American Small Businesses Hiring Cautiously

BusinessWeek looks at how small businesses are still being impacted by economic conditions. While things are progressing, business owners are moving forward carefully:

As the U.S. economy gains momentum, small business employment is lagging behind other drivers of the recovery. Past rebounds were led by companies with fewer than 500 employees as they added full-time workers. Now some owners say they’ll rely on part-time help and push their staffs to be more productive as they wait as much as a year for demand to improve. "I’m not sure we’ll ever return to the type of full employment we’ve had in the past," says Charles W. McMillion, president and chief economist at forecasting firm MBG Information Services in Washington, who has studied labor markets for 30 years.

In the first 12 months following the recession that ended in November 2001, small businesses added 81,000 workers. After the most recent downturn, companies cut 480,000 during a comprable time period, according to data from ADP Employer Services. "Normally we look to small firms to account for a lot of the job growth," says Scott Brown, chief economist at Raymond James & Associates in St. Petersburg, Fla.

Instead, investors are "rewarding" the efficiencies that publicly traded small businesses adopted to battle the recession, says Michael Shaoul, chief executive officer of New York-based Oscar Gruss & Son, which provides research to institutional investors. Since Sept. 1 the Wilshire Micro-Cap Exchange Traded Fund (WMCR), which includes companies with fewer than 500 workers and tracks shares of the Wilshire Index’s 2,500 smallest stocks, has gained around 33 percent, vs. 19 percent for the Standard & Poor’s 500 ETF Trust.

Small businesses "definitely have cut costs in terms of reducing workforces," says Joseph Kremer at Fifth Third Asset Management in Cleveland, who helps oversee $250 million in small- and micro-cap stocks. "That’s good for their efficiency, but not necessarily good for the unemployment rate."

Underemployment was 17 percent in November. That includes people without jobs and those who gave up looking, as well as those who work part-time but want full-time jobs. Many of the latter are "in trouble in terms of paying the bills" even though they are "still going to work," says Dean Baker, co-director of the Center for Economic and Policy Research in Washington.

Report: Americans Saving Less, $pending More issued a report indicating that, despite recent economic woes, the general trend in America remains that Americans are spending more and saving less. Whatever your thoughts on personal finance, this, of course, would seem to be good news for the business community:

In 2008 and 2009, consumer spending collapsed and the saving rate climbed. After hitting an all-time low of 1.4% in 2005, the rate averaged 4.2% last year and even briefly exceeded 6% during the month of May. But instead of some fundamental and lasting change in consumer psychology, the heightened thrift is better explained by cyclical forces that are already in retreat.

By far the most important have been huge swings in household wealth. After all, it isn’t saving per se that matters most to people, it’s their total net worth. Whether that comes from saving or the appreciation of assets already owned is of little significance. And during the two-year period from the spring of 2007 to the summer of 2009, the combined effect of falling stock and house prices evaporated an astounding $17.4 trillion — or 26% — of household wealth.

In fact, movements in the saving rate closely track those shifting fortunes. The all-time high in household net worth occurred in the second quarter of 2007 and was followed nine months later by a record low saving rate of 1.2% in the first quarter of 2008. Three months after household wealth ended its swan dive, hitting bottom in the first quarter of 2009, the saving rate hit a 12-year high of 5.4%.

More recently, however, these same forces are still at play, though now in reverse. As the free fall in house prices gave way to stabilization over the past year and equity prices skyrocketed, household wealth recouped about one-third of its previous loss. And as it did, the saving rate eased from 5.4% to 3.1% last quarter. Increasingly, it seems clear that the new age of frugality was merely a passing fad.

None of this, mind you, is to say that households shouldn’t be saving more. So long as our government maintains large and chronic fiscal deficits, any shortfall in domestic private saving necessarily requires more borrowing from abroad — and that’s an unsustainable proposition. Ultimately, there’s a huge risk that foreigners will lose confidence in our ability to repay those debts, forcing Americans to do more of their own saving. But that’s more of a long-run problem that doesn’t seem especially impending at the moment. In the meantime, there’s shopping to be done.

