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Three–quarters of small business owners said they donate a percentage of their profits to charity, with 5% of small firms donating more than 10%, according to a fall 2008 survey by American Express.

Faced with a tough economy and a strained giving climate, some small firms are making their relationships with area nonprofits work harder by creating strategies where both parties make money.

When Norm and Mary Jo Lorentz, owners of three Cousins Subs sandwich franchises in Racine, Wis., saw sales start to slow in September and October, they ramped up their fund-raising partnerships with schools and church groups in the Racine community that needed their help.

The Lorentz’s started offering a new product: a smaller Cousins sub sandwich called the Cup ‘o Sub that nonprofits can purchase at a discount and then resell at a higher price at fund-raising events. This approach brings in more sales and new customers for the sub shop and charities keep the proceeds – about $1.50 a sandwich. Some schools have made up to $500 in three hours, Mr. Lorentz says, and since September, sandwich sales at events have raised $1,500 for area schools. Cousins also provides schools and nonprofits with promotional materials such as a banner and signs to publicize the event.

“It’s a win-win situation,” Mr. Lorentz says. “Plus, it gets our name out in the community and brings in new customers.

For Rick Clark, owner of Handyman Matters in Hendersonville, N.C., supporting the needs of senior citizens in his community by donating construction and remodeling work for their homes, “brings our name out, brings businesses in” and serves as a way to show customers “we run an ethical business,” Mr. Clark says.

According to an October 2008 survey in the Chronicle of Philanthropy, 19% of small businesses cited not doing as much as they would like because they did “not [have] enough time.” Since business is slower than usual for Mr. Clark, “our company actually has more time to do voluntary work in the community,” he says.

Readers, do you donate to your community? Do you find yourself with more or less time these days to help out?

Small businesses finally are getting their own little piece of the federal government’s ballooning bailout package.

Yesterday, U.S. officials announced the federal government as part of a broader package will lend up to $200 billion to institutions that originate consumer loans and business loans backed by the Small Business Administration. The rationale, Secretary Paulson said in a news conference, is it will create liquidity, spurring banks to lend again to consumers and businesses. Some hope it could especially help banks that specialize in offering SBA-backed loans, since such lending has dried up in recent weeks.

Nobody, of course, really knows at this point whether such a cash infusion into the lending system will actually save many struggling small businesses. But some are optimistic it will help – and feel it at least shows policy makers recognize the dire situation on Main Street and want a more direct solution. Sen. Chuck Schumer, a Democrat from New York who along with Sen. John Kerry had proposed designating bailout funds specifically for granting small-business loans, praised the move: “This new focus by Treasury and the Fed should help inject some much needed economic life into Main Street and couldn’t come a day sooner,” he said.

What do you think? Will this be enough to help small businesses that are struggling to borrow right now? Or does it fall short?

The dismal economy is putting many small-business owners in an unpleasant position: having to aggressively pursue customers who aren’t paying their bills on time.

My colleague Simona Covel and I wrote recently that many businesses –- even ones that are otherwise doing fine — are finding slow-paying customers are hurting their bottom line. Some customers are paying weeks late, or not at all. Experts worry an expected surge in business bankruptcies could turn the situation far worse in months ahead.

Small businesses are notoriously shy about collecting money, for fear aggressive tactics will turn away potential business. But collections experts say small businesses need to get savvier about collections in this economy, or they face never seeing the money owed to them. Here are some strategies they suggest for improving bill collections:

- Write formal payment policy. Businesses should lay out their payment policies in advance, such as when payments are due and how late bills will be treated, so there are no miscommunications with customers. This might even include doing extensive credit checks on each new customer to gauge their creditworthiness. Some businesses are cutting off credit to their riskiest customers.

- Reward the early; penalize the late. Some businesses are giving customers discounts, such as 5% or 10% off, if they pay within a certain period of time. Others tack on a penalty if a bill is more than, say, 10 days past due. Businesses are more likely to pay on time if they know they’ll owe more money if they don’t.

- Collect upfront. Some businesses that previously accepted payment 30 or 60 days after delivery of product or service are charging customers an advance payment of anywhere from 25% to payment in full. This can also help weed out customers that aren’t good for the money and offers obvious protection.

- Call early. Research shows the longer a bill is overdue, the less likely it’ll ever get paid. Many collections experts say businesses should call a past-due customer within five days after a bill is past due. Calls are more effective than letters. Not to mention it will propel your bill to the top of the pile of bills due.

