The Five Point Job Recovery Plan

Entrepreneurs don't often do the things they do, for the money. They often do them for the passion they have or simply to prove that they can do it. Even though 500,000 new businesses starting each year (the number of startups in 2010) seems like a big number, it is actually an all time low during the recent past (2006 startups numbered 667,000).

"Why" you ask, "is this important?" Here is why; Businesses, less than five years old, have contributed all the net new jobs in the United States in the last decade. And most startup businesses have no employees. So, those that do are ever-so-much more important in our effort to dig our way out of this recession. While I would not be so bold to say that Entrepreneurism alone will return us to full employment ( 5%), it is certainly an important factor.

So, an interesting and important question might be: Why are new business startups off nearly 25 % from their all time high in 2006? And/or; What needs to be done to restore the startup level to the 2006 high and beyond? And/or; How do we go about greasing the sled for Entrepreneurs and Business Startups?

I believe that this five point strategy will go a long way to restoring the climate in this country that incentivizes not just Entrepreneurship but Successful Entrepreneurship (establishing a means of improving the 5 year success rate of startup from 30 to 50 percent).                                           


1. Most money for a startup business comes from the owner's savings which includes the equity of their home or retirement savings. Money, from home equity and/or retirement savings, has shrunk considerably since 2007, for reason I won't go into here. Considerable losses have occurred in those two areas since 2007. I suggest that we compensate for that difficulty by giving those who start businesses a TAX CREDIT up to $25,000 for money invested in a start-up business.

2. Reward those Entrepreneurs that are successful with a one-time 150% deduction for annual wages of new employees, during the first 5 years of operation.

3. Streamline and reorganize the US Patent office which now takes an average of over 3 years to approve a patent application. Begin by giving first time patent appliers a guaranteed 90 day up or down answer.

4. Reward Entrepreneurs that start businesses in the potential high-growth industries of tomorrow: health care, business services, leisure, construction, manufacturing and retail. Give all business startups, surviving the first year in those industries, a $25,000 grant to purchase needed equipment or software.

5. Provide TAX REBATES, up to $5000 a year for the first 5 years of Entrepreneurial activity involving a business with 5 employees or more, provided they can show evidence of investment in specified Entrepreneurial education.


I am calling this five point strategy, The Entrepreneurs R Us Job Recovery Strategy. If you feel this would benefit you or someone you know who is in a startup business situation or thinking of engaging in one please write us.                                    

                                                                          

Startup Success Formula

The Startup Genome project has issued its first report based on a study of 650 Internet Startup companies by the authors Max Marmer, Bjoern Lasse Herrmann and Ron Berman. Their goal was to lay the groundwork for a better understanding of how startups progressed through the business cycle. No doubt their hope is to better understand the likelihood of success by startup companies in the Internet space.

Their findings, though preliminary, would be of value to venture capital firms evaluating possible investment opportunities as well as those who might be considering a business startup. Though their studies involved only Internet businesses it is interesting to think how effective their finding might be in evaluating startups in other industries.

Based on a paper only recently published, they established two important foundation tools for evaluating the likely success of Internet startup companies. I think that those findings are valuable to all and I will share, with you my understanding of those discoveries.

To begin, they established a startup Life cycle consisting of 6 stages:

1. Discovery
2. Validation
3. Efficiency
4. Scale
5. Maximizing Profits
6. Renewal

The authors defined each stage and I believe it would be beneficial for us to review those definitions:

Discovery-Startups in this stage are focused on the understanding of whether or not their idea or concept has value. In other words, would anybody pay to get what the idea or concept would provide.

Activities that startups might be engaged in during this phase might be interview of those that make up the potential market, produce some prototypes of the product or service, joining and incubator or accelerator group, seeking financing from friends and family, seeking and establishing relationships with the fires mentors and advisors.

Validation-First attempts to sell the product or service and gauge the potential market and its value as well as experience in how best to achieve sales. Evaluate the efficiency with which customers can be captured and kept.

Activities at this stage are: refining the product, establishing the metrics, obtaining of seed funding and making the first key hires.

Efficiency-Customers must be acquired efficiently, product must be deliverable at a profit and business model must be fine-tuned.

Activities that are likely to occur at this stage are clarifying the value proposition, refining the customer experience, enhancing the growth process, and creating scalability or sales.

Scale- Attempts to drive firm growth aggressively

Activities at this stage typically are: A Round financing, executive hires, process refinement, and scalability improvements.

(Stages 5 and 6 were not discussed)

It was found that 5-9 months were required during each step and that activities vary, somewhat, by type of startup. However, the top challenge during each of the four stages was Customer Acquisition; Spotlighting the need for creating clarity around the value proposition and the sales process.

