Start-Ups Key to States' Economic Success

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New small businesses are the most important factor in driving personal income, employment, and other factors, research shows.

Start-ups are the single most important factor driving a state's economic success, according to a new study by the Small Business Administration's Office of Advocacy.

The study, which was released Monday and examined U.S. Census data on small-business start-ups by state between 1988 and 2002, found their success or failure rates had a profound impact on gross state product, state personal income levels, and total state employment.

For instance, raising the number of small-business start-ups in a given state by just 5 percent tended to boost gross state product -- the sum total of a state's economic output -- by 0.465 percent, the study found. By contrast, a higher number of small-business closures tended to impede state economic growth.

Similarly, a 5 percent hike in small-business start-ups increased a state's employment growth rate by 0.435 percent, while raising personal income by 0.405 percent, the study found.

The study defined small businesses as those with fewer than 100 employees. Based on the median number of small-business start-ups across all 50 states per year, a 5 percent increase was equal to roughly 445 new small businesses.

"Every one of our models indicates that states with more new small firm establishments grow at a higher rate over time, even after we control for the level of economic activity and a variety of other factors," researchers said.

"Now more than ever, state policymakers should be aware of how their decisions affect small business," Chad Moutray, the agency's chief economist, said in a statement.

"Creating an environment that values entrepreneurship and risk-taking is sure to increase economic growth, personal income, and employment," Moutray said.
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Nervous About Writing Your Business Plan?

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I recently received this message in an e-mail. I’ve edited it to hide the writer’s personal details, but here’s some of what it says:

I'm currently in the process of starting my own business. I have extensive knowledge of and experience in…

I have the necessary resources for my startup and all of the necessary partners for the business to start…

Unfortunately, I'm not a writer. This is my Achilles' heel. I have this great business concept I'd like to put on paper and have been challenged every step of the way. My startup began two weeks ago, and I've consulted with several CPAs, but to no avail. They either don't have the time, charge too much or aren't interested in assisting me with my business plan. I just couldn't believe how neglected this area of business planning is when their profession deals with financial management and, to a greater extent, consulting.

My response starts with an emphatic “No, please, no!” You're missing the point of business planning--getting caught in the trap of the plan as a document--and making your life and your planning process far more difficult than they should be.

Notice how this e-mail puts the problem into perspective. The guy's starting his business, feels quite confident in the business concept and has “extensive knowledge and experience” in the specific type of business, but can’t go further because he’s “not a writer.” That’s crazy, right?

What’s wrong with this picture? Why do people assume a business plan is about quality of writing? Hey, I was a literature major years ago in college; I was a journalist before I was an MBA and a planner; and I love good writing as much as the next person. But being a writer has nothing to do with writing a business plan.

This is really important: A business plan is about content, not writing, formatting or pictures. I've listed some of the things your business plan needs to do below. Notice how none of them have anything to do with quality of writing.

1. Define your strategy. Strategy requires focus. Figure out what you’re really selling, who wants it, why they want it and how your business provides something different from the competition.
   
   
2. Control your destiny. Determine where you want to go and break that down into specific, concrete steps with dates, deadlines and budgets. Don’t merely react to events; be proactive and set a roadmap to follow and revise it as things change--and they will change.
   
   
3. Plan your cash. You’ve got to make a good, educated guess, then manage your planned cash flow vs. actual cash flow very carefully. Growth costs money, and profits don’t necessarily mean cash, so lay this out in detail. The math isn’t hard, but getting your financials organized takes some time and effort (see "The Numbers in Your Business Plan" for more information).
   
   
4. Allocate resources realistically. This doesn't just have to do with cash, but also with know-how and responsibility. Who's in charge?
   
   
5. Communicate your plan. The business plan is the standard tool for communicating the main points of a business to a spouse, partner, boss, banker, investor, manager or other interested person. This is where we get confused, I think, about the plan as a document.
   
   First, we have to recognize that not all business plans are about communicating to outsiders. In planning, form follows function, so if you aren’t communicating to outsiders, then lighten up! Make the plan useful to you in as simple a format as possible. Maybe it’s a cash plan and a presentation, or a cash plan and notes, but nobody's saying your success depends on the document itself.
   
   Furthermore, if you're in a situation in which you have to communicate to bankers or investors, stay calm--and stay focused on business. If investors want a presentation more than a plan document, focus on the presentation. If bankers want financial projections more than an extensive look into your company's mission, focus on that.

We’re afraid our plan has to be well written because it represents us and stands for our intelligence, experience or ability to run a business. Get over it. It isn’t a writing contest; it’s a business. Tell your story. Keep it simple. Bullet points are fine.

Also, don't confuse your plan for the kind a business student would turn in. In business school, the plan is a teaching tool. When I give students a grade for a business plan, I look at writing. I judge the quality of the document in part based on spelling and grammar and, more important, completeness. That’s a special case, though, that shouldn't apply to you out there in the real world.

