Entrepreneurship alive and well in Boone NC

Sorry for the long response between entries. It's been a busy fall up here in northwestern NC.

Despite all the bad news about the economy, I'm happy to report that entrepreneurship is alive and well in Boone NC! Appalachian State students are participating in programs in record numbers. Community members are working on new business ideas. Business, academic and civic leaders are all working together to make sure that entrepreneurship is the key to economic development in this part of the state.

A record 336 Appalachian State students enrolled in entrepreneurship courses across campus this semester. More than 600 people participated in the 8th Annual Carole Moore McLeod Entrepreneur Summit, hearing an inspiring keynote address by Matthew Szulik, Chairman of Red Hat and 2008 Ernst and Young National Entrepreneur of the Year plus more than 45 other business owners from across the eastern seaboard. 185 students submitted entries in the 2009 Pitch Your Idea in 90 Seconds Contest sponsored by 3tailer (check out this awesome business owned by two 25 year old ASU grads) and Magic Cycles. 17 students are participating in a year long mentoring experience as part of the Dale Tweedy Mentoring Program for Entrepreneur Scholars. Creative students from all across campus are working on business ideas, coming up with cool social entrepreneurship ventures and more. Wow!

The same entrepreneurial spirit can be felt across the region. Everyone recognizes that home grown jobs are the way to go. Almost all of the large private employers in the area started very small and many are now national industry leaders. Here are a just a few examples: American Emergency Vehicles, Cheap Joe's Art Stuff, Hospitality Mints, ECR Software. Leaders from across the region and working together like never before to identify, inspire and support the next generation of growth businesses in the region. One of those could be yours!

Three student entrepreneurs in the news

It's been a busy week at Appalachian State. One recent graduate and two current student entrepreneurs have been featured in the news.

Just a couple weeks ago, Jimmy Hunt (2009 ASU graduate), organized the second Music on the Mountaintop in Boone. More than 4,000 people enjoyed a day of music and learned about alternative energy and sustainability. Just like last year, the whole even was masterfully done, from the very diverse array of great musical artists to great food and drink to interesting vendors and attention to logistics that made the event go off without a hitch. Way to go Jimmy! Check out the article in the Raleigh News and Observer from Tuesday, September 8,

Appalachian state junior Jay Parr continues to make waves with his unique all natural, meal replacement bar, the BooneBar. He's now selling more than 1,000 a week all across North Carolina. Check out the article in the September 10 issue of The Appalachian:

Finally, Joseph Toney (disclaimer: yes, he's related, but I had nothing to do with the article), freshman at Appalachian State, made the news this week with his startup, Jea Style, which makes custom hats, sunlasses, stickers. Fresh off a successful day selling products at Music on the Mountaintop, he was also featured in the September 10 issue of The Appalachian. Click here.

Why it’s important to learn about entrepreneurship even if you don’t plan to start a business

Interest in entrepreneurship is exploding across the world. Universities are adding courses and creating centers. K-12 educators are looking at ways to infuse entrepreneurship into curricula. Policy makers are all chanting the mantra of entrepreneurship as a key to economic development and job creation.

Should all of this be focused on just creating business owners? No, what we need to do is create a generation of young people who think entrepreneurially so they can be more successful wherever they end up. A small percentage will launch businesses in their 20’s. Others may launch social entrepreneurship ventures. Most, however, will work for others, at least for a few years. Employers need talented young people who can think like entrepreneurs, particularly in the small to medium sized businesses where most young people start their careers. The days of college graduates assuming they’ll get jobs with Fortune 500 companies are past. Those jobs aren’t there anymore. They’re more likely to work in a company with 20, 50, or 100 employees. If they apply their entrepreneurial skills in a small company, the owners will recognize and reward them accordingly.

So just what are these entrepreneurial skills that are so important? Let’s take a look at just a few:

Business planning – Knowing how to write a business plan is not important just for launching a new venture but for helping to communicate ideas and explore new opportunities inside existing companies. Sometimes this is called intrapreneurship.

