Small Business Owners Report Less Satisfaction With Banks

Small business owners desire certain things from a business bank— specifically, collaboration, openness and a good working relationship. However, a recent study from consumer satisfaction research firm J.D. Power and Associates reveals those needs are going unmet.

TheU.S. Small Business Banking Satisfaction Studyshowed that small businesses’ overall satisfaction with their banks has dropped to 711 on a 1,000-point scale, down from 718 last year. The survey measured customer satisfaction with the overall banking experience by examining eight factors: product offerings, account manager, facility, account information, problem resolution, credit services, fees and account activities.

According to the study, here’s what small business owners value in a business bank:

• An account manager who understands their business well.
• Open communication with the account manager.
• Easy accessibility to the bank both offline and online.
• Having fees disclosed in advance so there are no surprises.
• A collaborative relationship or partnership with their bank.
• Error-free banking.

While small business owners’ perceptions of the financial stability of their banking institution, their personal financial outlook and the economic outlook have all improved this year compared to 2009, this is the second consecutive year that overall customer satisfaction among small business banking customers has declined.

“Despite a sense of optimism in the industry among small business owners, it appears that their financial institutions are failing to keep up with their expectations,”Michael Beird, director of banking services at J.D. Power, said in announcing the results.

As a result of their less-than-stellar customer service experiences, small businesses are more willing to switch banks. Only 19 percent said they“definitely will” stay with their current bank, down from 34 percent in 2008.

“Banks that are able to deliver on key practices and partner with their small business customers have an opportunity to differentiate themselves,”said Beird. He theorized that one reason for the dissatisfaction is that small businesses have fewer sources of capital available than do big companies, and so must rely more heavily on their banks.

The survey of more than 6,000 small business owners also rated specific banks’ customer service. Overall, big banks fared worse than smaller regional banks in the survey. You can download the full survey results at theJ.D. Powerwebsite.

Editor’s Note: This article was previously published at OPENForum.com under the title:“Small Business Owners’ Satisfaction With Banks is Declining.”It is republished here with permission.

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Hottest Food Trends for 2011

Even in a tough economy, Americans like to eat out making food one of the bright spots in the past few years, with new food and restaurant concepts cropping up fairly often. To help foodservice entrepreneurs get a jump on the future, research and consulting firmTechnomic recently announced its 11 top trend predictions for 2011. Here’s a rundown:

1. Adult beverages.Consumers want to celebrate (or drown their sorrows).“Mad Men”-style retro cocktails, gin and bourbon will be hot, as will craft beers and punch (including sangria).  Cocktails incorporating herbal ingredients will proliferate; so will “skinny” (low-calorie) cocktails. To attract a wider range of consumers, more fast-casual chains will startadding alcoholic beverages.

2. Think outside the bricks-and-mortar box.Food trucks have been a major craze nationwide, and many restaurants are adding them on to use for catering or simply to spread their name outside the local area. Hot for 2011 will be seasonal and temporary“popup” restaurants and kiosks.

3. Celebrity farmers.Remember when chefs like Emeril Lagasse first got famous? Now, Technomic predicts, the same is about to happen to local farmers thanks to the focus on locally-sourced foods. Restaurants will highlight partnerships with well-known farmers who provide their meats, produce or cheeses by offering special menus, hosting visits from famed farms and referencing them in menu descriptions.

4. Social media/mobile/technology.Restaurants have been among the businesses benefiting most from mobile and social tools like Foursquare and Groupon. That will continue, as apps, couponing websites and location-based social media will continue to grow.

5. Korean and more.Korean tacos have surged to prominence thanks to mobile taco trucks, but Korean barbecue in general was also hot in 2010. That trend will continue, with Korean food in general growing in popularity in 2011, along with multicultural tacos and portable street food of all kinds.

6.Frugality backlash.Diners are sick of counting pennies. Anyone with a bit of disposable income will use it for luxury dining in 2011. That means business customers and affluent individuals will return to high-end restaurants in search of over-the-top specials. More middle-class mortals will be looking for reasonable prices, but along with that, even they will also want unusual menu items and restaurants that deliver an“experience.”

7. Deals still dominate.It may sound contrary to #6, but consumers have gotten used to discounts and specials, so they’ll still demand deals. However, with food prices on the rise, staying profitable will require careful attention to costs and cash flow.

