Thursday, September 22, 2016

Most Small Businesses Are Barely Saving Any Money

Photographer: Ron Antonelli/Bloomberg

Most Small Businesses Are Barely Saving Any Money, New Study Shows

As Federal Reserve officials gather to issue their monthly assessment of the world's largest economy, a new study lays bare the extent to which many small firms are pressed for cash.
"Most small businesses are operating on very small margins," Diana Farrell, CEO of the JPMorgan Chase Institute, an in-house think tank that uses data from the bank to analyze the economy. "The small business sector is less full of future Googles and Ubers and tons and tons of very small operators living month to month," she said in a phone interview.
The companies in question may be small, but they represent an outsized share of the U.S. economy. According to the Small Business and Entrepreneurship Council, they account for roughly 50 percent of gross domestic product and more than 50 percent of new job creation — a metric that's closely watched by the Fed in determining whether the economy can withstand a constriction in financing conditions. Yet even though they're contributing a great deal to the economy there remains ignorance about their financial health, Farrell added. On average, the companies surveyed have just 27 days worth of cash reserves — or money to cover expenses if inflows suddenly stopped — according to the JPMorgan study, which analyzed 470 million transactions by 570,000 small business last year. Restaurants typically hold the smallest cash buffers, with just 16 days of reserves, while the real-estate sector boasts the biggest, at 47 days.
JPMorgan Chase Institute
Small businesses attempting to expand (or just keep their head above water) may find it difficult to build up reserves, with daily income outpacing expenditure by just $7, according to JPMorgan's study.
The findings come as small-business optimism appears to be stagnating in the U.S., with the National Federation of Independent Business's (NFIB) Small Business Optimism Index dropping 0.2 percentage points to 94.4 in August. That's running below its 42-year average of 98.

"Political uncertainty two months ahead of the presidential election could be distorting small business sentiment," Carl Riccadonna, Bloomberg Intelligence Chief Economist, wrote in a report earlier this month. "A sharp drop in the economic outlook and hiring plans weighed on overall business optimism, pushing the headline NFIB Small Business Optimism Index lower in August."
Some 39 percent of small business owners cited the political climate as a reason not to expand — an all-time high, according to the NFIB. Uncertainty over government policy, as well as the wider economy, also hit record highs last month. Still, the JPMorgan Institute's Farrell suggests small businesses should focus the things they have control over rather than taxes or regulatory changes, for instance.
"What most small businesses should be thinking about is having a clear sense of what their liquidity picture is," she said. "This is an immediate thing that would impact a large swath of small businesses that they themselves can act on."
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The Mother Behind the Entrepreneur

The Mother Behind the Entrepreneur

There are commonalities in the lives of children whose passion projects lead them to success.  
The backs of a mother and daughter, walking hand-in-hand down a street in New York City
Jessica Rinaldi / Reuters

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Concocting a reliable “recipe for success” is about as likely as finding that one missing sock, not filling up on appetizers before Thanksgiving dinner, and seeing the Chicago Cubs win the World Series. (Oh, wait.)
And yet, in her new book, Raising an Entrepreneur, Margot Machol Bisnow sought to crack the perplexing parenting code of what makes certain children thrive and excel. Bisnow interviewed dozens of people—and their mothers—who have found success in fields ranging from athletics and entertainment to business and fashion. And it turns out the founder of Under Armour, the talent manager who discovered Justin Bieber, and a former leader in the United Nations have something in common. Beyond the fact that Kevin Plank, Scooter Braun, and Elizabeth McKee Gore are successful entrepreneurs, all three—and scores of others like them—had supportive parents who believed in them.
I talked with Bisnow about the commonalities she found in the parenting styles of successful entrepreneurs, her own experiences as a mother, and the ways she thinks the school system could be improved to foster the spirit of innovation in all students. Below is a lightly edited version of our conversation.