Creativity – Studies have shown that 5 year olds are typically very creative. By the time they are 10 years old or so, schools have generally rewarded them by playing by the rules and coloring within the lines, so they’ve lost some of their creativity. By the time they reach high school, society has clearly communicated to them that creativity gets you in trouble and taking a more conservative approach is the path to success. So guess what happens? They get to college and many struggle with projects that require creativity. Clearly there are exceptions. I know dozens of creative young people. We just need more of them. Business owners want creative employees who can think outside the box and are rewarded for doing so. That might also mean being a little more tolerant of failure too.

Working with limited resources – Every business owner knows what I’m talking about here. One of the biggest challenges facing most startups is how to accomplish big things with limited resources. How do you hire talented employees when you can’t afford to pay them market salaries? How do you promote your products and services when you don’t have a big marketing budget?

Financial planning – One of the most difficult parts of any project, whether it’s planning a business, creating a non-profit or launching new venture within a company is financial planning. Basic skills like understanding budgets, producing cash flow statements, understanding debt, etc. are critical to success in any field. In my opinion, this should start early on in a child’s education.

I could go on, but I think the picture is pretty clear. We need a new generation of entrepreneurial thinkers. It’s up to educators, policy makers and business leaders to make this happen.

A model for teaching international entrepreneurship

My colleagues and I at Appalachian State and partner universities abroad began developing courses in International Entrepreneurship in 2005. The field is still relatively new, however, as evidenced by the fact that only recently have textbooks in global or international entrepreneurship started to become available. While there has been significant growth in entrepreneurship offerings at universities around the world, it is still rare to see courses in international entrepreneurship that include dynamic cross-cultural project experiences.

We have developed two basic models for the International Entrepreneurship course. Both involve travel abroad but the more interesting model includes two way travel during a normal semester. By the end of this year, 74 Appalachian State students will have participated in 6 courses with students from 3 partner universities - the Otto-Friedrich-Universität Bamberg in Bamberg, Germany, the Universidad Europea de Madrid in Valencia, Spain, and the Universitè Catholique de Louvain in Louvain-la-Neuve, Belgium. The course is co-taught with faculty members from both universities. Each school’s instructors, students and staff generally take responsibility for all of the arrangements during the visit from the overseas partner, including but not limited to arranging lectures, company visits, sightseeing, housing, local transportation and some meals.

Our course offers a unique, rich multi-cultural entrepreneurial experience and engages students in the planning and delivery of key components of the course. Students work on business plan projects with students from other countries, visit businesses and participate in lectures and discussions abroad, and keep a journal of their observations on cultural and business differences and similarities between the United States and the country they visit. By staying in private homes and traveling during the semester, these courses are also delivered at a cost that is frequently much lower than traditional short-term study abroad experiences.

The course is broken into three main parts. First, one group visits the other early in the semester for approximately 8-9 days, typically departing on a Friday and returning on a Sunday. Students are introduced to each other via email and/or video conferencing prior to the trip. Once they are together in person, they participate in team building and/or ice breaking exercises and spend a day or two during the arrival weekend getting to know each other. Early the next week they begin to develop ideas for “born global” businesses and form small teams comprised of two students from each country based on common interests. Students then begin working on group business plan projects with the goal of having a good project plan developed by the end of their first week together. During the week, lectures are typically provided in entrepreneurship, business plan development and/or intercultural communications plus unique aspects of business and entrepreneurship in the host school’s country.

Each visiting group also tours regional businesses and meets with entrepreneurs. As an example, recent international groups visiting Appalachian State have toured the nation’s largest ambulance manufacturer and the world’s second largest mail order and internet art supply house, had a discussion with a venture capitalist, and a participated in leadership training exercises at the headquarters of the Center for Creative Leadership. If possible, we also try to schedule our partner school’s visit to coincide with relevant activities on campus. For example, this spring a group of Belgian students were able to participate in the Young Entrepreneurs Symposium with 350 other students. This coming fall, students from Spain will be able to participate in the Global Opportunities Conference and Appalachian State homecoming activities.

