If it seems like 2016 was a booming year for small business, it’s because more entrepreneurs are going into business and staying in business. In fact, the survival rate for small businesses remaining in operation past their fifth year rose to 48.73 percent in 2016, compared to 45.95 percent in 2015.
That’s a 6 percent year-over-year increase, and the highest the survival rate has been since it started being indexed 30 years ago.
With over 28 million small businesses taking up residence on Main Street, my company, Guidant Financial, wanted to take a closer look at who today’s small business owners are. We surveyed more than 1,000 of our small business owner clients, asking about their lives as entrepreneurs, how their businesses are performing and what struggles they’re facing on a daily basis.
Here’s what we found to be the most noteworthy small business trends:
Small business owners are opportunistic — when they can afford to be
At 37 percent, the top reason our clients went into business for themselves was because they were dissatisfied with corporate America. Along with this, the No. 2 reason individuals chose to pursue business ownership was due to the right opportunity presenting itself.
The 2016 Kauffman Index of Start-up Activity refers to this as “opportunity entrepreneurship” and reports that 8 out of 10 entrepreneurs in 2016 started their business because they saw an opportunity rather than out of necessity (unemployment).
Despite business owners’ opportunistic nature, many are still having a hard time accessing the capital they need to take advantage of business opportunities. Guidant’s small business clients listed “access to capital/cash flow” among their top two challenges, and according to a report from the National Small Business Association, 31 percent of business owners said they were not able to obtain adequate financing in 2016, up from 27 percent the year before.
This has created a break for alternative small business funding methods to enter the market. My company, for example, saw a 5 percent uptick in the number of people who used their retirement funds to buy a business in 2016, which has primed them to take action when the time is right, rather than when money allows.
Baby boomers thrive in business ownership
Between 2015 and 2016, Guidant saw an 83 percent increase in entrepreneurs under 40 who used business funding to launch their new ventures, but there’s room on Main Street for entrepreneurs of all ages. Baby boomers between the ages of 51 – 69 were our largest group of business owners, representing just under half of all survey respondents.
Times have changed, and there’s no denying that people are working longer for a variety of reasons, from financial necessity to wanting to delay retirement. The 2016 Kauffman Index for Startup Activity shows that while the fastest growing group of entrepreneurs is those age 35 – 44, the age range for new entrepreneurs varies from 20 – 64, and these different age groups are represented almost evenly.
Twenty years ago, the largest group of new small business owners was in the 20 – 34 age range, accounting for 34.3 percent of total entrepreneurs. The smallest group was age 55 – 64, accounting for 14.8 percent. These groups are now represented almost equally at 25 percent of total new entrepreneurs each.
Related: 4 Tips On Hiring In A Small Business
Small business owners are happier in their new careers
Entrepreneurs in our survey reported high levels of happiness in their entrepreneurial careers — an average 7.52 out of 10 — with little variance depending on what industry they worked in, how long their business had been in operation, or across different socioeconomic groups.
A 2014 report from Manta revealed that small business owners feel empowerment in creating their own earning potential and feel additional satisfaction in turning their passions into their career. This echoes various reports that say small business owners are happier than those working in the corporate world.
Historically underserved groups are turning to alternative funding
Unfortunately, it’s been documented that racial minorities traditionally have less access to capital for purchasing a business. According to a report by the Minority Business Development Agency, “Minority-owned businesses are found to pay higher interest rates on loans. They are also more likely to be denied credit, and are less likely to apply for loans because they fear their applications will be denied.”
Small business owners are educated, but it’s not mandatory
A large majority of our small business owner clients had some college education, but it’s more common to have not attended college than it was to have earned a doctorate.
Eighty-two percent of Guidant’s survey respondents had an associate’s, bachelor’s or master’s degree, but 15 percent had only a high school diploma or GED. And an even lower percentage had a doctorate degree (3 percent). This signals that with the right experience, financing and support system, any aspiring business owner can pursue their entrepreneurial dreams, regardless of education.
Popular Industries are poised for success
Our clients are opening up shop in every arena from pet grooming to computer repair. The most popular industries for small business owners in 2016 were food and beverage; health and fitness; and business services. For more information on the health of these industries, we looked at the Kauffman Index of Growth Entrepreneurship.