8. Brand extensions.Full-service restaurants and even non-restaurant brands will move into fast-casual brand extensions as the economy picks up. Existing restaurateurs will look to remodel units and do brand makeovers.

9. Return to roots.In down times, people want comfort food. No wonder hot menus feature items like homestyle Southern fare; retro Italian; and family-style service. Also hot are“kid foods” like popsicles for dessert or items that put a twist on long-time favorite treats like Twinkies.

10. New convenience store competition.Retailers of all types continue to offer a wider range of food, treading on restaurant turf. In particular, convenience-store operators are adding more food items and upgrading quality.

11. Fit vs. fat.The battle between healthy and indulgent menu items has raged for years, and won’t end any time soon. In 2011 new federal menu labeling requirements will take effect. Restaurants will go to two extremes: Adding more healthy items like gluten-free and low-calorie meals, and promoting fattening delights as limited-time offers (which doesn’t require posting nutritional data).

If you’re in foodservice, consider ways to add some of these trends into your business for 2011 and beyond.

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Will Angel Investment Slowdown Hamper Recovery?

Just as most sources of small business financing have slowed down in the recession, angel financing has gone through some changes, too.

Like all investors, angels became more cautious about their investments. But what long-term effect will this slowdown have? A recent study holds some useful news for small businesses that are seeking this type of financing.

Conducted by the Center for Venture Research at the University of New Hampshire,The Angel Investor Market In Q1q2 2010: Where Have All The Seed Investors Gone?,surveyed angel investment during the first half of 2010. First, the good news: Angels are investing in more businesses. The number of businesses that obtained angel capital in 2010 grew three percent compared to 2009 numbers, reaching 25,200.

Now, the bad news:Although angels are investing in more companies, they’re investing less money overall. Total angel investments in the first half of 2010 dropped by 6.5 percent (to $8.5 billion) compared to the same period in 2009. At the same time, fewer angels are investing. The percentage of angels that are “latent” (meaning they haven’t made an investment)went from 36 percent in 2008 and 54 percent in 2009 to 65 percent in 2010.

Want more on angel investing? Check these out:

• Do Fools Rush in Where Angels Fear to Tread?
• It’s a Bird, It’s a Plane, It’s a Super Angel!
• The Characteristics Angel Investors Expect

More bad news:Today’s angels are focusing on later-stage companies. A mere 26 percent of angel investments in the first six months of 2010 went to startup stage investments—continuing a decline from 35 percent in 2009 and 45 percent in 2008. And that has implications for more than just startups.

“Historically angels have been the major source of seed and startup capital for entrepreneurs and this declining interest in seed and start-up capital represents a significant change in the angel market,” notes study author Jeffrey Sohl. “Without a reversal of this trend in the near future, the dearth of seed and start-up capital may approach a critical stage, deepening the capital gap and impeding both new venture formation and job creation.”

In fact, even a company with a track record of success might have difficulty getting angel capital if it’s in a risky industry. Angels are focusing on industries that have proven demand even during tough times. Specifically, here’s where they’re putting their money:

• Healthcare/medical devices and equipment: 24 percent
• Biotech: 20 percent
• Software: 12 percent
• Industrial/energy: 11 percent
• Retail: 9 percent
• Media: 5 percent

Recovery could be at risk if angels’ confidence doesn’t improve. Here’s hoping that the rest of 2010 brings more positive news.

Editor’s Note: This article was previously published atOPENForum.comunder the title:“Is an Angel Investment Slowdown Putting the Recovery at Risk?”It is republished here with permission.

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California Rules the Venture Capital Ecosystem

California has been the number-one state for venture investing for more than 30 years. It doesn’t matter whether you measure VC activity in dollars, deals done, or capital under management. Actually, based on certain measures, California today accounts for a larger slice of the venture capital pie than it did 30 years ago.

California’s Dominance in Venture Capital

National Venture Capital Association (NVCA) data shows that, in 2009, half of all venture capital dollars invested in the United States were deployed in California. And over the 29-year period from 1980 through 2009, the state was responsible for 44.1 percent of all venture capital investment dollars. In no year since 1980 did California account for less than 32.2 percent of the dollars that VCs put into startups.

A similar pattern can be seen from the data on deals.  In 2009, California accounted for 40.6 percent of all U.S. venture capital deals. Between 1980 and 2009, the state accounted for an average of 38.9 percent of all VC investments.  And in no year since 1980 did the state account for less than 32.2 percent of U.S. VC deals.