After the visiting group goes back to their home country, cross-cultural project teams work virtually for approximately 6-8 weeks, using email, chat, Skype, Google docs and other tools to collaborate on their business plans.

Toward the end of the semester, the groups switch places and the other school travels to the partner university. There, they complete group business plan projects and deliver final presentations. Again, the visiting student group gets to tour businesses, meet entrepreneurs in another country and hear presentations on business practices and entrepreneurial issues unique to that country.

A key part of the course design is the hosting experience. Students from each university host visiting students in their homes and apartments. Students are also involved in the planning for the visiting student group, from organizing social events and meals to planning and coordinating visits with entrepreneurs and companies. Students also plan sightseeing excursions and arrange trips to sporting events like college football games and professional basketball games in the United States and professional soccer matches in Europe. Students develop deep friendships after living with each other for 16-18 days in total and working together on projects all semester. The result is a very rich cultural experience.

One key advantage to this course model is the cost to students. First, accommodation costs are minimal with home stays. Second, travel is typically in off peak months like November or February, resulting in airfares that can be as much as 50% lower than tourist season. Finally, unlike summer courses, students are taking the course in-load so they do not incur additional tuition like they would for summer courses. Total student fees for these types of courses, including the cost of faculty travel, range from $1,100 to $1,650 depending on the destination. These fees typically cover all air and ground transportation, any accommodation expenses, group activities and at least several meals during the week abroad.

Students gain a significant cross-cultural experience in a format that often better fits student needs and budget than other options available to them. Just like at most schools, exchange opportunities are available at Appalachian State with universities all over the world, but these experiences typically require a minimum of semester abroad and require much greater advance planning. Furthermore, semester abroad experiences are often far too outside the comfort zone of many students as opposed to travelling on a faculty led trip with a group of peers. Traditional faculty led, short-term, summer study abroad programs are also available, but the out-of-pocket costs to students are often three times greater than the extra costs of taking the International Entrepreneurship course. Plus, these courses often are not able to provide a project experience working with students abroad due to differences in academic calendars. Our course provides students with a very cost-effective, rich and engaging cross-cultural learning opportunity. There are significant benefits to Appalachian State University as well. These courses have helped the university forge deep, multi-dimensional relationships with our partners. These deeper relationships have resulted in increased semester long student exchanges, multiple faculty teaching exchanges, and joint research.

Yes, these courses can be a lot of work, but the payoff makes it all worthwhile. Students develop a deep understanding of cultural and business similarities and differences between countries. They learn how to write business plans. They learn how to work in multicultural teams and the challenges that presents related to culture, language and time differences. In the end, and perhaps most importantly, they greatly expand their awareness of the global environment in which many of them will ultimately work.

How to come up with a good business idea (part two)

Last time I started writing about how to come up with a good business idea by looking first at what you like to do for fun, what you’re good at and what you’ve learned from places you’ve worked. While these are clearly the best places to start, another way to approach coming up with a business idea is to look at what’s going on around you.

Start by asking the question, “What’s missing?” What is missing in your hometown? Is there something you love to do or someplace you like to shop every time you go to Charlotte, Atlanta or Asheville that you can’t get in your town? Could a business like that work where you live? In some cases, there might not be a big enough market or enough of the right type of customers, but in many cases, it just means that no one has tried it yet. Bigger cities can be great places to find new ideas. Eventually many of those ideas trickle down to smaller markets. It wasn’t that long ago that you couldn’t find gourmet coffee shops or Thai restaurants in small towns. What trendy things are happening that might work where you live?

Another question to ask is “ What frustrates you?” Do you find yourself complaining about poor customer service at a certain business? Do you not like the fact that you have to drive all the way across town to get something or that when you leave a message someone doesn’t return your calls? Do you complain about something being too expensive? Do you wish someone would provide a higher quality product or service? All of these things can lead to business ideas. If you are frustrated, chances are there many others out there just like you…and all of them are potential customers.

