Archive for October, 2010

Entrepreneurs Support Charities

Wednesday, October 27th, 2010

Entrepreneurial businesses are more generous than most of America’s largest companies. The survey “Entrepreneurs & Philanthropy: Investing in the Future” finds that 89% of entrepreneurs donate money and 70% also donate their time to charitable causes. The survey also reports that:

  1. Companies led by entrepreneurs donate twice as much of their profits to charity as compared with the Fortune-500. Entrepreneurs reported that their companies allocate an average of 3 percent of company profits to charity.  The comparable figure for the largest U.S. corporations is 1.2 percent according to the Chronicle of Philanthropy’s latest corporate giving survey.
  2. Twenty-six percent incorporated corporate philanthropy into their company’s original business plan; nearly 70 percent started supporting charities even before their companies became profitable.
  3. Sixty-two percent believe that supporting charities makes their companies more successful over the long term.
  4. Sixty-one percent of entrepreneurs serve on the board of a non-profit organization; 50% serve or have served as a board chair.

“Just as they put their hearts and souls into their businesses, entrepreneurs pour themselves into the causes they care about,” says Sarah C. Libbey, president of the Fidelity Charitable Gift Fund.  The Fidelity Charitable Gift Fund conducted the survey in cooperation with Ernst & Young. To download the survey, click here. These findings underscore the importance of small businesses and entrepreneurs to our society.

Risky Customers

Tuesday, October 26th, 2010

It is not just the banks that are too big to fail. Smaller US businesses that make components for large manufacturing companies were devastated by the reduction in orders during the economic downturn. When we think of supply chain risks, we typically think of our vulnerability to a single supplier that produces a component critical to the creation and delivery of our products. We rarely consider what happens when the customer fails. The Financial Times has an excellent article describing how the recession taught smaller businesses to diversify their customer bases. A Deloitte consultant quoted in the article offers good advice about the risk of having “too many eggs in the same basket.”

Workers Prolong a Service Disruption

Monday, October 25th, 2010

A minor mishap turned into a major nuisance when public officials failed to plan for work rules in responding to a utility failure. Their blunders reveal important lessons for small businesses dealing with unionized workforces. Today, a section of a 30-inch water main in Jersey City broke and was shut down for repair. This particular water main serves most of the large companies in Jersey City, those that are along the Hudson River waterfront. The first lesson is the need for redundant delivery methods. You should never have a system vulnerable to a single point of failure.

The failure of the human systems to promptly repair the broken pipe is inexcusable. The water main is the property of Jersey City and was under contract for repair under the supervision of United Water of Jersey City. The workers belong to a union which began to negotiate a scope of repair work with the City. The City reportedly offered no objection and the negotiations were extended to ensure that the repair would not begin until after business hours; that is, when payment of overtime wages is required. Had the repair work started immediately, the disruption would have been minimal. But the work was delayed until the night time hours, such that employees who work in the area, in the upper floors of the high rise office buildings were unable to use their restrooms for most of the day. They went home in the evening unsure if water service would be restored when they would return to work in the morning. Don’t make the mistake made by Jersey City public officials today. If your business is dependent of unionized workers, make sure the contract spells out who is immediately responsible for what when disaster strikes.

Bloomberg Mentor

Saturday, October 23rd, 2010

Bloomberg Business Television has a great new program “The Mentor”, in which seasoned entrepreneurs advise start-ups. The first in the series features Jim Koch of the Boston Beer Company advising two partners who have started a microbrewery. You can watch the program online, which I heartily recommend. Jim Koch’s insight is great. He says:

“Remember that getting rich is life’s biggest booby prize. People who aren’t happy want to be rich.  A small business has a really high chance of making you happy if it’s something you really care about. So focus on that. Whether it’s going to make you rich or not, who the hell knows? But if you’re doing what you love, it will make you happy and you won’t feel like you ever have to go to work.”

Impact of Climate Change on the Gulf Coast

Friday, October 22nd, 2010

Looking Into the FutureA new study released by Entergy Corporation reports that climate change, economic development and land subsidence risks could cost communities in the Gulf Coast states over $350 billion in cumulative economic losses in the next 20 years. Already, wind and storm surge damage today cost this region $14 billion annually. But by 2010, such losses could reduce GDP by 2 – 3 percent each year.

The study on the economics of climate adaptation across the Gulf Coast states examined 77 coastal parishes and counties in four energy-producing states, including Texas, Louisiana, Mississippi and Alabama. The analysis focused on the potential impact of natural hazards on key sectors to the regional economy, particularly the electric utility and oil and gas industries. My former employer, Swiss Reinsurance Company, contributed its expertise to this research. To read the report, “Shaping Climate-Resilient Development”, click here.