- Up the ante. Some experts recommend sending overdue notices in official envelopes such as the big red-white-and-blue priority mail envelopes. Some businesses also send out “pre-collections” notices that warn customers their invoice will be forwarded to a collections agency if they don’t pay within a particular time frame.

Have you had problems with late payers in recent months? Discover any effective collections strategies?

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. You can read the full 2008 Top Small Workplaces package here. You can also nominate a business for Top Small Workplaces 2009 here.

The ability to innovate and smartly execute new ideas will make or break many businesses in the future, as we noted recently. But many small companies don’t know what that means – or how to create that magic spark.

Jump Associates of San Mateo, Calif., consults Fortune 500 companies like Hewlett-Packard, Target and Procter & Gamble on how to bolster innovation in the workplace and identify new channels of growth. We spoke with Chief Executive Dev Patnaik about the role innovation should play in a small business, what it means exactly, and the common mistakes. Here are edited excerpts.

WSJ: Why should small companies care about being innovative?
The fact is the nature of work has changed in the last 25 years – it’s gotten a lot more complex. If you think back to the ’70s, you’d be a good manager if you knew how sales were in your Tulsa office compared with some other office. Now people have Microsoft Excel to help manage that. That’s not the hard part anymore. The challenge now is being able to answer much more complex, nebulous questions like, what can your company do to stand out compared to your competitors?

WSJ: What mistakes do small businesses typically make when they try to come up with new ideas?
For one, they become enamored with the charismatic visionaries out there like Richard Branson at Virgin or Steve Jobs at Apple. Those people are very interesting, but they’re great anomalies. If you’re not Steve Jobs, a lot of it doesn’t pertain to you. So they focus on individuals instead of companies. They also read about an interesting practice and don’t realize they’re kind of misapplying something that isn’t appropriate for them. Or they do superficial improvements. They think, let’s go on a team trip or buy a foosball table. Superficial goofiness is not innovation. Innovation is creating value for people and giving it to them in really surprising and compelling ways. It’s about empathy; it’s about creativity and coming up with really creative ways to solve problems and doing so systematically.

WSJ: What are some of the things companies can do to be more innovative?
The good news is small companies are in a much better position than most large companies. Fortune 500 companies have complex systems – they’re trying to replicate a lot of traits that small businesses already have.
From our perspective innovation is three things: empathy, creativity and execution – and you have to have all three. Empathy is about getting employees out in the real world. If you work for a company that makes kitchen tools, you should go hang out with the chefs that use kitchen tools.
As for creativity, everybody has great ideas but they often fail to share them. A lot of it comes down to safety. If you just get people to feel safe about offering up their opinions, you’ll get a lot of good ideas. For example, at Jump we have a “no zinger” policy that bans people from insulting each other or criticizing each others’ ideas. There are little things you can do like that just to make people feel safe. I think especially at a small business, leaders can also ask provocative questions – something like, “Give me an idea that really scares me.” Ultimately people measure to what they think they’re being measured on. There may be some really wild and crazy options that are worth implementing.

Has your company taken steps to boost innovation among employees? What’s worked and what hasn’t?

On Fridays, we link to a roundup of interesting, informative or entertaining articles and blog posts related to entrepreneurship and small business from across the Web.

- U.S. entrepreneurship rates declined substantially over the past three years, suggesting economic conditions may be affecting entrepreneurial activity. [Global Entrepreneurship Monitor, Babson College]

- Treasury Department’s newest solution to entrepreneurs’ credit woes? Hand money to community banks. [Reuters]

- Learn to lay off employees with human dignity. [Open Forum from American Express]

- Don’t just think of Hawaii as a tropical getaway — consider launching your next business there. [Growthology]

- How to grab the attention of journalists (like me). [Duct Tape Marketing]

- Wisconsin lawmakers propose mandatory health-insurance pool for businesses with 50 or fewer employees. [Business Journal of Milwaukee]

- U.S. auto makers’ possible demise spells big trouble for small businesses, in more ways than one. But small-business groups still oppose bailing them out. [All Business]

- Tax-software maker Intuit lowers forecasts, saying small businesses are being especially cautious right now. [Reuters]

How well a small company innovates new products and technologies will predict its ability to weather the economic hurdles of the present and future. But successful innovation can’t just be small incremental innovations – it must be “disruptive” or radical innovations that shake up the status quo.