Perhaps the best place to look for ideas is in trends. Think about what’s changing – demographics, politics, the economy, culture, technology, globalization, social changes. Change equals opportunity. 80 million aging baby boomers create tremendous opportunities in leisure activities and health care. The Obama administration and policies that are changing as a result can make businesses viable that weren’t just as recently as last year (e.g. energy tax credits). The economic crisis is great for some businesses (think auto repair and grocery stores). The increasing use of SmartPhones is (finally) making the internet available anywhere, anytime. What kinds of services/products could you sell if you assume that increasing numbers of potential customers can now buy them without being tethered to a personal computer? Here’s a great example: Charleston City Slicker was recently recognized by Apple as the first self-guided, walking tour for the iPhone (www.cityslicker.com).

These are all great sources of ideas, but how do you come up with a GREAT idea? Look for something that combines your interests and talents with what’s happening around you. Let’s say for example that you like to travel. Combine that with aging baby boomers (many of whom will want to travel) with more portable internet access and increasing interest in all things green and see if you can come up with a really unique idea. Connect the dots and try to find that great idea that no one else has thought of yet.

How to come up with a good business idea (part one)

“The best way to have a good idea is to have lots of ideas” – Linus Pauling. Perhaps this American chemist, peace activist, author, and educator summed it up best. Pauling was one of only two people to win a Nobel Prize in two different categories, Peace and Chemistry. Successful entrepreneurs tend to do what Pauling suggested – come up with lots of ideas. 50% of their ideas may be crazy. 45% may not be feasible. If 1 out of 20 is a good one, though, then coming up with all those ideas can be well worth it.

So how do you come up with good business ideas? The best place to start is by looking at yourself and asking three questions: 1) What do you do for fun? 2) What are you good at? 3) What have you learned from places you’ve worked?

The first question is the most important. You’re probably thinking, well, I like to watch college football, play video games and eat hot wings. Where’s a business idea in that? Hopefully you’ve got other interests, but even if you don’t, start with what you like. No, you probably can’t start a business watching football on TV and eating wings, but maybe there is something related to sports or food, or both, that would allow you to participate in those activities and talk about them a lot. What is your favorite hobby or favorite past time? Do you like to travel? If so, where? Do you like to read? If so, what? Do you like to volunteer with a local charity? What is YOUR PASSION?

Why are your interests the best place to start? First, if it’s something you’ve been doing for awhile, you’ve probably developed some expertise in the field. If you have a passion for freestyle snowboarding, you probably know who most of the major players are in that market. You know what’s cool and trendy and what’s passé. You know which vendors consistently produce high quality products and which ones don’t. You know what customers like. You know where they like to hang out and what else they like to do. You know what’s missing. Second, you’ll have no trouble spending long hours working on it. After all, this is your passion. So what if you have to work 60-70 hours per week in the early days of starting your business? Your work is your fun. Several former students of mine own businesses that began by following a passion. A dancer now owns a dance studio. An outdoor enthusiast now runs an outdoor outfitting store.

What are you good at? This may match up pretty well with your interests, but not necessarily. I was always good at math so I got an undergraduate degree in it. Did I ever like it? Not really. Should I have pursued a career in something directly related to math? Definitely not. Take inventory of your skills. Are you good with numbers (and don’t mind working with them)? Are you a good public speaker? Writer? Designer? Planner? Organizer? Tinkerer? Do you enjoy meeting and talking with new people?

Now think about what kinds of businesses might benefit from those skills. In 1985, I was working with a consulting company in Atlanta and developed some expertise with what then were relatively new (and very different) Apple Macintosh computers. While most people could figure out how to use word processing and spreadsheet programs, other things like networking computers, building databases and programming were still very complicated. I looked around and saw companies both large and small in Atlanta buying lots of Macs so I started a business providing high-end Mac systems integration, programming and consulting services. Nine years later the company had grown to 25 employees and was working on projects all over the country.

