The good news is that there are some real gems among the few releases we had.
Entrepreneurial Geography
In light of the frequently repeated jobs-jobs-jobs mantra, a policy brief out of Harvard’s Kennedy School of Government answering the question “What Makes A City Entrepreneurial?” was both timely and intriguing.
On the surface, the answer to that question is fairly intuitive — although I’ll put it differently than the good researchers at Harvard did. The easier and cheaper it is to start and run a business, and the more room there is in the local or regional economy (less dominated by large companies that crowd out the smaller ones), the more independent small businesses there are.
That matters because these guys found that a 10% increase in average establishment size in a metropolitan area corresponded with a 7% decline in subsequent job growth due to new startups (and you’ll recall that the Kauffman Foundation has pretty well established that startups are responsible for all net new jobs).
For that matter, even new startups that are associated with older, larger, established firms don’t really help. In that situation, there was a 5% decline in employment growth due to new startups.
Conversely, they found that:
In fact, along with January temperature and share of the population with college degrees, an abundance of small, independent firms is one of the best predictors of urban growth, a fact that raises questions about the occasional local development strategy of chasing large employers with generous tax breaks. (Emphasis mine)
Since this is a policy brief, it would have been incomplete without a few policy recommendations. First on their list: lawmakers, stop with the smoke-stack chasing, they say. Those big boys “may provide an immediate headline associated with new jobs,” but for sustained job growth you do better with small business startups.
Another policy recommendation: instead of doing things that government isn’t good at (like playing venture capitalist), policy makers should focus on “quality of life policies that can attract smart, entrepreneurial people” and then, once they arrive, get out of their way.
The Real Voice of Small Business … No, Really
The National Federation of Independent Business (NFIB) came out with a rather bizarre piece of research this month in answer to the question, “Does the NFIB’s research reasonably represent the majority of small business owners?” (The paper can be downloaded with this link.)
In order to answer that question, they performed parallel surveys of their members and a group of business owners discovered by way of DUNS numbers. They found that the responses of the two groups were very close, except that, on occasion, the DUNS group was a bit more conservative. Thus, they concluded, their surveys were a valid voice of U.S. small businesses.
The only problem with that is that small businesses with DUNS numbers are not typical of the majority of U.S. small businesses either. Most microbusinesses, for example, don’t have DUNS numbers. So, given the nature of the DUNS number business population, this research hasn’t really proved anything — or at least, not to anyone who was inclined to ask the question to begin with.
Speaking personally, I don’t really know why the NFIB would care one way or another. They do good, clean small business research, and if their samples tend to better reflect the larger small businesses that would be called medium-sized businesses anywhere else in the world, that’s not a bad thing. Somebody needs to do research on them; they are seriously outnumbered by microbusinesses but they serve an important purpose for the economy, as important in their way as those feisty startups that everybody loves this week.
Microloan Under The Microscope
During the first half of last year, domestic microfinance outfits found themselves at the center of quite a bit of warm and fuzzy attention as one of only a handful of financial services providers still providing loans to small businesses.
In fact, there were some small business owners who would otherwise not have considered for a microloan (being outside their normal target market), who concluded after an experience with a microfinance organization that the typical combination of financing plus technical assistance was the best thing since sliced bread.
The Aspen Institute has been tracking outcomes for U.S. domestic microfinance efforts in an initiative called MicroTest and a recent report looks at five years’ worth of outcomes to get a bigger picture.
The picture is not what you might expect. There were not as many episodes of “build the business from scratch” stories to be had. Over the five years of data that had been collected, the most successful microloan borrowers came into the program with an existing business that was earning something along the lines of $100,000 in average annual revenues.
The five-year survival rate for these firms was 88% and earnings increased over the period (with microenterprise development organization support) to an average of about $170,000 per year. Successful microfinance clients also tended to stay small but they still tended to better-than-double the size of their workforce, on average, over the five-year period (from 2.1 workers to 5.6 workers).
Most significant from this study is its finding that success for these clients is positively related to borrowing. Getting business management training alone is not enough. Given the way that most microbusinesses are undercapitalized, that makes quite a lot of sense but is also only underscores the difficulty that microbusinesses were having with access to capital long before Wall Street crashed and burned.
The health-care reform law, all 2,400-plus pages of it, will take eight years to be fully implemented. Some self-employed people and small employers will begin to feel the impact almost immediately. Others won't notice changes for a few years. Here are the major adjustments.
Preexisting Conditions
By June, a temporary high-risk pool will be established so that uninsured people with medical conditions can buy insurance coverage at reduced rates. Starting this fall, insurance companies will no longer be able to put lifetime limits on coverage or rescind coverage, except in cases of fraud.
By 2014, insurance companies will be barred from rejecting individuals because of preexisting conditions.