This report looks at the high growth of young companies, which is an important indicator for sustained growth in the industry as well as job output. Both health and fitness and business services were listed in the top five high-growth industries, while the food and beverage industry saw its highest year for growth since 2008.
Franchising is a popular option
Regardless of industry, many entrepreneurs are opening the door to small business ownership through franchising. About 40 percent of our clients used our business funding services to purchase a new or existing franchise.
The cost of acquiring a franchise starts as low a few thousand dollars for home-based companies and can reach into the millions for larger, well-known brick-and-mortar establishments. The majority of our clients who purchased a new franchise spent between $50,000 – $100,000, while existing franchises usually cost between $101,000 – $175,000.
Going into business can be affordable
Buying a small business can easily turn into a multi-million-dollar deal, and many Guidant clients who secure an SBA small business loan obtain close to the $5 million maximum limit. But it is possible to start a business with a lower price tag for business owners on a tighter start-up budget.
We found that almost 30 percent of our clients spent less than $100,000 total to acquire their business. Although this is no small price, there are now more funding options than ever before, and entrepreneurs don’t need to be millionaires to afford making their dreams of business ownership a reality. In fact, the combined household income for the majority of new entrepreneurs is less than $150,000.
Small businesses are looking to expand in 2017
The top two challenges small business owners faced in 2016 were recruiting and retention of employees and lack of capital/cash flow. Over 30 percent of respondents also indicated they struggled with time management, as well as marketing and advertising.
Even though small business owners do have concerns over lack of capital, they are looking to grow. We asked our clients how they would invest additional business capital, and 48 percent indicated they would use it to expand.
Despite the recent uncertainty about us the U.S. economy following President Donald Trump’s election, the dust is beginning to settle and entrepreneurs are able to focus their attention toward their business’s success.
This article was originally posted here on Entrepreneur.com.
R&D: Compulsory Homework For Your Business
Why Research & Development are critical to your company’s future.
It’s one thing to develop a technology that everybody wants. It’s a completely different thing launching it, if the legislation or environment aren’t encouraging. Often, the result is companies who have grand ideas and little influence, and this is why it’s essential that you carry out in-depth Research and Development (R&D).
Defining market research
Market research is the gathering and analysis of information, so that organisations can better understand the market, environment, and demand for a new product.
The purpose of this data is to:
- Understand and advise on existing and upcoming business plans
- Develop new products and innovations
- Forecast new developments that could disrupt the industry.
This kind of insight helps business leaders to be educated on factors that can impact their businesses, ensuring robust, up-to-date bases for their decision-making.
The reason you need R&D
The success of a new product depends heavily on its impact on people’s needs. If it doesn’t add sufficient value, it’s not worth the investment. Because of this, your innovations must be in line with the legislative, economic, political, technological, environmental, and social requirements of the people you hope to sell them to.
How R&D has evolved
R&D ensures that your organisation stays viable and sustainable. You can approach it through organic growth, innovation, or a mix of the two.
However, in this new era of the Fourth Industrial Revolution and the Internet of Things, we’re seeing some significant changes to R&D spending. Because these days, people aren’t alone in their connection to the Internet – machines are there too.
In the future, the success of a product is likely to be determined by its ability to connect to the Internet; without that, it will become obsolete. Smart devices will also create new challenges for organisations, as they’ll require entirely new skills and approaches to business, if they are to grow and evolve.
Innovating through R&D
Innovation is not just supported by R&D; it’s also enhanced by it. It’s also affected by:
- Understanding consumer needs
- Your ability to innovate sustainably
- R&D partnerships that allow you to collaborate with others, so you can share the risks and costs of innovation, and speed up the various processes.
An open approach to R&D
One approach to R&D collaboration is through open innovation, where an organisation partners with another party. An initiative like this works well for technological advances, globalisation, and changes to comms technology.
A closed approach to R&D
The more traditional closed approach to R&D is where one company funds and contains the R&D initiatives. And it can be successful too, as long as the initiating company has well-defined and measurable input, throughput, and output.
