Problems Entrepreneurs Face June 2003 By Gwen Richtermeyer, Ph.D.

Director Problems Entrepreneurs Face June 2003 By Gwen Richtermeyer, Ph.D. Director

Problems Entrepreneurs Face

Problems Entrepreneurs Face June 2003 by Gwen Richtermeyer, Ph.D. Director

Table of Contents Introduction.................................................................... . 1 Problems in the Beginning .......................................... 1 Finance ...................................................................... 1 Management ............................................................ 2 Marketing.................................................................. 3 Technology ............................................................... 4 Problems Now ................................................................ 5 Finance ...................................................................... 5

Management ............................................................ 6 Marketing.................................................................. 7 Technology ............................................................... 8 Addressing the Problems ............................................ 9 Demographics ............................................................... 10 Methodology ................................................................. 10 About Us ....................................................................... . 11 Charts and Graphs Chart Chart Chart Chart Chart Chart Chart Chart Chart Chart 1, Financial: Problems THEN .......................... 1 2, Management: Problems THEN .................. 2 3, Marketing: Problems THEN ....................... 3 4,Technology: Problems THEN..................... 4 5, Financial: Problems NOW ......................... 5 6, Management: Problems NOW ................. 6 7, Marketing: Problems NOW ....................... 7 8,Technology: Problems NOW..................... 8 9, Preferred Learning Format ........................ 9 10, Ideal Learning Environment:

Time Allocation ...................................................... 9 Chart 11, Ideal Learning Environment:Activities... 9 Problems Entrepreneurs Face

Introduction Problems in the Beginning The Problems Entrepreneurs Face study was undertaken in fall of 2002 by BRIDG. It is the first study in Missouri to take an in-depth look at the various types of operational problems entrepreneurs face when they begin their businesses and after they have been in business for a number of years. Given that only about one-half of new business ventures survive five years1, and 95 percent of all businesses are small (less than 500 employees), we need to learn as much as possible to positively impact the success rate for new businesses. This study focuses on four key operational areas: finance, management, marketing, and technology. Finance A sound understanding of business finance, access to capital, and relationships with lenders are integral to the success of any business. When starting a business, approximately one-third of the entrepreneurs found CASH FLOW, FINANCE, INSUFFICIENT SALES VOLUME, and PRICING GOODS OR SERVICES to be the most problematic. Chart 1 displays each finance topic and the corresponding percentage of respondents who indicated it as a problem. Chart 1 Financial: Problems THEN 0% 10% 20% 30% 40% 50% 60% Cash Flow Finance Insufficient Sales Volume Pricing Goods & Services Delinquent Customer Accounts Understanding Financial Statements Obtaining Short-Term Loans Rent & Property Costs Obtaining Long-Term Loans Purchasing Obtaining Equity Capital Using Financial Information Obtaining a Line of Credit Building a Relationship with a Lender 54% 43% 36% 32% 23% 23% 21% 20% 19% 18%

17% 17% 10% 9% 1 Headd, Brian. 2003. Redefining Business Success: Distinguishing Between Closure and Failure. Small Business Economics 21: 51-61. BRIDG - 1

Management In beginning their business, about one-quarter of the entrepreneurs stated that their management problems were diverse and focused on themselves (CONTROLLING MY OWN TIME, SETTING GOALS and MEASURING PERFORMANCE), their employees (FINDING/RETAINING QUALIFIED EMPLOYEES), and accessing helpful information (GETTING USEFUL BUSINESS INFORMATION). Chart 2 displays the management topics and the percent of respondents who indicated the topic was a problem when starting their business. Chart 2 Management: Problems THEN 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% Controlling My Own Time Finding & Retaining Qualified Employees Setting Goals & Measuring Performance Getting Useful Business Information Employee Turnover Leading the Company Motivating Employees Low Employee Productivity Preparing Strategic/Annual Business Plans Handling Business Growth Employment, Health, & Safety Regulations Negotiating Leases & Other Contracts Effectively Using Contractors and Consultants Motivating Consultants & Contractors Abiding by a Code of Ethics Creating a Board of Directors Effectively Handling the Board/Advisors 37% 31% 24% 22% 20% 18% 17% 16% 16% 15% 11% 8% 6% 4% 3% 3% 3% -2 -Problems Entrepreneurs Face