Future MLB Hall of Famer Throws Efforts Toward Business Start-Up

A little interesting story from the BusinessWeek blog. Outspoken pitching great Curt Schilling recently joined a Harvard business class to help him cultivate a plan for his new gaming company. Thus far, there are no plans for the company to sell bloody socks (though it may be an underrated niche):

My favorite line for the day was when, during the Q&A session at the end, Schilling started off by confessing, "After one year at a junior college and a 23 year in professional baseball, it cost me nearly $30 million to get to Harvard." The comment was in reference to the fact that Schilling has been funding 38 Studios almost entirely out of his own pocket. Many VCs turned him down when he first launched the company in 2006 and 2007 (including me, which is the subject of a funny story, where a VC buddy of mine and I ended up having dinner with Schilling alongside our then 7 year old sons in Fort Meyers, FL in 2007 while he was in the midst of Spring Training, but that’s another story for another day).

Putting aside celebrity and baseball, the case has two pedagogical lessons:

Entrepreneurs who have been successful in one field and have developed a "blueprint" for what it takes to be successful, can sometimes struggle to translate that blueprint into a new field. Therefore, they should be thoughtful about what skills and habits they should adapt to develop a new blueprint that suits the new field. I have been through this myself personally when, after being an enterprise software entrepreneur at early e-commerce leader Open Market in the 1990s, I embarked on becoming a consumer Internet entrepreneur at Upromise and had to learn a whole new blueprint (never mind learn the VC blueprint I find myself still adapting to since I made that conversion seven years ago!).

Harnessing and containing strong, visionary founders is a tricky endeavor, but there are some useful techniques that can be applied to improve the chances of success. Some of the students had worked with Jeff Bezos, Michael Dell, and other larger-than-life founders, and shared their related challenges and lessons learned in those environments. In many situations, the founder is a creative force of nature rather than an experienced operating manager, and skillfully managing the tension between those two essential ingredients can make or break a start-up.

Home Sweet (Business) Home

While catching up on a little reading over the holidays, I came across this little reminder about the prevalence of home-based businesses. It even coined a new term, I believe, in "homepreneur." A few of the key points from BusinessWeek:

  • An estimated 6.6 million home-based enterprises provide at least half of their owners’ household income
  • These "homepreneurs" account for over half of all U.S. businesses and employ one in 10 private-sector workers (more than 13 million total)
  • While only 35% have revenues above $125,000 (compared to 75% for non-home-based businesses), these companies measure up to others, according to researchers, on access to capital, benefits to workers, marketing and innovation

The article notes that "technology has made it easier to start and run a business from anywhere. But, just as important, there has been a chance of consciousness in the business world to recognize home-based businesses as legitimate."

How to Not Go Out of Business

BusinessWeek offers thoughts on how to turn around a struggling business by studying your customers and paying close attention to your brand:

As you study your customers, look for things that aren’t working for them. The better you understand the pain points within and around your industry, the better you can enhance your brand’s relevance. Run-flat tires reduce the inconvenience (and danger) people feel when they run over a nail. Satellite radio eliminates the annoyance of static on lonely interstate highways. The Egg McMuffin lessens the hassle of eating in the car. Even minor enhancements can have a major impact on customer satisfaction, from a curved shower rod (who would have thought you could keep that clingy curtain at bay) to a Web form that remembers personal data (key in my address? again?) to a simple apple slicer (great for you and me, even if it’s not so good for Band-Aid).

Once you have a solid list of pain points, brainstorm about how you might relieve them. This is where understanding the changing lifestyles of your target is vital, as it gives you a sense of what they’ll be wanting/needing/expecting down the road. Some new ideas may require a costly and significant overhaul of the way you do business, while others will only require a simple process change, ordering option, or service enhancement. Over time you’ll probably implement a variety of ideas encompassing all of the above.