What have you learned from places you’ve worked? Sometimes the work place is a great place to come up with business ideas. Maybe you have a better idea about how to do something. What frustrates you about your job? Or more, importantly, what frustrates your boss? What are common problems in your industry? Chances are there are other companies facing similar issues. Many successful entrepreneurs start businesses based on ideas they come up with while working for someone else. Here’s a story of how one entrepreneur came up with the idea for his company while working in sales for a bank. To be successful in sales, you need to know something about your customer’s needs, their industry, hot issues, etc. Like most salespeople, he was expected to call on many different types of companies, making it almost impossible to become an expert in everything. His idea was to provide industry profiles for salespeople like himself. Less than ten years later, his company was a leading national provider of industry intelligence tools, serving more than 60,000 subscribers.

Next time, we’ll talk about other ways to come up with good business ideas by looking at what’s happening around you …

Start your own business, buy one or become a franchisee?

A couple of weeks ago I wrote about how there will be a lot of opportunities to buy a business in the next few years. That can be a great option for some people. For others, it makes more sense to start something from scratch. Others may be best served by becoming a franchisee. How do you decide what’s best for you?

Starting a business from scratch offers a number of advantages. It allows the owner 100% control of the the business – the idea, the company’s image and how the business will be run on a day to day basis. For service based businesses, it can also be the cheapest way to start – no upfront costs or big loans just to pay for someone else’s experience. The downside? More unknowns which translates into more risk. How do you know the idea will work? Are there enough customers? How much revenue can you generate? Some of these can be answered by writing a solid business plan and doing thorough research up front , but the reality is you never know many of the answers until you try.

Buying a business can reduce some of that risk. You often get a name that (hopefully) already has a good image in the community. You have existing supplier relationships, (hopefully) loyal employees and (hopefully) steady customers. If the deal is structured right, you can also call on the previous owners when you have questions. What’s the downside? The word “hopefully”. Yes, you get the “good will” of the business and the reputation it has built up over the years. But you also get potential skeletons in the closet. While you should conduct due diligence to try and uncover anything negative during the buying process, all it takes is one or two bad situations from the past to come back to haunt you. There are no guarantees that employees will stick around. Odds are they won’t. There’s nothing that rocks an employee’s world more than a new boss. Many will bolt without even giving you a chance. (Tip: Provide some incentives for the good ones to stick around.) What about customers? Assuming you don’t change the business too much, they’ll likely keep coming back, but again, there are no guarantees. If those customers were loyal to the previous owner because they really liked him or her, how do you know they’ll be loyal to you?

What about buying a franchise? Sometimes called “a business in a box”, a franchise can often offer the lowest risk approach to owning your own business. Franchises are available for a wide variety of types of business, from restaurants to retail stores to business services. In most cases, the franchisor has already figured everything out for you: the products and services you can sell, pricing, supplier relationships, operating procedures, marketing plans, potentially almost every detail down to the layout of your store. Sounds great? Yes, it can be, particularly if you are entering an industry that you don’t know much about. So what’s the catch? In many cases, you give up creative freedom, something that a lot of entrepreneurs really value. If you are a franchisee, you must play by the franchisor’s rules. After all, they’ve already figured everything out, right? The other catch is the cost. In addition to upfront franchise fees to secure the rights to operate within a certain geographic territory, you’ll typically pay a percentage of revenues forever, regardless of whether or not you’re profitable. While a 5-7% royalty may not sound much, if the business on average yields a 10% profit, that means more than half of your potential free cash flow may go to someone else. You may be ok with that in the first few years when you need lots of help from the franchisor, but after you become more knowledgeable , those payments will become more painful to make. The secrets to success in franchising? 1) Pick a good franchisor that is always coming up with more ways to help you make money. 2) Don’t stop with just one location. Successful franchisees usually have multiple units.

Are there any other options other than starting your own business, buying a business or going with a franchise? Clearly going out on your own entails a lot of risk. While buying a business or a franchise reduces that risk somewhat, as we’ve seen, that path can be very expensive. Instead, consider starting your own business but proactively seek help from similar business owners who have been successful in another market. If they like you, they might help you for free. Or, you can hire them as consultants. Either way, if you develop good, long-term relationships with smart mentors, you can get some of the benefits of being a franchisee without the costs.

