new dog old trick

Extreme Bootstrapping

This article makes it sound more like social bootstrapping, in keeping with the current hot meme of "social everything". But I love the concept of Extreme Bootstrapping. And "food equity" is even better! Hmm, here in Nashville, I wonder if "BBQ and Beer Equity" is the way to go?

Unemployment statistics, entrepreneurship, and economic recovery

We're all aware to some degree or other that unemployment is now somewhat over 10%. We also understand to some degree that 10% is a lot of unemployed people - 1 out of 10 of us is out of work. But, as this article outlines, the real number that we should be focusing on indicates that closer to 1 in 5 people is really in need of a job.

The difference between 1 in 10 and 1 in 5 is the difference between the U-3 rate and the U-6 rate. U-3 measures the number of people out of a job and actively searching for a new one. That's the statistic that was at 10.2% for October. It's also the number generally cited by any news reports on unemployment. Arguably the more critical number relative to the health of the economy is the U-6 rate, which clocked in at 17.5% in October. U-6 is the statistic that includes everyone counted in U-3 plus "discouraged" workers (i.e. those who don't have a job and have stopped actively looking for a new one) plus those who are only working part-time but want full-time work and others who are underemployed. The number of people that an expanding economy must absorb back into the work force is represented much better by the U-6 rate than the U-3 rate. And even U-6 doesn't reflect the new workers that are being generated every year by new cohorts of high school and college graduates coming into the workforce for the first time.

The sheer magnitude of the U-6 number is one of the reasons that many are concerned that any recovery may be "jobless" or seem that way for quite a long time. We've got to add back an awful lot of jobs before we start to absorb all those people in the 7.3% of the workforce above and beyond the 10.2% U-3 number.

Anyone who as been paying attention to recent postings here (all 2 of you) also know that recent research shows that the vast majority of net new jobs in the U.S. economy over the past 20 or more years have been generated by young (not just small, but relatively new) companies. Unless something is happening to totally change that fact - and to my knowledge nobody thinks that something that fundamental is changing in the economy - that means that the companies that are going to hire most of the unemployed and underemployed are companies that were started within the past five years or will be started in the next two or three years. And with startup activity apparently down over the last year or so - and with attitudes and policies in Washington that are in many cases hostile to young and small business - it becomes even more difficult to see how the U-6 number comes down significantly or rapidly over the next few years.

Passion and the Entrepreneur

We often associate passion with entrepreneurship and talk about it as a distinguishing characteristic of entrepreneurs. Yet we rarely go deeper to try to define what we mean by passion in this context. We treat it as a self-defining term of art. Yet I know from conversations that I've had with students and business-people that not everyone understands the concept.

Apparently John Hagel has found the same thing since he published his manifesto for passionate creatives a while back. So Hagel has taken a first crack at defining passion in the sense we use it for entrepreneurs in this post titled Pursuing Passion. There is a lot of great material here and I highly recommend you read the whole thing. While Hagel is not focusing solely on entrepreneurs, I think his post does a great job defining passion in the context of entrepreneurship as well as in explaining why passionate people are often driven to leave an organizational job and start their own company.

Hagel identifies 10 to 12 (depends on how you count the points he raises) characteristics of personal passion. There are a couple of the characteristics that I need to think a bit more about, but here are a couple of the ones that really resonated strongly with me:

Passion, in the sense I am using it, orients us; it provides us with focus and direction. From this perspective, passion is long-lived. It may be ignited quickly but, once ignited, it endures and even grows as we discover how much potential there really is. Passionate people are rarely distracted for long; their passion keeps them on track and calls them inexorably back to the quest ahead. Passion is about perseverance.

Passion is also about pursuit. It is not passive. People with passion are driven to pursue and create. They may read books and observe others, but they are not content being bystanders. They feel an overwhelming urge to engage, to experience for themselves and to test their own capabilities. Passion compels us to act.

In this context, there are two kinds of passion – the passion of the true believer and the passion of the explorer. [snip]

I am focused on the other kind of passion – the passion of explorers. These are people who see a domain, but not the path. The fact that the paths are not clearly defined is what excites them and motivates them to move into the domain. It also makes them alert to a variety of inputs that can help them to better understand the domain and discover more promising paths through the unexplored terrain. They are constantly balancing the need to move forward with the need to be present in the moment and reflect on the experiences and inputs they are encountering.

