Create a company online

Forget “Joe the Plumber” and all the banter about the candidates’ tax plans. Yes, it’s important. But what about Sen. Obama’s and Sen. McCain’s’ positions on various workplace regulations? They’re awfully important, too, and yet nobody seems to be talking about them.

Raymond Keating, chief economist for the Small Business and Entrepreneurship Council argues that the presidential candidates’ proposals for changing employer regulations could potentially add a huge financial burden to small businesses – even more than the tax plans everyone’s arguing about. His analysis suggests that Sen. Obama’s regulatory proposals would be far more financially burdensome to businesses than Sen. McCain’s “sketchier” outline of what regulations he would push for.

Sen. Obama, for instance, supports expanding the Family and Medical Leave Act to apply to all businesses with 25 or more employees, compared to the businesses with 50 or more employees that must adhere to it now. What’s more, Sen. Obama supports changing the labor rules to make it easier for labor unions to organize, and tying minimum wage increases to inflation. “These key measures from Obama would be anything but positive for small businesses, and therefore, the economy,” Mr. Keating writes.

Sen. McCain’s regulatory stances, however, are far murkier. He voted for the original FMLA, Mr. Keating points out, but hasn’t openly addressed it in this election. Sen. McCain’s Web site says he sponsored an initiative to make workplaces offer more flexible scheduling to employees. But otherwise he seems not to have openly advocated many of the measures Sen. Obama has that could be very costly for businesses.

Both candidates have expressed support for opening U.S. borders more to immigration but want to enforce more costly workplace verification systems, Mr. Keating adds. (View the Small Business and Entrepreneurship Council’s side-by-side comparison of the presidential candidates’ here.)

Do you agree with Mr. Keating’s view that Sen. Obama’s regulatory proposals would be far more costly to small businesses?

Small-business owners and association representatives spoke out about the current economic turmoil at a House Small Business Committee hearing yesterday. They expressed a mixture of frustration with the government’s reaction to the credit crisis’s impact on small businesses and outright fear that many businesses will close if they don’t get some relief – soon.

“Our members are angry that the federal government is giving taxpayer money to big companies that have been horribly irresponsible while small businesses are not getting the money they need to keep their doors open,” said Margot Dorfman, chief executive of the U.S. Women’s Chamber of Commerce in prepared testimony. Instead of just bailing out the big companies, the government should instead — with a “big billion dollar punch” — set aside money specifically to assist small businesses having trouble borrowing to keep their operations alive. She said several members of her organization have come forward in the past 90 days saying they’ve had trouble securing loans and the majority of them have downsized employees. Other members, she said, have reported having their credit lines slashed in half by major and denied credit when they needed money to cover payroll or other operational expenses.

She recommended that the Small Business Administration loosen its criteria on its lending programs in ways to aid small businesses right now, pointing to a marked drop-off in SBA-backed loans. But any federal aid to small businesses should just be given to banks and specifically designated to small-business lending.

A couple of small-business leaders relayed heartbreaking stories about the havoc the economic climate has wreaked on their companies. Thomas Franke, executive vice president of Riemeier Lumber Co., a Cincinnati family-owned lumber company founded in 1925, told how his company had reached 150 employees and a record $58 million in sales in 2005 due to the housing boom. But the company began struggling financially in 2006, with the housing market’s collapse. And about 10 months ago, without prior notice, the company’s bank (which remained nameless) claimed the company defaulted on its loan covenant and insisted the bank find another lender. Unable to find other financing, the company eventually had no other choice but to close for good. By this August, the business began notifying clients it was closing and recently started auctioning off all its assets. (You can watch Mr. Franke’s testimony on the YouTube video above.)

Mr. Franke ended his testimony: “There are five employees left, including Ken [his brother and another executive vice president], myself, and three accounting people to do collections until the last day we’ll be at the facility, which is slated for Nov. 6. We will then close our door forever.”

Are you experiencing credit issues with your business? Are you satisfied with the government’s response to the credit crunch?

Here’s something for the silver-lining department: Hard economic times will force more small businesses to become smarter marketers. They may even get Web sites.

Kelsey Group, a Princeton, N.J., local search and directory research firm, estimates that the percentage of small and midsize home- and trade-services businesses with Web sites will increase to 60% by 2010, up from just 33% today. The red-hot housing market (remember that?) offered no incentive for home-services businesses, such as painters, home-repair shops and landscapers, to worry about Web marketing, because calls flooded in. But now these shops are struggling, and need to be more strategic and seek out cost-effective marketing tools to compete.

“Web sites will be viewed as a cost-effective alternative; a channel that didn’t make sense in a booming market will fast become a necessity,” said Kelsey Senior Vice President Matt Booth in a news release. Home services businesses also should pay more attention to reviews on consumer referral and home-services community sites like Angie’s List and ServiceMagic, since consumers will likely be spending a lot more time on these sites comparing notes on businesses before placing a call, Kelsey says.

