Tag Archives: Steve King

Is Venture Capital Gone Forever

Angel investment, Venture Capital, , , ,

I completely agree with Steve King of Small Business Labs, in Is the Venture Capital Industry Broken? He says:

The news here isn’t that the VC industry is broken. This has been actively discussed for years. The news is who’s saying it’s broken.

Which is, in the flap this month, the Kauffman Foundation.

The Kauffman Foundation has long been a close friend of the VC industry.  In addition to investing many millions of dollars with VCs, Kauffman’s mission of supporting entrepreneurs and high growth companies has resulted in them closely collaborating with the VC industry.

The foundation recently published We Have Met the Enemy and He is Us, a blistering critique of venture capital and its role in startups.

Here’s the problem in one simple business line chart (why I like business charts). It shows how the rate of return on venture capital looked great during the first big Internet boom. It’s not a pretty picture.

On the other hand, those low points in the last few years aren’t uncommon, are they? How is your industry doing since the great recession? The chart shows pretty much what Steve summarizes as follows:

Kauffman has many reasons why the industry is broken.  But the quick summary is the industry simply hasn’t performed well.  Only 38% of the funds Kauffman invested in over the last couple of decades beat public market small cap indexes.  This is primary due to the expensive fees VC firms charge.

So does this mean hard times for startups? I doubt it. I see is a shift towards smaller seed rounds and more angel investment as a web and software technology have reduced the capital needed by the average high-end web startup to get from nowhere to proof of concept and validation. In an oversimplified general sense, what took $2.5 million in 1998 takes probably $250,000 today.

Business comes in cycles. Suppose the huge camelback hump in returns in the late 1990s (the boom) were a temporary aberration. The hard times afterwards (the crash) are probably a temporary aberration too.

Steve recommends this story in GigaOm and this one by Fred Wilson of AVC for further reflections on the Kauffman findings.

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Tell the Truth: Where Are You Most Productive?

Personal Productivity, ,

Interesting post today where Steve King at Small Business Labs asks Is The Traditional Office the Least Productive Place to Work? He cites professional research and uses clear logic. But I still think there’s a catch.

survey

He starts with surveys indicating that people who work in coworking locations say they are more productive than working at home.

Which he follows with surveys indicating that people report working at home is more productive than working in company offices.

Which he takes to this conclusion:

This suggests that the least productive place to work is a traditional office.

But wait — coworking is working in an office with people who aren’t part of the same team, right? So working in an office is more productive than working at home, but only if those around you aren’t part of the same team? What’s wrong with this picture? I know and like Steve King and he’s a professional researcher, so it’s not a problem with the research. But could it be …

  1. People often answer surveys with the answer that makes them feel best about themselves and the choices they’ve made, so the home office worker is compelled to claim productivity and the coworking office worker is too, but the traditional office worker isn’t? That might explain the research.
  2. And for that matter, how well does any of us really evaluate our own productivity in different situations? I’m going to claim to be most productive at the place I most like to be.
  3. And productivity by location is an entirely new concept over the last few years. Even in the office, I’m located where my attention is pointing. I might look like I’m in the office in a traditional office mode when I’m on Twitter or instant messenger with my mind entirely out of the office, chatting with friends. And if, in that moment, a survey taker asks me about it, I’m going to say I’m really productive right there.

What do you think?

What Is An Entrepreneur? Says Who? Why Do You Care?

Entrepreneurship, Reflections, , , , ,

I used to start a university class on entrepreneurship by asking the class to define the word entrepreneur.

It’s a reasonable question. News and discussion is full of pat phrases about entrepreneurs, most of which we take for granted. Politicians talk about entrepreneurs along with job creation, small business, motherhood, and apple pie. Challenge: find a politician who isn’t in favor of entrepreneurship.

But is everybody who claims the title really an entrepreneur? Or, for that matter, do we care? If your annoying neighbor becomes an entrepreneur by having sold one piece of furniture on eBay, do you care?

I liked Robert Jones suggestion: Let’s just change the word entrepreneur. His post 5 reasons we need a new word for entrepreneurs, from last July, has at least four good reasons. He and I and others followed up, but we didn’t come up with anything that great.

His post, however, also inspired Startup and small business expert Rieva Lesonsky to follow up with her post asking what does it really mean to be an entrepreneur? She pulls a lot of different definitions together, offers a menu ranging from the heroic, dreamy, crazy-creative definitions to the way-less-glamorous project manager and social definitions, but concludes with tongue in cheek:

My favorite definition of an entrepreneur comes from Doug Mellinger, the co-founder of Foundation Source, who once told me, “An entrepreneur is someone who will do anything to keep from getting a job.