Hayley Glatter: Your book really focused on the mothers of the successful entrepreneurs and some of the paths that they took to success. In the book, you described an entrepreneur as someone who “turns a passion into a project.” Can you talk a little bit more about what, exactly, that means?
Margot Machol Bisnow: I think most people, when they think of an entrepreneur, they think of some tech geek. And to me, it's important to expand the definition so it's anybody who starts something. So in this book, I have people who've started for-profit companies, and—by the way—a wide variety, not just tech but shops or any kind of for-profit company. It's people who've started nonprofits. It's people who've started profits for purpose, which is what they call TOMS Shoes. It's artists, it's activists. It's even intrapreneurs, people who started large projects within bigger organizations.
The point of my book is that, and it was also hugely important to me, I didn't want to just go out and interview the people who started the 10 biggest companies in America because, let's face it, most people are not going to end up being Mark Zuckerberg. But I do think it's possible to start something and to turn your passion into a project and to make a fulfilled and happy life out of it. Maybe it'll be a billion-dollar company, and maybe you'll have five employees. So I wanted to have a huge range, and whatever your interest is, whether it's music, whether it's making things, whether it's fixing things, whether it's computers, whether it's art, whether it's helping people in other countries, whatever you want to do, I think it's important for you to know that you can start something and you can be your own boss.
HG: How did you go about selecting from that huge swath of potential stories and hone in on who you wanted to talk to for the book?
MB: My goal was to have a very diverse group. I wanted half men and half women. I wanted it completely diverse in that sense, but I also wanted half men, half women, every race, every ethnicity, every family background, every family income—from single moms barely making it to upper-middle class where they could lend their kids $10,000 to get started.
HG: And what sorts of commonalities did you find?
MB: I ended up with 10 rules, and I have five to eight stories illustrating each rule. I would say all of the 60 entrepreneurs pretty much followed seven, eight, nine of the rules. In addition, there was one rule that every single person I talked to followed, and it's the overarching theme of the book. Every person that I talked to had a parent, usually a mom, who believed in them. And you'll say, “Well, every parent believes in their child.” But, no, and this is so important to me, I think every parent loves their child, I think every parent wants their child to be happy and successful, but I think most parents believe if their child follows their heart, then they can't make a living.
And I think many parents are saying to themselves, “When I grew up in the ‘70s and ‘80s, there was a path that worked.” You had to study every one of your subjects in high school and get good grades in every class. You had to have a broad group of outside interests and join lots of clubs. And you had to have an SAT tutor and do well on your SATs. You had to get into a good college. And you had to get good grades in every single one of your classes in college, and you had to graduate from college. And probably you had to go on to a graduate school, and then you had to get into a really great company.
And that works for some kids, but it just doesn't work for others. And I want to tell all the parents who have kids that that doesn't work for that it's ok, that there's another route, and that they can trust their child and let their child pursue their passion and they'll be fine.
HG: What do you think sets this parenting style apart from a lot of the other things that we've seen in the past?
MB: I think it's harder because you actually have to listen to your child. Instead of being this tiger mom that decided in advance what your child has to do and forcing it on them, or a helicopter parent who hovers and insists that their child do the things that they think are necessary, this requires listening to your child. It requires watching your child, seeing what your child's strengths are and what makes your child happy, and then supporting that and trusting the process. It requires trusting your child and backing off a bit and letting them pursue that passion even if it's something you know nothing about.
HG: You mention in the book that you have experience fostering this entrepreneurial spirit in your own sons. Can you talk about that?
MB: I say at the end of the book that there's a lot of things I know now that I didn't know at the time. I certainly wasn't trying to foster entrepreneurial kids—I barely knew what an entrepreneur was. But I did respect my children's passions. Both of our kids had passions in areas that my husband and I knew nothing about. I say in the book that if either of our kids had been remotely interested in law ... or any of the things that we're knowledgeable about, we would have just been all over them with advice and suggestions. So I think it turned out to be really serendipitous that both our kids developed passions in areas we actually knew nothing about.
Our oldest son, Elliott, was a tennis player. That's basically all he did for 10 years. We would go to these tournaments with the top 100 kids in the country and we would be the only parents there who didn't play tennis and barely knew the rules. And this is just something he wanted to do and he insisted on and we supported him. The consequence was that he had to figure out what racket to get, he had to figure out what coach to train with, he had to figure out what tournaments to enter. He just had to figure out all this stuff and he had to be in charge of it, and even though he does nothing with tennis anymore, the qualities that he developed held him in good stead.