Rural entrepreneurship: Creating a big business in a small town

A big city can be a great place to launch a new business. It offers a large market with lots of potential customers, a wider variety of available skilled employees, better access to suppliers and transportation, the list goes on. But not all of us want to live in a big city. Many entrepreneurs seek the slower pace and quality of life that small towns offer but think that there may not be as many good business opportunities. In fact, many rural entrepreneurs find that there are just as many good opportunities, maybe even more, with just as much revenue potential and potentially higher profitability. Sound intriguing? Read on…

Owning a business in small town or rural area offers a number of advantages. First, quality of life is often greater. Less traffic and congestion, better schools, lower crime, more outdoor recreation opportunities, etc. make smaller towns appealing for both owners and employees. Second, entrepreneurs also often find that smaller markets offer less competition. Instead of 20 or 30 coffee shops or half a dozen Thai restaurants, you may only have one, or none, in your town. An entrepreneur in a smaller market can even sometimes create a temporary local monopoly, exploring a niche that hasn’t yet been pursued locally, at least until competitors realize what a good market it is. Third, fewer competitors often means more pricing power and higher margins. When you don’t have dozens of companies competing for your customers, you can sometimes charge a little more for products and services. Fourth, smaller markets are often cheaper places to do business. Office space, wages, advertising and business support services are often much less expensive than in bigger cities.

Better quality of life, less competition, higher margins, lower costs…sounds like an entrepreneur’s dream. So what’s the catch? Unless you operate an online business which can be located anywhere, most of the time growth potential is limited in small markets. If you start a successful business in Atlanta, you can continue growing by just targeting another part of the same market. In a smaller market, you can quickly hit a limit to growth. Another limiting factor is the labor market. It can be more difficult to find the right employees with the right skills when you need them in smaller areas. Another issue is that sometimes markets aren’t big enough to support some business models. Take my hometown as an example, Boone, North Carolina. The city’s population is around 13,000. Even if you include the county and students at Appalachian State University, there are still less than 60,000 potential customers, not counting tourists and visitors. While that’s a big enough market to support several coffee shops, a couple dry cleaners, lots of restaurants (thanks to tourists), it is too small for businesses like Best Buy or Barnes and Noble or even a big multiplex movie theatre.

So how can you overcome smallness and retain all of the obvious advantages of owning a business in a more rural area? Sell online to customers all over the world? For a few businesses, that might actually be an option. A more viable option for many rural businesses is to think regionally. Using Boone as an example again, if you add up the total population of just the counties that border Watauga County, instead of 60,000 potential customers, you now have a market of over a quarter million people. A majority of those people live with 30-45 minutes of town and many of them already come to Boone periodically for shopping, cultural and recreational activities. Of course, people aren’t likely to drive 30-45 minutes to go to a coffee shop or get their prescription filled, but they might very well drive that distance to buy something they can’t get in their own town or something BETTER than they can get locally. You can make it even easier for remote customers by taking your business to them or giving them a place online to do business with you.

Let’s take this example one step further. What if you considered your market to be everyone you could reach by car within an hour or so? When I ran a technology firm in Atlanta, I would frequently drive an hour to the other side of town to visit a customer. If you include all of the counties within one hour of Boone, now we’re talking about 620,000 people! Some businesses might be able to serve that market out of single location. For others, it might mean opening multiple locations throughout the region.

The keys to making this happen are to think regionally and harness the power of the internet. If entrepreneurs, business leaders, educators, economic development officials and chambers of commerce work together, everyone can win. Yes, it might mean a little more time in the car occasionally to drum up business. And yes, it will likely mean a bigger marketing budget and more investment in information technology. But if the result is that your business now has 5-10 times the growth potential without having to give up all of the benefits of living in a small town, it just might be worth it.

Don’t live in a big metropolitan area? Create your own!

Now is a great time to launch, buy or grow a business. Say what?