It certainly makes sense to think about new ways to market a business right now – and the biggest growth of marketing will be online. Among the Web marketing tools businesses should consider include “local search” engines like those connected with Google Maps, CitySearch or YellowPages.com that produce results when someone searches for a particular business in their geographic area and pay-for-performance advertising like affiliate ads or pay-per-click ads. One big benefit to these marketing channels: The results are far more measurable thanks to Web analytics software than, say, placing an ad in a local magazine or even sending out coupons. (You can read more about smart marketing in a down economy here.)

Have you changed your marketing tactics in recent months to adjust to the new economy? What’s worked and what hasn’t?

Someone’s college major may be a good predictor of whether he or she eventually becomes an entrepreneur.

A new working paper by the Small Business Administration’s Office of Advocacy follows the career choices of 1993 college graduates with bachelor’s degrees using data gathered by the U.S. Department of Education, and looks at four possible outcomes: self-employment, working for a for-profit business, working for a not-for-profit and working for the government (including the military). Most of the Office of Advocacy’s analysis focuses on what the grads were doing in 2003, 10 years after getting their bachelor’s degree.

It finds those with degrees in social-science fields, such as psychology, English or political science, were most likely to go self-employed compared to those with other majors. Grads with business, engineering, math and science degrees tended to work at for-profits, while those with education, health and biology degrees were likeliest to work for nonprofits. Of the 7,050 grads analyzed, 690 – or 9.7% — were self-employed by 2003. And 53% worked for a for-profit firm, 19.4% for not-for-profits, and 17.9% for government and military.

Most of those who were self-employed in 2003 did not become self-employed right after graduation, however. Interviews conducted in 1997 showed that only about 20% of those who were self-employed in 2003 were self-employed in 1997.

The paper also examined many other attributes of these 1993 grads as they related to their career outcomes, such as grade point averages, eventual incomes, marriage and divorce rates, home mortgages and racial ethnicity. They found the self-employed majors generally had lower GPAs than their for-profit peers. Those with the highest GPAs in college were most likely to work for nonprofits or the government. Race and ethnicity, on the other hand, didn’t play a significant role in whether someone became self-employed.

Readers, do these results jibe with your college major and eventual career choices?

Photo: Getty Images

Editor’s note: On Mondays, we’ll be interviewing 2008 Top Small Workplaces winners about their companies and the unique workplace practices that help make them successful businesses. You can read the full 2008 Top Small Workplaces package here. You can also nominate a business for Top Small Workplaces 2009 here.

Many employees are trained to seek the boss’s permission for any small decision affecting their work in fear that an unauthorized decision could bite them later on.

Landscape Forms, a Kalamazoo, Mich., outdoor-furniture manufacturer with 248 employees, helps employees feel comfortable making small but significant decisions on the job and getting input from their peers rather than their managers. The effect: Employees have saved the company millions of dollars over the years by finding ways to streamline the manufacturing process and simultaneously make their jobs easier.

We spoke with President Bill Main about how the company does this and why. Edited excerpts follow.

WSJ: What’s the secret to getting employees to feel comfortable being decision makers?
You can’t do it in a vacuum. You have to build a foundation of understanding around what the business is trying to accomplish, what the goals are, what customers expect so that employees have a lot of information so that they have the perspective managers want them to have. And they have to feel safe making decisions. The idea is that people closest to the job know it best. There are probably more errors when you have people in a backroom somewhere making decisions.
When you’re a small company, it’s sort of natural to have everybody involved in decision making. As you get bigger, there needs to be a little bit of structure to doing that.

WSJ: You have some specific practices that encourage employees to implement their own ideas. Can you give me some examples of those?
One example is our “muda removas” process. If an employee has an idea that affects their immediate job and the rest of their team agrees, they go ahead and make the change and write it up. We then keep track of how many muda removas have been implemented. (More than 1,400 muda removas have been implemented so far this year). The idea came up in 2004, when we had some real challenges in profitability because of commodity prices going up. We went to employees and said the management team has exhausted all our cost-savings ideas, but we’re still a half million dollars short. So we asked employees for help and to look for ways to save money on their jobs. I think we ended up saving more than that amount, and our gross margin went up by two percentage points in the next year. The changes are mostly little process changes like changes to fixtures to make the welding process move faster.

WSJ: Why do so many companies not encourage employees to make decisions?
I wonder about that all the time. Because it takes a lot of time to instill these ideas, you have to be able to take a long-term view. Your governance and your ownership and your leadership have to be able to do that. A lot of companies can’t take a long-term view, especially if they’re a public company on a short leash. I also think entrepreneurs are often not willing to share information openly and that’s another stumbling block. If you’re not willing to share information like financials, then it’s really difficult for employees to trust what’s going on and to understand why they should go the extra mile. They have to have reasons to participate and to share in the rewards if they’re going to help the company be successful.