That's welcome news for cancer survivor Susan Carrier, a self-employed marketing writer and blogger based in Altadena, Calif. Treatment that included a stem-cell transplant was covered through her husband's employer-sponsored policy, but they have since separated. Should they divorce, she says, "it's encouraging to know that my preexisting conditions won't prevent me from obtaining coverage."
Health Exchanges
Beginning in 2014, individuals and small businesses will be able to shop for coverage in new state-run health exchanges. About 25 million people are projected to use the exchanges.
Paula L. Johnson, a self-employed graphic designer in Pasadena, Calif., says she is likely to be one of them. She currently pays $723 monthly for health coverage through Kaiser Permanente.
"The monthly premium is so high I will have to find something else next year," she says. Her premiums have jumped by $100 per month for the past few years, squeezing her budget. "If I can get lower-cost insurance, I can save more for retirement," she says.
Companies With Fewer Than 50 Employees
These small ventures, which make up 96% of U.S. businesses, are exempt from the mandate that requires larger enterprises to provide health benefits by 2014 or pay a $2,000 penalty per employee.
Merely knowing that the 50-employee threshold exists may discourage growing enterprises from adding full-time employees, says Jim Garland, CEO of Sharp Details, which cleans private planes. The company, based at Washington's Dulles Airport with operations along the East Coast, is growing and needs more help, but Garland is wary about crossing the 50-full-time-employee threshold and having eventually to provide health benefits. He currently has 35 full-timers and 23 part-timers. He provides 100% coverage to his management team and 50% to additional employees who elect to be covered.
Garland predicts that many small companies will find a way to stay under 50 employees because of the insurance mandate. "They'll break up their operations into separate companies, hire more part-timers, or do whatever they have to" to stay in business, he says.
Another result of reform that Garland will feel personally is a tax hike for high-income individuals, starting in 2013. The law is funded in part by a 0.9% (from 1.45% to 2.35%) tax increase on wages over $200,000 for individuals and $250,000 for married couples. The same taxpayers face a 3.8% tax on unearned income, starting in 2013.
Garland says he resents the fact that his taxes will go up while he won't benefit directly from reform. "Part of the idea of how this is going to be paid for is by taxing people just like me," Garland says. "It seems the more successful you are, and the more risk you take on, the more burden you bear."
Tax Credits for The Smallest Companies
Businesses that pay more than 50% of employees' health benefits, have fewer than 26 employees, and pay average annual wages of less than $50,000 can claim a tax credit of up to 35% of the cost of premiums from the 2010 tax year through the 2013 tax year. The credit will go up to 50% in 2014 and can be used for two consecutive years after that.
One entrepreneur who says the credit may spur him to offer benefits is Paul Ward, CEO of Media Mechanic, a Web design and multimedia agency based in a suburb of Portland, Ore.
Ward is currently insured through his wife's employer and cannot afford to provide coverage for his two employees. The tax credits may change things. "I'm looking at the 35% tax credit this year and that's a fairly good chunk. That brings it down to where now it will make more sense to buy a premium for myself and my team," he says.
Some 4 million businesses are expected to be eligible for the credit this year, and the Congressional Budget Office estimates that the credit could save small businesses $40 billion by 2019.
Tammy Rostov already buys health coverage for herself and her five full-time employees at her Richmond, Va., retail store, Rostov's Coffee & Tea, but the cost has increased so much that she has considered dropping it in recent years. Getting tax credits will help, but she says she would probably continue to offer insurance even if reform had not passed.
"It's still something I would offer through the business because that's always been important to me. But this year I had to think about it hard because it got so expensive, I wasn't sure I could do it," she says.
letting employees shape their plans
Liz Parker, who founded the Tulsa Rib Company in Orange, Calif., in 1981 with her husband, has 17 full-time employees. She is looking forward to getting tax credits for the coverage she already offers, which has put her at a price disadvantage against competitors, few of which cover employees.
Parker hopes that small businesses will get prices comparable to larger businesses when they are able to buy pooled coverage through the small business exchanges. "I've been at a great disadvantage, but now there's an end in sight," she says.
By 2014, she will decide whether to continue offering group coverage or let her employees buy their own health insurance, perhaps with a pay raise to help. Individual employees could buy the coverage they need rather than having her choose a group policy that isn't necessarily a good fit for everyone. "It's a horrible feeling having to pick and choose the coverage options for everyone," Parker says.
Lani Hay is president of Lanmark Technology, an IT company based in Vienna, Va., that specializes in government contracting work. The former U.S. Naval aviator opened a one-woman shop in 2003 and now employs 150.
Hay already provides insurance but worries that her costs will increase dramatically from now to 2014, when she'll gain the option of buying into an exchange.
risk: tax increase on unearned income
"In the past three years, my health costs have increased each year by double digits. That cuts right into the profit margins of my company," Hay says. "For any small business, whether it has 10 or 500 employees, it's a challenge having enough working capital. But to be competitive and attract the same employees as the bigger guys, we have to offer the same benefits package they do."