Real estate prices are down. Unemployment is up. Your retirement plan is down. The U.S. auto industry is hanging on by a thread. Health care is getting more expensive. Banks are being bailed out by the government. Small businesses in your town and mine are struggling. Despite all this bad news, now could be a great time to start a business. Say what?

Yes, now can be a GREAT time to launch, buy or grow a business. Companies like CNN, MTV and Microsoft were all started during tough economic times. Some businesses thrive in recessions – grocery stores, auto repair shops and low-cost hair salons are just a couple of examples. Sure it’s more risky when the economy is down, but it’s always risky to start a business.

There are lots of reasons to start or grow a business in tough times like this. Here are my top eight:

1) Fewer competitors - The weak are failing and few new competitors are coming into the market.

2) Fearful competitors - Many remaining competitors are cutting back on marketing, meaning your marketing dollars will have more impact.

3) Lower cost facilities - With commercial vacancy rates up, now is the best time to negotiate a lease. If you want to buy commercial property, prices may never be lower.

4) Cheaper equipment - All that equipment from failed businesses ends up somewhere. Need a used copier for your office or a commercial dishwasher for your restaurant? Think eBay.

5) Better negotiating power - You may never have better negotiating power with suppliers, advertisers, shippers, contractors, etc. than right now. They’re all hungry and willing to cut prices to get your business. Need a website? A new wall in your office? Don’t wait.

6) Recruiting power - Now is a great time to attract talented employees. Everyone from bright young college graduates to experienced professionals is looking for work.

7) Cheaper money - Interest rates are low. The Small Business Administration now guarantees up to 90 percent of qualifying small business loans. Investors, if you can find them, are more realistic in the returns they expect on their investments.

8) Low business valuations - Companies that are making less money (or no money) are worth less than they were a couple years ago. That means you can buy a business for less.

Does that mean you should just jump into any type of business right now? No. Clearly it is a tough time to sell luxury goods. People are eating out less, so starting or buying a restaurant is even more risky during tough economic times, but a low or moderately priced restaurant with unique menu options could do well. McDonald’s was one of only two Dow Jones companies whose stock price rose in 2008 (the other was WalMart).

Don’t let the all the bad news get you down. For entrepreneurs, this can be a once in a lifetime opportunity. Everything is on sale! Take advantage of it. And when the economy does come roaring back, you’ll be one step ahead of your competition.

Is buying a business an option for young entrepreneurs?

More often than not when young people think about entrepreneurship, they assume they have to go out and start a new business. Why not buy one instead? Think you're not ready to do that? Don't have enough money? Think no one will sell to you? Think again...

There are approximately 80 million baby boomers in the U.S. born between 1946 and 1962. Virtually all of those people will be retiring over the next 5 to 15 years. Many of them own businesses that will transition to new owners.

Let’s look closer at the numbers. There are approximately 25 million businesses in the U.S. and 6 million of those have employees. According to the most recent US Census data on business owners (2002), 31% were over the age of 55 and 29% were 45-55. Let’s conservatively assume that 50% of all employer firms will change hands in the next 15 years. That’s 3 million companies in the U.S. that will change owners, not counting the many smaller sole proprietor businesses. 200,000 companies a year will face an ownership transition! Some of those may sell to family members, other companies, or investment groups, but a large majority will be sold to employees or individual buyers.

When a small business owner is ready to retire and doesn’t have family members who want to take over the business, how does he or she find a buyer? First, they often look at their employees. Is there someone already there who is capable and interested in buying the business, and most importantly, has shown that they are up for the challenge? If owners can’t find someone internally, then they often work through business brokers to find buyers.

If you’re in your 20’s and want to buy a business, one strategy is to find a company you like with an owner close to retirement, get a job there, take on leadership responsibilities and over time make yourself a valued and trusted employee. Make sure the owner knows that you have aspirations to own a business some day. When the owner decides it’s time to sell, you’ll be one of the first people they think of. The other option, albeit a little more difficult, is to work with business brokers. Of course they’ll want to first make sure that you have the financial resources before they’ll work with you.