Among metropolitan areas, the San Francisco/San Jose axis has dominated venture capital for decades. According toa study by Henry Chen of Harvard University and his colleagues, the San Francisco/San Jose area accounted for 19 percent of all venture capital offices in 1985 and 24.4 percent in 2005.  By contrast, Washington D.C. only increased from 3.1 to 5.3 percent of all offices over the 20 year period studied by the researchers, and Atlanta only increased from 1.8 percent to 2.3 percent.

Why It’s Not Likely to Change

The dominance of California (and the San Francisco/San Jose metro area in particular) in venture capital is unlikely to change.  The distribution of venture capital across states has barely changed over the past two decades even though the industry has gone through remarkable changes – rate of return, amounts of money invested, and numbers of firms shifting dramatically.  If expansion and contraction of the industry didnot appreciably alter the geographical distribution of venture capital, then the distribution must be very stable.

That stability is a function of a positive feedback loop between venture capitalists and entrepreneurs who need VC funding.  Venture capitalists need to find good investments, help entrepreneurs to build companies, and make sure that business founders act in accordance with investors’ interests.  All of that is easier if investors invest locally and stick to investing in places where a lot of venture capital-backable companies are already present.  In their study, Chen and his colleagues found that when venture capital firms open new offices, they tend to expand to Boston, San Francisco/San Jose, or New York, rather than places where venture capital isn’t already prevalent.

Entrepreneurs whose business models need venture capital, in turn, tend to locate near existing venture capitalists because those locations are where funding is easier to find.  As a result, venture capitalists and the entrepreneurs they finance have remained concentrated in places like Silicon Valley for the past 30 years.

Implications

Venture capital-backed companies are high performing businesses, creating more jobs, producing more innovation, and generating more wealth than other kinds of startups.  This pattern has led governors and legislatures to look for ways to build up the venture capital industry in their states.

However, policy changes, such as lowering state income taxes, have done little to increase the amount of venture capital in most states.  Instead, venture capital remains concentrated where it was most prevalent 30 years ago.

The positive feedback loop between investors and entrepreneurs keeps other states from building up their venture capital industries.  California continues to obtain the lion’s share of U.S. venture capital, making it the go-to destination for starting high tech companies in need of venture capital; and the presence of those companies in California leads venture capitalists to concentrate their efforts there.

Editor’s Note: This article was previously published atOPENForum.comunder the title:“Creating Venture Capital Ecosystems.”It is republished here with permission.

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Entrepreneurship and Taxes

Would allowing the Bush tax cuts to expire discourage entrepreneurial activity and, by extension, lower economic growth? Of all the policy questions being considered in Washington these days, this one may be the most important.

High taxes disproportionately affect small business owners. The Tax Policy Center reports that 8.4 percent of tax filers with business income– twice the proportion of filers without business income – are in the 28 percent tax bracket or higher.

Economic theory suggests that progressive income taxes discourage entrepreneurship. Glenn Hubbard of Columbia Universityarguesthat our tax code, which takes much of your money if you take risks and succeed, but does not share your losses if you take risks and fail, discourages people from taking chances. And, as many of you probably already know, working for yourself is risky.

In apaperwritten with William Gentry, Hubbard found that higher marginal personal income tax rates do, in fact, discourage people from working for themselves.

Other studies find similar results for a variety of different types of taxes. For instance, Christian Keuschnigg of the University of St. Gallen and Soren Bo Nielsen of Copenhagen Business Schoolwritethat“even a small capital gains tax … diminishes incentives to provide entrepreneurial effort.”

Researchers from the World Bankshowedthat higher corporate taxes are associated with lower rates of new business entry across countries. (This finding is particularly bad news for the United States, which the Organization for Economic Development and Cooperation found had the second highest corporate tax rate of the 30 countries its researchers examined.) And several studies show that countries with higher marginal personal income tax rates have lower rates of self-employment.

Higher tax rates discourage economic growth and job creation by reducing business owners’ incentives to expand their businesses. Research papers by Robert Carroll, Douglas Holtz-Eakin, Mark Rider, and Harvey Rosen indicate that higher taxes lead small business owners to reduce hiring and investment. Because small business accounts for half of private sector GDP and employment, the dampening effect of higher taxes on small business can be seen in the form of lower GDP growth and job creation.