Hagel points out that the "passion of the true believer" can also create entrepreneurs - he uses the example of the single-minded technology true believer entrepreneur. I think that type of passionate entrepreneur is important but not representative of the great majority of successful entrepreneurs.

Here's more:

Passion is about progression – passionate people constantly seek new challenges and opportunities to drive their performance to new levels. For passionate people, achieving their full potential has little meaning. They see that their potential is constantly being expanded by new possibilities. Explorers are very adept at discovering new ways to test themselves and discovering new possibilities along the journey. In fact, passion brings with it a willingness to fail repeatedly in the quest for performance improvement, compellingly illustrated by any extreme sports participant. Passionate people see that progression demands failure – if we are not failing, we are not taking enough risk and learning fast enough.

Also:

Passion is about risk-taking. Passion diminishes perceptions of risk and amplifies perceptions of reward. In a curious way, risk becomes reward for passionate people. They see that risk is the only way to discover new things and explore new territories. For this reason, passionate people thrive in times of high uncertainty and disruption. It is also why passionate people tend to come together on various edges of our society and business environment – peripheries that are rich in unmet needs and unexploited opportunities. Passionate people embrace the edge in order to get an edge on their performance.

Hagel also identifies a number of open questions and invites comments and discussion on his position and the open questions. I think this is both an interesting topic but also an important topic for reasons that Hagel does a good job outlining. Worth reading and thinking about.

Where must the new jobs come from?

Kauffman Foundation publishes a new study showing that start-ups and young companies are the primary drivers of job creation in the U.S. economy. We've known for years that small businesses generated most of the net new jobs in our economy over the past 30 years - this study adds a couple of things to the discussion. It adds the dimension of firm age - showing that young firms (not just small firms) disproportionally are the generators of jobs. And it brings the discussion up to date and into the current recessionary economy.

From the Kauffman press release...

The distinction of firm age, not necessarily size, as the driver of job creation has many implications, particularly for policymakers who are focusing on small business as the answer to a dire employment situation. This report shows that most net job creation is generated by firms that are one to five years old. These firms create more net new jobs than their older counterparts, as well as a higher average number of jobs per firm. In some cases, these young firms grow into large companies employing thousands of people. Importantly, these companies could still fail at some point or be acquired by older and larger companies; or they could stop growing and remain the same size indefinitely. Some of these firms, meanwhile, continue to generate positive rates of net job creation at older ages.

They also point to the reality of constant job (and company) churn...

Net job growth is marked by churn, the process by which jobs are created and destroyed by shifts in the economy. Each year new companies emerge to create lots of jobs and are succeeded in subsequent years by a new pool of firms. The net effect of this is to consistently add two million new jobs to the economy each year.

Churn means we have to keep starting new companies every year. Any public policy decisions that suppress the rate of new company formation inevitably reduce potential for new job growth.

Some study questions for the reader - what public policy decisions would result in higher rates of company formation and job growth? Higher taxes in the new new government takeover of the healthcare industry or from carbon taxes in the climate bill or cuts in capital gains rates, marginal income tax rates, and corporate tax rates? Economic policies favoring or protecting large incumbent firms (say, for example, General Motors, Chrysler, big banks, and other firms that the government now owns a piece of) vs. economic policies favoring entrepreneurs and young companies?

It takes time for a start-up ecosystem to emerge

Fred Wilson on the time it takes for a robust, sustainable start-up ecosystem to emerge. Timely post for all of us here in the Nashville area where a new initiative is attempting to bring together the diffuse threads of the entrepreneurship world in middle Tennessee.

The Nashville Entrepreneur Center launched online a month or so ago and work is ongoing to staff and fund the center for its first full year of operation in 2010. The center has very broad-based support across the primary entrepreneurial sectors in Nashville and it seems that there is a very good chance that it will start to add value to the local and regional economy over the next couple of years. Wilson's post points out that a much longer term perspective is necessary to truly make a fundamental difference in the start-up environment by making it self-sustaining.

