home » entrepreneurship

A small-business bubble?

by Paula | 20 May 2009 | permalink | comments
Tags: credit, entrepreneurship

WSJ is reporting a thaw in SBA-backed small business loans, which have evidently seen a pretty significant uptick in secondary market sales. This, in spite of the fact that the SBA has missed deadlines both for getting a new secondary market up and running, and for setting out regulations “on lending to broker-dealers in the secondary market for SBA-backed loans.”

I’m sure this has a lot of people breathing a sigh of relief, but the good Dr. Cornwall throws a wet blanket on the good news:

I see two possible outcomes once the SBA gets its act together. Neither are particularly encouraging and they are not mutually exclusive.

One outcome would be the flood of small business lending that the administration wants. That will inevitably lead to a small business loan bubble that will surely pop sometime in the not too distant future. Too many small businesses will be given loans that they cannot afford. The SBA programs often put social agendas ahead of economic ones, just as we saw with the home loan disaster fueled by government meddling in those markets.

The other possible outcome is that the bureaucratic complexity will bog down SBA programs,adding nonproductive costs to the lending process.

Emphasis mine.

A small-business bubble would be absolutely fucking disastrous. Imagine this: what’s happened with the housing market happens to mom-and-pop businesses, new startups, and small service providers.

Even worse, as the US attempts to get its manufacturing feet underneath it again, a bubble would cause a big bloom of small producers only to see them implode, taking down with them the few existing small manufacturers still in operation.

A small business crash would be a stake through the heart of whatever remains of the US economy after the current crisis finishes its work, as well as through “buy local” and relocalization efforts happening at the community level. It would also crush every last community currency project that depends upon easy conversion to federal reserve notes.

Short of a full-blown transition to gold, silver, and nationwide alternative currencies I don’t see how any small businesses could escape the effects of a small business bubble, even if they did not have any SBA or other loans on their books. This is the crappiest thing I can imagine. Really.

The entrepreneurial environment

by Paula | 14 May 2009 | permalink | comments
Tags: entrepreneurship, collapse

I don’t normally do this, but I posted an article at my business blog that I thought was important enough to share over here.

———

One of my mainstay blog reads is The Entrepreneurial Mind by Dr. Jeff Cornwall, Director for the Center for Entrepreneurship at Belmont University.

Today Dr. Cornwall blogs about an editorial which ran in the Detroit News:

It seems that the Kauffman Foundation folks are trying to lure venture capital up to Michigan.

As Mr. Gregg rightly points out — the answer to spurring entrepreneurship is not throwing money or support bureaucracies at the
problem.  From Gregg’s editorial:

But in the midst of this enthusiasm about entrepreneurship, we risk forgetting that entrepreneurship’s capacity to create wealth is heavily determined by the environments in which we live. In many business schools, it’s possible to study entrepreneurship without any reference being made to the role played by factors such as rule of law, property rights and low taxes in stimulating wealth-creating entrepreneurship.

I could not agree more! We need to educate entrepreneurs not only to be technically good at what they do, but informed citizens who can speak up about the issues that effect their business ventures.

I have a VC colleague whose hometown is Detroit, and just about a year ago he left for the Bay Area because the entrepreneurial environment in Detroit looks like this:

The problems faced by Detroit, and Michigan by extension, are not unique to its geography. Detroit has always been at the leading edge of industry and entrepreneurship in the US, and I believe it still is — the city is ahead of the same downward curve the rest of the country, and indeed the world, faces for reasons that no one in business (save a handful of investment bakers) seems willing to tackle head-on.

The fact is, the world is running out of the natural resources required to sustain business-as-usual; governments have become so unwieldy as to be totally unmanageable; market structures have grown so large and so complex they defy apprehension by even the most learned scholars and businessmen; supply chains and communications systems are so fragile that even a small disruption can cause havoc in numerous nations simultaneously; erratic weather, financial boondoggling, and diversion to fuel production threatens the global food supply. Add to this an unprecedented level of blatantly obvious high-level corruption and growing unrest among populations, and the future of entrepreneurial environments looks very bleak indeed. Even macroeconomics is subservient to greater forces.

I personally believe that entrepreneurs are the ones who will resolve these intractable problems, but unless folks understand the big picture, i.e., the environment, no one will know to step up to the plate.

I highly recommend anyone involved in entrepreneurship read John Michael Greer’s Theory of Catabolic Collapse. It describes concisely the nature of the current crisis (financial and otherwise) and demonstrates that at this point, further investment can only accelerate decline because our society has reached the level of diminishing returns on investment in complexity.

This is our entrepreneurial environment. The path of the entrepreneur now is very different than it was even 40 years ago: our job is to decentralize what is currently too complex and top-heavy; and to make resilient that which is currently too brittle. The current direction of economic complexity is unsustainable — read: it has reached its physical limits and cannot continue.

