) scaring people into thinking it would be terrible if the government treated them exactly the way health insurance companies treat them now.

Go figure.

Use your head, people. That’s all I ask.

Listen to the Microbusiness News Briefs Podcast: Download audio file (06292009.mp3)

For more information:

• National Association for the Self-Employed
• Press Release: Bipartisan, Bicameral Legislation Aims to Simplify Home Office Tax Deduction …
• U.S. Census Bureau: Nonemployer Statistics

photo by Melanie Phung

One of the things I like best about talking to microbusiness owners is that they teach me things and remind me of things I once knew and just generally make me think.

What’s particularly cool about that is that it usually happens not because of pontificating lectures but simply through conversation or even just from my observations of the ways in which microbusiness owners live.

One of the best things about being a microbusiness owner is the fact that, for the most part, these are folks who businesses tend to be very personal to them (hence the term “personal business,” used by many to refer to nonemployers). They don’t try to create barriers between their work and their play and the rest of their lives.

They live in a holistic fashion. I think that is good because it makes a lot more sense than the false and unnaturally rigid boundaries we modern humans have tried to create between work and life.

Here’s an interesting observation about 20th century attitudes toward work/jobs, made to me during my interview last week with Microbusiness Profile subject Gladys Strickland:

“You weren’t supposed to be happy [in your work] but you were supposed to be thankful that you had a job, so that you could be happy in your off hours when you weren’t working.”

It is certainly a modern conceit, this notion that happiness in one’s life work is not only a consummation devoutly to be wished but something that is worth pursuing as well.

There are even some people — plenty of people, in fact — stumbling upon the simple truth that, beyond the details of what you do for a living, in the perpetual trade-off between freedom and security, getting a job means there’s something else that you have to give up.

We Americans have become accustomed to institutional life, going from family to school to job. That’s why we don’t realize that we’re giving anything up at all. Living within institutions feels normal to us and living outside them feels both alienating and simply frightening.

But once we step outside the comfort zone and experience the rather thrilling joy of make-a-living flight without a net, where you bend your mind and your hand to the act of creation and you interact with your fellow humans and you bring them things they want or need and you do all that within a context that you create instead of having to play in somebody else’s sandbox,

then we realize what we’ve been missing. And it doesn’t seem to take very long for many people to get used to being self-directed, being free from the obligation to jump when somebody else says jump.

(Pause for musical interlude … ) Download audio file (ImYourBabyTonight.mp3)

In spite of what they say, your government does everything it can to discourage you from creating your own job by launching your own microbusiness. One of the most insidious ways in which they do it is by working really hard at the whole “job creation” thing at times like this and treating the ever-increasing number of self-employed like (as I have put it previously) some sort of labor market failure.

“You had to create your own job? Oh, that’s terrible! Don’t worry, we’ll talk to our friends in business and industry and get them to create a real job for you!”

Uh-huh. Yeah, thanks.

You are not as out-of-step with your fellow Americans as they would have you believe. And, as you’ll see next week when I get to tell you about the 2007 nonemployer numbers, you are part of something that is more than either fad or fashion.

It is, in fact, a tidal wave.

Have a great weekend, everybody.

photo by emdot

Earlier this week, Emergent Research released the results of some new small business credit research. They found, among other things:

The reality is that the smallest of small businesses – those with five employees or less – often will not qualify for business credit. They’ll need to rely more heavily on relationships with their bankers or seek other sources of funds.

So what else is new?

Anybody besides me notice how often bootstrapping is coming up lately?

Maybe all those small business service provider types working through the Small Business Development Centers and SCORE and the Women’s Business Centers and even the microenterprise development organizations should be teaching small and microbusiness owners the varied and particular skills involved in bootstrapping for business.

It is well known that cash flow issues can kill a business faster than a lot of other things. Instead of scrambling to help small businesses to get loans (and act as if that’s the reason your outfit exists), there are better ways to help us out.

For more on this, check out my article published today over at the OPEN Forum Blog. In it, I spent some time musing about how the economy is changing and how small businesses may need to consider that one of the fundamentals of capitalism — taking other people’s money and using it to make more money — seems to be gone for us for the foreseeable future.

So, I say unto you, my fellow microbusiness owners, cease your lamentations about our lack of access to capital and learn the joys of bootstrapping your way to growth.

It’s harder and it takes longer that way but at least you won’t be subject to the vicissitudes of the credit markets.