Do you think banks won’t lend money to you to buy a business when you’re young? You’re probably right, unless you have a rich uncle who steps up to co-sign a note and provide collateral. If you don’t have a lot of capital, does that mean you can’t afford to buy a business? Absolutely not. A majority of small business transactions include a significant portion of owner-financing. This is particularly true of small retail and service businesses that might sell for $50,000 up to $500,000 or so. In fact, you may not have to engage a bank at all. This is where that personal relationship between you and the owner(s) becomes very important. If they believe in you and trust that you can take care of their baby that they’ve helped grow over the last 10, 20, 30 years, then they’ll look for ways to do a deal with you. Yes, you’ll probably have to come up with some cash as part of the deal, but you can likely structure most of the financing through a multi-year loan from the seller. There might also be an earn-out piece that bases part of the selling price on the future performance of the company.

So how does this work? Assume you’ve found a business you’d like to buy for $300,000 that generates $120,000 per year free cash flow, after the owner’s salary. Let’s also assume you’ve got a great relationship with the owner, either because you’ve worked there, or you’re a long-time customer or you’ve just hit it off during the negotiation process.

Here’s a relatively simple way this transaction might occur. You offer the seller $30,000 in cash and pay the remaining $270,000 over five years at 6% annual interest. That means your monthly payments would be $5,220. Where does that money come from? The cash flow from the business! Remember, each month that business is generating $10,000 or so in free cash flow. For the first five years you own the business, you’ll pay the owner $62,640 annually in principal and interest. Is this a good deal for the owner? Sure it is. They’re earning 6% on their money (try to find that kind of deal in a CD at your local bank!) and worse case if you don’t make the payments, they can take back the business. Is it a good deal for you? Yes again. Assuming the business doesn’t tank, you’ve got enough cushion to make those payments and still have some profits. Plus, the seller still has a vested interest in seeing you succeed. After five years, or sooner if you pay the note off early, you own the business free and clear.

So yes you can buy a business when you’re young. You’ve still got to come up with some cash, but hey, isn’t that what friends and families are for? There will be tremendous opportunities over the next decade. It’s not easy, but if do your homework, find the right business and work hard, that dream business can be yours.

Why it's easier to start a business in your 20's

As an entrepreneur educator who has worked with hundreds of young entrepreneurs, I've seen many successes, often as much of result of young age as anything else. Clearly there are disadvantages to starting young - lack of industry knowledge and limited access to capital just to name a couple - but young entrepreneurs also have some clear advantages over their more "mature" competitors.

First, and probably most important, most young entrepreneurs know how to live cheap. Ask a group of 22 year olds if they can live on $25K a year and virtually all will raise their hands. What happens if you ask the same question to a group of 45 year olds? So keep that second hand car for a couple more years. Share an apartment with friends. Move into your mom and dad's basement. All that means less capital requirements for the business. Instead of paying yourself, you can reinvest early profits back into the business.

Second, and obviously related, young people often have fewer responsibilities. It's a lot easier to take the risk of starting a business when you don't have children, a big mortgage, etc.

Third, everyone wants to help when you're young. The local press will be eager to do a story on your business. Teachers will spend time with you. Successful entrepreneuers in the community will go out of their way to help. And virtually everyone will do this for free, just because they want to see a young entrepreneur succeed. People don't care us much when you're 45.

Fourth, when you're young, you have less fear of the unknown. As we age, we learn more, often too much, and can talk ourselves out of taking risks.

Finally, when you're young, it's a lot easier to put in those 70-80 hour work weeks often required in the early days of a startup. You'll likely never that level of energy again.

So if you're a 20-something with a great idea, go for it! Follow your passion and start a business or a social entrepreneurship venture doing something you love. I'm not suggesting that you should go blindly into a venture. Do you homework, work for a similar business, get a mentor or do an internship first.

And don't worry about those long work weeks. Wouldn't you rather spend 70 hours doing something you love than 40 hours a week doing something you don't?