The bottom line is, well, the bottom line--not the editor’s pencil. A good business plan is about results, not writing. Don’t wait an extra minute for that “writer.” Get working on your plan. And never forget, the real value is in implementation. Prepare to track results, compare those results to your plan, revise, correct course and manage your business better because of your plan.

---

Tim Berry is the "Business Plans" coach at Entrepreneur.com and is president of Palo Alto Software Inc., which produces the industry's leading business planning software, Business Plan Pro, as well as other popular planning applications for businesses.
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Immigrant Entrepreneurs Fuel Growth

The new retirement: staying busy making money

Immigrant entrepreneurs are starting businesses at a higher rate than native-born residents, according to a new study released Tuesday by the Center for Urban Future, a New York City-based think tank.

The study, which focused on immigrant entrepreneurial activity in New York, Los Angeles, Houston, and Boston, found that immigrant entrepreneurs are becoming increasingly powerful economic engines for big cities. Among other sectors, immigrant entrepreneurs are stimulating growth and creating more new jobs in food manufacturing and health care, the study found.

Despite that impact, tapping into the economic potential of immigrant entrepreneurs will require far more attention and support from policymakers, business-advocacy groups, and community development organizations, the study's researchers said.

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Small Talk: Postal rate hike changing the way many do business

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When postal rates go up on May 14, many small business owners will be looking for ways to save on their mailing costs. Many will switch to e-mail and other high-tech methods, while others will opt for smaller envelopes or thinner packages.
    And some will take more drastic steps - such as abandoning higher-cost, low-margin parts of their businesses.
    Steve Weber, who sells books online, already stopped shipping some lower-priced books in recent years because he simply couldn't make enough of a profit as mailing costs increased. When rates rise again, he expects to pare his inventory further, discarding or donating books that would sell for $5 or less.
    ''I'll probably downsize quite a bit and focus in on the items that are worth more money,'' said Weber, adding that he'll also be shipping fewer books overseas.
    Weber noted that there are booksellers whose specialty are books that cost just a few dollars, and so shipping costs - which can be limited by online retailers that display the booksellers' inventory - can offset or outstrip any profits. That means some book merchants will be forced to find entirely different books to sell, perhaps targeting a niche market.
    ''The key to making money is to specialize,'' said Weber, who runs his business, Weber Books, from Falls Church, Va. ''You've got to focus in on markets like collectible cookbooks or poetry.''
    The postal rate change that will send the cost of a first-class stamp up 2 cents to 41 cents will also make it more expensive for businesses to send most of their letters and packages. Evan Bloom, who co-owns a Sir Speedy printing franchise in Westbury, N.Y., said that while in the past the U.S. Postal Service based its prices on weight and size, now thickness of a letter or package is being thrown into the mix.
    He noted, for example, that a business sending out a letter with a complimentary pen to a prospective customer has only had to worry about the weight of the package. But as of May 14, the thickness of such an envelope will figure into the cost because the pen will make it harder for the package to be sorted.
    Bloom said many companies will be able to save on postage costs by using different size envelopes or making smaller mailings. But, he said of the increase, ''there's no way to avoid it entirely.''
    He expects his clients to do what his company has already been doing to contain its own costs - culling mailing lists to target the best sales prospects. ''It makes me think more in detail about how I'm mailing, whether it will reach the people we need to,'' Bloom said.
    Bloom also expects the postal increase to affect his revenue as well as his costs. ''Some clients will now decide maybe they'll do a little less,'' he said.
    The postal rate hike follows by several months rate increases at package delivery services including FedEx Inc. and UPS Inc. And so the higher cost of mailing and shipping is likely to make many small businesses turn to e-mail and Web-based mail to send out letters, reports, presentations, projects and more.
    Andy Abramson, chief executive of Comunicano Inc., a Del Mar, Calif.-based marketing firm, said his company uses e-mail and the Web to send and receive most of its documents, bills and letters. For larger mailings that are too big for some Internet service providers or servers to handle, Comunicano relies on companies that deliver PDF files.
    Business owners wanting to learn about the various high-tech ways of mailing need only talk to other, more tech-savvy entrepreneurs, or to search the Web. While there are many sites run by companies wanting to sell you services, you can still learn about your options without signing up. You can also get some help from SCORE, the organization of retired executives who counsel small businesses for free; its Web site is www.score.org.
    But Abramson, who noted that he is the son of a postal worker, said businesses shouldn't expect to abandon regular mail altogether. Some pieces of mail can have an impact - especially an emotional impact - that e-mail and PDF files just can't deliver.
    ''There is something special about receiving a card, or a calendar that goes on your wall,'' he said.

Source: Salt Lake Tribune - Small Talk: Postal rate hike changing the way many do business

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