I heard on the radio the other day that California became only the second state (after Massachusetts) to permit same sex marriage. And that got me thinking about bad entrepreneurship research.

While it might be strange that my mind goes from same sex marriage to entrepreneurship research (and I won’t deny that such a leap is strange), there’s a logic to my thinking.

Much research about entrepreneurship looks at the correlations between two things and infers a causal relationship. For instance, the fact that people who are more educated are more likely to start businesses leads many observers to explain that education causes people to start businesses.

But a correlation between two things doesn’t necessarily mean that they are causally related. This is what leads me to same sex marriage and venture capital.

California and Massachusetts, the two states that permit same sex marriage, had $17.3 billion in venture capital investment in 2007. The rest of the country had $13 billion. Therefore, states that allow same sex marriage have more venture capital than those that don’t (although we don’t quite get a statistically significant difference if the variance in the two groups of states is different because only two states allow same sex marriage).

Maybe I’m missing something, but it’s difficult to see a causal relationship between same sex marriage and venture capital. It seems like the relationship is just an artifact of something else.

But back in 2002, Richard Florida published a book called The Creative Class in which he argued that places that have a higher proportion of gay people have more technological innovation. He explained that this statistical relationship exists because places with more gay people are more diverse, and diversity encourages innovation.

Could Professor Florida be right? Could states more tolerant of gay marriage have more venture capital because they are more supportive of diversity and, thus, efforts to encourage innovation?

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About the Author: Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of eight books, including Illusions of Entrepreneurship: The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By; Finding Fertile Ground: Identifying Extraordinary Opportunities for New Ventures; Technology Strategy for Managers and Entrepreneurs; and From Ice Cream to the Internet: Using Franchising to Drive the Growth and Profits of Your Company.

This is a post from: Small Business Trends

Same Sex Marriage and Venture Capital

In his ground-breaking work, The Long Tail, Chris Anderson says that there’s money to be made in the long tail of niche offerings. It’s called the “long tail” because if you look at demand on a chart, there is high demand for a small number of hits or blockbusters, but the demand for niche offerings tails off in a long flat curve — hence the term “long tail.”

Recently, Anita Elberse, Harvard Business School professor, published a critique of Chris Anderson’s long tail theory in the Harvard Business Review. Based on her research of two markets, she says Anderson is wrong and there is more money to be made in a few blockbusters or hits, than in niche offerings.

So, is it time to chuck Anderson’s long tail theory?

Speaking from the perspective of small businesses, the answer is an emphatic “NO.”

Elberse may have a point when it comes to large corporations. But when you view it from the perspective of small businesses, the answer is: Anderson’s long tail still makes perfect sense as a product and market strategy for many small businesses.

You have to remember that Elberse views the issue through the prism of large corporations. She gives the example of Grand Central Publishing (formerly Warner Books), and how they publish 300 titles a year. They may only heavily market two of them in a calculated gamble on them becoming blockbuster hits. Many of the other titles they publish are money losers. The book company has to invest millions in marketing the two chosen blockbuster candidates. If their gamble pays off they earn several million in profit from the two blockbusters. Although risky, in the end it may be worth it to focus on a few blockbusters.

But here’s my point: Small businesses do not have millions to invest. Small businesses have an infinitesimally small chance of ever creating a blockbuster. So the blockbuster option really isn’t an option for 99.9999% of small businesses anyway.

No, many of us small business owners are forced to live in the niches if we want to build a business.

Often the big markets are saturated by well-funded players and if we want to compete we have to find an underserved niche. We can keep our costs low, so we have the advantage of being able to deal in niche offerings more profitably than large corporations. Besides, we don’t have the marketing funds needed to create blockbusters, so we may not have any choice, anyway, but to live in the long tail — anything else is a pipe dream.

Steve King of Small Biz Labs emphasizes the economic realities of long tail niches to small businesses:

Our research shows that the long tail is happening and the number of niches able to support small businesses … is rapidly increasing. The two main drivers of this are:

1. Reductions in the cost of doing business in many niche markets. Technology, outsourcing and access to third-party services are making it easier and cheaper to create niche or highly customized products and services.

