Posts Tagged reputation

Attack Never Defend: An Entrepreneur’s Key to Success


Entrepreneurs do best in the face of uncertain conditions, but mature firms have a hard time with uncertain conditions because they plan for what is certain and has worked for them in the past. Entrepreneurs can succeed by doing what they do best and creating uncertain conditions for mature competitors.

ImproMed is one such company that has made “attack never defend” its mantra. Ron Detjen, ImproMed’s founder and president, says his company continues to grow and add employees because it keeps a competitive attitude. Detjen argues companies that go on the defensive can never grow as fast as companies that go on the offensive. Detjen encourages his employees to go on the offensive by finding something they excel at and keep working on it (Anonymous, 2011). What an excellent approach!

ImproMed is a company that helps veterinary practices deal with complex recordkeeping needs and has developed the world’s leader software products for both the business and medical needs of veterinary practices. ImproMed stresses a consultative approach for its employees is the key to its extraordinary growth (Anonymous, 2011).

A company that focuses on what its employees do well wins. Employees are critical to a small company because they are responsible for how the company performs. Encouraging employees to focus on strengths puts competitors at a distinct disadvantage because they do not know what to expect. A good entrepreneur works from his or her strengths and not weaknesses.

How does your company attack? I would love to hear your comments. If you want to know more about how you can design a way to attack using strengths you can learn more here.

References

Anonymous. (2011). 2011 Winners small business success stories Corporate Report Wisconsin, 26(7), 30-35. Retrieved from http://search.proquest.com/docview/864104598?accountid=35812

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Qualities of a Successful Entrepreneur


The story of Tariq Farid provides some insight on the qualities one needs to become a successful entrepreneur. Tariq is a Pakistani American who emigrated to the United States at age 11 with his family. By the age of 17 Tariq owned a flower shop with the support and encouragement of his family. Two years later Tariq successfully operated four stores. Making a better experience for his customers thrust Tariq’s drive that led to him to create point of sale software for the floral industry. Tariq later founded and led NetSolace, Inc., which provides franchise management solution software. In 1999, Tariq’s thirst for starting new businesses propelled him to start Edible Arrangements®, a franchise organization providing fruit bouquets, which grew to over 1,100 stores worldwide (Crowley, 2012).

Tariq developed his leadership style from the values instilled by his family while growing up. These values included honesty, integrity, and passion. Tariq believed in preserving these values and always returns to these basic values. For example, Tariq responded to an interview explaining how his drive comes from keeping honest with the consumer and himself. Tariq said he believe a true entrepreneur has a focus not so much on making money, but on keeping a social consciousness and providing for long-term profitability. According to Tariq the successful entrepreneur strives to do better and take care of the customer. Passion is the main motivation of the true entrepreneur not making money (Crowley, 2012).

Another striking characteristic of the successful entrepreneur is to embrace change because people enjoy new and unique products. Tariq believes in rethinking everything to stay on cusp. Tariq likes to employ people who embrace new ideas and who serve as change agents to customize products to people’s evolving needs (Crowley, 2012).

One other idea Tariq’s parents instilled in him is to work hard and go after the American dream. Success does not come easy. A person must work hard to become successful. Tariq realized he must work hard to confront risks and overcome them. Successful entrepreneurs must pay their dues and embrace a willingness to make mistakes (Crowley, 2012).

In short, genuine entrepreneurs are ” leaders who lead with purpose, values, and integrity; leaders who build enduring organizations, motivate their employees to provide superior customer service, and create long-term value for shareholders” (Crowley, 2012; George & Sims, 2003, p. 3).  Tariq Farid provides an example of an authentic entrepreneurial leader. Do you have what it takes to become an authentic entrepreneurial leader? Do you want to learn more?

References

Crowley, K. (2012). CEO perspective: Entrepreneurship with a point of view. South Asian Journal of Global Business Research, 1(2), 177-182. doi: 10.1108/20454451211252714

George, W., & Sims, P. (2003). Authentic Leadership: Rediscovering the Secrets to Creating Lasting Value. San Francisco, CA: Jossey-Bass.