That’s the take-home message of a new article from the University of Pennsylvania’s Knowledge@Wharton. There are many roadblocks to innovation, especially as companies grow older and bigger. Multiple layers of bureaucracy make it difficult for companies to shift gears quickly and to abandon old ways.

“The largest gains in business come from more daring innovations that challenge the paradigm and the organization,” Paul J.H. Schoemaker, research director for the Mack Center for Technological Innovation, told Knowledge@Wharton.

The article asks some innovation experts about how companies, small and large, can foster a wildly innovative culture. Here are some recommendations:

- Emphasize “disruptive” innovation. You can’t expect employees and managers to embrace innovation unless it becomes a recognized value or core mission of the organization. It needs to be something company leaders stress and communicate all the time.

- Make contingency plans. Innovation moves quickly so it’s unwise to pin your dreams on one plan or one idea. Innovation experts recommend looking at other areas in your business arena for possible new ideas, in case your original plan doesn’t pan out.

- Create strong teams. The best innovations come from collaborative teams of employees that truly like and trust each other. So companies should foster an environment where employees know each other – both inside and outside of work – so they’re willing to let their guards down and willingly share off-the-wall ideas with each other.

Does your workplace use these practices to innovate? How important is innovation to your business?

Photo: Getty Images

I recently tried to find movers for an upcoming move, and the experience left a bad taste in my mouth.

Some threw out so much moving industry jargon (like “binding estimates” and “released value”), I felt helpless trying to compare. Others seemed impatient with my questions. It didn’t help that when I went online for guidance, I mostly just read horror stories of people with bad moving experiences, such as damaged belongings, movers that didn’t arrive on the day they were suppose to, or prices doubling the original estimate.

I eventually chose a nationally known moving company figuring that at least I recognized the name. But the experience got me thinking about how small companies in industries with bad reputations can stand out from the crowd. Here are some ways:

– Be friendly and transparent. Customer service can make or break a business, especially in industries where customers are leery — like residential moving, airlines, remodeling or health clubs. Make sure you have friendly, patient people manning the phones who really understand the business and what they’re selling so they can calm customers’ nerves. And make sure they fully explain (with as little jargon as possible) what the customer is getting.

- Make your customers ambassadors. Enlist previous customers to be your best marketers – perhaps directing them to Web sites where they can leave a review about their experience and to tell their friends. Word of mouth is especially important in these industries.

- Manage your online reputation carefully. People more and more get their referrals from online customer-review sites such as Angie’s List or CitySearch. It’s extra important then to ensure a couple bad reviews aren’t tainting your reputation. Figure out which sites your prospective customers use to read reviews in your industry. If you spot a negative review, respond to the complaint to show you’re willing to address problems or upset customers head on. Some customer-review sites, like Yelp.com or Google Business, even include tools in which business owners can now set up their own profile and add a photo. Creating a dialogue with customers and prospects will evoke trust.

- Third-party validation. Many consumers check sites like the Better Business Bureau or their local magazine’s “Best of” listings to find out which businesses are reputable. Some awards require businesses to to apply for them. Winning awards for business practices is always nice, but it’s especially important in industries with a bad reputation.

Did I miss anything? What practices have you seen businesses use to bolster trust among consumers?

On Monday, Subway, the second-largest fast food chain in the world, repudiated the action of one of its franchise owners who used the corporate name when contributing $2,500 to the campaign that ultimately banned gay marriage in California.

In a letter to the Subway franchisee in Merced, Calif., the company wrote: “While we understand that as an individual you have a right to your personal beliefs and freedom of association, when you use the Subway trademark it reflects on the entire Subway brand. … Further [the franchise agreement] states that you agree to ‘not use the Trademark in a manner that degrades, diminishes, or detracts from the goodwill of the business associated with the Trademark’ and ‘to promptly change the manner of such use if requested to do so by us.’”

Subway got wind of the franchise agreement violation last Friday from a gay blogger, who found the contribution on a list of ‘Yes on 8’ contributors compiled by the Human Rights Campaign. Mike Rogers, 45, of Blogactive.com threatened to rally a major boycott of Subway sub-shops if his demands weren’t addressed: repudiating the gift, adding ‘sexual orientation and gender identity’ to the company’s nondiscrimination policy and giving an equal gift to the other side.