Then our younger son was passionate about music, and in particular about writing music. And again, we knew nothing about music, we don't play instruments. And he had to figure out what instruments to study, what teachers to study with. He put out a CD when he was in high school. He had to figure out who to do it with and how to do it and make all sorts of decisions about things I don't even understand and what kind of music software to buy and all that kind of stuff. It just worked out really well that our kids had passions in areas where we couldn't help them.
HG: You talked a little bit about how your older son said that he didn't really love school and that it wasn't something that got him excited as a kid, and you do hone in on the topic of education in your book. So were there any patterns that emerged among the entrepreneurs that you spoke to—as well as their parents—in terms of their school experiences?
MB: No. I would say one of the things I love is that there are not patterns in general. Everybody's unique and the point of the book is you can't say, “Oh, that's how that person did it, so that's how I'm going to make my kid do it.” You have to listen to your kids, you have to watch your kids.
There were entrepreneurs who I talked to and their moms who were just academic superstars. I would say a third of these kids breezed through school. It was easy for them, they were great students, but not all of them.
So the point is, if you have a kid who's a great student, who loves school, who's doing well, who's happy, who's thriving, that's fantastic. That's great. But what if you don't? What if you have a kid who's unhappy, who has a different learning style, who doesn't fit into that school. Then you have to work around that. You kind of have to figure out what your kid needs, and you have to be there for them and support them.
HG: In the book itself, you wrote that schools “reward behavior that is diametrically opposed” to entrepreneurial success. Can you elaborate on that and what structures of today's school system you are referring to with that statement?
MB: I think, of course not every school and of course not every teacher, but I think there are certainly the inclinations among many schools to reward kids for regurgitating information they've been given in certain ways. That works for a lot of kids, and it doesn't work for other kids. Entrepreneurs are often people who challenge the status quo, who look at things differently, who look outside the box.
One of the kids is Benny Blanco, who's become one of the country's top songwriters and has written over 15 number-one songs. His mom said when he was in kindergarten, the teacher used to call her every week and say, “Benny won't sit in the circle.” And she used to say, “So?” Which I thought was amazing, because I would have sort of freaked out.
Some of the parents found ways around it. Adam Braun's mom got a call from his teacher who said, “Adam can't sit still,” and she said, “Can you have him sit in the last row of the class and then if he has to stand up, then it won't bother people?” And then the teacher said, “Oh, yeah, I guess we can do that.”
I think there are schools, especially charter schools, who are now trying to work with kids to be more creative.
HG: What do you think, based on your interviews, schools should be doing to encourage kids to become entrepreneurs and be more creative?
MB: Let me make it clear that I am not an educator. I don't want to dictate. But I look at places like the Blue School that was started by the Blue Man Group out of New York City, and everything they do is to spark creativity. And everything they do is to encourage children to explore and discover and create. My kids went to pretty traditional schools, but I've talked to people who've had their kids in charter schools where everything is much more creative, and I think it depends on the child. Some kids thrive with structure and some kids thrive when they can have an opportunity to be more creative. I think the job of a parent is to make sure your kid is in a school that works for them.
The other thing, and it comes back to what we were talking about, suppose you have a child that's really good in something and not so good in other things. If you say to that child, “If you don't get A’s in all your subjects, you'll be a disappointment,” you're sending one lesson to that child. If what you say to the child is, “I'm so incredibly proud of you for the beautiful song you wrote. Maybe you should try to work a little harder on some of your other subjects, but what you did is fantastic, and we're so proud of you for all the effort you put into the thing you love,” you're communicating something different.
One of the parents said to me, "In a company, we don't say to people, 'You're so good at accounting, we think we're going to put you in human resources,' but in a sense, this is what we do to our kids." We say, "You're so good at computers, stop spending so much time at computers and start spending more time studying your history." I think it's important for parents to praise their kids for what they have done as opposed to being upset with them if they've tried their best and they're just not very good in some areas.
HG: Is there anything else you wanted to add that we didn't get to?
MB: Well, the only other thing that I would say is, I was so struck by the December Atlantic cover story on the Silicon Valley suicides. It's really one of the most powerful stories I've ever read, and it's a story about how all these high-school kids in Silicon Valley are walking in front of trains. And they interviewed people in these classes, and [a large number of the students] said they had serious suicidal thoughts. And they interviewed people who said these kids believe there is but one path to a successful life, and that path is very narrow. What I hope the book does is shout that there's another approach to life. I want parents to lighten up and realize there isn't just one path to a successful life and not pile so much pressure onto their kids to perform in areas that maybe aren’t their natural talent and praise them for their efforts in the things their children love and are good at.