Does your company encourage employees to make decisions? What incentives work and what don’t?

The rocky economy and fears we’re entering a long and nasty recession are leading many small-business owners to consider layoffs. Employers often view job cuts as a quick fix to financial woes.

Not so fast. There are risks and high costs to laying off employees – and it may not produce the huge cost savings you first imagine.

First consider the operational effects. Office morale suffers when well-respected colleagues are let go, especially in small workplaces where employees tend to know each other. Finding talented employees has been one of the biggest challenges small companies have faced in recent years, so needless to say, there’s no guarantee a company will be able to rehire strong performers once they’re sent packing.

The company may also take a financial hit after layoffs, at least temporarily. Some studies show layoffs stunt employee productivity due to lower morale. Plus, the company must spend a lot of time filing paperwork and dealing with the laid-off employee, pay any severance and unemployment insurance costs and then train other employees how to take on the role of the employees let go. (Any cost savings from a layoff can be obliterated if the employer eventually refills the position, this Inc.com article points out.)

But, you ask, what are some reasonable alternatives to layoffs in terms of cutting costs? You can read some alternatives here, here and here. Here are some possibilities:

– Establish a hiring freeze. Many employers do this before embarking on layoffs, but it’s a good idea. Lose employees through attrition rather than demoralizing layoffs.

– Cut hours. When given a choice, many employees would rather work less (and hence earn less) than see themselves or their colleagues let go. (Some state programs like this one in California help employers make the transition to shorter work weeks less financially burdensome on employees.) You could also offer unpaid time off, which some employees might actually appreciate.

– Consider wage cuts or benefits cuts. Again, many employees would voluntarily take a 10% or even 15% wage cut, or less contribution to their health insurance costs, than risk losing their job. It’s always better received if senior management takes any wage cut before asking their employees to do the same.

– Ask for volunteers. You may have some employees who would jump at the opportunity to leave with a little financial incentive to do so. (Of course, it might also be the strong performers most apt to snap up such offer.)

– Start with weak performers. Chances are, others know they’re weak and it’s already hurting office morale. So if cuts are inevitable, start there.

Have you laid off employees? Did it produce the cost-savings you envisioned?

Photo: Getty Images

What’s the first thing small businesses cut when money gets tight? Office supplies, it seems.

AllBusiness.com on Monday is releasing results of its fourth-annual “SMB State of the Union,” a survey of 305 small and mid-sized businesses. We got a sneak peek of the results, which look at a wide swath of current issues affecting these business from presidential politics to strategies for going green. (You can read more about AllBusiness’s survey results here.)

One of the most interesting revelations in the survey data was how businesses have shaved costs over the past 12 months as the economy deteriorated. (Read more about creative cost-cutting.) Here’s a look at the results:

What have you done to cut costs? Are there obvious and easy ways to shave costs not mentioned here?

A landscaping and lawn-care business; a candy factory; a yoga class; a smoothie store in the school cafeteria; and an online costume retailer for kids and adults.

Those were just some of the ideas presented at the National Youth Entrepreneurship Challenge, held in midtown Manhattan yesterday. Some 35 students, age 18 and under, from all over the country gave their strongest 10-minute business-plan pitch to some of the power players in the corporate world. The panel of judges included founders and executives from Nantucket Nectars, BlackRock, USA Network and the Boston Celtics. In return, the students endured tough questions about the practicality, profitability and uniqueness of their ideas. One girl was stumped about how many of the 535 teachers she plans to recruit for her yoga-class center currently practice yoga. She didn’t know, but said she would get back with an answer.

The slides the students presented included information on competitors, growth plans, income statements, time management (remember, they’re still in school), and social-responsibility plans (most volunteer or donate their services to local charities). Some of the business plans were just in the conception stage; others have been viable businesses for years. For example, Cosfurs of Cleveland, Ohio, is a costume retailer run by twins Naomi and Noemi Romero, who make the costumes in their mom’s attic. “This is one of the most rewarding opportunities in my life,” said Naomi Romero, who got a trip to New York with her sister/business partner.

One of the most interesting ideas I came across was making football-helmet shields with photo-chromatic paint that allows them to change color when the lights change. Macalee Harlis, of Ft. Lauderdale, Fla., came up with the concept, having experienced the problem of seeing the football field at dusk as a senior varsity linebacker.

The winner won $10,000 in seed capital or for education.