But there are quite a few very positive signs out there, signs that improvements are coming even if they are not already here. It’s a bit like that tickle you get in the back of you throat that lets you know you’re in the process of catching a cold, if you see what I mean …

This week’s news also sees the first of this summer’s Microbusiness Profiles, and what could be better than a woman with the courage to launch a business only six months after the financial markets collapsed? I really enjoyed my conversation with Gladys Strickland and, from the MNB trivia files, you may be interested to know that we found each other via Twitter.

I’m getting more and more concerned the more I watch the SBA come back to life under the Obama Administration. If I am to judge him by his appointments, his tenure in the White House may not bode well for microbusinesses. The jury is still out but the writing on the wall is looking ominous.

How’s that for a set of frighteningly mixed metaphors?

Listen to the Microbusiness News Briefs Podcast: Download audio file (06222009.mp3)

For more information:

The Conference Board
Bureau of Labor Statistics
National Federation of Independent Business
National Association of Credit Management
GS Business Resources
SBA Office of Advocacy

Gladys Strickland

Correction: This article originally stated that GS Business Resources was located in Nashville, TN. The firm is actually headquartered in Memphis. The correct information has been inserted into the article below.

The air is riddled with cliches during economic downturns, largely because the purveyors of said cliches are longing to say something encouraging and they don’t have the data to do it.

One of those oft-heard cliches concerns the number of successful (and very large) companies we have today that were started during recessions. Microsoft, Apple and the rest — I don’t have the handy list on me but an impressive number of corporate giants appear to have gotten their start in life during the hard times.

It’s not very often that any of the companies in question is the result of what people have taken to calling “forced” entrepreneurship; that is, small businesses started by people who have been laid off and are unable to find work. A certain percentage of those forced entrepreneurs return to traditional employment when the economy improves and the rest usually choose not to grow beyond micro size.

Among nascent microbusiness owners who are not being “forced,” it might seem counterintuitive to start a business during a downturn when one would assume that customers or clients are even harder to come buy.

Which is just one of several very interesting things about Gladys Strickland, owner-operator of Memphis, TN-based GS Business Resources, a virtual assistance firm founded in March 2009.

Gladys started her business right now, in this terrible economic climate, for a series of reasons that will almost certainly make perfect sense to most microbusiness owners, even if they seem inexplicable to many economists and academics.

She wanted “more control over her life and her future,” as she put it during our telephone interview. She likes all the freedoms inherent in working from home and had no guarantees that she would continue to be able to do so working for someone else. She is thinking about moving to a part of the country where the climate agrees with her better, and wanted to be able to do that without the need for job hunting once she got there.

At the same time, Gladys has not yet quit her “day job,” which provides her with a cushion of security while she builds her business. That makes her one of those nonemployer firms that researchers are still researching, the firm started on a part-time basis by an owner who seeks to build it to their full-time occupation and primary source of income.

“It’s the economic reality,” said Gladys when I told her that some in the economic research community believe people like her work their firms part-time because they want to. “I have bills to pay. I’m a single parent, I need health insurance for myself and my son. I don’t have enough savings to live on until I have enough clients to support us both full time.”

It is unfortunate that none of the available data sets on the self-employed or nonemployers (depending on whether you are looking at Census data or BLS data) captures that subset of individuals who are working their firms part-time but would be working them full-time if their revenues would support them and their families.

It’s even more unfortunate that the number of “official” types in government or academia who recognize this particular shortcoming in the government data can, I think, be counted on two hands. Possibly one.

GS Business Resources is brand spanking new and Gladys is primarily focused on building her client base. She intends to focus on microbusinesses and independent contractors, particularly home based business owners. Right now, she says one of her biggest challenges is getting plugged into the networks that will get her the sorts of referrals so many microbusiness service providers depend on for new business.

Her biggest challenge is not even access to health insurance, although it is one of the things that keeps her tied to her day job.

Rather, Gladys says her biggest business challenge right now is that great buggaboo of microbusiness owners everywhere: time management.

“It’s staying focused on what I need to do right now and not getting distracted by email or Twitter or anything like that,” she told me. “Or even my own thoughts, because I’ll get an idea and think, ‘Ooo, I ought to do that.’ And actually what I need to do is make a note to do that later and finish what I’m doing right then.”

I’m sure there are plenty of microbusiness owners who can relate to that.

Gladys is still at the stage of figuring things out, which is only to be expected with a firm that is an infant of only about three months old. The odds seem to me to be very much in her favor, because her most powerful motivation is the preservation of her own freedom.

For example, she enjoys the freedom to take the cell phone and laptop outside to do business and conduct media interviews, the way she did on the day that I talked to her.