2. The Internet has made it cheaper and easier for buyers and sellers of niche products and services to find one another. This means the producers of niche products can cost effectively attract enough customers to create viable niche businesses.

These two drivers are combining to shift demand curves and create many new niche opportunities - for both digital and physical goods ….

Here’s the bottom line: niche offerings — long tail offerings — continue to make financial and strategic sense for small businesses. For large corporations, maybe not so much.

Just understand the difference depending on the size of your company — don’t let articles like Elberse’s confuse your strategy and get you off track. Elberse’s conclusion suggests the long tail may not make sense — for large companies. But for your small business, the long tail and niches may be just where you need to be. In fact, they may be the only place you can afford to be.

This is a post from: Small Business Trends

Is it Time to Chuck the Long Tail Theory?

B. Smith of Wealth and Wisdom, recently put a lot of thought into a touchy topic: what to do if your family asks for money.

His article leads with a common misconception about entrepreneurs: family members think that just because we are in business for ourselves we must be loaded. He writes:

“For entrepreneurs it can be even worse. People assume that just because you own the company that you are rich and that they are entitled. You can easily become their personal bank … or their welfare system.”

Smith shares 7 tips for how to handle this delicate situation when you are asked for money, all of them good ones. His point number 3 really hit struck a nerve with me: “Separate emotion from fact.”

The same principle could apply to family members who ask for jobs from entrepreneurs.

When I worked on the franchise side of Pearle Vision I encountered situations where owners hired family members to work in their stores. It was with a sense of duty that my franchisees would take on family members — giving them a job and in too many cases beginning the downward slide of their profitability.

It was difficult — almost impossible — to separate the emotion of being related to the fact that perhaps they weren’t the best employee for the business. In one horrific experience two members of the same family went into business together — 50/50. When the situation went south, the ugly battles began.

Smith’s tips for dealing with this highly charged situation of family and money resonate when it comes to family members in your business. As difficult as it sounds — you have to separate the emotion from the fact and truly assess what is best for your business.

In the case of going into business together with a family member: make sure someone owns 51%. You!

This is a post from: Small Business Trends

Between a Rock and a Hard Place: Hiring Family

While I don’t normally get into Internet connection tips on this site, the following topic is so important that all entrepreneurs and small business personnel should be made aware of it.

That is: watch out for so-called “free public WiFi” connections.

Let’s say you are traveling on business or just want to enjoy the company of others by going to a public place like a coffee house to work, instead of staying isolated in your office. (Hey, I’ve been on plenty of business calls where I could hear the whir of the espresso machine in the background!)

You open your laptop. You check your wireless connections to see if there is an open and free WiFi network.

You happen upon something called “free public WiFi.” Sounds like exactly what you need, right?

Well, not so fast.

In the past few months as I’ve traveled, I kept coming across these networks designated “free public Wi-Fi” to the point they seemed ubiquitous. But in a way the designation “free public WiFi” struck me as too obvious — like a come-on. Some small voice inside told me to avoid those WiFi networks. Good thing I did.

A recent article in Small Business Computing points out those networks are most likely being set up for nefarious purposes. They are what is known as “ad-hoc” networks and seldom are ad-hoc networks used to deliver Internet access. More likely they are there to spy on computers or infect them with malware. The article also has some good tips for how to recognize an ad-hoc network and avoid having your computer automatically connect to it.

Read it so you can protect yourself when you are working outside the office.

This is a post from: Small Business Trends

Coffee House Survival Tip: Watch Out for Free WiFi

When speaking at events, I get the best response from talking less and asking more … in other words, encouraging the audience to share their examples and ideas. It’s more interactive that way. It’s more interesting. Everybody benefits from a wider set of experiences.

The event I attended this past Monday with a group of small-business owners in Houston, Texas was no exception.

At that event I asked those attending whether they were using various social media websites and online Web 2.0 tools. For those who responded “yes” I would then ask “what kind of results are you getting?”

In this post I’d like to share with you some of what those business owners said about using social media in real life situations.

(more…)

This is a post from: Small Business Trends

Real Life Examples of Business Owners Using Social Media

Thanks to our regular readers for bringing to our attention their newest tools to help small businesses work more efficiently.