Need a head start? Try imagining solutions from the perspective of well-known, well-respected brands. For each pain point, ask: "How would Nordstrom (JWN) overcome this problem if they were in our business?" "How would Southwest Airlines (LUV) approach this challenge?" "What would the Marines Corps do about this issue?" Nike (NKE), Ritz-Carlton, Harley-Davidson (HOG), the Mayo Clinic—you can drop any number of companies into this equation that will cause you to consider different ways of relieving the pain. Many of your ideas won’t be practical (and some may not even be possible), but the exercise will open your mind to creative solutions.

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. As you consistently address your customers’ evolving expectations and overcome the things that frustrate them, improvements that by themselves may only be measured in inches will move your company miles from where it is today. That’s where your customers will be. As long as you’re there to meet them, they’re likely to stick around.

Don’t Give Lousy Presentations

If your business is looking to gain any edge it can, one surefire way to stifle progress is for your representatives to give lackluster presentations. Carmine Gallo of BusinessWeek recently took a sarcastic look at "How to Give a Lousy Presentation." Here are the steps that are sure to get folks talking about you in a less than flattering manner, and you can read the full article for expanded explanations:

  1. Misspell words
  2. Create distracting color combinations
  3. Use inconsistent fonts
  4. Use a really small font size
  5. Insert improperly sized photos that are stretched to fit the slide
  6. Look completely and totally disinterested
  7. Look disheveled
  8. Ready every word of a slide
  9. Don’t bother with a backup plan
  10. Don’t practice
  11. Call attention to your mistakes
  12. Open with an aggressive or off-color joke
  13. Use wild animations
  14. Use cartoon clip art
  15. Use ancient presentation software

Is the President Anti-Business?

He doesn’t think so. BusinessWeek recently sat down with President Obama and got his take on his relationship with the business community. Very interesting discussion and I recommend you read it in its entirety:

BusinessWeek: A lot of business leaders consider you to be antibusiness. I was struck when I attended the Aspen Institute Ideas Festival. [Council of Economic Advisers member] Austan Goolsbee was speaking, and he hit a fairly hostile audience. These are wealthy, fairly progressive older people who had tended to support you, but they seemed very upset about corporate taxes, individual taxes, card check, all sorts of things you’re doing that they perceived as not helpful to them. What can you say to those people?

Pres. Obama: Let’s look at the record. I’ve been in office six months. So far my only tax policy has been to cut taxes for 95% of working people. I haven’t signed a bill that’s raised taxes yet. To the extent that we have put in place policies, they’ve all been directed at helping businesses. A number of those who think we’re antibusiness seem to forget that it was just three or four months ago when, at great political expense, we yanked them out of the fire. And they still—at least if they’re in the financial sector—are enjoying a whole bunch of government guarantees that are propping up their business models. So it’s hard for me not to be a little skeptical when I hear that somehow we’ve been antibusiness.

BusinessWeek: But you’re aware of that perception?

Pres. Obama: Well, here’s what I think. To the extent that I can identify any aspects of this that make any sense, one is that, at the height of the AIG (AIG) debacle, I used pretty tough language in terms of folks paying themselves bonuses at a time when they were given big taxpayer bailouts. I continue to believe—and this is not antibusiness, this is common sense—that if you’ve presided over an enormous meltdown that has resulted in about $10 trillion worth of wealth being lost, that you might want to be a little self-reflective and perhaps change your business goal. And when I see Wall Street not doing that, it tells me not only that they have forgotten the recent past, but that they are putting the country’s economy at further risk. One of the things I’m worried about is, having had to step in in extraordinary ways, we now have even more potential for moral hazard, where financial institutions think to themselves, "We can continue to take extraordinary risks and pay ourselves extraordinarily high salaries or bonuses because we know that we are too big to fail." I think that’s dangerous for the economy and for business. And so that would be one example.

What are your thoughts? Are his critics in the business community too hard on him — or not hard enough?