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Entrepreneurial Lessons Learned: Twinkie, Twinkie, Little Cake How I Wonder What’s Your Fate


As the song goes the bankruptcy of the Hostess Brands, Inc. brings to mind how many companies today rest on their laurels. Many companies have forgotten how to compete because rapid growth has gotten in the way. Kalson (2012) noted how the Hostess company blamed the company’s problems on its unions and dispelled the idea bad corporate decisions, financial shenanigans, outdated strategy, and inept management could have caused the problems.

The Hostess brand emerged from a troubled history at Continental Bakeries. Interstate Bakeries later bought Continental pursuing its strategy of growth by acquisition and mergers. Interstate had a history of run ins with its workers and focused on rapid growth instead of its products and people. For example, in 1982 Interstate Bakeries raided an over funded pension fund to pay off debt on its inefficient plants (“Hostess Brands, Inc.,” 2012).

The Continental merger brought new enzyme technology to the company allowing its products to have a longer shelf life, lowering delivery costs, and improving profitability. Continental like Interstate engaged in an acquisition strategy. Similarly, the company had disputes with its workers and in 2000  lost a suit in San Francisco brought by 19 black workers claiming racial discrimination (“Hostess Brands, Inc.,” 2012).

Again in 2004 the government probed the company’s worker’s compensation reserves and problems with a new financial system the company installed. In 2004 the company filed for bankruptcy still under investigation for how it set its worker’s compensation reserves. In 2009 the company emerged from bankruptcy and relocated to Kansas City only to file for bankruptcy again in 2012 (“Hostess Brands, Inc.,” 2012).

The lesson learned is growth through acquisitions often is a poor strategy leading to financial difficulty if not managed carefully. An entrepreneur would do better by focusing on products and people to grow organically. Entrepreneurs should learn from the Hostess story, acquisitions and mergers often leads to discord between workers and management, and financial problems. Duplication of duties is costly without a plan to remove these costs. A company’s business strategy can become blurred, and the company can lose its focus on its vision and how it best serves its customers.

Kalson (2012) noted how Hostess sold its soul to private equity firms, hedge funds,  and investors while amassing over $1 billion dollars of debt. Acquisitions seemingly erase the competition, but can also serve as the deathbed of a company. Entrepreneurs should think about losing their Twinkies before entering such a strategy.

Entrepreneurs should understand both sides of this strategy before committing to it. If you want to know more about the pros and cons of different strategies contact us to learn more.

References

Hostess Brands, Inc. (2012). Hoovers Academic. Retrieved from http://subscriber.hoovers.com.ezproxy.apollolibrary.com/H/company360/history.html?companyId=15324000000000

Kalson, S. (2012). When all else fails, blame the union hostess gives the twinkie defense a whole new meaning Pittsburgh Post – Gazette. Retrieved from http://search.proquest.com/docview/1220357399?accountid=35812

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Small Business Alliances: The Case of Lehman Trikes


During the height of the Great Recession of 2008-2009, Lehman Trikes formed a strategic alliance with Harley-Davidson. Lehman Trikes, a small publicly held company on the TSX Canadian  Venture Exchange, lead the industry in making three-wheeled motorcycles in Spearfish, South Dakota. Harley-Davidson announced it selected Lehman Trikes as its exclusive supplier of its Tri-glide three-wheel motorcycle. Before signing the alliance, Lehman made the three-wheeled motorcycles in the aftermarket. Harley legitimized the three-wheel motorcycle with its announcement bringing it into the established motorcycle market (Looney & Ryerson, 2011).

By the end of the summer of 2010, Harley-Davidson faced difficult times losing half its business. Harley-Davidson did not renew the agreement signed with Lehman Trikes. Harley kept the rights to the Tri-glide brand and granted no residual rights to Lehman Trikes, but in its original agreement clearly laid out its non-renewal rights and terms. Although Lehman feared Harley might not renew the contract, it understood the risks when it signed the original agreement (Looney & Ryerson, 2011).

Do you believe the alliance between Lehman Trikes and  Harley-Davidson met both companies’ goals? Do you believe the alliance had successful results? What benefits did the companies achieve because of the alliance? What risks did the companies face by signing the alliance? Did the alliance benefit Lehman Trikes, the smaller company? Do you believe Harley exercised its rights in a fair and transparent manner? Knowing that ending the agreement would limit its supply of the Tri-glide, did the strategy benefit Harley-Davidson? Did Lehman Trikes have a viable business model or could it have strengthened its model?