New Job Creation and a Wish Sandwich

I can't resist pointing to another Michael Malone post. Malone's post "Missing the Meat" seems to be channeling those eminent economists Elwood and Jake Blues:

"Have you ever heard of a wish sandwich? A wish sandwich is the kind of a sandwich where you have two slices of bread and you, hee hee hee, wish you had some meat" (from Rubber Biscuit)

Malone's post from 10 days or so ago speaks to the concern that the engine for future job growth, i.e. new company formation, may not be running even though it seems like the economy is starting to recover. If Malone is correct, this is a big problem.

The crucial center of the tech world – new and fast-moving companies – the meat in the technology sandwich – is gone. Under the press of an economic slowdown, government regulations that have handcuffed entrepreneurs and venture capitalists – and perhaps most of all, an Administration that increasingly seems actively hostile to entrepreneurship and small business – high tech is hollowing out.  

It all still looks good – the new cars in Silicon Valley traffic, the announcements of exciting new inventions – but there is no there there. It is a comforting illusion, one that has us believing that good times are just around the corner, that the next Apples and Googles are waiting in the wings to help restore the country to economic leadership and prosperity, and that Silicon Valley will once more become the generator of millions of new jobs across the land.

But it isn’t true. Over the last couple months, I’ve seen some spectacular new start-up companies, some with finished products on the market. All of them are starving from lack of capital –and their business plans, which would have attracted tens of millions of dollars two years ago, earning only shrugs and apologies from straitened venture capitalists and banks. My guess is that several hundred new start-ups in Silicon Valley have already been lost, with no sign anywhere on the horizon.

If, as has been the case in the past, Silicon Valley and the tech industry are the leading indicators of the country’s economic health, this is going to be a truly ‘jobless recovery’, one that rewards the few at the expense of the many in ways we haven’t seen for decades, that consolidates power in Big Business at the expense of the little people, and which delays the adoption of important, life-saving, new inventions for years.

Good legal blog for entrepreneurs

Check out the Walker Corporate Law Group for a blog that covers topics of interest to entrepreneurs. Some good recent posts on issues at the intersection of lawyers and entrepreneurs like buying a business, negotiating deals, raising capital, selling your business, etc.

I vote "YES" for the Startup Visa

Brad Feld has been posting about the Startup Visa idea for a few weeks now. I think this is a great idea. In the mess that is U.S. immigration policy, the Startup Visa is a simple tweak that seems to do nothing but good. If we really want the U.S. to continue to be the world's leading economy and a light to the rest of the world, these are the kinds of things we need to do. It's also the kind of thing that will help lead us out of recession by encouraging startup activity and generating jobs.

Why is this a good idea? Try this story from Feld's most recent post on the subject...

Every night after I’ve checked off the task list for the startup I work on, followed-up with the people I’ve networked with, finished all my school work, I’ll stay up reading documentation on how I can stay in the country I have fallen in love with over the last nine months. I come from a culture in Sydney where my peers will become doctors, bankers and lawyers; where the idea of being a startup founder is correlated with merely being unemployed. Being familiar with the first generation immigrant story of my own parents escaping poverty in Communist China to Australia, where they’ve created wealth and jobs from their small grocery business, I was inspired to adopt my own journey to a foreign country. When I came to the United States, to take an opportunity to do a one year study abroad at Babson College, a school with a premier entrepreneurship program, I was optimistic.

Being in Boston, having visited both Silicon Valley and the Research Triangle, I mourn the fact my visa expires in December, the conclusion of my studies. Why is it so good here? How is it so different to back home? It’s not about the number of venture dollars, or the size of the business plan competitions, it’s not even the size of the market. It’s about an intangible in the ether. It’s about culture. For a first-time, young entrepreneur, environment is so fundamentally key. The couple of web tech, social media, or general startup networking events I go to every week act as shots in the arm. I always come back that much more energetic; that much more inspired. I speak with a serial entrepreneur who has seen the pattern many times before and provides me advice and encourages me to keep fighting. I meet another first-time entrepreneur suffering my pain, sharing that experience is motivating. I come across someone passionate about their vision, that energy is contagious. The startup journey is rarely a straight line and this keeps me going as a first-time entrepreneur.

And I’m one of the lucky ones. Currently I am looking at all options, but because I’m an Australian citizen, I’m most likely to immigrate to Toronto, as it’s the closest city with an entrepreneurial community to Boston. Many of my international peers at Babson, who hustle, who fight, who innovate and create, are forced home every year. Do they go and create wealth and jobs in their home country? This would be unfortunate for America not to capitalize on the investment in education. Worse still, because they no longer are tapped into the unique American culture of risk and creation; are we as a global society just entirely worst off?