Employee Motivation: Perception Isn’t Reality

Tired of walking past your highly qualified staff, only to find them texting their loved ones or surfing the Internet for the latest news on Jennifer Aniston’s love life? offers five myths about employee motivation that you shouldn’t overlook. Here’s the synopsis, but you should read the entire article as it could prove quite useful:

Business owners need to ensure that their employees are productive and eager to do the best job possible–this is especially true during today’s challenging economic times. Yet every industry and every organization has people who simply do not produce work in the quality that they are capable of providing. That can create costly problems for a manager.

Leaders often miss the mark when trying to ramp up employee productivity. Let’s debunk some motivational myths.

1. Money motivates. Of course, if you pay some enough money, they will do almost any job. And when you give bonuses to reward past behavior, the recipients are usually very happy (unless they were expecting a larger bonus).  The staff does a better job following the glow that accompanies added money.

2. Just keep them happy. Employers often go to great lengths to keep their employees happy–some offer game rooms; others have phones with free long-distance access. The theory here is that if we can keep the employees happy during their break time, it will translate into increased motivation and productivity. Unfortunately, this is not very effective.

3. Ignore Conflict. Few people, especially in the professional world, enjoy conflict. Most bosses and employees alike would rather “let something go” or “sweep it under the rug” than make an issue out of it. Too many managers are concerned about being liked that they don’t fulfill their responsibilities to catch problems quickly. Not addressing an employee’s problematic behavior doesn’t help any one.

4. Some people just aren’t motivated. This is a very common misconception. Everyone is motivated–but for different reasons. Walking through the offices, the manager may see someone playing computer games or sending personal email, this could be seen as the individual is not motivated because he’s not attending to the job tasks. But that may not be entirely correct.  At that moment, the “aimless” employee is motivated, perhaps even highly motivated. But that motivation is not work directed, nor is it productive for the company.

5. Smart employees don’t need to be motivated. Being “smart” carries an important cachet in American society. Everyone wants to have smart people working for them because these people are quick to learn, adapt and produce. Employers may erroneously believe that they don’t need to spend much time or attention on these staffers.

How Businesses Can Recover from a Good Old Fashioned Twitter Impostering

Businessweek uses an unfortunate instance to show businesses how they can recover when they fall victim to a Twitter poser:

When Barry Schwartz logged on to Twitter on Jan. 27, he had 20 messages waiting for him, all with unwelcome news: Someone was impersonating his company on the social network. Schwartz runs RustyBrick, a 15-employee, $2 million Web development company in Suffern, N.Y., and uses his company’s name as his Twitter handle. The impostor had set up a profile using a slight variation of his company’s name and started following Schwartz’s 4,000-plus contacts, which included clients. Those folks who in turn followed the impostor saw a Web link with a message reminiscent of spam: "Hey guys, you have to get this new Twitter Success Guide. It’s priceless." Schwartz, who doesn’t use Twitter for sales promotion, was chagrined. "The last thing I want is to have people thinking that I’m following them and [that] I’m selling a Twitter Success Guide," he says.

With the growing popularity of blogs, social networks, and customer review sites, the job of managing a company’s online reputation is becoming ever more complex. And it’s not only strangers who pose a threat. With the viral nature of social media, it’s now possible for an unhappy customer or a disgruntled former employee to reach thousands of people with the click of a mouse. Clint Page, CEO of Dotster, a 100-employee, $50 million Internet service provider in Vancouver, Wash., says his company regularly patrols the Web looking for negative comments. "A comment left unchallenged becomes perception, and perception becomes reality," he says.

Turning Around a Struggling Business

BusinessWeek writer Karen E. Klein recently outlined steps businesses can take to turn things around if they’re going downhill. Using advice from several experts, she offers these tips:

  1. Keep selling
  2. Evaluate market effectiveness
  3. Anticipate opportunities
  4. Create a rapid response team
  5. Get creative
  6. Minimize layoffs
  7. Look for alternatives
  8. Touch base with customers
  9. Ask for feedback
  10. Take complaints seriously
  11. Resist negativity

Read the article for elaboration on each point.