In addition, businesses that have the potential to generate wealth and jobs through rapid growth often need external capital. Much of this money comes from informal investors– friends, family, and business angels. When taxes rise, these sources are less inclined to finance growth-oriented entrepreneurs and more likely to put their money in tax free bonds (because higher taxes reduce the gap in after-tax returns between the two investments).

Increasing taxes on the wealthiest entrepreneurs has the most adverse effect because small business performance is skewed. Few entrepreneurs are successful, but those that are tend to be very successful. For instance, tax filers with an adjusted gross income of less than $250,000 in 2008 accounted for only 21.2 percent of the filers of partnership and subchapter S tax returns, but 78.5 percent of the income from those filers. The skewed performance of business owners means that the job and wealth creating entrepreneurs, whose incentives we need to worry about most, are the in the highest tax brackets. Raise their taxes and they will be less willing to hire and invest, reducing economic growth.

The United States has an enormous budget deficit, which may require tax increases to close the gap. But we need to carefully consider the law of unintended consequences when raising taxes. Much evidence shows that higher taxes discourage entrepreneurial activity, including investment and hiring by small business owners. If we let the Bush tax cuts expire, we risk shutting off already weak small business hiring and investment. Is that possibility really worth the relatively small reduction to the deficit that we might derive from a tax increase?

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Spotlight on Human Resources Books: Small Business Book Awards

It’s been said that small businesses are the lifeblood of the economy.  But people are the lifeblood of a small business.

Human resource issues are unique in the small business environment. Our size not only allows us to respond to the market with greater speed (a plus), but we also feel the impact of team dynamics more aggressively (the good, the bad and the ugly).

This brings me to today’s feature category for theBest of 2010 Small Business Awards.  This post is the 2nd in our 6-part series putting the spotlight on the books in each category of the Book Awards.  (Seeyesterday’s poston entrepreneurship books.)  Today’s spotlight is on Human Resources books.

The Human Resources category is the smallest category in the Awards, with just 4 books.  Yet, don’t underestimate the punch that these 4 books deliver.  Whether the topic is discovering what motivates us as businesspeople; coping with jerks in the workplace;  giving employees respect; or climbing the career ladder— the topics are of great interest to people individually and can have a significant impact on your business’s bottom line.

The 4Human Resource booksthat are nominated so far, include:

Carrots and Sticks Don’t Work
Build a Culture of Employee Engagement with the Principles of RESPECT
by Paul Marciano

Drive
The Surprising Truth about What Motivates Us
by Daniel Pink

Getting to the Top
Strategies for Career Success
by Kathryn Ullrich

No Jerks on the Job
Who They Are, They Harm They Do, and Ridding Them from Your Workplace
by Ron Newton

For good Human Resource reads, check out the nominated books in the category.Vote. Nominate. Read. Share.

If you don’t see your favorites, then nominate them. In the meantime, happy Human Resources.

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Evaluate Your Suppliers for Sustainability

This series is commissioned by UPS.

Not long ago I wrote about communicating to the marketplace your company’s commitment to sustainability.

Sustainability is about more than marketing and communicating, of course. It starts with your company’s values.

Today, an increasing number of businesses not only areadopting sustainable practices internally, but they take it a step further. They’re also demanding their suppliers be committed to sustainable and responsible business processes.

But if you’re going to demand that your suppliers adhere to sustainable business practices, just how do you assess their practices and commitment level?

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(1) Ask–the obvious place to start is to ask your suppliers and prospective supplies about sustainability. Ask,“Do you have a sustainability program in your company?” or “What sustainability and environmental responsibility practices do you follow?” If you get a blank look or a verbal “duh?” you’ll know the answer to your question.

(2) Create a questionnaire or scorecard–Asking verbally during a sales presentation is all well and good. But you’re more likely going to be able to evaluate the level of commitment if you have a written questionnaire that you ask suppliers to fill out.

(3) Tailor your questionnaire to the size of your suppliers–Sustainability scorecards are hot right now, but most of the ones you find on the Web are designed by large multinational corporations for other large multinational corporations. It would be overkill, an exercise in frustration, and perhaps a deal killer to give the same questionnaire designed for a Fortune 500 company to a business with 3 employees. So while it makes sense to use examples of scorecards (see Proctor& Gamble’s scorecard) when you compose your own, adjust the questions to fit your supplier’s size. TheEnergy Star websitehas good information for small businesses that can serve as a guide for what to ask.