Let us know what you think? Do you want to know more about forming strategic alliances? Learn more.

References

Looney, D. C., & Ryerson, A. (2011). Lehman Trikes: A story within a story 17, 35-39. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&db=ent&AN=69927663&site=ehost-live

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Human Capital: Are Employees a Small Business’s Most Valuable Asset?


I have heard the words “employees are our most valuable asset” many times, but have rarely seen accountants embrace the idea of capitalizing human capital as an asset on the balance sheet. The theory goes that companies expense wages as employees earn them. If employees are an asset I believe the part of workers’ employment cost that adds value to the organization should appear on the balance sheet.

Although accounting rules forbid capitalizing human capital, they only recognize human capital on the income statement. Despite this oversight, many call accounting the language of business. At least one article admitted the problem and recommended alternatives for capitalizing human capital. Chen and Ku (2004) concluded, “The succession of the human intellect over machines and equipment in the contribution to industrial value makes a financial statement that relegates human capital expenditure to expenses inadequate if not obsolete” (p. 129). If accounting is the language of business why is the value of its most valuable asset excluded from the balance sheet?

This disparity leads one to believe companies’ accounting standards look at employees not as an asset, but as a liabilities. For example, in finance the main goal of the firm is to maximize shareholder wealth and accounting rules treat human capital as a period cost (expense) instead of an asset. In recent years many companies have reconsidered the view shareholders are the only stakeholders in a firm, and have expanded stakeholders to include customers, suppliers, and employees. Even with the coming of triple bottom-line reporting I have not seen accounting rule-making bodies espouse the capitalizing human capital (Elkington, 1994; Slaper & Hall, 2011).

Similarly, Reimers-Hild, Fritz, and King (2007) described human capital as a continuous investment leading to increased earning power. Reimers-Hild et al. further described human capital as responsible for innovation, creativity, and keeping pace with change.  Chen and Ku (2004) developed a theoretical classification framework that would capitalize certain formation and acquisition costs in early stages of development, learning costs in middle stages of development, and replacement costs in final stages. Chen and Ku argued for disclosing these costs as investments if the costs are unique and add value.

Do you believe employees are your greatest asset? I would like to hear your thoughts. Should your greatest asset show on the balance sheet? Please let leave your comments? Click here if you want to understand more about accounting for human capital.

References

Chen, H. M., & Ku, J. M. (2004). The role of human capital cost in accounting. Journal of Intellectual Capital, 5(1), 116-130. doi: 10.1108/14691930410512950

Elkington, J. (1994). Towards the sustainable corporation: Win-win-win business strategies for sustainable development. California Management Review, 36(2), 90-100. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=9410213932&site=ehost-live

Reimers-Hild, C. I., Fritz, S. M., & King, J. W. (2007). Entrepreneurial Career Development: Using Human Capital, Social Capital, and Distance Education to Achieve Success. Advancing Women in Leadership, 24, 1-N_A.

Slaper, T. F., & Hall, T. J. (2011). The triple bottom line: What is it and how does it work? Indiana Business Review, 86(1), 4-8. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=66506015&site=ehost-live

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The Role of Entrepreneurship in Restoring the Economy


Before the financial meltdown of 2008, small firms in the United States in 2007 comprised 99.7 percent of all employer firms. These firms employed slightly more than half of all private industry workers, and paid 44 percent of private business payroll. Small firms produced 64 percent of net new jobs for 15 years before this time. Small firms created over half the private nonfarm gross domestic product, and hired better than 40 percent of high-tech jobs for scientists, engineers, and computer programmers. Further, small businesses made up 97.3 percent of all exporters producing 30.2 percent of known export values in 2007. Small businesses accounted for 52 percent of home-based businesses and 2 percent of franchises (Kolbe, 2007; Yallapragada & Bhuiyan, 2011).

A growing part of entrepreneurship comes from social entrepreneurship. Shockley and Frank (2010) distinguished social entrepreneurship from commercial entrepreneurship as consisting of a community orientation that forgoes private incentive for public benefit. Shockley and Frank connect the economic entrepreneurship theories of Joseph Schumpeter and Israel Kirzner to Western literature, namely Virgil’s Aeneid. The three main parts of Virgil’s (2006) Aeneid deal with using the mind to discover, developing a duty to community interests, and believing in the fate of the actor to avoid uncertainty or “unknown probabilities” (Knight, 1921; Shockley & Frank, 2010, p. 777).