All of that discussion, however, came jsut a bit after Steve King posted Comparison Small Business Owners to High-tech Entrepreneurs on his blog Small Biz Labs. Steve dives into available research to highlight the huge differences between these two groups. We all talk and think like they’re the same thing. It turns out that they aren’t. Compared to overall small business owners, the techies are way more likely to be well educated, motivated by money, and (unfortunately) male. Steve concludes:

we think policy makers need a better understanding of not just high-growth firms and their founders, but also the less glamorous businesses and business owners that make up the vast majority of small businesses in the U.S. economy.

My favorite definition, in the real world, is from Chris Dixon’s simple milestone post, there are two kinds of people in the world. It’s in this first sentence:

You’ve either started a company or you haven’t.  ”Started” doesn’t mean joining as an early employee, or investing or advising or helping out.  It means starting with no money, no help, no one who believes in you (except perhaps your closest friends and family), and building an organization from a borrowed cubicle with credit card debt and nowhere to sleep except the office.

Chris exaggerates. Sleeping in the office isn’t necessary. And the ones who develop a plan and raise money are still entrepreneurs. But I’m shocked, by the way, at the level of anger and angst in some of the 263 comments. It’s a simple two-paragraph post, a simple statement, overwhelmed by comments. It shouldn’t be that controversial: You’ve either started a company or you haven’t.

Amen to that.

(image: istockphoto.com)

5 Good Posts for Friday July 1

Blogs and blogging, Weblogs, , , , , , , , , , , , ,

I need your help: Can you suggest a way to give a theme and a title to a series of Friday posts listing good posts and recommended links I’ve seen from the last week? My title here is too dull. I’m not nearly good enough at titles.

I don’t want to do this every Friday, but this is the fifth time since April 1, so I’m thinking maybe I should make it a repeated theme, with a cool title. Except I don’t have the title.

  • My absolute favorite this week is Megan Berry’s post on Mashable called 7 Tips for Better Twitter Chats. It’s a very good short piece on the step-by-step details of doing a twitter chat. Megan’s marketing manager at Klout (and yes, one of my daughters).
  • Shashi Bellamkonda of Network Solutions, alias the swami of social media, posted 6 Ways to Improve Your Online Content on the Amex OPEN Forum. Shashi knows. He practices what he preaches.
  • The SBA (U.S. Small Business Administration) has an excellent short piece explaining why you need a business plan on SBA.gov. It’s not a blog post published this week, but SBA.gov tweeted it this week, which caught my attention.
  • Fred Cavazza, Why a Facebook Page is Not Enough forbes.com. I caught this one thanks to Becky McRay mentioning it on twitter.
  • The TED blog posted The 20 most-watched TED Talks (so far). How can you resist this best-of-the-best list from the amazing collection at TED.Com. Trivia question answer: TED stands for technology, education, and design.
  • (Aside: yes, I know, this is the sixth, but I can’t resist) Steve King had some fascinating demographics in his Comparing Small Business Owners and High-Growth Entrepreneurs on Small Biz Labs. 

How to Explain Lies, Damn Lies, and Statistics

Business Research, Business Stories, ,

Don’t get me wrong: I like research. Survey information is grand. I just say don’t bet the store on it. Use it to educate your guesses, but only as long as you stay skeptical. Read it, consider it, but don’t believe it.

Mark Twain said:

There are lies, damn lies, and statistics

Blogger and business researcher Steve King, a sometimes-Twain-like research analyst (well, a smart person who lives in California, at least) gives a great example in his recent post Why Surveys Show Wide Differences in Small Business Social Media Use on Small Business Labs. Steve is a researcher, one of the founders of Emergent Research, which does a lot of work for Intuit.

Steve pulls up two surveys with starkly different results. The Wall Street Journal recently reported that 70% of small business owners think social media is important.  But a Citibank survey said only 36% of small businesses use social media and a mere 24% have found social media useful for finding leads or generating revenue.

What’s up with that? Methodology and sampling techniques, Steve explains. The survey that was big on social media was taken from people it found online using Twitter, Facebook, and other social media. The other one was a telephone survey.

So, as they say, “no duh.” Most of the business people who use social media think it’s important. Most of the ones caught on the phone don’t.

The point is that both surveys are valid in their specific context, both were done professionally, and both can help you understand what a defined group of people thought – or told survey takers they thought. But they contradict each other. So if you’re using research, use it well, explore the assumptions, look for the built-in slants, and take all of that into account.

Humans make decisions. Statistics don’t.

Who Speaks for Small Business?

Current Affairs, Entrepreneurship, , , , , , , , , ,

As a small business owner who was once a journalist, when I read Taking Mom And Pop To The Cleaners on the Huffington Post, I think I know how that happens, why it’s bad, and why it’s also unlikely to change.

(Aside: I’m happy to see Huffington Post and reporters Zach Carter and Ryan Griffin are out there generating investigative journalism, actively researching and reporting on this topic. This may be one answer to what happens to investigative journalism as the print media declines.)

