ENTREPRENEURSHIP INSIGHTS

Thank you for reading this first issue of the new year. It is focused on some of the tough ethical issues facing founders. 

Founders Can Save The Commons

The tragedy of the commons denotes a situation where individuals acting independently and rationally according to each other's self-interest behave contrary to the best interests of the whole group by depleting some common resource. Individual businesses that neglect the well-being of society in the pursuit of their own gain are not only destroying value, but ultimately their unethical behavior is self-destructive also.

Blake Mycoskie, the founder of TOMS, originally in the shoe business, gives a pair to a child in need every time somebody buys a pair from them. Now TOMS does one-for-one donations not only for bare feet, but also for eyesight, safe birth and safe water with different products.

In the current issue of Harvard Business Review, Blake writes about how he took time away from TOMS after it had grown to be a $300 million business. He came to reimagine the business because he felt that through its success it had become more focused on process, than on purpose. In scaling, he declared, the company had forgotten the company's overarching mission to improve lives.

He returned to the business to make TOMS a movement again. How is your venture maintaining its core purpose?

Political Disillusion and What Founders Can Contribute

A new paradigm in politics comes from there being just 8% public confidence in Congress.  Americans' confidence in most major US institutions remains below the historical average for each one. Only the military (72%) and small business (67%)-the highest-rated institutions in the latest poll-are currently rated higher than their historical norms (Gallup, June 2015).

This indicates the high responsibility  that small business owners bear in maintaining such a level of confidence. Founders, like Blake Mycoskie, can demonstrate high standards of leadership and be role models in public life and can contribute to restoring confidence in public life.

Certainly, if the data, are to be believed, it is not coming from organized religion, public schools, the media-and clearly not the banks. Big business inspires very little confidence (21%), so what can entrepreneurs do? The top five things are:
  1. actively and consistently ensure high ethical (right/wrong) standards in all their business dealings, with founders demonstrating them, even when it's risky;
  2. show intent to identify and provide benefit to all stakeholders, not just the owners; keep politics out of business (see Who Owns Congress?)
  3. have no greater than consumers' ideal ratio of CEO pay to average unskilled worker of 4.6 to 1 (vs estimated actual ratio of 332 to 1); Plato recommended that the incomes of the wealthiest Athenian residents never exceed five times those of its poorest residents; Whole Foods limits the ratio to 8:1; emotional well-being does not rise, once income reaches $75K a year (see study); the SEC voted that quoted companies must reveal their ratios from next year; over 50% of Federal legislators are millionaires;
  4. take steps not only to listen, but hear all constituents; listen to advice from investors, feedback from customers, team members' varied views; hearing voters is something the majority of Congress members are accused of not doing;
  5. appoint women to as many responsible posts as men; in the five years to 2104 women founders almost doubled to 18%, surpassing the 17% of women in Congress vs 50.8% in the population as a whole.
Student Loan Debt Delays Founders
Two of my MBA graduates who had founded businesses, found the burden of student debt so heavy that they felt obliged to seek employment. It's one thing for a new business to carry debt, but if the founder piles personal indebtedness on top it may even be a disincentive to start in the first place.

Last October, the Gallup-Purdue Index revealed that 19% of US college graduates (2006-15) with student loan debt delayed their intended startups on account of it. This translates into 2 million delayed starts.

The rate of business formation by Americans aged 20 to 34 has fallen sharply since 2010, and millennials aren't starting nearly as many new enterprises today as baby boomers were creating when they were the same age, according to the Kauffman Foundation.

Kauffman researchers argue in their report that the recession has "dealt a permanent blow to Millennials' entrepreneurial potential." In part, that's because home ownership among millennials - traditionally a prime source of savings and potential loan collateral - plummeted during the downturn. 

What can founders do about this?
  • We can all shout for higher education reform. Student loans have increased by 84% since the recession (from 2008 to 2014) and are the only type of consumer debt not decreasing, according to a study from Experian, which analyzed student loan trends from 2008 through 2014. This makes no business sense. $1.2 trillion total-ugh!
  • When anyone starts a business, financial bootstrapping is good practice. Founders with significant student loan debt should ensure it's paid off as soon as possible and certainly without deferment. Being late on repayment will have an adverse effect on credit ratings-something any founder should avoid.
  • Founders should avoid delaying their start, because the sooner you are out there testing the reactions of customers, the sooner you will validate your value proposition, or have data to improve your product offering. Look for creative ways to fund the business; above all make sales Job #1.

Thanks for reading. I would appreciate hearing about your own startup dilemmas. 
ReStart is a process for reinvigorating tired founders: Expand; Contract; Reinvent; Pivot. Contact me for an initial discussion.

Sincerely,
Will Keyser
Venture Founders LLC

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Venture Founders LLC
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