The franchisee, Subway says, has asked for a refund of the $2,500 contribution. A person at the Subway shop in Merced Mall said the manager isn’t available today and will be back tomorrow. Subway has also updated its nondiscrimination policy to include the ‘sexual orientation and gender identity’ clause. Mr. Rogers dropped the last demand for a quid-pro-quo contribution.

In a phone interview, he says he was quite surprised by Subway’s quick response. “I thought it was great. It was amazing.”

He adds, “The time for complacency is over. With the power of the Web, corporations will be brought to the table or suffer the consequences of ignoring the call for justice and equality.”

Subway, which generated $8.2 billion in the U.S. last year, says it has sent a letter to all of its franchisees that it is a violation to use the Subway name when making political and/or controversial topic donations.

“We offer our apologies if you were offended by this action and hope you will view our quick response to this as a sign that we will not tolerate discrimination, of any type, in our system,” the company says in a statement.

Was Subway’s response adequate or did it go too far?

Photo: Associated Press

If you live in the U.S. Northeast or Pacific Northwest, chances are you see plenty of entrepreneurial-minded companies creating new ideas, jobs and technologies and embracing globalization. But you might not be so lucky if you live in the South or the Great Plains.

The Kauffman Foundation yesterday released its annual report ranking U.S. states on how well and how much they’ve adapted to what it dubs the “new economy.” The report grades each state on 29 different indicators in five general categories including knowledge jobs, globalization, economic dynamism, transformation to a digital economy, and technological innovation capacity.

The top five states are all based in the Northeast or Northwest, while 16 of the 20 lowest-ranking states are in the Midwest, the Great Plains and southern U.S. states.

It’s still the information-technology boom that started in the 1990s that’s fueling the top states’ economies. But lower-ranked states have certain competitive advantages, Kauffman points out: Many of these states are less congested and less expensive to live in, so they can lure start-ups looking for a better quality of life than they might find in innovation hotbeds like Massachusetts or New Jersey.

The report shows how there is an interconnectedness between a state’s higher educational system and the types of companies and jobs created there. Massachusetts boasts universities such as MIT and Harvard that have helped spur business formation in innovative fields like biotech, software and hardware. It also points out other attributes or strategies that have helped the states succeed: Delaware (No. 4 on the list), for instance, has focused on being friendly to financial-services firms and currently has the most direct foreign investment of any U.S. state.

Here’s a look at the top 5 and bottom 5 states, according to the ranking:

Top 5:
1) Massachusetts
2) Washington state
3) Maryland
4) Delaware
5) New Jersey

Bottom 5:
46) Wyoming
47) Alabama
48) Arkansas
49) West Virginia
50) Mississippi

How well does your state foster innovative companies? Do you think this is a valuable ranking?

The predictions list for Obama cabinet members is an impressive one. But where are the entrepreneurs?

As we’ve noted, many small-business owners are feeling pretty blue about policy makers’ lack of attention to small-business matters right now. They complain that politicians are either ignoring the great financial burdens entrepreneurs face (no bailout for you!), or they’re championing the wrong cause (think Joe the Plumber).

Some entrepreneurs and their advocates think President-elect Obama could use a little first-hand help understanding the issues entrepreneurs face – perspective that can’t come from the perennial CEO or longtime politician.

“Since Mr. Obama is a very sharp man, it would be a wise move to bring the perspective of entrepreneurs into consideration as he develops his new Administration’s priorities,” writes Karen Kerrigan, president of the Small Business and Entrepreneurship Council in a recent blog post.

Serial entrepreneur and Dallas Mavericks owner Mark Cuban (who has other personal matters to contend with these days) was even more pointed in his criticism recently that no entrepreneurs seem to be making the cut. He wrote on his blog: “We need to know what the impact of his policies will be on the individually owned Chrysler Dealership in Iowa. The bodego in Manhattan. The mobile phone software startup out of Carnegie Mellon. The event planner in Dallas. The barbershop in LA. The restaurant in Boston.”

Mr. Cuban offered to advise Mr. Obama himself, if Obama was so inclined.

Others, such as HuffingtonPost blogger Steve Strauss, point out that Obama already has an entrepreneur in the most important position in his administration: himself.

Do you think Obama needs a real-life start-up enterpreneur in his cabinet? Whom would you recommend?

Photo: Getty Images