Baseball for Small Business and a Sports Business event

Since opening day is just around the corner, Wait it's today!, I wanted to post a little reference to a nice article currently on Inc. magazine's site about small businesses that are servicing big league baseball teams. The article focuses on businesses providing everything from protection netting to biodiesel recycling at Turner Field, the home of the Braves. It's just nice to know that the all American sport provides a great number of jobs to small businesses. It is the American way after all.

I also wanted to give a shout out to my local business school club which is hosting a stellar panel discussion among renowned sports business executives in Chicago on April 23rd. The Ross Alumni Club of Chicago, local home of the graduates of the University of Michigan Business School, is hosting it's 6th annual Spring Conference, a dinner discussion around the topic of Sports Business; for the love (or profit?) of the game; with open online registration (with full details) currently ongoing. It's open to grads and friends (e.g. the general public) as long as tickets are available, get yours now for this exciting event!

More Detail on the SBA revamp

Though it doesn't affect demand for borrowers products, the new SBA flexibility can help a small business survive these challenging times. More news on the program and it's effects today from the Chicago Tribune.

From Bad Times to Worse for Small Business

According to this blog I site regularly:

- Business bankruptcies have tripled since the first quarter of 2006
- Nearly 29,000 companies filed for bankruptcy in the first half of 2008
- Given an estimate that as few as 1/3 of "deaths" go through bankruptcy, it is estimated that up to 90,000 businesses failed during the first half of 2008.

"The vast majority of these failed companies are among the nation's 23 million small businesses, with fewer than 100 employees.", according to recent analysis from McClatchy.

These failures are a primary force driving unemployment higher. The article makes the point that the BLS is under counting failures while over counting new business establishments. Regardless, the "death" statistics are very scary, especially for the small business community, and reinforce the need to hunker down, save some capital, and cut remaining fat to keep the business going.

Senate Restores SBA Funding, Expands Programs to Veterans and for Micro-loans.

Good news has arrived for the small business community. While the Bush Administration has reduced the SBA's operating budget by 30% since 2001 (source INC.com), the Senate has restored more than $100 million in funding for this important source of small business capital.

The Senate Appropriations Committee voted to increase the SBA's core small business programs by 45% over the President's request for 2009. The bill increases funding for Small Business Development Centers by 24%, Women's Business Centers by 13%, microloans to $20 million from zero, contracting assistance by 87%, and veterans outreach programs by 62%.

Full text of this release can be found here.

Can New Leadership Revive Our Economy?

In THE POST-AMERICAN WORLD by Fareed Zakaria, he descibes the declining US influence in the world order, other than our military power. As China, India, and other countries arise, “in every other dimension — industrial, financial, educational, social, cultural — the distribution of power is shifting, moving away from American dominance.” Is this inevitable, or can the US maintain a leadership position, at least in terms of our economy? He has some good suggestions as briefly noted in this interview:

"America is “becoming suspicious of the very things we have long celebrated — free markets, trade, immigration and technological change”: witness Democratic candidates’ dissing of Nafta, Republican calls for tighter immigration control, and studies showing that American students are falling behind students from other developed countries in science and math."

He goes on to decry the intransigence of these issues as quoted by the article's author, " "economic dysfunctions in America today" are the product not of “deep inefficiencies within the American economy,” but of specific government policies — which could be reformed “quickly and relatively easily” to put the country on a more stable footing. “A set of sensible reforms could be enacted tomorrow,” he says, “to trim wasteful spending and subsidies, increase savings, expand training in science and technology, secure pensions, create a workable immigration process and achieve significant efficiencies in the use of energy” — if only the current political process weren’t crippled by partisanship, special-interest agendas, a sensation-driven media, ideological attack groups and legislative gridlock."

Indeed, we have many challenges and maybe a less divicive leadership can help solve these problems, for the better of all and particularly the small businesses in America.

A New Hope for Small Business Health Care

In the push/pull for more affordable health care, the forces of the status quo (read insurers) are fighting to keep their money flowing. Meanwhile, health care premium costs have soared for small businesses. A recent study by the Kauffmann-Rand Institute found that health-care costs had nearly doubled between 2000 and 2005 for businesses with fewer than 25 employees. For these companies health care costs now exceed 10% of total payroll costs. Now a bi-partisan group led by Senators Durbin and Snow are trying to break the log jam.