Here is the website for the Startup Visa movement.

Business Model Fest for NewDog

Wow, it's looking like 2009 will go down as the year of business models around here. First the business model centric Getting to Plan B by John Mullins and Randy Komisar, which we just got done reviewing. And then today, a brown box shows up in the mailbox and out pops my copy of the just published Business Model Generation by Alex Osterwalder and Yves Pigneur. It's a fantastic-looking book that I am very much looking forward to reading this week.

Business Model Generation is the result of a lengthy project that is described on Osterwalder's website/blog The book describes a complete process to help you understand, design, and differentiate your business model. It includes a great visual tool for modeling and describing a business model.

The book itself is the result of an interesting design process and is not your standard business book. The book's design and the thinking behind it is also discussed on Osterwalder's blog (just scroll down a little way) or on the book's website. It's very much the result of real design thinking by a talented team of collaborators. My congratulations to all involved!

There will be more on this subject later this week after I've had a chance to read the book. But I'm looking forward to not only discussing Osterwalder and Pigneur's thinking but comparing and contrasting their view of a business model with that of Mullins and Komisar.

Getting to Plan B - a book review

Getting to Plan B: Breaking Through to a Better Business Model, by John Mullins and Randy Komisar, is a very good new book for both entrepreneurs and those running more established businesses. It's an important book because it fills what had been a major hole in the literature on entrepreneurship, business planning and strategy. Too much of the literature of entrepreneurship treats successful start-ups as ideas that sprang full-formed from the brow of a brilliant and insightful founder or founding team. The reality is that the majority of start-ups go through much searching and experimentation before finding the combination of business model factors that allow them to be successful. Getting to Plan B talks about that process of experimentation, exploration and learning that leads entrepreneurs from their unworkable Plan A to the Plan B (or C, or D, ... or Z) that allow their start-up to become successful.

The book has several strengths. One is that each chapter has several mini-case studies of companies that had to find their own Plan B - ranging from well-known high tech start-ups like Google to not-for-profits like GlobalGiving to airlines like Ryanair and beyond. Some of the examples are well known and others are much more obscure but all illustrate key elements of the authors' approach to experimenting to find a workable Plan B.

Another strength of the book is the way it points out that it's not just brand-new start-ups that need to evolve to Plan B - in today's "big shift" driven global market even established companies cannot milk a successful business model for an extended period of time without taking major risks. Every established organization should be continuously testing its overall business model and/or the business models of the individual lines of business, products, services, etc. that make up the business.

But how to test the model? How do you know if you're closing in on a workable or better Plan B? That leads to the two major contributions of the book. The first is providing a structured, repeatable process or model for how to test a business model to determine if it will work. Essentially, Mullins and Komisar propose treating the entire exercise as a structured, iterative experimental process. They provide a model for the conditions to be tested (their business model framework) and some tools by which to do the testing. The most important tool is the dashboard on which the elements to be tested are listed and the results of the test(s) are recorded.

Finally, Mullins and Komisar define what a business model is and define how to test the various components of the model. Their business model definition is solely quantitative and focused on five components:

• revenue model
• gross margin model
• operating model
• working capital model
• investment model

Each component is defined in a separate chapter and supported by examples of two or three companies and how that particular element of the business model contains a key to the company's success. All the discussions are good - the one on the working capital model is particularly useful (you can never stress too often that "cash is king").

It's funny that given how much we all use the term "business model" that there doesn't seem to be a widely recognized definition for the term. I love that Mullins and Komisar establish a firm definition and then show how to test a business model to determine if it's going to work. I think this may turn out to be the most important contribution of the book.

It's slightly disappointing that Mullins and Komisar didn't acknowledge or cite the similarity between their approach to testing a business model and the assumption-driven planning approach called discovery-driven planning developed by McGrath and MacMillan. Also, the process of structured experimentation that the book discusses is very similar in intent to the Lean Start-up approach advocated by Eric Ries and discussed in an earlier post on this blog.

All in all, this book is a major contribution to the literature on entrepreneurship and business planning. Strongly recommended.