Social entrepreneurship fills societal needs not met by commercial entrepreneurship and stresses discovery, community, and the fate to overcome unknown conditions. Commercial entrepreneurship is not exclusive of social responsibility, but in modern society has focused on the interests of enlarging profits for the benefit of capitalist investors. This motive is not to say entrepreneurs have no interest in societal interests as surely some entrepreneurs champion such issues before profits, but many companies put profits first after a founder finds a successful model. Social entrepreneurs can discover solutions to societal needs in either or both the public or private domain.

Schumpeter (1934/2002) argued new combinations affect the flow of capital and causes temporary disequilibrium aiding in economic development. Schumpeter (1994) put “creative destruction” at the center of entrepreneurship. Schumpeter explained how “creative destruction” leads to the demise of the entrepreneur and a temporary socialistic state to deal with new unmet needs because the entrepreneur becomes a capitalist and ceases to work as an entrepreneur. Shockley and Frank (2010) referred to Schumpeter’s works as foundational and timeless finding these same ideas in Virgil’s Aeneid.

Similarly, Kirzner (1973) put “entrepreneurial discovery” (p. 39) at the center of entrepreneurial theory. Kirzner argued the entrepreneur’s role is to stay alert to unnoticed opportunities and relies on unpredictable behavior akin to the fate in Virgil’s Aeneid. Both Schumpeter and Kirzner distinguish the entrepreneur from the capitalist because the entrepreneur risks no investment in discovery(Shockley & Frank, 2010).

The point of this literature is that both the role of the entrepreneur and capitalist are necessary in a market economy. Today, the role of the entrepreneur has succumbed to the capitalist and caused discovery to slow for the sake of promoting the profit motives of the capitalist, but the capitalist cannot grow without discovery. Capitalists choose not to meet societal needs. The temporary state to overcome the problem rests in Schumpeter’s notion of “creative destruction” where socialism takes over until the entrepreneur can return to the flow of the equilibrium process (Schumpeter,1994).

I see little effort today to recognize the entrepreneur’s role to resolve this problem despite the significant contributions entrepreneurs made before the financial meltdown of 2008. Some people have played down the role of restoring equilibrium and have extended the problem by suspending a capitalistic economy indefinitely. I see social entrepreneurship as a step to restoring discovery needed to return the flow to the equilibrium process.

I would like to hear your thoughts about how to restore capitalism by re-emphasizing entrepreneurship’s role and ending the state of “creative destruction” in which the United States economy currently resides. Learn more.

References

Kirzner, I. M. (1973). Competition and entrepreneurship. Chicago, IL: The University of Chicago Press.

Knight, F. H. (1921). Risk, uncertainty, and profit (2002 Reprint ed.). Washington, DC: Beard Books.

Kolbe, K. (2007). How important are small businesses to the United States’ economy. Office of Advocacy, Funded Research, United States Department of Commerce, Bureau of the Census and International Trade Administration.

Schumpeter, J. A. (1934/2002). The Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest, and the Business Cycle. New Brunswick, New Jersey: Transaction Publishers.

Schumpeter, J. A. (1994). Capitalism, socialism, and democracy (5th ed.). London and New York: Routledge.

Shockley, G. E., & Frank, P. M. (2010). Virgil’s Aeneas as the quintessential social entrepreneur: Juxtaposing selections from epic poetry and entrepreneurship theory to teach social entrepreneurship. Journal of Small Business and Entrepreneurship, 23, 769-784. doi: 2281649991; 58798731; 54851; JSBE; INNNJSBE0000605310

Virgil. (2006). Selections from Virgil’s Aeneid. In S. Lombardo (Ed.), The Essential Aeneid. Indianapolis, Ind. & Cambridge, UK: Hackett Publishing Co., Inc.