If entrepreneurs are too stuck in myopic views of what constitutes entrepreneurialism and reward, the work that needs to be done, and that could in fact produce very nice returns, isn’t going to get done.

Multiple peak oil 'survival' streams

by Paula | 7 May 2009 | permalink | comments [5]
Tags: entrepreneurship, peak oil

The concept of “multiple income streams” is common among entrepreneurs and is pretty self-explanatory. It typically refers to setting up a handful of ventures that can all generate income simultaneously. For example, one might run an ecommerce website while at the same time selling products through Amazon, investing in income-generating financial vehicles, and doing consulting on a part-time basis. Lots of work and organization, yes, but the underlying principle is very sound: If one of your income streams takes a hit it’ll be a problem, not a catastrophe. On the other hand, if you have just one income stream — say, a full-time day job — and something happens to it, you’re just screwed. Think of it as income diversification.

As the post-peak world starts to take shape, jobs are becoming more scarce and people are starting to turn to self-employment to generate income. There may be some upswings along the way but I fully expect this trend to continue. In the United States, especially, lack of manufacturing capacity is colliding with lack of capital, and soon enough these will collide with skyrocketing energy costs to manifest a global clusterfuck that will hit the American middle class particularly hard, dependent as it is on wage-slave labor and cheap oil.

In this economic environment the notion of “income” will of morph into synonymity with the notion of “survival” — already this is the case for millions of people. And in the same way an enterprising middle-class person might devise multiple “income” streams, an enterprising formerly middle-class person can devise multiple peak oil “survival” streams. Really, what other choice is there?

I’ve put together a simple grid anyone can use to brainstorm potential survival streams, and to help weed out pragmatic choices from the not-so-pragmatic.

The columns are broken down into three modes of the economy everyone in preparation or pre-preparation needs to consider:

• Overt — Taxable, monetary income
• Barter — Taxable non-monetary trade
• Underground — Things to sell or trade that are unclaimable as income because they are illegal, controlled, subject to licensures and permitting, or would threaten an individual’s ability to survive if their full value were claimed as income

The Obama administration’s financial death sentence means a huge swath of people — perhaps most — will not be able to survive on net monetary income alone. The underground economy will grow of necessity and, no matter how law-abiding anyone wishes to be, basic survival will require doing things that are technically illegal.

Note that barter income is taxable. Any overt community bartering scheme will almost certainly draw the attention of the IRS as the federal tax base shrinks along with business activity, salaries and wages, and payrolls. Hiding barter income will also become necessary.

The underground economy mode of preparations does not get much ink but I strongly feel it is something to which everyone should be paying attention. Therefore I’ve built it into the grid as part of the full scope of survival streams brainstorming & planning.

The rows are broken down into sectors based on Charles Hugh Smith’s identification of the FEW economy:

• Food
• Energy
• Water

To Smith’s FEW I’ve added M and H:

• Medicine — anything related to healthcare, including medicinal herbs, health maintenance, and crisis response
• Household — anything related to household necessities, including cleaning supplies, clothing, hygiene products and the like

Each cell in the grid represents the intersection of a sector with a mode. For example, the first cell is the intersection of the Overt mode and the Food sector. It presents the question: What can I do in the overt economy to secure food for myself and my family? Depending upon your circumstances, your options might include growing a backyard garden, opening a small grocery, or organizing a local-foods buying club.

By way of another example, the cell intersecting Barter and Medicine presents the question: What do I have to barter in order to secure medicine/healthcare for myself and my family? Again, depending upon your circumstances, your options might include trading math tutoring for ongoing acupressure health maintenance, or harvesting wild medicinal herbs to trade with a practitioner for healthcare services.

You get the idea. The goal here is to get all options on the table, even relatively unattainable ones, in order to sort out the few that are actually do-able within anyone’s given circumstances.

Here’s a sample grid I put together. I chose to hash out options for one of the most vulnerable household types in America: a single, female condominium owner in the suburbs of a large metro area, who owns no other property and is employed for the time being.

Among peakniks, condo life is typically presented as hopeless and being single as a terminal pathology. Everyone needs to marry and run off to some rural commune, and if you can’t do that you’re shit out of luck. But according to this grid, there are many options available to our single, female condo owner. Some are more realistic than others; as economic conditions change, some options will close while others open.

Different types of households will have different options. A young urban family will have different options than a middle-aged rural couple with grown children. But few are entirely lost just yet.

One last note: filling in the grid should be approached from the point of view of how to attract what one needs, not from the point of view of what one has to contribute. The point here is to figure out a diverse system for securing necessities to cover overt obligations that require actual dollars, to necessities that can be secured without dollars, to necessities that cannot be obtained legally due to lack of money, crushing regulations and the like. Contributions can come later. As Catherine Austin Fitts likes to say, put on your own oxygen mask first so you’ll be in a position to help where you can.

