Small Business; Big Impact
Star Expert:
Mike Smith is director of the Lone Star College System Small Business Development Center dedicated to helping small businesses start, grow and succeed. The center's expertise includes financing, human resources, marketing, technology development, government contracting and general management and is offered through workshops such as “Getting Started in Small Business” hands-on-training and free consulting services.
Is Houston a good place for business?
The criteria for determining “best” cities for business are ambiguous at best. “Entrepreneur Magazine” ranks cities on factors such as number of new businesses started, healthcare costs, rents, average wages, unionization, overall job and economy growth and number of business bankruptcies. Also quality of life, crime rate, housing costs and environmental quality. Minneapolis is first, followed by Washington D.C. and its surrounding cities with Atlanta third. Houston ranks 21st overall, 81st in entrepreneurial activity and 51st in small business growth.
The Allen brothers founded Houston with business in mind in the 1830's and we have a history of entrepreneurs beating the odds and succeeding. Today we are the Energy Capital of the world, and this industry is led by entrepreneurial independent business leaders who took risks and struck oil. In some cases, only after they had failed many times. Texas has always been a haven for independent minded individuals and that tradition continues in 21st century Houston. There's tolerance for risk and a culture that welcomes newcomers and new ventures. We need to remind ourselves that regional economic development is driven by small companies that grow into large companies; we need to nurture those small companies that promise to create innovation and jobs, expand tax revenues and improve our local economy.
How does a city nurture entrepreneurs and small businesses?
I liken it to the fire triangle I learned about as a young Boy Scout. To start and sustain a fire you need three things: oxygen, heat and fuel. In my version of the fire triangle the fuel is the pipeline of ideas, the new theories and innovation that help build, grow and sell better products and services. These ideas emerge from researchers at our local colleges and universities and from entrepreneurs in our community. The oxygen is the business climate, the environment that makes business success attainable. Houston offers access to national and international markets, a well-educated workforce and moderate taxes, limited regulation and limited government.
The heat or catalyst to make the spark is assistance. Start-ups usually can't afford specialized research. They need help writing a business plan, guidance on finding financing for growth or start-up. Also mentoring and employee training. New and existing small businesses can find these at Small Business Development Centers such as ours. In addition, Houston is home to many respected business assistance groups. The Houston Technology Center and the Houston Advanced Research Center work with new and growth stage high-tech companies. The University of Houston and Rice University and the Texas Medical Center institutions have special programs to bring technology out of the lab and into the marketplace. The Greater Houston Partnership and other chambers of commerce in our region also offer valuable programs.
What could Houston do to improve our region for entrepreneurial success?
The city needs to develop more entrepreneurs from its emerging industries; health-care, technology and international trade. Developing programs and services aimed at small business needs to be an integral part of Houston's economic development strategy.
How do people discover whether they're suited to take the plunge in such a risky area as a small business start-up?
Eighty percent of all small businesses fail in the first year! And there is no test you can pass that will guarantee success. But there are some flashing yellow lights. I would be concerned about a woman who wants to open a restaurant because she likes eating out or a couple opening a bookstore because they love to read. These enjoyments can be a foundation. But there's so much more that is required on the business side: accounting ability, marketing skills, industry knowledge. If you lack these strengths, you have to engage other people who have them -- which can be expensive.
Some people who are laid off want to use a severance package to start a business, just to replace the lost job. Success in business takes a good idea, a lot of drive and persistence. And even a good idea is not enough. You have to have management ability and skills to develop the idea and run the day-to-day aspects of the business. In many cases, these people would be better off living on the severance and looking harder for a job.
It's a bad sign when someone setting up a business is overspending on rent, furnishings and other business expenses. It is a lot safer to start small and cheap and work your way up. Your first car was probably not a Rolls Royce. Start with the economy car mindset. Then build your way up. Don't office in a skyscraper if the space in your garage is all you need.
Then there's the type of industry. We cite the typewriter store as the classic example of a declining marketplace. Find a growth industry. It's also a bad sign when someone hasn't researched what customers will actually pay for. The new boutique may be full of beautiful things, but customers are finicky and fickle. Is there a stable base of people who can afford the goods and are willing to pay for them?
What are some traits of those who beat the odds?
In my experience I have seen that the most successful business owners are persistent and above all else they have a passion. They also know that a successful new business starts with planning (not a plan, but planning). As Dwight Eisenhower said, “Plans are nothing; planning is everything.” Failure to plan results in surprises that cost time and money. Most entrepreneurs don't have a surplus of either. Inadequate planning is a leading factor in most business failures. Most entrepreneurs do have some common traits; they like to be in charge, make decisions and are patient. Another important factor is whether the entrepreneur's family is or is not on board.
What are some activities that you recommend for prospective entrepreneurs?
There are a few books every entrepreneur should read: The E-myth by Michael Gerber, explains how to work on your business instead of in your business (a vital concept for continued success). Sam Walton's, Made in America tells perhaps the greatest business success story in history; how Walton created the largest company in the world from a small-town in Arkansas.
They should go visit a small business owner and spend a day with him or her seeing what being an entrepreneur is like. Attend one of our workshops on “Getting Started in Business.” It is important for would-be entrepreneurs to take careful stock of themselves, asking such questions as: Are my skills and lifestyle compatible with starting a business? Can I follow advice where I lack expertise? Can I (or we) live on less income? Can I accept working weekends, and having my work permeate every aspect of my life?
The SBDC has offices at the System Office in The Woodlands, at Lone Star College–Tomball, Lone Star College–CyFair, Lone Star College-Kingwood and at The Lone Star College–Conroe Center for Technology and Training. For information on these services and more call the SBDC at 832.813.6674 or visit http://www.cbed.org/sbdc.