R&D in an investment company
Sometimes the subsidiaries in a holding company experience poor communication, resulting in divided direction and unhealthy competition. Because R&D can be expensive and resource-heavy, an organisation-wide strategy must be implemented.
Then, when all stakeholders understand the potential ROI and the operational process involved in R&D, healthy competition and an educated understanding of customer needs can be maintained. This is, of course, the ‘win-win’.
R&D is essential to making relevant, strategic, and educated business decisions. And in our global economy, it’s a competitive advantage you can’t afford not to have.
3 Strategies To Implement A Culture Of Innovation In Your Business (Without Blowing Billions)
Learn to think differently, encourage your team to do the same, and innovative disruption could become a part of your company’s DNA.
You’re seeing it everywhere. Disruptive innovation is becoming the new norm, and you’re concerned that your business is merely going through the motions, missing opportunities.
How can you join the Elon Musks of the world, without the corresponding bulging budget?
It turns out that many of the techniques of today’s top innovators don’t require vast outlay. They’re simply about different ways of thinking.
Here are three strategies for enhancing the culture of innovation in your organisation without blowing billions.
1Use ‘Ignorance as strategy’
You’ve encountered the aphorism, ‘To a man with a hammer, everything looks like a nail.’ Similarly, to a banker, the only imaginable approach to banking is ‘the way banking has always been done’. When bankers try to think of innovative new ways of banking, they invariably think of greater complexity.
Along came PayPal
In the April 2016 edition of Harvard Business Review, Reid Hoffman, one of the founders of PayPal, said, ‘All the banking people knew the rules. That prevented them from trying anything that looked remotely like PayPal.’
PayPal was not invented by a bank, just as Uber was not invented by a taxi driver.
To make use of ‘ignorance as strategy,’ try this. Gather a group of strategic thinkers and set the rule: ‘The old way of doing it has been outlawed. How else might we serve the same need?’
Or: ‘We are now our competitors. We have half the budget, but our hearts and souls are invested in one purpose: To topple the original company. We can’t do it the way they do it. So how could we go about it?’
Or: ‘The company has burnt to the ground. We’ve lost everything. We need to keep serving our customers but we need a new, cheap, fast way to do it right now that doesn’t rely on any equipment or systems we used before. What have you got?’
2Use commander’s intent
Imagine: You’re a military commander. You need to move a convoy of trucks through a dangerous canyon. Your intelligence tells you that there is a sniper on one of the escarpments.
There are two ways you could issue an instruction to a soldier:
The first way: ‘Go take out that sniper.’
That’s very clear, and very good. But there’s something surprisingly important missing from it. The ‘why’ is not overtly stated, and for that reason, the mission could actually fail.
Let’s try it again the second way: ‘Go take out that sniper because we need to ensure safe passage through the canyon for our convoy.’
That may sound like a ridiculously obvious addition. Here is why it’s not: In a real, dynamic scenario, things change constantly.
Let’s say your soldier breaks off from the convoy and heads up into the mountains. Very quickly, three things go wrong:
- He can’t find the sniper
- Enemy forces start firing at him, making it difficult to look for the sniper
- His own weapon fails to fire so that he can’t shoot back.
If our soldier thinks only about the literal instruction — ‘shoot the sniper’ — he is now unable to carry it out. But if he bases his actions on the commander’s intention — ‘secure our convoy’ — other options open up to him.
He might draw their fire. He might set a bushfire. Or he might cause a commotion in a different canyon, disguising the movements of his convoy. He might, he might, he might… But only if he is absolutely clear on Commander’s Intent, and not working according to an explicit tasked item only.
Managers love to create detailed rules and procedures. But these can actually stifle innovation. Commander’s Intent is the life hack by which we get the upper hand again, freeing up leeway for creative potential.
3Instead of rules: Imaginative debate
Organisations accumulate rules over time. Problematically, rules can become a form of culture. And there is a better way.
When NASA faced two separate, well-known challenges, their culture at each stage was very different.
In 1970, Apollo 13 was two days into its mission when an explosion knocked out one of their oxygen tanks. The ensuing creative scramble to get the astronauts safely home is the stuff of legend. The creative trial and experimentation that went into rescuing them was formidable. New procedures were made up back on earth, then tested in the simulator, then relayed to the astronauts 200 000 miles away, almost in real-time.