Another worry plagues R. Michael Johnson, president and CEO of Cox Industries, a midsized lumber company in Orangeberg, S.C. He provides a generous benefit package for his 400 employees, but the company relies on family shareholders and outside investors, some of whom will be affected by the tax increase on unearned income for wealthy individuals.
"The 3.8% tax on unearned income will increase the earnings requirements on [subchapter S corporations] such as Cox to satisfy the risk our shareholders take by investing in small businesses like ours," Johnson wrote in an e-mail. "This small percentage seems benign, due to the small number and putting it on 'unearned income,' but this income is earned. In fact, our team works hard every week to earn this income and reward the shareholders that patiently leave their capital in the business."
Another thing that worries Johnson is his calculation that he might save up to $2 million if he were to drop his employee benefits and instead pay the $2,000 per-head penalty. "We are not even remotely considering this option, but I hate to think that new legislation would actually make dropping our plan more appealing to businesses like ours," Johnson says.
Great advertising campaigns, like great companies, are always rooted in a big idea. The trick is to make sure they're in sync
Conventional wisdom says the secret to great advertising is developing a big idea for a campaign. In reality, the trick is developing a campaign for a big idea.Mere semantics? Not at all.
As a young company takes root and expands, it begins to establish its brand. With each passing day, the things it does enhance (or detract from) the value of that brand. Over time, that equation begins to work in the opposite direction as well, and branding can be used to enhance the meaning and value of the company. But for this process to be effective, the business and the brand must remain intertwined.
The world's best marketers understand that as valuable as their products and services are, products and services come and go. Brands, however, live on indefinitely. As a result, they invest in and celebrate and protect their brands in every way they can, wrapping them around big, everlasting ideas.
Apple's (AAPL) animating idea is innovation. Whether it's the design of the iPhone, the functionality of iTunes, the customer experience in the Apple Store, or the light humor of the "Mac vs. PC" ads, the company is all about providing pleasant surprises to its customers. As a result, Apple has a legion of loyal followers and is able to command premium prices for its offerings.
Intel's (INTC) big idea is performance. The chipmaker is determined to never be outperformed by competing technology on things like speed, energy efficiency, and adaptability. That's why when a computer sports an "Intel Inside" badge, people are more apt to trust it, even if (or perhaps because) they know little about the workings within.
Foundation for Lasting Success
For Wal-Mart (WMT), the idea is savings—a concept the company has so effectively owned over the past 48 years that it became the world's largest retailer. Occasionally it loses sight of its originating idea, but it always returns to the core.
What these and other dominant companies know is that sustainable success is built on the foundation of a singular idea, around which everything they do is oriented. Advertising is just one of those things.
Sometimes, as in the case of General Electric (GE), the company is closely associated with an actual word ("Imagination"). In other cases it's the underlying concept that's important. You won't see Nike (NKE) highlight the word "motivation" in its advertising, but motivation is what the brand ("Just Do It") is all about. Leading companies like these filter their strategic decisions around their evergreen, animating ideas, which enable them to sustain success over time.
Why do people drink Coca-Cola (KO)? For some, it's a matter of taste. For others, it's how well Coke quenches their thirst. Still others like the jolt they get from the formula's unique combination of sugar and caffeine. How can Coke effectively market to all the different people who choose its product for their own personal reasons? By planting its flag in an idea with which no one will take issue: happiness.
It's hard to argue with happiness. It's hard to be against happiness. And it's hard to find anyone who doesn't like happiness. Coke has decided to equate its brand with happiness, and orients its product, packaging, and promotion in that direction. (Ever see a "Happiness Machine"?). In a fast-paced, pressure-filled world, anyone can take a moment to "Have a Coke and a smile." (If that old slogan sounds familiar, it only proves the point.)
Your Animating Idea
GE puts its commitment to imagination this way on its Web site: "From jet engines to power generation, financial services to water processing, and medical imaging to media content, GE people worldwide are dedicated to turning imaginative ideas into leading products and services that help solve some of the world's toughest problems." As awkward as the company's major initiatives (Ecomagination, Healthymagination) sound, they further reinforce the idea around which the company is based. "For GE, imagination at work is more than a slogan or a tagline," CEO Jeff Immelt says on the site. "It is a reason for being."
Happiness. Motivation. Innovation. Performance. Imagination. Savings. These aren't advertising ideas; they're business ideas that have advertising implications. If you want your advertising to be more effective, ensure that it's rooted in the idea that animates your company. If you're not sure what that idea is, it's probably related to why you got into business in the first place. Rediscover your animating idea, make sure it's still sound (see "How Solid Is Your Brand?"), and orient everything you do around it—including (but not limited to) your advertising.
If you can prune away everything else and sharpen the point on your animating idea, your advertising will do its job better than you ever imagined.