I’ve built a worksheet containing a blank grid for download in two formats: one in Word, and one as a PDF. If you download and use this grid I’d like to hear your thoughts — please share your experience either in the comments, or by contacting me directly.

7th annual BALLE conference May 21-23 Denver

by Paula | 25 April 2009 | permalink | comments
Tags: entrepreneurship, relocalization

Rising to the Challenge:
Entrepreneurs Building Living Economies
Denver Colorado, May 21-23, 2009

“BALLE” stands for the Business Alliance for Living Local Economies. They are the leading organization promoting and empowering local small businesses to aggregate their power and compete effectively against global corporations.

I can’t make this conference, but if you’re anywhere near Denver or are free to travel it is something you will want to attend.

According to the promotional email I received: “You will learn how to get money from community banks, socially responsible investors, even the government! Over $200 million in small business capital will be represented at the conference.”

More information here.

Why StartupNation.com matters

by Paula | 20 April 2009 | permalink | comments
Tags: decentralization, entrepreneurship

Earlier this month, futurist Jamais Cascio posted an article at his Fast Company blog titled Resilience in the Face of Crisis: Why the Future Will Be Flexible:

What will a post-crash, truly 21st-century world look like? For people thinking about global systems (economic, environmental, and social) one idea stands out: resilience.

. . .

Resilient flexibility means avoiding situations where components of a system are "too big to fail" -- that is, where the failure of a single part can bring the whole thing crashing down. The alternative comes from the combination of diversity (lots of different parts), collaboration (able to work together), and decentralization (organized from the bottom-up). The result is a system that can more effectively respond to rapid changes in conditions, and including the unexpected loss of components.

. . .

One reason why the idea of resilience resonates with those of us engaged in foresight work is that, as troubling as it may be to contemplate, the current massive economic downturn is likely to be neither the only nor the biggest crisis we face over the next few decades. The need to shift quickly away from fossil fuels (for both environmental and supply reasons) may be as big a shock as today's "econalypse," and could easily be compounded by accelerating problems caused by global warming. Demographic issues--aging populations, migrants and refugees, and changing regional ethnic make-ups--loom large around the world, notably in China. Pandemics, resource collapse, even radically disruptive technologies all have the potential to cause global shake-ups on the scale of what we see today... and we may see all of these, and more, over the next 20 to 30 years.

(Emphasis added is mine.)

It's the first time I've seen the issue of resiliency put forth in a purely business context. Normally when I see the issue come up as related to business, it has to do with computer systems, not The Big Picture.

Those of us who have had resiliency on the brain recognize Cascio's description of the alternative immediately, highlighted above. It is precisely what the relocalization movement, the Transition Towns movement, the local foods movement, and similar efforts are working toward. My standing criticism of these is that they almost completely ignore the business realities that are inseparable from economic diversity, collaboration, and decentralization. This trinity is the spontaneous result of changes in business practices and structures, not vice versa.

Enter StartupNation.com. StartupNation (SuN) is the brainchild of San Francisco-based serial entrepreneur and venture capitalist Rich Sloan. The site's mission is to empower entrepreneurs at all stages of the startup process with information, community, and other pertinent resources. In the past year SuN's traffic has increased 184 per cent. People are flocking to SuN because they are afraid for their jobs (if they still have one), and self-employment is a viable option in an economy where jobs are evaporating at a frightening pace.

But what really interests me is that SuN is a central hub where all three alternatives to "too big to fail" systems -- diversity, collaboration, and decentralization -- come together and flourish. I think StartupNation is beyond the bleeding edge of economic reorganization. It's off in the as-yet-unconscious predecessor space of the bleeding edge. If this recession can be likened to a woodchipper shredding companies left and right, StartupNation is like the rain that turns the wood chips into rich soil. And soil is, after all, ultimately the basis of every economy.

Of special note is the annual Home-Based 100 Competition, in which home-based entrepreneurs are honored for their successes, innovations, ingenuity and tenacity. If memory serves, something like 5000 people entered the competition in 2008, only its second year. Contestants could enter in 10 different categories; and when judging time came around, the judges added another three honorary categories. It is hard to imagine more economic diversity, collaboration, and decentralization than this.

The conspiracy nut living in the back of my brain occasionally worries for Rich and the StartupNation team. It seems pretty obvious that the current economic meltdown is an engineered class warfare designed to redistribute wealth from everybody to a couple insane, power-addicted freaks. If StartupNation's enthusiasm for little-guy success were to go viral, the bailout redistribution would be brought to a screeching halt. As would all the various tax and legal structures that make such wealth redistribution possible in the first place. At its heart, and whether Rich & the team realize it or not, StartupNation is quite possibly the most subversive site on the web.