Here are 5 new services you’ve emailed us about, for other readers to check out:

Email Center Pro — If you could pick one daily task that never seems to go away, what would that be? How many said EMAIL? Dina Petrosky let us know about an email management solution called Email Center Pro, designed for the entrepreneur managing a number of email addresses. It funnels all designated email accounts into one place, where multiple team members in the company can see and manage the responses to the email messages. There is a free version and the for-a-fee option. If you have set up multiple company email address like: info@, yourname@, contactus@ …. then Email Center Pro can help manage those without internal duplication of effort.

WORKetc — Sean Ashe tells us about a software program that accommodates small biz document creation and management needs above and beyond Word and Excel. The WORKetc software website explains what it will do for small biz owners:

“… you can record billable time, create invoices, help your customers with support issues, generate quotes, manage projects, track sales leads, share documents, run an email marketing campaign, schedule meetings, create online forms, write a blog, generate detailed reports and more.”

Rather than piece together a series of software packages or online services to run aspects of your business operations, it sounds like WORKetc takes the place of a lot of those. It appears to be mainly a CRM application and a form creation software, with some document management functions thrown in.

Track My Shipments — Do you send or receive a lot of shipments using a variety of carriers? Andrew Bennett told us about his service that allows you to track all your shipments that use UPS, FEDEX, DHL or USPS. Track up to nine shipments at a time for free. There’s also a for-fee version. Sounds like it saves time and keeps you on top of your shipments. Andrews says they also offer an additional service:

“We also offer a White Label service for online retailers which keeps their customers up to date with the location of their orders. This really helps keep customers from contacting our clients during the 2 or 3 days of shipping time.”

actiTIME — Time is our most precious commodity — a rare and finite thing. Anastasia Bashagurova of actiTIME let us know about a service her company provides. ActiTIME is a project management service that tracks the time by customer project, by employee and helps you management expenses. Anastasia says:

“ActiTIME allows you to track the time spent on each task, project and client and make reports on the work performed. Being really easy-to-use and not overloaded with complicated functionality, actiTIME is great for small and mid-sized companies.”

ActiTIME is free and there is a demo that helps you see how to navigate the system.

Protus — Last but not least, a service that has already been helping entrepreneurs manage their fax and phone services has acquired an automatic email marketing solution. Ken Krause of Protus filled us in on the latest operational and marketing service available from his company, that can help entrepreneurs save time and money:

“Entrepreneurs have been able to use MyFax to send and receive faxes when they’re out of the office, and my1voice allows them to set up phone extensions, obtain professional voice mail services, and even forward their phones. Now, with the acquisition, they can send targeted e-mails to help them generate more business and cause their phones to rings.”

Thanks for letting us know about these new tools designed to help small business personnel operate our business more effectively and efficiently.

Try them out. And share your experiences, too — let the community know what you like about these and how you use these services.

This is a post from: Small Business Trends

5 Services to Streamline Your Business Operations

In working with business owners and entrepreneurs over the years, I’ve noticed that when it comes to acquiring new customers, most of them are hunters. They pounce on new leads, chase the prospects, make themselves readily available to the prospect and then bend over backwards to land the new customer.

On the other hand, I’ve noticed that the most successful business owners and entrepreneurs take a different approach to customer acquisition: they are harvesters. They gather in all their leads, work hard to prevent any from slipping through the cracks, cultivate those leads and then harvest them when the time is right for the customer.

The most interesting thing about these two styles is that the hunter usually gets tired, a bit humiliated and ends up getting small margins. On the other hand, the harvester stays fresh, confident and usually earns higher margins.

What I’ve described here is the difference between a sales mentality (hunter) and a marketing mentality (harvester). Every business owner or entrepreneur who experiences some level of success has hunting skills … and that’s good. But the difference between minor success and major success is the difference between hunting and harvesting.

Oh, and just so we’re clear … I’m not saying that harvesting is an easy, non-aggressive job. When it’s time to harvest, be sure you swing the sickle sharp and fast.

Happy harvesting!

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About the Author: Clate Mask is the President and CEO of Infusionsoft. He loves to turn small businesses into big businesses. In addition to running the day-to-day operations of Infusionsoft, Clate also writes at the Infusion Blog about marketing and entrepreneurship topics.