Marketing The two top problems in the marketing area focus on how to ABILITY TO COSTEFFECTIVELY ADVERTISE and ACTUAL SELLING. Chart 3 displays the marketing topics and respective percentage of entrepreneurs who found each topic a problem in the beginning. Chart 3 Marketing: Problems THEN 0% 10% 20% 30% 40% Ability to Cost-Effectively Advertise Actual Selling Developing a Marketing Plan Identifying New Opportunities Branding the Firm Competition from Large Businesses Getting Positive Publicity Identifying the Customer Implementing Marketing Strategies Understanding the Customer Overcoming Negative Perceptions Effectively Networking Getting Business from Large Corporations Getting to the Decision Maker Developing New Products & Services 28% 26% 19% 19% 17% 17% 17% 16% 16% 16% 15% 14% 14% 12% 10% BRIDG - 3

Technology Technology in relationship to finance, management, and marketing was not as much of a problem area for entrepreneurs starting a business. About one-fifth of the respondents indicated SETTING UP A COMPUTER SYSTEM was a problem. Chart 4 displays the topics within the technology area and corresponding percentage of entrepreneurs who indicated each was a problem. Chart 4 Technology: Problems THEN 0% 5% 10% 15% 20% 25% 30% Setting Up a Computer System Selecting the Best Software Creating a Web Site Effective Business Use of the Internet Integrating Technology into the Firm Setting Up Information Systems Creating a Data Warehouse Product Development & Testing Effective Facilities, Laboratories Using Personal Data Assistants 20% 16% 11% 11% 10% 7% 6% 6% 5% 4% -4 -Problems Entrepreneurs Face

Problems Now One-half of the entrepreneurs participating in this study have been in business for at least 17 years. About one-fourth have been in business between two and eight years. The problems these seasoned business owners face today are both similar and different than those they faced when starting their businesses. Chart 5 Financial: Problems NOW 0% 5% 10% Cash Flow Delinquent Customer Accounts Insufficient Sales Volume Obtaining Long-Term Loans Pricing Goods & Services Obtaining Equity Capital Finance Using Financial Information Understanding Financial Statements Rent & Property Costs Obtaining Short-Term Loans Obtaining a Line of Credit Purchasing Building a Relationship with a Lender Finance While CASH FLOW and INSUFFICIENT SALES VOLUME remain problems for many, account receivables and capital enter into the picture for one-fourth to one-third of the entrepreneurs. Chart 5 displays the finance topics and corresponding percentages. 15% 20% 25% 30% 35% 40% 45% 41% 32% 27% 23% 22% 20% 18% 14% 12% 11% 10% 9% 9% 8% BRIDG - 5

Management Control of time and putting the right person in the right job remain significant problems for more than one-third of the entrepreneurs. In addition, the role of manager and leader emerge as entrepreneurs grow their companies placing MOTIVATING EMPLOYEES and PREPARING STRATEGIC/ANNUAL BUSINESS PLANS in the top five problems for experienced business owners. Chart 6 displays the management topics and respective respondent percentages. Chart 6 Management: Problems NOW 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% Controlling My Own Time Finding & Retaining Qualified Employees Motivating Employees Preparing Strategic/Annual Business Plans Setting Goals & Measuring Performance Handling Business Growth Getting Useful Business Information Low Employee Productivity Employee Turnover Employment, Health, & Safety Regulations Leading the Company Negotiating Leases & Other Contracts Effectively Using Contractors and Consultants Motivating Consultants & Contractors Abiding by a Code of Ethics Creating a Board of Directors Effectively Handling the Board/Advisors 43% 37% 21% 20% 18% 17% 16% 16% 15% 15% 10% 7% 6% 6% 2%

2% 2% -6 -Problems Entrepreneurs Face

Marketing At this point in the business, entrepreneurs have learned how to handle some of the foundational marketing tasks, although ABILITY TO COST-EFFECTIVELY ADVERTISE remained the number one problem for entrepreneurs. In addition, the continued need to set one s business apart from others surfaces in that COMPETITION FROM LARGE BUSINESSES and IDENTIFYING NEW OPPORTUNITIES are the second and third most mentioned problems. Chart 7 displays the marketing topics and respondent percentages. Chart 7 Marketing: Problems NOW 0% 10% 20% 30% 40% Ability to Cost-Effectively Advertise Competition from Large Businesses Identifying New Opportunities Developing a Marketing Plan Getting Business from Large Corporations Actual Selling Implementing Marketing Strategies Developing New Products & Services Getting Positive Publicity Overcoming Negative Perceptions Effectively Networking Understanding the Customer Getting to the Decision Maker Identifying the Customer Branding the Firm 34% 28% 26% 22% 21% 20% 20% 15% 14% 14% 13% 13% 12% 11% 8% BRIDG - 7