Yallapragada, R. R., & Bhuiyan, M. (2011). Small business entrepreneurships In The United States. Journal of Applied Business Research, 27(6), 117-122. doi: 2519801721; 65758121; 12637; JRH; INODJRH0007536491

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Evidence Social Entrepreneurship is on the Rise


I have expressed the view previously the next great wave of entrepreneurship will come from social entrepreneurs. I found evidence the rise of social entrepreneurship is on the horizon in an article I found in this week’s Bloomberg Businessweek.  The article is about a firm headed by Chamath Palihapitiya called Social+Capital Fund. Palihapitiya is a former Facebook executive, who left about a year ago to launch the new venture capital firm (Bennett, 2012).

Palihapitiya believes properly placed venture capital can solve the world’s biggest problems left from gaps caused by the shrinking scientific ambitions of government, foundations, and other global organizations (Bennett, 2012). Politicians demonize government handling of social problems leaving  social entrepreneurs as the suitable outlet for dealing with these problems. Universities have dwindling funds devoted to research and can no longer deal with social problems.  Bennett explained how Kauffman Foundation, an independent organization, has failed to produce results in dealing with issues it funded over the last 20 years. Palihapitiya believes private equity or as he puts it “purpose-driven money” is the answer to solving such problems (Bennett, 2012).

Social+Capital has amassed an army of technologists and entrepreneurs to find and build products aligned with solving problems in the health care, education, and the financial services industry. These people include Reid Hoffman (LinkedIn), Sean Parker (Napster and Facebook), Kevin Rose (Digg), and Joe Hewitt (Mozilla and Facebook). Several companies funded by Social+Capital have already started to deal with social problems in these industries. The idea is for these companies to make money while solving societal problems. Palihapitiya’s idea is to find brilliant people of the Steve Jobs variety and invest in them to develop solutions to societal problems (Bennett, 2012).

Palihapitiya admitted inequities in the global economic system precipitated his idea to find brilliant leaders to solve societal problems by making money (Bennett, 2012). Between 1987 and 1997 nonprofit organizations grew to 1.2 million or by 31% (The new nonprofit almanac & desk reference., 2002; Noruzi, Westover, & Rahimi, 2010). These numbers show a growing need exists for social entrepreneurs to solve societal problems. Palihapitiya has started his firm to fund innovation solutions and allow entrepreneurs to make money, while solving such problems.

Social entrepreneurs will play a major role in the global economy. Innovative solutions from social entrepreneurs will create great value by addressing societal needs. I encourage prospective entrepreneurs to start now to take advantage of this opportunity. We can help you get started and I encourage you to learn more.

References

Bennett, D. (2012, July 30 – August 5). The league of extraordinarily rich gentlemen. Bloomberg Businessweek, 54-56.

The new nonprofit almanac & desk reference. (2002). San Francisco: Jossey-Bass.

Noruzi, M. R., Westover, J. H., & Rahimi, G. R. (2010). An exploration of social entrepreneurship in the entrepreneurship era. Asian Social Science, 6(6), 3-10. doi: 2233824571; 56997641; 137930; SSCS; INNNSSCS0000567695

 

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America’s First Entrepreneur and Founder


“Content makes poor men rich; discontent makes rich men poor” (Franklin, n. d.).

Ben Franklin is America’s true founder and first entrepreneur and his story can teach us many lessons. Franklin exemplified the supreme risk taker because he signed the Declaration of Independence with 55 other men who risked their lives to forge America’s future. Franklin educated himself by reading and had a reputation as a contrarian, humorist, and adventurer. Franklin used his will to build a successful business and a nation the world would envy (Otto, 2011).

Although Franklin started his life in poverty, he died in great wealth and had a passion for his Christian religion and a movement called the Great Awakening. This movement believed in the welfare of the people and had a contempt for cruelty and corruption. Because of his religious beliefs, Franklin thought politicians should serve the country without pay (Otto, 2011). Franklin also stressed the importance of creditors supporting inexperienced entrepreneurs to foster  representation and build a national culture. Franklin believed in public projects benefiting the nation  and appealed to working-class people (Baker, 2000; Mulford, 1999).

In 1729 after working for his brother James for a few years, at age 17, Franklin bought the Pennsylvania Gazette.  Franklin began publishing the Poor Richard’s Almanac in 1932, which became the most popular publication in America. Apart from his publishing career, Franklin founded the first proprietary library as part of the Academy of Pennsylvania, which later transformed itself into the University of Pennsylvania.  Franklin also helped develop the postal system and became the first postmaster. Beside this accomplishment, Franklin invented bifocal eye glasses, mapped the Gulf Stream off the East Coast, and provided evidence lightning is electricity by inventing the lightening rod (Otto, 2011).