The Small Business Health Options Program (or SHOP Act) would enable small businesses to set up health-care insurance pools and seeks to establish a nationwide pool by 2011. It also offers tax credits of more than $2,000 per family covered for employers that provide health-care to workers under this program. The national pooling feature has been fought by insurers as well as health advocacy groups (like the American Cancer Society) which do not want to see state regulations overturned. This bill addresses those concerns and as a result may have a better chance of passing. It is supported by the National Federation of Independent Businesses, the country's largest small business advocacy group.

No easy remedies have been proposed to address the overall ballooning of costs and inefficiency of our health care system. Short of a full overhaul, this bi-partisan program is a good start for small companies. Let's see if it gets through the Congressional battles, it is there where we'll see which entrenched money maker of the current system opposes it.

iPhone Plays with Your Corporate Environment

This is a huge deal for business users. The iPhone will shortly play in the corporate environment according to this longish March 6 announcement broadcast by Apple for the next software update. Microsoft Exchange linkage is great news for companies big and small, leading to another good cell phone choice for employees. To your benefit, RIM now has a solid competitor - they no longer have a solo playing field, and for Palm, this might just accelerate their demise.

Once again the market speaks and product providers take notice - ergo you have a choice for selecting a company wide smart phone. Unfortunately, you have to wait a bit for the reality to hit - this iPhone 2.0 update, it's not coming until June.

The Vista is Not Rosy

Buying a new PC with Vista pre-installed is one thing, but upgrading your existing office PC's is now a dead issue. Witness the comments from inside Microsoft exposed eloquently by Randall Stross in yesterday's NY Times.

More importantly, as you read this article do you really think Microsoft cares about you the customer? Is this how you would approach a product launch/release? I find it hard to surmise how they continue to get away with this behavior.

If I was your Tech adviser, I would strongly consider going Mac since I now have seen both systems in small business action. The capabilities are really similar, MS Office for Mac is robust, and Leopard really does sing. Of course there are open source solutions as well, proving the market is at work for your benefit. Enjoy.

Judgments - Lets Get Down to Brass Tacks

In Findings, John Tierney explores the human decision making process in the light of a new book titled "Predictably Irrational" by Dan Ariely. Tierney writes about a "leave behind your worst options" situation from ancient China:

"Xiang Yu was a Chinese general in the third century B.C. who took his troops across the Yangtze River into enemy territory and performed an experiment in decision making. He crushed his troops’ cooking pots and burned their ships.

He explained this was to focus them on moving forward — a motivational speech that was not appreciated by many of the soldiers watching their retreat option go up in flames. But General Xiang Yu would be vindicated, both on the battlefield and in the annals of social science research."

This approach to making decisive decisions can help some stuck business owners. If we think about how a CEO makes financial decisions, it's about eliminating options to get the right one. We can apply this approach to the not-so-clear non-financial decisions.

As described by Tierney, rational subjects at MIT prove that we as humans hold on to options longer than we should. Why? Because it is painful to let go of an option, a possibility. But there are very real costs to hanging on in terms of lost focus and poor performance.

How should a business owner apply this theory. In finance theory, a rational numeric judgment is used to eliminate options. When funds are available, managers perform a Return on Investment ("ROI") analysis to eliminate poor options and determine the best one.

Return on Investment looks at the pluses and minuses of various options in monetary terms. If you have several options, you consider the expected net cash return for each to find the highest expected return. If project 1 is to purchase a new lathe with an expected ROI of 18%, project 2 is to expand the building with an ROI of 14%, and project 3 is to do nothing or invest the money at 8%, then projects 2 and 3 should be eliminated for project 1, the action with the highest return, and eliminate the others.

What about other decisions that are not subject to ROI analysis? What's the cost of firing someone versus keeping them on for awhile? What is the cost of hiring someone now or waiting until markets turn? What is the real cost of visiting your best client once a quarter versus once a month?

Many of these actions cannot be reduced to a monetary return, but you can eliminate options. If you are considering 5 good candidates for a position, think about the most important considerations and see if you can eliminate 2 and continue with the best 3. If you have limited funds and 5 businesses to support, consider whether all are strategic, if not sell the outliers. An easy rule of thumb is that strategic judgments should be made sooner rather than later. A good book on successful decision makers can be found here.

$168 Billion Stimulus Bill Gives Direct Assistance to Small Businesses

Last week's $168 billion stimulus bill signing did garner some good news for small businesses, witness the NY Times post by Mickey Meece. He notes that the bill gives two gifts to small businesses,

1) A bonus depreciation increase of 50% of the cost of a tangible asset for immediate expensing, (an overall tax savings estimated to cost the government close to $44 billion over the next two years); and
2) An increase in the amount allowed for Section 179 (movable assets) expensing to $250,000 for 2008, up from $128,000.