Technology Current technology problems reveal sophistication in the technology field and in how businesses use technology. The top problems faced currently by entrepreneurs are EFFECTIVE BUSINESS USE OF THE INTERNET, CREATING A WEB SITE, and INTEGRATING TECHNOLOGY INTO THE FIRM. Chart 8 displays technology topics and corresponding percentages. Chart 8 Technology: Problems NOW 0% 5% 10% 15% 20% 25% 30% Effective Business Use of the Internet Creating a Web Site Integrating Technology into the Firm Selecting the Best Software Setting Up a Computer System Creating a Data Warehouse Setting Up Information Systems Product Development & Testing Using Personal Data Assistants Effective Facilities, Laboratories 24% 19% 18% 16% 15% 9% 9% 6% 6% 5% -8 -Problems Entrepreneurs Face

Addressing the Problems A better understanding of the problems entrepreneurs face at varying points in their business lives provides tremendous opportunities to shape programs, products, services, and tools to meet these needs. Just as problems change over time, preferred ways of learning have also changed. The pressures and stresses of owning your own business, Chart 9 Preferred Learning Format 0% 10% One Day Seminar or Workshop Topical Workshop - 4 Hours or Less Class Using Web or ITV Technology Series of 1-3 Hour Topical Workshops Class for Several Weeks Chart 10 Ideal Learning Environment: Time Allocation What percentage of time would be allotted to: information overload, and lack of time are ingredients that need to be factored into any attempt to assist the business owner whether they are starting, operating, or growing a business. We found that entrepreneurs PREFER a short, to-the-point learning format and a blended learning experience. Charts 9 through 11 display these preferences. 20% 30% 40% 50% 40% 25% 15% 11% 9% 0% 5% 10% 15% 20% 25% 30% 35% Mean Median Lecture Individual Application Experts from the Field Networking with Peers

Small Group Discussion Chart 11 Ideal Learning Environment: Activities 29% 25% 28% 20% 27% 20% 22% 20% 21% 20% Mean Median 63% 25% 24% 21% 60% 20% 20% 20% 0% 10% 20% 30% 40% 50% 60% 70% Face-to-Face with Others In a Workbook On a Computer Online What percentage of time would be: BRIDG - 9

Demographics Methodology The entrepreneurs in this study closely match the population of small business owners in Missouri. Approximately three-fourths of the respondents are white males with an average age of 52. Almost one-half (48 percent) are college degreed. Most of the businesses represented are services (38 percent), retail (19 percent), and construction (13 percent). These findings are based on an industry sector stratified, random survey study of small business owners in the State of Missouri. A total of 1,352 surveys were completed, providing a response rate of 14 percent. A series of focus groups and interviews with small business owners, entrepreneurs, and business assistance providers were held in summer 2002 to gather information about educational needs and wants, learning preferences, learning styles, and concerns or problems faced in starting, operating, and growing a business. To be eligible to participate, small business owners and entrepreneurs must have been in business at least two years. From this information, a survey instrument was drafted and reviewed by numerous small business owners, entrepreneurs, business assistance providers, and academics. We used the Dun & Bradstreet Marketplace database for our sample, initially sending our survey to 10,000 small business owners in the state. We followed the Dillman Method for maximizing our mailed survey response. In addition to the mailed survey, a sub-database of 1,200 non-respondents was pulled and followup telephone interviews were conducted, increasing our final response rate by three percent. -10 -Problems Entrepreneurs Face

About Us BRIDG, a University of Missouri Outreach & Extension group, focuses solely on researching small business and entrepreneurship. Its research lays the foundation for the creation and delivery of quality programming, products, services, and organizational processes specifically developed for small business owners and entrepreneurs to start, operate, and grow their businesses. Other recent reports include a study of technology companies in Missouri and a study of Latino/a Business Owners in Greater Kansas City. For further information or detail, please direct your questions to Dr. Gwen Richtermeyer, Director, BRIDG-UMKC, 4747 Troost, #217, Kansas City, MO 64110, 816-235-6343, richtermeyerg@umkc.edu. 2003 BRIDG BRIDG - 11

BRIDG is supported by the University of Missouri Outreach and Extension Outreach Development Fund and is located on the Kansas City, Rolla and St. Louis campuses.

2003 BRIDG, 4747 Troost, Suite 217, Kansas City, Missouri 64110 816-235-6343 | www.bridg.org