Through this process of creative trial and experimentation, of collaborative inter-disciplinary debate, one by one the issues were resolved and the crew was brought home safely.
At this point in time, NASA’s culture was ruled by imaginative debate. It was an exploratory culture, an experimenting culture, a culture based on learning and evolution.
By contrast, at the time of the Columbia disaster of 2003, the culture of experimentation had given way to one of formalised rules, regimented procedures and rigid hierarchy. NASA had stopped being a learning organisation. It had become a bureaucracy instead.
As Columbia re-entered the earth’s atmosphere, a large piece of foam fell from the shuttle’s external tank and broke the wing of the spacecraft. The shuttle broke into pieces. NASA recovered 84 000 pieces from a debris field of over 2 000 square miles.
The investigation revealed some damning insights about the culture that led to the problem.
During a post-launch review, a group of engineers actually saw this foam dislodge from the rocket. They tried to pass on this information. NASA’s management, which by this stage liked to manage everything ‘by the rules’, had seen dislodged foam before, and, according to their institutionalised perceptions, deemed it to be unimportant.
The engineers tried to argue that it seemed like a lot more foam than usual. It was a qualitative argument, based on human insight and intelligence. But NASA was unable to listen. Dislodging foam was a known quantity, and the voices of dissenters went unheeded.
NASA by this stage was so bound in rules and procedures that, in important ways, it had ceased to be a learning, experimenting culture. And that made it incapable of hearing an idea, to its great detriment.
Imaginative debate allows situational awareness to pass up and down the chain of command. It promotes the opportunity to see innovation possibilities. It shows up problems that fall outside of the capacity of norms and guidelines.
The Israeli Defence Force uses an examination of these two cultures within NASA as a way of perpetuating a learning culture within its own organisation. In Start-Up Nation, Israeli air-force pilot Tal Keinan is quoted as saying that if NASA had stuck to their experimental culture, the way his own air force and military do, they would have identified and seriously debated the foam strikes at the daily debrief.
Debating everything isn’t tedious. It’s illuminating.
Putting rules in place of debate isn’t clarifying. It’s dulling.
Rigid rules enforced by unlearning authority are a recipe for real danger. The use of strenuous debate helps to overcome these blind spots.
Cultures of learning are far more idea-friendly than bureaucracies. And it costs nothing to become one. Merely a little willingness.
To Have An Innovative Company, Let Your Employees Take The Reins
‘In order to clean, they need to get messy,’ serial entrepreneur Justin Klosky tells Entrepreneur’s editor-in-chief Jason Feifer.
An innovative company starts with an innovative team. And what’s the best way to innovate? Give your employees the freedom to run with their own ideas, then manage the chaos later. At least that’s what Reid Hoffman believes.
“If you want your company to innovate, your job is to manage the chaos,” says the co-founder of LinkedIn, partner at VC firm Greylock and host of Masters of Scale, a podcast series examining counterintuitive theories to growing a company.
Hoffman’s theory doesn’t seem too far-fetched either. In fact, he’s not the only person who thinks giving employees the freedom to think and create on their own triggers innovation.
“When [people] have that ability to explore and innovate without the pressure of failing, you’re setting yourself up for a ‘win’ situation, because you’re going to get the best out of somebody,” Justin Klosky, founder of professional organizing company O.C.D. Experience, tells Entrepreneur’s editor-in-chief, Jason Feifer, in a video.
Although, when you’re empowering employees with this much freedom, you’ve got to be hiring people you trust. This can be easier said than done. Rather than dissecting a person’s resume, Klosky recommends digging deeper and asking prospective employees questions that will really open them up – anything from who they are, where they’re going and what brought them here.
After you’ve hired a group of honest, intelligent employees, now what? Don’t tell them how to innovate. Instead, let them figure that out on their own. Allow employees to do what they do best, return to you with their results and from there manage the chaos.
“In order to clean, they need to get messy,” says Klosky.
For more insights and advice about managing an innovative culture, check out the video.
This article was originally posted here on Entrepreneur.com.
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