These inclusions will encourage investment in both fixed and movable assets. Limitations are in place for SUV's among other assets, so be sure to consult your accountant for particulars.

At the end of the day, this will induce increased spending where the spender is seeking to reduce their overall tax liability.

The Fight for Immigration Reform

Thinking about the differences between big business and small businesses on the immigration issue (the latter against and the former for "amnesty"), it comes down to naked economic self interest. An examination of their membership and the economic position relating to immigration tell the story.

While the size of the immigration issue is really tied to the 12 million or so estimated contributing illegal workers, it would seem that all businesses need or are currently using these workers. But that view would be wrong, according to the NSBA (National Small Business Association). A 2007 survey of members revealed that a lack of qualified workers polled at 23%, or the 6th highest concern on the challenges measure, behind taxes and health care reform among others. Why is this issue of qualified workers so low?? Partly because small businesses hire immigrants at a much lower rate than their larger competitors. One measure comes from the NFIB (National Federation of Independent Business) in it's 2006 Member survey on Immigration. One finding was that a mere, "Seven percent of NFIB members have hired one or more guest workers within the last two years." The resultant positions by the NSBA and NFIB on immigration emphasize rational changes that don't impose additional expense on employers. Considerations of amnesty are discouraged.

On the contrary, if small businesses aren't hiring these folks, then it must be that large businesses are the ones. And as the economist community would say, these folks may be taking a small percentage of American jobs at the very low end, but on the whole they are contributing greatly to the American economy. Because the large business community needs these workers and needs them to stay, the US Chamber of Commerce supports immigration reform including, "...providing a way to earn legal status for undocumented workers who have been supporting our economy for the last decade or more." Notice no mention of amnesty, but that's what it would be.

Educated Professions Make the Most Profitable Businesses

It should come as no surprise that the most profitable small businesses include professional services firms including Accountants, Dentists, and Legal services. So says Maureen Farrell @ Forbes.com in a January 18 article entitled "The Most and Least Profitable Businesses to Start" (look for the article at lower left). Also high on the profitability list, Specialized Health services, Industrial and Graphic designers, and Insurance Brokers. These high performers were drawn from a list of 100,000 private business, most with less than $10 million of revenue per year. The pre-tax profit margins within this group ranged from a high of 25% to a low of 13%.

The worst performing businesses included commodity providers like bakeries, beverage manufacturers, and hotels. Their margins ranged from a low of -7.2% to 0.12%.

Economies of scale do come into play, that is covering overhead becomes easier once revenues clear the $3 million level, and further still over $10 million.

Interestingly, she writes that the profitability characteristics of these business groups tend to hold throughout the globe. Ergo education is the key to higher profitability. It makes for some deep strategic thinking when investing your time and money in a new or existing business, as bankers and CFO's can well attest.

Small businesses suffering under the current healthcare system

While large firms (those with 200 or more employees) unanimously provide health benefits to employees, not so for smaller companies. The reason is cost. As a result, it is time for small firms to add their voice to change the system.

According to the annual Kaiser Health Survey for 2007 (available at Kaiser Family Foundation) 99% of large firms provide coverage, and of those 95% cover at least 50% of the premium cost for families. With small firms (3-199 employees) coverage is provided by only 59% of the firms, and for those that do provide coverage they only cover 63% of premiums. Why is this discrepancy happening?? Cost increases are the obvious reason. From the Kaiser Survey we see that since the Spring of 2000 health premiums have risen more than 80% in total, or more than 10% annually, well out-pacing inflation and employee earnings.

What is this doing to small businesses? It is forcing them to drop coverage in increasing numbers. It is also pushing creative solutions including funding health costs outside of traditional programs. In many cases employees are forced into individual high deductible plans, which are fine for healthy consumers, but devastating for health challenged workers. In either event, these issues help make these firms look unattractive to new workers when compared to larger firms.

Would a national health plan fix this discrepancy, yes, but only if the overall costs per capita are the same or lower. More study is needed, but it looks like small businesses should be looking for a change in policy compared to their larger competitors.

As I have argued before, we cannot keep paying the increasing costs of the broken US health care system, and we can now see that it's finally time for small companies break with the US Chamber of Commerce, which advocates augmenting the current system, and add their voice to the Physicians for a National Health Program.