by Heather B. Hayes
for Virginia Business January 2006
Randy Andes tried
to start a hardware store nearly 20 years ago, but he
didn’t
even make it to the financing stage before giving up. "I
had a lot of knowledge in the operations of the hardware
business, but I found
out real quick that there were a lot of things about
the general business or starting and running a small
business that I just didn’t know," he says.
In the late 1990s, Andes retired as a store manager
for a national hardware store and tried again to start
his own business. This time, however, the resident of
Timberville in Rockingham County turned to the Shenandoah
Valley Small Business Development Center at James Madison
University for help. The Small Business Development Center
(SBDC) staff gave him information, access to university
research and hands-on help. That assistance enabled him
to write a business plan, perform a competitive analysis,
find financing, negotiate a commercial lease and market
his store to his target audience.
Randy’s Do It Best Hardware Store opened in Timberville
in 2001 and has been thriving ever since. The store has
an 8,000-square-foot showroom, nine employees and annual
growth rates in the double digits. Andes credits the
SBDC with helping him to avoid costly mistakes and get
under way quickly. "They prepared me for the questions
that I wasn’t expecting," he says. Andes expects
to turn to the JMU program for advice again when he crafts
a five-year strategic plan next year. "The help
they gave me made all the difference."Luckily, such
help isn’t hard to find. Business schools increasingly
are offering programs designed to tip the odds in favor
of would-be business owners. SBDCs, which are found at
five Virginia universities and 12 community colleges,
are among the oldest programs. But there also are other,
more niche-focused offerings, including the Franchise
Center at Virginia Union University, the Virginia Family
and Private Business Forum at Virginia Common-wealth
University and the Business Technology Center at Virginia
Tech.
Why are b-schools interested
in providing free advice to small businesses? Some
of the motivation is clearly
altruistic — part of a larger, historic mission
to reach out to the local community. But the push to
help small businesses is a relatively new trend, prompted
in part by research conducted in the late 1980s by R.G.
Cooper, a marketing professor at McMaster University
in Hamilton, Ontario. In investigating why some new companies
are successful and others are not, Cooper concluded that "predevelopment" effort
was a critical factor. Companies that did a poor job
of researching their market and finding the right technology
succeeded just 30 percent of the time. Those that did
a moderately diligent job on their homework pushed their
chances for success to nearly 70 percent, while those
that did a superb job succeeded nearly 80 percent of
the time.
"We all saw those numbers. It became fairly obvious
that either we help people do that initial homework or
we keep new business development at a 30 percent success
rate," says Dick Daugherty, director of the Business
Technology Center, a part of the Pamplin College of Business
at Virginia Tech.
The small-business trend, however,
is also motivated by self-interest. "We’re trying to ensure
that our graduates have good jobs when they graduate," says
Chuck Gallagher, director of the Virginia Family and
Private Business Forum.
Of course, community-based assistance for small business
owners has long been available through programs sponsored
by local chambers of commerce, community colleges and
SCORE (the Service Corps of Retired Executives). But
programs linked with universities offer a different level
of aid, including access to the latest research and the
ability to interact with faculty members and students.
Businesses can tap student power, so to speak.
For example, when a Staunton restaurateur considered
opening a second location, the SBDC at JMU suggested
that his business could serve as the subject of a semester-long
student project. The owner met with a class of 25 students
studying entrepreneurship. He discussed the details of
his business and challenged the students to determine
the feasibility of starting the second restaurant. The
students were divided into five teams to tackle the project.
Each team conducted a survey, studied the competition,
evaluated menus and pricing, and developed marketing
strategies. The students then created presentations detailing
their findings.
"The business owner walked away with five incredibly
well-researched plans from which he could pick and choose
and make his decision, and the students got some invaluable
real-world business experience," says Henry Reeves,
director of the SBDC at the university. "It’s
a win-win for everyone involved."
The Business Technology Center
calls upon Virginia Tech’s
wide-ranging expertise to help its clients, who primarily
are technology-based companies and firms trying to decide
how to utilize technology in their day-to-day operations.
One recent client was an inventor trying to start a business
around a new hearing device. Daugherty sent him to Tech’s
Industrial Engineering Department for help in building
a prototype. Tech experts also helped the owner of a
budding software company identify a market area that
would steer his product away from a head-to-head competition
with IBM.
"We helped him find about 50 customers in different
market segments that could use his product and, to date,
he’s going gangbusters," Daugherty says.
In most cases, business assistance programs are designed
to deal with the needs of would-be entrepreneurs. They
typically provide information on creating business plans,
conducting market analysis, finding financing, and setting
up accounting systems and marketing strategies.