(4) Send your questionnaire out annually–The chairman of the Board of a company I worked for in my corporate career had a saying:“Inspect what you expect.” Those words could be applied to suppliers. It says a lot about your commitment to sustainability simply by asking about it, because it says you consider sustainability important. So ask suppliers to complete it annually.

(5) Collaborate and offer suggestions—View your suppliers as partners working with you to achieve joint success.  If you see opportunities to improve practices, offer them as suggestions.  For instance, if you see an opportunity for your supplier’s packaging to become more“green” for inventory that they deliver to you, then suggest it.  And then offer to help— perhaps making an introduction to a new packaging company your supplier could use.  This is particularly important for small suppliers.  They may have the desire and willingness to be more green, but not have the internal resources to evaluate new packaging options.

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Freudian Pink Slip

This cartoon came from a batch of psychiatry cartoons I was working on, but it’s a different kind of cartoon than I normally do.

Usually my characters’ discussion is in a caption below the cartoon, but this is more of a one-two punch kind of joke.

One– set up the incongruity with“frying pan” and“you’re fired” up top.

Two– Knock it down by combining“Freudian slip” and“pink slip.”

It’s a nice change of pace, and, at least for me, the guy’s expression on the right makes it all work.

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Spotlight on Entrepreneurship Books: Small Business Book Awards

It’s that time of the year— it’s the 3rd annualSmall Business Book Awardsby SmallBizTrends.com, where we celebrate and honor the new business book releases for 2010.

This year the Awards are bigger and better than ever.  Here is what’s new this year:

• There’s a special site specifically for you to vote on your favorite books through December 15, 2010.
• This year the voting is completely transparent.  You can sort the book entries by number of votes, and see exactly where each book stands in the running at any moment.
• The books are searchable by 6 topics.  That way, the site can be an ongoing resource for those looking for relevant reading.

Since the site is new, we thought for the next few days, we’d put the spotlight on each of the 6 categories of books, so you can get a feel for the kinds of books in the running.

Today’s spotlight will focus on the Entrepreneurship category— books with insights and advice on entrepreneurship.

In an earlier article Scott Shane said“entrepreneurs think differently.” So, entrepreneurs’ reading material is probably different too, from say, the manager in a Fortune 500 company (unless she’s planning to start a small business in the future). We are looking for practical, down-to-earth advice on how to think, lead and grow written from a perspective that respects our size and our direct access to employees and clients. Entrepreneurship is definitely art and business, and it’s notfor the faint of heart. To stay at our best, new information or old information in new ways, is a must.  So far, 12Entrepreneurship bookshave been nominated, including:

Become Your Own Boss in 12 Months
A Month-by-Month Guide to a Business That Works
by Melinda F. Emerson, Michael C. Critelli

Born Entrepreneurs, Born Leaders
How Your Genes Affect Your Work Life
by Scott Shane

Business Model Generation
A Handbook for Visionaries, Game Changers, and Challengers
by Alexander Osterwalde, Yves Pigneur

Do More Faster
TechStars Lessons to Accelerate Your Startup
by Brad Feld, David Cohen

How to Start a Business: Mac Version
10 Essential Business Steps for Startups Using a Mac
by Kevin Cullis

How to Start Your Business With $100
by Ja-Naé Duane

Lists That Saved My Business
by Angel Tuccy, Eric Reamer

Predictable Success
Getting Your Organization on the Growth Track– and Keeping It There by Les McKeown

Take Action! Revise Later
by Bob Jenkins

The Wealthy Freelancer
12 Secrets to a Great Income and an Enviable Lifestyle
by Steve Slaunwhite, Pete Savage, Ed Gandia

Tipping the Odds for the Entrepreneur
Big Ideas on Success for the Small Business Owner
by Kevin C. Maki

Working Naked
A Guide to the Bare Essentials of Home Office Life
by Lisa Kanarek

Take a look at the entrepreneurship books, and vote for your favorites.  It takes 10 seconds to vote— no registration is required.  Just click the VOTE button next to the title of the books you want to vote on for the top 10.  If you don’t see your favorite there and you think it’s eligible, you can also submit it .

And vote for as many books as you wish (one IP address can vote daily).

But remember, the deadline is December 15, 2010 at 11:59 PM Los Angeles time. So, New York, you get an extra three hours to get your votes in. Go vote!

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