The contest is sponsored by Oppenheimer Funds Inc. and the National Foundation for Teaching Entrepreneurship, a New York-based nonprofit. With a budget of $19 million, NFTE has a mission to teach entrepreneurship and small-business skills to high school students in low income areas.

Since 1987, the NFTE program has been a part of the curricula of some high schools around the country, providing a way for students to learn what it means to be an entrepreneur and picking up valuable skills. Careful planning, strategizing, critical thinking, collaborating and calculated risk-taking are picked up, along with the basic principles of opening a business.

“When I took the class, I didn’t even know what ROI was,” says Evelyn Espinoza, who took the NFTE course at Soledad Enrichment Action Girls Academy in downtown Los Angeles. She’s now running an organic candle-making company called The Hippie’s Candles.

These students may have the right skills and tools to weather a downturn once they graduate from school and enter the job market by starting their own business, says Steve Mariotti, NFTE founder. “That’s a huge asset for the country,” he adds.

Do you think you can teach kids how to be entrepreneurs? What inspired you to become a small-business owner?

Photo courtesy the National Foundation for Teaching Entrepreneurship

Coming up with a business name that’s not already taken is difficult enough. It’s doubly difficult to find one that’s both unique and memorable – but also search-engine friendly.

Duct Tape Marketing’s blog makes an interesting point about how the search-friendliness and the ability to get a competitive domain name should be key considerations when naming a new business. Local search providers, like the one connected to Google Maps in Google search results, often give better placement to common search terms – like say “flowers” – in a company name. What’s more, if your company name is in your domain name, you’re likely to get higher placement when someone searches for your business name online.

It just adds another layer of confusion to a process that’s already mind-boggling. So much that some companies spend thousands of dollars hiring naming consultants to find them the perfect name.

We offered up some general tips about naming a business before. But here are some dos and don’ts from YourSEOPlan.com on finding a search-friendly name:

- Include keywords in your business name, when possible. (Jon’s Bicycles, for instance, is better than Jon’s Equipment or even possibly Jon’s Cycling.)

- Don’t choose a word or phrase that is highly competitive on search engines, unless you’re ready for an uphill and expensive battle to compete for it. And don’t use generic words (like Tiger), if they’re unrelated to your business or what you sell.

- Don’t use three-letter acronyms, like UPS or DEP.

- Add your location in your name if you’re only serving a local market, but don’t limit yourself with a location if you plan to expand.

- Don’t change your name just to make it SEO friendly. Changing a name offers a whole new set of business challenges, and may actually hurt your search-engine optimization at least short term.

How did you come up with your business name? Is it search friendly?

Photo: Getty Images

It’s tempting to believe there are many extremely wealthy ex-entrepreneurs out there eager to swoop in and invest tens of thousands of dollars in your start-up — even though you’ve never met. But a new book, “Fool’s Gold? The Truth Behind Angel Investing in America” by Case Western Reserve University entrepreneurship professor Scott Shane, argues that such “angel” investors are far rarer than most entrepreneurs imagine.

Prof. Shane analyzed Federal Reserve data and other research on business investments and discovered many misconceptions about these so-called angel investors in terms of who they are, how much they invest and what types of businesses they invest in.

In an interview earlier this week and in his book, Prof. Shane laid out some of these myths. Here are five of them:

Myth #1: Angel investors are like VCs, they just invest less.
Prof. Shane finds angel investors are far more varied in their investments than venture capitalists. While VCs tend to focus almost exclusively on high-growth industries like technology, angels will invest in everything from the local dry cleaners to a restaurant. They tend to stick with industry’s they are familiar with. Plus, they are far more hands off than VCs. Most angels spend less than an hour a week with the companies they invest in. And fewer than 5% of businesses who receive angel money go on to get VC money.

Myth #2: Most angel investing is done by organized groups.
Groups only account for 500 to 600 each year, he says, and only 2% of all angel investment dollars come from organized groups or networks of angels.

Myth #3: Angels are wealthy and savvy investors.
Prof. Shane notes that only 21% of angels meet the Securities and Exchange Commission’s requirements for being an “accredited investor” – or an individual making $250,000 annually or more, or a couple making $350,000 or more (or net worth of more than $1 million). What’s more, the majority of angels don’t end up making money on their investments, and only 2% of businesses they invest in eventually become IPOs. And only 15% of angels do “extensive” research on the sectors of the businesses they fund.

Myth #4: Angels frequently invest $50,000 or $100,000 in businesses, sometimes up to $500,000 or $1 million.
The median angel investment is around $10,000, Prof. Shane finds.

Myth #5: Many people invest in businesses of people they barely knew beforehand.
Of all informal business investments, 92% are made by friends and family. Few are made by an “angel” who isn’t one of those.

What do you make of these findings? Have you ever sought an angel investment or been an angel yourself?

Photo courtesy Booth Media