"An awful lot of what we do is helping companies
whittle down their big 10,000- foot-high idea into a
few really focused nuggets so they can communicate their
business idea to financial institutions and to their
potential customers," says Jody Keenan, the director
for the Virginia SBDC Network, which includes programs
at George Mason University, Longwood University, Radford
University and the University of Mary Washington in addition
to JMU.
A growing number of business
schools, however, are using their outreach programs
to explore overlooked niche areas
in the small-business market. Virginia Union University’s
Franchise Center, opened just a year ago, offers help
on the legal, financial and personal complexities of
buying, creating and managing franchise businesses.
Larry Connatser, an associate
professor of entrepreneurial studies at the Sydney
Lewis School of Business at Virginia
Union, is the center’s executive director. He notes
that franchises have had a bit of a stigma in traditional
academic circles because the business model tends to
conjure up images of fast food and low-paying jobs. As
a result, little study has been devoted to franchise
operations. But franchising has become too prevalent
to ignore, he says.
Franchised businesses operate more than 767,000 establishments
in the United States, employ nearly 10 million people
in more than 800 industries and account for more than
$600 billion of economic output, according to a study
by the International Franchisor Association Educational
Foundation.
Still, the lack of easily available
information about franchises has resulted in plenty
of confusion, misunderstanding
and financial losses for potential franchisors and franchisees,
Connatser says. "The benefits to owning a franchise
are that it is a proven model and they are typically
a lot more successful than a normal startup, but at the
same time, a lot of people get in and realize that it’s
not like they thought it was going to be."
The Franchise Center helps potential franchisees by
providing advice on starting and running franchises.
The center also offers the Franchise Management Certification
Program. Here, successful franchisors and professionals
in law, accounting, risk management, marketing and other
fields answer questions such as: Is franchising right
for you? How do you pick the right franchise? How do
you raise capital? How do you turn your business into
a franchise operation?
Gail Johnson, president of Rain-bow Station Child Care
Center, a Richmond-based company offering early education
and after-school care, agrees that business owners — especially
potential franchisors — are in desperate need of
this type of information. "You feel so lost," she
says. From the time she decided to turn her business
into a franchise operation, it took four years for her
first franchise to open its doors. She has 12 franchises
in operation, with two more on the way. "You can
wander down a lot of rabbit trails and spend a lot of
money while you’re trying to figure it all out."
The Franchise Center also provides
Virginia Union’s
business school with a new focus area. It is adding a
franchise management class and incorporating study of
the franchise model into longstanding classes on entrepreneurship,
marketing and finance. "It is a way for us to create
a greater awareness among our students that there are
other career opportunities out there," Connatser
says.
Family-owned businesses are another
important employer, responsible for 78 percent of new
jobs in the United
States. But 70 percent of those businesses fail before
the second generation takes over. The biggest reason
for the high failure rate is not competition, operational
challenges or low profits but the inability of fami-
lies to plan for succession. That stark reality compelled
VCU to start the Virginia Family and Private Business
Forum in 1995. "If we can work with them to help
them plan for who’s going to take over, to truly
understand the challenges they’re going to face,
and get the younger generation involved much earlier
in the process, then the possibility of a successful
transition is greatly enhanced," says Gallagher.
The program, partly funded by First Market Bank, LeClair
Ryan and RSM McGladrey, provides counseling and holds
seminars on issues such as succession, strategic planning
and family conflicts. One program participant is Joseph
Kelleher, president of Kelleher Corp., a family-owned
heating and cooling company that he started in 1968 with
his parents and brother, Pat. Kelleher says that the
program has helped his family develop a strategy for
gradual transfer of leadership. The company also has
an oversight structure that includes a family council
and a board of directors made up of family and non-family
members.
"To be honest, before I got involved with this,
I didn’t even know what the issues were for passing
the business down to the next generation — all
we had was a buy-sell agreement," Kelleher says,
noting that three of his brother’s children are
involved in the business. "But we now have an understanding
to do a transfer plan that was reached through a consensus
with all three generations during our family council
meetings, and we’re working out the details now.
It’s a much better way of ensuring that everybody
is aware and understands the way the process works and
the reasons for it."
Business school officials believe
that demand for small-business assistance will continue
to grow as entrepreneurs face
an increasingly complex regulatory and tax environment.
Daugherty says the greatest benefit that these programs
offer may not be information but objectivity. "If
we can’t find any evidence that something is going
to work, we will say so," he says. "It’s
always very difficult to tell someone that their baby
is not beautiful, but we’d rather do that than
see them lose their shirt with a bad business idea."