The story is about how the National Federation of Independent Businesses (NFIB), has become the voice of one side of the political spectrum:

… for the past two years, the NFIB has been less an advocate for small businesses than an arm of the Republican Party. When the interests of the GOP and the needs of small firms have collided, the NFIB has repeatedly sided with Republicans, jeopardizing billions of dollars in credit, tax benefits and other federal subsidies that are critical to the small enterprises that form the backbone of the U.S. economy … the NFIB has maintained a lower national profile, and is still routinely referred to in the media as “the small business lobby.”

No group actually knows what small business thinks or wants because small business doesn’t exist as a group. The thing small business owners have most in common is not having very much in common. By definition, they are nonconformists. They did their own thing when they started that business. My anecdotal sense is that they don’t join groups unless they have to. They’re busy. They’re focused on the business. And they are an extremely diverse group.

Journalists, meanwhile, aren’t supposed to have opinions; they have to ask for opinions. And politicians even more so. Therefore, when they look for what small business thinks, they look for a spokesperson. You or I might be that spokesperson, maybe; but then it’s hard to find just anybody; so they go for somebody. And end up with the somebody they called last time. Somebody who sounds like he or she represents small business. And that ends up as NFIB, and the like (see below: the Huffington story, to its credit, also points to groups representing the opposite point of view, like Main Street Alliance)

Nobody’s really to blame for it. It’s just the way it happens.

What annoys me about it is all the people supposedly talking about it are grinding their own political axes. They define what small business wants as constant whining about taxes and regulations and very little else. What about the bigger picture? What about looking up at what the government can do for the economy in general, like regulating the financial chaos, funding education, sponsoring innovation, and hey, maybe just infrastructure, like fibre cable and freeway bridges? Is it bad to protect employees from predatory employer practices? Not to me? Would we be better off with more open policy towards immigration? I think so.

But the journalists are going to ask the groups that turn up first on their speed dials, cell phones, and google searches. Not you and me.

Does anybody care? Well, they had 3,661 comments on that post by this morning. Hmmm …

And I have to make two late additions to this post:

  1. Over at SmallBiz Labs Steve King has an interesting take on the same Huffington Post story, noting that there’s another group, Main Street Alliance, that is as identified with the Democratic Party as the NFIB is with the Republicans.
  2. Meanwhile, and probably much more important, the Obama White House announced its Startup America Partnership yesterday with some very slick online video streaming, some serious financial commitments, and the good sense to lead with real entrepreneurs including Steve Case and Brad Feld, and real information provided by the Small Business Administration and the Kauffman Foundation. That was a great start.

Small Business Labs on Trends for 2011

Economics, Social media, Technology, , ,

Sure, there are lots of trends pieces going around these days, but Steve King of Emergent Research is the best expert I know on researching trends and putting them into sensible pieces. His company does some really good trends research that is often published by Intuit. , so I’d like to share his Top 10 Small Business Trends for 2011, some of them with my comments.

First, four major economic trends:

1. The small business economy recovers from the great recession.

From your lips (or keyboard), Steve, to God’s ears. May you be right on this one.

2. Variable cost business models:  Small businesses will continue to focus on cost containment, bootstrapping and business flexibility in 2011.  More small businesses will shift from fixed cost to variable cost business models, adopting a pay-as-you-go approach to minimize cash requirements and increase business agility.

3. Small firms reinvest U.S. Manufacturing

That’s a surprise to me. I thought U.S. manufacturing becomes less competitive. But Steve points to the weak dollar, technology, growing world markets, and the web giving more worldwide access to smaller companies.

4. Alternative financing

He cites “merchant advances, micro lending, community lending, crowd funding, and factoring.” I bet alternatives like crowd funding take longer, though, because of securities law, fraud, and those worries.

Second, five social and social media trends:

5. Social media moves to the small business mainstream.

6. Social commerce: the amazing growth of Groupon and other social commerce sites in 2010 …

7. Small businesses friend Facebook. …. small businesses are embracing and adopting Facebook as a key part of their web presence, and in growing numbers using Facebook as their primary website.

Myself, I’d like to see more examples.  Is this proving to be good business?

8. New localism continues to flourish

9. Freelancers realize they’re small business owners

It’s about time.

Finally, one technology trend:

10.  Working in the Cloud: No trends list would be complete without mentioning mobile, cloud, local and social computing.

No surprise there.

So I give special attention to Steve’s trends posts because 1.) that’s what he does for a living, mainly; and 2.) he’s good at it.

The Paradox of Location vs. Technology

Bootstrapping, Entrepreneurship, Starting a Business, , , ,

Did you see this piece over the weekend? In Start-Ups Follow Twitter, and Become Neighbors the New York Times presents several San Francisco companies (including klout.com, my personal favorite) that purposely located offices near Twitter for good business reasons.