Besides his inventive prowess, Franklin served in the Continental Congress and became the oldest member to sign the Constitution. Only six people signed both the Declaration of Independence and the Constitution, and Franklin is one of these people. Franklin had an instrumental hand in uniting the founding fathers to sign the Constitution despite some who did not fully support it (Otto, 2011). Entrepreneurs unite people with a common vision and Franklin personified this role.

Ben Franklin saw the greatest vision through in the history of this country and deserves credit for his remarkable accomplishments. Because of his vision, the United States became a great country and a haven for people to gain and respect individual liberty, freedom of expression, and have a government representative of the people (Otto, 2011).  Now is a good time to reflect on the vision of America’s founder. Franklin united the country through his vision and entrepreneurs should have a special place in America because of it. Yet, today entrepreneurs do not have the same esteem despite their role in creating economic growth and jobs.

I want to hear your thoughts on what this country can do to regain Franklin’s vision and return entrepreneurs to the prominence they deserve. Post your comments here.

References

Baker, J. J. (2000). Benjamin Franklin’s autobiography and the credibility of personality. Early American Literature, 35(3), 274-293. doi: 64935335; 1281372; 14371; PEAL

Franklin, B. (n. d.). Greatest Benjamin Franklin Quotes. Great Quotes – Powerful Minds. Retrieved from http://www.great-quotes-powerful-minds.com/benjamin-franklin-quotes.html

Mulford, C. (1999). Figuring Benjamin Franklin in American cultural memory. The New England Quarterly, 72(3), 415-443. doi: 45962354; 1065448; 29070; NEQUA7; PNEQ; 04514915; 99454974

Otto, L. (2011). Benjamin Franklin: America’s original entrepreneur. Leadership & Organizational Management Journal, 2011(4), 132-149. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&db=ent&AN=73204254&site=ehost-live

 

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Reclaiming the Entrepreneurial Spirit


I read an article in Bloomberg Business Week about Andrew Mason. Mason is the headwaiter at a Japanese restaurant in Chicago’s Wicker Park. However, the job is Mason’s part-time evening job as by day he is the chief executive officer and founder of Groupon. What struck me reading the article is that Mason has matured from his playful childlike demeanor, which allowed him to develop the Groupon concept. Mason has become a more seasoned entrepreneur trying to hold on to what he started and run it in a more businesslike manner (Etter & MacMillan, 2012).

Although investors and analysts have challenged Mason’s running of Groupon, he has kept a lock on what he created. Mason wants to improve Groupon without giving it away to suitors offering him large amounts of money to buy the company. Mason turned down an offer by Google to buy the company, which would have allowed Mason to cash out. Mason turned down the offer despite problems it has had with profitability and holding up share value.  Mason admitted the company has had problems with its operating system and commented, “we have to get good at this” (Etter & MacMillan, 2012, p. 50)

Meanwhile, executives at Groupon have noted the level of seriousness has notched up and the company now employs more lawyers and accountants. Groupon has even purchased other companies and has set up a location in the Silicon Valley in California.  Despite his critics lashing out at him, Mason wants to preserve control over the company he started and claims he is in the business for more than just the money.  Mason said his company wants to solve a business problem, which is his main motivation (Etter & MacMillan, 2012).

Although Mason may have much to learn, he has the entrepreneurial spirit to perfect and hold on to what he started.  Mason still has a vision and he wants to cement it instead of giving it away to someone else.  Mason still studies the disconnect in the operating system as maitre d’ of his part-time job at the Japanese restaurant and has learned from the experience. Even though Mason has learned from his experience, he realizes still has much to learn.

Only time will tell if Groupon can get to the next level, but I admire Mason for his stick-to-itiveness. I believe Mason has the characteristics of a genuine entrepreneur as he loves what he does and wants to perfect it. Money is not his only motivation and his quest for perfection overshadows any thirst to get rich quick. Mason continues to learn from his experience and enjoys every minute of it. Mason does not fear failure, but looks it straight in the eye. I believe more entrepreneurs need to reclaim the entrepreneurial spirit.