This is a post from: Small Business Trends

Are You Hunting or Harvesting?

There’s a wonderful new book out called Predictably Irrational by Dan Ariely that points out many interesting findings from behavioral economics that help to explain why people behave the way that they do.

The book offers a lot of useful insights for anyone who runs their own business.

Here are three things that the book explains, and the implications of that point for entrepreneurs.

1. People overvalue what they have. Ariely points out that people who have something consider it to be much more valuable than people who don’t have it. This point explains why it’s so hard to get a business buyer to offer you a price for your company that you think reflects its worth and why it is difficult to get an investor to value your business at what you think it is worth.

2. Options distract us from our objectives. Ariely explains that we have an irrational desire to keep our options open, which hinders our performance. This point explains why companies that fail to focus often do worse than those that focus on one product or market.

3. The power of price. Ariely points out that we believe that things that cost more are of greater quality than things that cost less. This point explains how entrepreneurs can use pricing strategy to make money from the irrationality in human behavior.

The book is a great read for anyone, and certainly worth its cost for entrepreneurs.

Check out his blog, too.

Editor’s update July 4, 2008:  more discussion about this topic is over at the Small Business Brief Forums. 

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About the Author: Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of eight books, including Illusions of Entrepreneurship: The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By; Finding Fertile Ground: Identifying Extraordinary Opportunities for New Ventures; Technology Strategy for Managers and Entrepreneurs; and From Ice Cream to the Internet: Using Franchising to Drive the Growth and Profits of Your Company.

This is a post from: Small Business Trends

Behavioral Economics for Entrepreneurs

What’s the answer to being downsized? According to some, the answer is “start a business.”

In a recent survey by RingCentral, twenty-two (22%) of small business owners said they started a business after being downsized. One of RingCentral’s customers, Chad Whitermore, started ChairsForYou.com after being downsized.

His example is not unusual. With starting a business being so inexpensive, it can seem like an easy answer to a difficult situation. Of course, once you get started in your business, that’s when the real challenges begin.

Keeping expenses low is a huge part of being successful in a small business. Most business owners instinctively know they have to structure their businesses to keep expenses low, especially in the face of soft economic times.

For instance, other parts of the survey show that a low overhead structure characterizes many small businesses today:

• Nearly 40% of small businesses cut back on office space to have their employees work from home.

• About 50% are conducting more meetings virtually versus in person.

“This survey demonstrates that the workplace is changing, as many former employees become business owners and many employees in small businesses begin to work remotely. The ability to work independently and remotely offers new efficiency opportunities, but it also means working without the established infrastructure of a large organization,” said Vlad Shmunis, CEO of RingCentral.

The survey was conducted by RingCentral, a provider of hosted phone systems that give you voicemail, automated attendant and other capabilities, based in Redwood city, California.

UPDATE:  Read the press release about the survey here.

This is a post from: Small Business Trends

Downsized Into Entrepreneurship, the 21st Century Way

My latest article at Inc Technology is up. The topic is about the glut of content on the Web today.

The bar for quality content keeps getting higher.

What that means for you, if you publish content on a blog or website, is that you have to be choosier about topics — and more creative in how you present them.

I give 3 tips for content:

- Focus on topic niches, rather than general topics. Before you write that “top 10 list of marketing ideas” do a search in Google and see if there are already articles on that topic. If so, consider how to make your article different. One good way is to go narrow and deep — because a lot of the broad and general topics have been done to death. Narrow the topic. Make it “top 10 marketing ideas for under $5″ or “top 10 marketing ideas for home-based landscaping businesses.”

- Write about your own experiences. The one thing that I guarantee has not been written about ad nauseum are YOUR experiences. Instead of writing on broad topics, write from the perspective of what you have experienced, done, learned, etc. Only you can write that. Want an example? Here is an article I wrote about a true story that happened to me — it got tons and tons of readers and links: Hacked: It Could Never Happen to My Site (Famous Last Words).

- Add value to the news, don’t repeat it. Even when writing about current news articles, add value to the basic story, don’t simply regurgitate it.

The key is: stretch yourself when it comes to creating quality content.

This is a post from: Small Business Trends

The Web Content Bar Keeps Getting Higher