Colorado Center for Innovation in Community Capital

The CC4ICC Approach to Recovery – Wealth Restoration

by Ron Stites

Executive Director, CC4ICC

COVID-19 has destroyed many small businesses. This is a huge blow to the US economy since small business provides a disproportionate share of US job and innovation. The situation is even worse for minority business owners and leaders. Small business has historically been one of the most effective means for minorities to accumulate wealth. Hence, small business failures hit our minority communities especially hard.

Setting aside for the moment the unprecedented human cost of the COVID-19 crisis, from a long-term economic viewpoint, the pandemic can be viewed as a temporary accelerator of normal small business “churn.” For many decades small businesses have started and failed at a surprisingly constant rate of about a 20% success rate over a 10-year period. This “rule of thumb” has persisted through the post-war boom years of the ‘50s, the hippy ’60’s, the “stagflation” ‘70’s, the roaring ‘80’s, the dot com bust of the ‘90’s and the financial crisis of the ‘00’s.

During downturns, many small businesses go out of business, but many new ones are also started. Furthermore, a surprising number of good small businesses adjust to circumstances and flourish while (and sometimes because of) the downturn. The COVID-19 crisis has seen some surprising winners – especially those already positioned to take advantage of accelerated dependence on the Internet.

This has long been the case with small business. I once worked for a Dr. Walt Langston who had founded a small scientific testing laboratory. He was always hoping for a recession because the big companies cut back on in-house testing to “save money.” They contracted the work to his labs. During good times, the bigger companies fattened up their staffs and pulled the testing work back in-house to “save money.”

Through all the ups and downs, that rule of thumb has persisted. Why? I believe there are several factors including:

• Good small businesses are nimble enough to adjust and often find a way to flourish in changing circumstances.
• Many small businesses are started that don’t have much of a chance of success in good times or bad.
• Many small businesses are life expectancy constrained by the effective working life of the founding entrepreneur.

These factors are mostly about entrepreneurs rather than business ideas. work together to create a constant “churn” of small businesses. Entrepreneurs are a surprisingly resilient and persistent lot. They may go broke today but are planning to reopen tomorrow. The absolute numbers of that “churn” change based on economic conditions, but the percentages remain cannily the same. If we want to increase the efficiency of business capital, we need to move the needle on quality rather than quantity.

So, what is a “good” small business? More importantly, how would one pick a “winner” before that business has demonstrated “success?” This is the big question. Most investors make almost no effort to try to do this. They try to find the business that already has sales and buy a chunk of that business (the “Shark Tank Model”). Some will give a little support to the business to improve success rates, but most just buy a small piece of a bunch of companies and hope for the best. They depend on their “winnings” of a few to outweigh their “losings” of the many. That is a strategy that demands high returns on a few to offset the losses on the many. No wonder they “demand” 3X return in five years.

At CC4ICC we look at several key factors. We require all candidate companies to fill out exhaustive questionnaires before we will engage with them. We ask the usual questions about their history, technology and financial performance. We would like to know if they have gotten any traction, but our primary purpose is finding out if management understands their business and their customers. It is amazing to discover how many small businesses are not businesses at all but are some type of “hobby” or “technology” that the owner/founder “loves” and wants to promote.

We insist on seeing a business plan that demonstrates that the owner/leader understands what needs they are fulfilling for their potential customers and why those customers would be willing to pay for their product or service. If this is missing, then the owner either doesn’t have a business or doesn’t understand what his/her business is. In the first case we walk away. In the second case we will dig deeper and try to determine if the owner is willing to “discover” what business they are in and adjust their plans to make that business successful.

If we can get past that first hurdle, we will dig deeper to see what the small business needs to grow. We also try to assess the ability and willingness of the owner and the management team to work on known deficiencies. We have walked away from several businesses that had some traction but appeared to be unwilling to consider doing anything different. These folks are unteachable and, frankly, a giant pain in the butt.

Throughout this whole process we keep in mind the “rule of thumb” that 80% of who we are talking to are not going to be around for long. We don’t want to be working with them. We try to push the rule a bit further and take on less than 10% of the folks we talk to. That means we have to talk to a lot of folks. That is why we have automated the process and are working to perfect an AI evaluation program. We want to work with the winners. It is way more fun and way more profitable.