What is your take on reclaiming the entrepreneurial spirit? I want to hear from you. If you want to develop the entrepreneurial spirit I suggest learning more about how you can starting now. Learn more.

References

Etter, L. and MacMillan, D. (2012, July 16-22). Groupon tries to ‘Get Good’ at growing up. Bloomberg Businessweek.

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Credit Unions: An Alternative to Community Bank Financing of Small Business Loans


I read a blog post today about how banks have started to lend to small business again. Considering the bad treatment banks have given their customers I wonder how they will treat small businesses after cutting off lines of credit and other lending to them during the financial crisis. I suggest considering the credit union as an alternative to a bank for small business lending. Personally, I like getting treated as a person instead of as a commodity and credit unions have many advantages. I just opened an account with a credit union and I found the I received much better treatment and the credit union valued not just my business, but me as a person.

I remember an SBA loan I had with a small bank that a larger bank later took over. For several years the bank and I had a good relationship. One day I received a notice the larger bank had bought the bank and the new bank no longer wanted SBA loans as part of its business. The new management made it difficult to preserve the good relationship by charging new fees for everything imaginable. A few years into the recent financial crisis I saw this bank on a list of the banks the Fed had shut down.

Because small business financing sources have evaporated during the global recession, small business should consider using credit unions. Credit union unlike small banks are cooperative nonprofit organizations. As nonprofit organizations credit unions have an exemption from tax resulting in lower costs allowing them more latitude in making loans. Credit unions also enjoy  lower costs from volunteer labor and employer sponsorship giving them the ability to offer lower rates. Besides offering small business loans, credit unions also offer other products like credit cards and car loans (Feinberg & Rahman, 2006).

The trend is for large banks to buy smaller banks especially in larger markets. This trend has resulted in less lending to small businesses causing a need for alternative funding sources like credit unions to service small businesses. Consolidating small banks has created less of an interest in small business lending. The lack of interest stems from the difficulty large banks have dealing with soft data, the more hierarchical bank’s need for more approvals, and lower credit supplies by the larger organization (Ely & Robinson, 2009).

Oriz-Molina and Penas (2008) found one way to mitigate opaque risk from small business is to shorten loan terms to watch the progress of small businesses. The more conventional approach is to want greater collateral over a longer term. Credit unions also have the ability to gain a better understanding of owners’ personal wealth. Although credit unions can focus on better addressing opaque risks using these approaches, larger banks often rely on credit scoring to approve small business loans to achieve a competitive advantage (Immergluck & Smith, 2003).

Despite the ability of larger banks to gain a competitive advantage in lending to small business, credit unions are closer to small business customers and able to forge better relations. Large banks have shown poor behavior in recent years making them less attractive than more personal, smaller thrift institutions. For example, banks have added new fees and restricted lending to only the strongest small businesses. Improved relations with small businesses promotes long-term relations despite shorter lending terms.

Consolidating small community banks into larger banks has caused banks to become less personal and more selective. Credit unions fill a social gap in the market because of consolidation of these community banks and the cost advantage they have from the nonprofit status. Credit unions can expand from solely personal to more commercial lending to fill this gap.

What sources have you considered for your business in achieving financing? Are credit unions part of the mix? Do you want to know more about the value of commercial lending by credit unions? Find out more about how you can benefit.

References

Ely, D. P., & Robinson, K. J. (2009). Credit unions and small business lending. Journal of Financial Services Research, 35(1), 53-80. doi: 10.1007/s10693-008-0038-3

 Feinberg, R. M., & Rahman, A. F. M. A. (2006). Are credit unions just small banks? Determinants of loan rates in local consumer lending markets Eastern Economic Journal, 32(4), 647-659. doi: 1241333261; 35361511; 11879; EEJ; INNNEEJ0000065491

 Immergluck, D., & Smith, G. (2003). How changes in small business lending affect firms in low- and moderate-income neighborhoods. Journal of Developmental Entrepreneurship, 8(2), 153-175. doi: 502848551; 8351081; 38473; DVEN; INODDVEN0000469300

Ortiz-Molina, H., & Penas, M. F. (2008). Lending to small businesses: the role of loan maturity in addressing information problems. Small Business Economics, 30(4), 361-383. doi: 10.1007/s11187-007-9053-2

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