“It’s just taking what I’ve got now and making it even better,” she said.

Well said.

Entrepreneur Journeys, Volume 2

Bootstrapping: Weapon Of Mass Reconstruction
Sramana Mitra (self-published)
ISBN 978-1-4392-3451-8, $16.95

The first thing I want to tell you about this book is this: Bootstrapping is not a microbusiness book.

You would think it would be, from the title, but it’s not. As a matter of fact, while Ms. Mitra spends time in this book defending those of us who build and operate microbusinesses (except that she doesn’t call us that), her focus is on the more typical “entrepreneur”: founder of high growth company that makes millions of dollars in revenues and eventually gets sold for buckets of money.

She tips her hand early on, in the Introduction:

As true small businesses — in the eyes of venture capitalists, even a $5 or $25 million business is considered a small business — they do not really fit the framework of professional venture capital. That does not, however, mean these businesses are not worth building. In fact, a $12-million-a-year company fully owned by the entrepreneur is a wonderful situation. Full control. Loads of cash. And true independence. Heck, even a $300,000-a-year business has many of those same attributes, and is more than worthwhile. (emphasis added)

The fact that Mitra even found it necessary to say this is telling, in my opinion. And there’s more of this sort of thing, indicating that she floats around in a different universe from the typical microbusiness owner.

I remain resolute that if entrepreneurs the world over learn to build sustainable small businesses without requiring large amounts of outside financing, the global economy will run without a hitch.

A very nice sentiment but someone really ought to tell her that most of the world’s sustainable small businesses are built without requiring large amounts of outside funding.

For the record, we define bootstrapping as the practice of starting and growing a business without traditional debt or equity financing. The business is started with personal funds invested by the owner — sometimes borrowed from family and friends, sometimes coming directly and solely from the personal savings of the owner, sometimes built on credit card or home equity loans or other forms of consumer credit — and it built slowly by reinvesting earned capital from … um … ’selling everything.’

(Pause for musical interlude … ) Download audio file (ICantDance.mp3)

Bootstrapping: Weapon of Mass Reconstruction is a collection of interviews with the entrepreneurial founders of thirteen high growth or multi-million dollar a year companies who built their businesses without tapping into the standard VC or even angel funding dance touted as a necessary part of getting a startup started up.

Thus, the entrepreneurs Mitra interviews for this book bootstrapped their businesses but not in any way that would be recognizable to the average microbusiness owner.

The very first one included in the book is Greg Gianforte, who sold his first business for $10 million and then, some years later, “bootstrapped” his second software company by launching it with $50,000 of his own money because, essentially, he got bored with early retirement.

Unlike Gianforte, however, most of us don’t have a spare $50,000 lying around. I don’t know about you but I find it hard to relate to that sort of thing.

Later in the book, she tells the story of Ramu Yalamanchi, founder of hi5 (the international online community, a la Facebook and MySpace but less U.S.-centric). She notes that the company grew to more than 80 million registered users, “all funded by a paltry $250,000 from genuine friends and family.”

Of course, this is not what most of us are talking about when we talk about ‘bootstrapping’. Research from the SBA Office of Advocacy found that startup costs for small businesses average about $6,000. For most of us, there is nothing paltry about a quarter of a million dollars.

So, the bottom line here is that this book is not really about bootstrapping, as that art is practiced by the average microbusiness owner. And, in spite of the title of the book, you will not learn how to bootstrap, or bootstrapping best practices, if you read it.

That said, the book is not a complete wash.

In spite of the narrowness of Mitra’s universe — and her occasional statements in defense of small businesses, lifestyle businesses, family businesses, etc., don’t quite mask that narrowness — and the way in which it is dated by being laced with the 2008 presidential election, the stories of the entrepreneurs revealed in these interviews can be valuable to microbusiness owners.

For one thing, they might prove inspiring if you happen to be one of those folks who is inspired by success stories. In addition, if one of these entrepreneurs operates in your industry sector or is similar to you in some other way, you may find that their tactics will work for you in some fashion or another.

All of which reduces to this: if you don’t come to this book with any expectation of it being uniquely helpful to you as a microbusiness owner, then you are likely to find it an engrossing and educational read.

That is particularly true if you are also a Republican.

For the rest of it, perhaps it would do Ms. Mitra quite a lot of good to sit down and have a nice long conversation with Tim Berry. He could probably tell her a thing or two about bootstrapping for the rest of us.

Have a great weekend, folks!