When we find what we think are the winners, we are happy to help them improve their business and get them ready to raise money to make their dream a reality. There is still a lot of work to do, but in most cases, businesses that know what they are doing and are willing to work at it can find the mix of equity, debt and grants to fund the growth of their business.

If you think that you are among the winners, feel free to contact us by email (see below) or visit us at: https://www.cc4icc.com/consulting-1 . There you can find a list of our services and a form to request more information.

You can also contact me at:  [email protected] or visit our website at:  www.cc4icc.com.

 

Ron Stites is an inventor and serial entrepreneur. His specialties are start-ups and early capitalization – especially with high-tech and “deep-tech” businesses. His is a founder of the Colorado Center for Innovation in Community Capital (CC4ICC) as well as several other businesses serving various facets of business improvement, growth and technology development.

Do Not Let This Dark Night Pass Without Realizing Its Blessings

En una noche obscura,
con ansias en amores imflamada,
¡oh dichosa uentura!
sali sin ser notada,
estando ya mi casa sosegada….

So began the great poem by Saint John of the Cross. While locked in an attic cell by his superiors and in grave danger of martyrdom at the hands of the Spanish Inquisition, John wrote of how this calamity caused his heart to soar.

Many of us are now in undeserved confinement. Some of us are in grave danger. Let us not pretend things to be otherwise, but do not let this confinement of the body become a poison to our souls. Take the time to reflect, imagine and even dream. Reach out, as did St. John, to things beyond yourself and your current condition. Reconnect with who you are and why you have chosen your current path. Rewrite your story and prepare for the dawn that is coming.

Small business owners, you will be hurt economically by what has happened. Nevertheless, this could be your opportunity to rethink everything and start many things anew. Give thought to:

• Why did you start your business anyway?
• What has fundamentally changed with you or your circumstances that might make your mission look vastly different?
• What has pulled you away from your real mission – the real you?
• What do you have to throw overboard to get you back to your real intent?
• Who will help you do that and who will not?

Write these things down. Don’t write a business plan yet…there will be time for that later. Rather, write your epic poem. Pour out your soul and then read it aloud. I think you will be surprised with what you say to yourself. Be careful, however, that you don’t let the past define who you are. You may have become an Accountant because you liked understanding numbers, working with business owners, understanding taxation or helping people build wealth. It is not likely that you became an Accountant because you were born one or destined to be one. Hence, your future might include giving up your CPA and moving on to something else that actually expresses your personal mission even more than being a CPA.

Too often we let events, the fear of consequences and short-term “opportunities” steal our dreams from us. More often the effects are more subtle. Our business and the messages we use to describe our businesses drift away from original intents and passions. We are no longer able to describe what we do. Not because we don’t believe in our mission but because the day-to-day has become filled with the tasks and the people that don’t exactly match that mission.

There is a sad tale about what happened to western farmers in the dust bowl days. Many of them defined themselves as farmers and not as husbands, fathers, mentors, leaders or many other basic attributes. Many dust bowl farmers held onto shattered land dreams so long that they we virtually incapable of doing anything but fall into poverty. Others moved on to California to start over before they were completely exhausted. Still others found other work in the growing oil and gas or services industries. They didn’t “remake” themselves. They redeployed their talents and renewed their dreams.

So, let the words you have written be a guide to your thoughts. Get comfortable with who you really are and then try to squeeze them into action plans. Think about what the “daily grind” has crushed out of you in the past few years and how you might regain your enthusiasm. Once you get some of these things in writing, share them with one or more friends in honest conversations. Frequently our close friends see our strengths and weaknesses far more clearly than we do. By the way, cherish such friends as these.

A time is coming, and it will only be a few months, when this sweet madness, this glorious sadness, will be but a memory. We will soon be back in the day-to-day. Don’t let this time pass without taking stock of who you are, where you wanted to go and what you will do when new opportunities arise.

 

The Colorado Center for Innovation in Capital (CCICC) helps small businesses raise capital. For more information visit www.cc4icc.com or email [email protected].