Steve King called it The Real Magic Comes from Being in the Same Place in his new blog on coworking. He quotes the Times piece:

‘Even though it’s all about tech and the Internet, the real magic of Silicon Valley comes from people being in the same space,’ said Burt Herman, co-founder of Storify.

He calls it "Accelerated serendipity"

It is a belief that coworking increases the generation of business ideas and productivity.  The concept is when smart people from diverse backgrounds come together in a coworking community, good things happen – including business innovation.

Which is all cool, for sure. And of course, in my years in the Silicon Valley from 1981 through 1992, I saw that happening a lot.

But still, wait a minute: Isn’t this the opposite of 2011 and beyond? Aren’t we all – you reading this blog, me writing it, and all the information we both share on Twitter and Facebook – braking the barriers of physical space and geography with a new online landscape? One that brings us closer despite the distance in miles? Haven’t we seen lots of accelerated serendipity online?

In a comment to Steve’s post above, I quoted his (well, his company, Emergent Research) trend number 7 for 2010, from a piece about a year ago, the convergence of social, mobile, and cloud computing. And, come to think of it, trends number 4 and 5, the new localism and the growth of home businesses, are also counter to the idea of being in the same place.

My conclusion: I love a good paradox. And business is full of them.

A New Dimension of Haves and Have-Nots

Current Affairs, Economics, ,

Wow. Talk about misreading data. They found clusters of autism and looked for pollution or some such problem as a cause, but found something entirely different, and probably just as significant. You have to read this, on NPR: Autism ‘Clusters’ Linked To Parents’ Education. It turns out that…

Clusters of children diagnosed with autism tend to occur in places where parents are older, more educated, and white, according to a study by researchers at the University of California, Davis.

The study found no link to local pollution or chemical exposures — which some consumer groups have cited as possible causes of autism clusters.

The results suggest that areas in California with apparently high rates of autism spectrum disorders are probably just places where parents are more likely to obtain a diagnosis for their child, the researchers say.”

I grew up with a sense, inherited from my mother, of the danger of dividing the world into haves and have-nots. It’s not just a matter of fairness. Even the haves are worse off when surrounded by large numbers of have-nots. Nobody wins. This was just a bad vision when I was growing up, but it’s an undeniable reality now.

And now it’s affecting things like drugs to increase focus and intellectual achievement?

Shades of The Child Buyer, a strange novel from 1960, by John Hershey. Large corporations were buying children to convert them into something like biological computers.

I picked this up from Steve King of Small Business Labs, who posted on it here yesterday. He takes it a logical step forward, noting that drugs like Ritalin, supposedly for helping ADD, are now widely used by students looking for an edge. He wrote:

This is an early sign of the coming human enhancement divide.  Simply put, rich people are going to have better access to technologies and drugs that improve cognitive ability and other forms of human enhancement than poor people.  The same will be true for rich countries versus poor countries.

He says this scares him. Me too.

Why Survivor Bias Threatens Business Research

Advice, Business Mistakes, Business Research, ,

I want to start this with a story. I’m quoting Jason Cohen in his post Business advice plagued by survivor bias, with thanks to Alan Gleeson for tipping me off to this one. As you read this story, think of how it applies to business experts and business advice:

During World War II the English sent daily bombing raids into Germany. Many planes never returned; those that did were often riddled with bullet holes from anti-aircraft machine guns and German fighters.

Wanting to improve the odds of getting a crew home alive, English engineers studied the locations of the bullet holes. Where the planes were hit most, they reasoned, is where they should attach heavy armor plating. Sure enough, a pattern emerged: Bullets clustered on the wings, tail, and rear gunner’s station. Few bullets were found in the main cockpit or fuel tanks.

The logical conclusion is that they should add armor plating to the spots that get hit most often by bullets. But that’s wrong.

Planes with bullets in the cockpit or fuel tanks didn’t make it home; the bullet holes in returning planes were “found” in places that were by definition relatively benign. The real data is in the planes that were shot down, not the ones that survived.

Could there possibly be a better summary of survivor bias? Do you see how it matters with business research? I need to thank Steve King as well, because he focused on survivor bias recently in his post Don’t Quit Your Job Until You’ve Talked to a Small Business Failure. Steve points out, in that post, that if we only ask small business owners about risk, we only get opinions from the survivors. 

But if your goal is to find out how all small businesses owners think about risk, this approach is flawed.  This is because former small business owners – the folks that went bankrupt, lost their companies or were removed from their jobs – are no longer small business owners so they aren’t included in these surveys.  Because business failures are excluded, the survey results are biased towards successful small businesses. 

Do you see his point? You can’t get an accurate picture of a contest by asking only the winners. Sure, the winners are the right ones to ask for stories of what worked. But the losers have some insight too, like on what didn’t work. 

 (Image: Nick Schroedl/Shutterstock)