Entrepreneurial

6 tips for startups to take advantage of the recovery

– Chris Lynch is vice president of economic development at the Irvine Chamber of Commerce. The views expressed are his own. –

With recent reports the economy is becoming stable and showing signs of upward growth, the question is what are entrepreneurs going to do about it?

The answer is simple, they can take advantage of the upbeat perception that the economy is in recovery and benefit from the opportunities they didn’t have before. The following are some tips on how entrepreneurs can take advantage of the recovery, based on years of experience coaching successful startups.

1. Get a good start on the recovery. Right now the market is solid for proven ventures, but in about 18 months the market will be ready for riskier ventures. This is a critical time for when opportunities will be made, so start making new contacts, solidifying your business model and creating potential business relationships right away. Look into entrepreneurial or business workshops, such as what we provide at the Irvine Chamber of Commerce and the Irvine Entrepreneur Forum. An economic recovery is a good time to capitalize on the optimistic mood of investors and put your business out there in front of the right people. So make sure to perfect a quick elevator pitch and consolidate all your financial information.

2. Take advantage of the opportunities. It’s important for entrepreneurs and startup businesses to pay close attention to the opportunities and general attitude towards investing during a recovering economy. The fact that investors are becoming more willing and openminded towards investing is a good place to start. This means that the money is starting to flow back into venture capital and other investment options. People are looking for new places to put their cash and every entrepreneur should take advantage of the opportunities by getting their innovation out there to potential investor groups.

3. Consider the entrepreneurial landscape for 2011. Successful investors try to anticipate the future of business growth and need to have foresight as to where the demand will come from. They will look for new ideas and industry innovation, from major corporations that have shifted to doing R&D internally, to looking for acquisition of new technologies. A startup business will have to fulfill a demand, and the fewer number of options out there will result in a greater demand. Coming out of a conservative past few years, it’s advantageous to position your business more as a necessity for 2011 and not as a luxury.

4. Consider the hot industries for 2011. While some of the strongest markets of 2010 are going to get stronger, there is still more room for growth. For example, the hottest industries of 2015 probably won’t revolve around the same leading companies of 2010. In 2005, we weren’t looking at Facebook, Twitter or digital streaming entertainment by Netflix. For the most part people were just getting into MySpace and still renting DVD movies at Blockbuster. I suspect the leading companies in 2015 will likewise surprise us since we might just be hearing about them now.

GDP numbers not so rosy for small business

Jon Cook

Mar 26, 2010 16:24 EDT

The U.S.’s latest GDP figures show the economy is growing at its fastest pace in years, but small businesses are still reeling.

According to government data, U.S. 2009 fourth-quarter GDP grew at a 5.6-percent clip – the fastest pace since 2003. Government stimulus, greater exports and less-severe reductions in business inventories have been credited with the growth, but data from Sageworks, which compiles financial information on privately-held companies, paints a far bleaker picture for small businesses.

Drew White,  Sageworks’s chief financial officer, said the survey results representing “tens-to-hundreds of thousands” of U.S. privately-held companies, showed a marked decline in 2009 revenues. White said 2009 fourth-quarter sales, by small private businesses with less than $10 million in annual reported revenues, were down 6.4 percent (see the full report). That was a significant decline from the previous year, when 2008 fourth-quarter sales increased 2.4 percent. Pre-recessionary 2007 figures showed an increase of 5 percent. As a barometer, White said a 3-percent growth rate was “reasonable.”

“Seeing a 6-percent decline is pretty dramatic,” admitted White, who noted it was a good indicator of the degree to which small businesses have been hammered during the current recession. “It’s almost like a 10-percent differential – huge.”

White said as long as consumers refrain from spending, small businesses will continue to remain in survival mode, which likely means reductions in overhead, such as payroll and advertising.

“Everything has gone down when revenue goes down,” said White, who pointed out that over the last four years small businesses have reduced their payrolls – as a percentage of total sales – from 19 percent to 15 percent. This despite the majority of private companies being able to reduce their debt-to-equity ratios from 2.7 percent to 2.25 percent. “You would think if they kept their employees and sales went down, payrolls as a percentage of sales would go up, well it’s actually gone down as a percent of sales and sales have gone down, so they’ve really cut.”

America’s economic recovery lies in the middle market

Thomas Bonney is founder and managing director of CMF Associates, a financial consulting, staffing and recruiting firm based in Philadelphia, PA, that serves private equity, middle-market and small-cap public companies nationally. The views expressed are his own.

In his 1988 Republican National Convention acceptance speech, George Bush championed the tradition of the American community, describing it as “a brilliant diversity spread like stars, like a thousand points of light in a broad and peaceful sky.”

More than 20 years later, this tradition still forms the core of our country’s strength – particularly the “thousand points of light” that comprise our medium-sized, family- and private-equity owned business community. I believe it is this community that will ultimately drive the tailwind of economic recovery and growth.

The economic healing power of these businesses is clear. According to the Small Business Administration, more than 6.7 million of the 27.2 million existing businesses in 2007 were small businesses with less than 500 paid employees. Just one hire by each of these firms would more than replenish the 6.46 million jobs lost since the recession began in December 2007 through June 2009.

Smaller companies continue to forge the strongest track record of job protection. The Labor Department’s Quarterly Business Employment data for Q4 2008 shows that, relative to the size of private sector employment, job losses at large companies were approximately one-third larger than losses in the middle market. Mid-sized companies with 999 employees or less accounted for 10.9% of job losses, while larger companies with 1000+ employees were responsible for 20.7% of job losses.

Middle market American leadership teams generally are innovators. The innovation we see on the ground is qualitative and anecdotal, but indicates a growing desire on the part of a subset of the middle market to begin to play some offense. This is not the sort of data that quickly moves through the labyrinth of channels used to generate state and federal government data that drives Wall Street and dominates media outlets; we expect that our qualitative observations will be validated in quantitative data by Q1 2010.

For instance, smaller companies are already taking the initiative to pick up the pieces of fallen “humpty dumpty” corporations. Many individuals displaced by larger organizations’ job-shedding are choosing to leverage their experience and relationships and start their own organizations which, in turn, will hire more employees. One example is a newly founded consulting firm that identifies orphan pharmaceutical compounds within large pharmaceutical companies, and connects them with middle-market companies whose cost structures are in line with the orphan compounds’ expected revenues.