Desperate Politicians

Thursday, October 21st, 2010

I read in the news today of a proposal under consideration at our state legislature in Albany that would assess $15,000 fines against car owners for their failures to remove snow and ice from their vehicles. Most cars on the road probably are not worth $15,000. The car depreciates 50% in value the minute you drive it off of the dealer’s lot. Crazy ideas such as this proposed fine reveal the desperation of our politicians to find revenues. Sneaky fees are taxes in disguise and we should be vigilant. There are so many fines, fees and penalties for matters that can hardly be considered infractions that you simply cannot keep track of them all. It is disheartening.

Penny Wise, Pound Foolish

Wednesday, October 20th, 2010

In connection with austerity measures, the UK government reduced spending for flood and coastal defenses, a move that elicited sharp criticism from insurance industry trade groups.  Nick Starling, the Association on British Insurers director of general insurance and health said: “The Government is right to recognize the importance of continued investment in flood defenses. But we are disappointed that this will not be maintained at current levels, given the scale of the problem and the wider economic benefits provided by flood defenses to our communities and businesses.” The UK, like the U.S., China and other major economies, has experienced severe flooding this past year. Fortifications against flood risk makes insurance affordable in vulnerable communities. It also reduces the disaster relief burden the government would shoulder should severe floods occur. The fiscal pressures on governments result in aggressive public risk taking: if the gamble pays off, the taxpayer saves money. If it doesn’t, the losses are greater than they would have been with an investment in systems for risk mitigation. It is no different than in the U.S., where many state governments are foregoing reinsurance coverage altogether.

Shouldn’t Care Be the Norm in Public Spending?

Tuesday, October 19th, 2010

The Financial Times published an excellent column describing how some entrepreneurs believe that the “age of austerity” could benefit private businesses. The UK government is undertaking a spending review to identify items in the public budgets that can be cut. Some entrepreneurs are hopeful that government agencies will take this opportunity to review their procurement policies to see where better value can be gained from small business suppliers. This column reminded me of a 2005 Leadership Exchange event held at Long Beach. A speaker from the California Governor’s office expressed surprise at the quality of service she had received from a small local print shop. Not only was the price the proprietor offered for his services below the bid submitted by a national chain, he followed up diligently to ensure that she was pleased. She had not expected such artisan-like care from a vendor. Do we need to wait for an economic crisis to implement such cost-savings and quality control measures? Shouldn’t this be our normal procedure? I see real opportunities in this economic crisis to create opportunity and was encouraged to read the FT’s column.

Tethered to a Real Estate Asset

Monday, October 18th, 2010

Time to Rethink Housing Assets

Declining home values are choking a major source of small business capital. Sadly, the consequences are most severe in the Gulf Coast states that are dealing with the longer-term consequences of the oil spill. According to Lending Tree, three of the top ten states with underwater mortgages are Florida (47.8% of mortgages in the state are underwater, meaning negative equity for the homeowner), Louisiana and Mississippi, each with 23.8% of mortgages underwater. Nationwide, small business owners frequently tapped home equity lines of credit to finance their businesses. Barlow Research’s quarterly small business survey reports that one-quarter of respondents used their homes as collateral for their businesses or for personal loans in which the proceeds were used to finance the businesses. With housing prices having fallen by one-quarter from their peak in March 2006, the home ATM machine has dried up. At the same time, banks have tightened loan underwriting criteria to deal with their nonperforming real estate loans, leaving small business owners with few financing options.  Add to that pain the fact that more than 99.6% of all companies operating in the real estate and construction industries (according to the U.S. Small Business Administration) are small businesses, which took an extra hit from declining home prices. Small wonder that many Americans feel tethered to their homes. We must de-couple small business finance from housing finance and develop better lending options to resume growth in the small business sector.

Effects of the Oil Spill on Children

Sunday, October 17th, 2010

Disaster Stresses Children

The BP oil spill is responsible for health problems and financial hardship for Gulf Coast residents that may continue well after the cleanup work is finished, according to a team of researchers at the National Center for Disaster Preparedness at Columbia University’s Mailman School of Public Health. The researchers found that one in five residents surveyed earn less money now than before the spill; 8% of the 1,200 people surveyed lost their jobs. Households with incomes of less than $25,000 suffered the greatest economic impact. The economic stress felt by the parents trickles down to the children; one-third of the parents surveyed reported that their children have become anxious or depressed since the oil spill occurred. In addition to the psychological stress, medical problems, such as respiratory ailments and skin irritations, are related to the spill. The Children’s Health Fund is sending mobile pediatric units to help. “There are literally no pediatricians in the lower two-third of Plaquemines Parish, Louisiana, one of the worst-hit areas,” according to Irwin Redlener MD, the lead researcher of the National Center on Disaster Preparedness. Sadly, these difficulties appear likely to continue long after the disaster has receded from the newspaper headlines. As a society, we have not yet come to grips with the long-term needs of disaster recovery.