This brings us the second important finding of the study, the four types of startups. I found this most interesting and helpful in understanding how business might have different needs and rates of growth. The four types of startups are:

1. The Atomizers
2. The Social Transformers
3. The Integrators
4. The Challengers

The Atomizers-Common characteristics: Customer focused, product centric, execute quickly, and often simply automate a manual process. Examples: Google, Dropbox, Zynga, and Hipmunk.

The Social Transformers-Common characteristics: self-service customer acquisition, winner take all markets, and typically create new ways for people to interact with others.

Examples: eBay, Skype, Craigslist, Twitter and YouTube.

The Integrators- Common characteristics: take innovations from Internet and rebuild and fit for smaller organizations, high certainty of success, gather leads from inside sales reps and smaller markets. Examples: Uservoice, GetSatisfaction and Flowtown.

The Challengers-Enterprise sales repeatable sales process, rigid markets, and high customer dependency. Examples: Oracle, MySQL, and Jive.

Some additional finding that may be even more important to those of you planning a business start up are:

1. Mentors are important. The study found that business start ups who sought and found mentors were able to raise 7 times more money than those who did not. It almost seem like a given that someone starting a business would seek and get all the advise they could.

2. Many Investors Invest Too Much. In fact the study found that investors put 2.3 times to much money in deals. Translation? Due Diligence!

3. Development is faster with co-founders. Founding teams of 2 were 3.6 times faster to reach scale stage.

4. Sales driven startups are 6.2 times more likely to reach scale stage than product driven businesses

5. Balanced founding teams are more likely to succeed. Team of technical, and business founder raise more money and reach scale stage quicker.

In all the study, provides a foundation to better evaluate startups by standardizing terms and classifying types of organizations there was much, much more to be gleaned for the Startup Genome project and we will follow-up with you to share the wealth of knowledge provided by the project. Stay tuned for more of the Startup Genome project.

Leading a Successful Start-up

There is no more precarious role than leading a start-up business. According to the latest research, seven of ten will fail in 10 years or less. But, since start-ups contribute most of the jobs in the United States and have done so for the last several years, we would all be well-served to understand what contributes to the success of those leading start-up businesses.

A recent study by Multiple Heath Systems (MHS), Toronto, Canada and the University of Toronto in which they compared Emotional Intelligence (EI) scores of top executives belonging to the Young Presidents Organization (YPO) against the general population revealed some interesting areas of differences between the two groups. Using an instrument that measures Emotional Intelligence (EI) known as the EQi, MHS and the University of Toronto found significant differences between the executives leading young companies and the normative population. The EQi measures 15 different subsets of individual traits and the Executive group was found to score substantially higher in 8 of the 15 subsets. Four of the greatest differences occurred in scores involving Empathy, Self Regard, Reality Testing and Problem Solving. Executives who possessed higher scores in these four areas were more likely to achieve higher levels of performance and profits which some would define as success.

Before we talk about the practical value of this data, lets review the meaning of each of these four attributes:

• Empathy - the ability to recognize, understand and appreciate the emotions, moods and feelings of others

• Self Regard - the ability to know and understand one's strengths and weaknesses

• Reality Testing - the ability to assess what is realistic and what is not

• Problem Solving - the ability to solve personal and interpersonal problems

Certainly, the "Fabulous Four," as I call them, almost look like common sense answers to the question; What skills does a person need to succeed in starting a business? Possibly they are, but having above average capacity in those four areas is somewhat rare and makes the leadership job much easier, somewhat like a 6'8" basketball player dunking the ball through a 10' high basket - not too challenging.

So why don't we just line up people with superior capacities in the "Fabulous Four" and have them start a business. We wish it were that simple. But, unfortunately, there are other dimensions to success, in starting a business. The "Fabulous Four" can enhance your leadership success but without the remaining two essentials: Passion and Luck start-up success may be elusive.

Having "Hair On Fire" passion for what you do is an essential ingredient to start-up success. You are not likely to have a successful start-up with out unparalleled Passion for the business. All that being said, we have found Passion to be the necessary fuel that keep a business going in spite of obstacles.

Few will ever acknowledge just plain luck as an ingredient for start-up success. Yes, a certain degree of luck, though not essential to success, is frequently a major part of it. Having started four new businesses, succeeded in two and failed in two, I can personally attest to luck, both good and bad, playing a role in the success and failure of a start-up.

Earlier, I spoke of the "practical value" of this information. Here it is, as practical as it will ever get. If you are wanting to maximize your success, as a leader of a small business start-up, build your skills in the "Fabulous Four" (Empathy, Self-Regard, Reality Testing and Problem Solving). Do so with Passion and hope for a little Luck. Good Luck, that is.