If history is any example, the current economic downturn brought on by the COVID-19 pandemic could be an “ideal time” for Native entrepreneurs to start a new business.
That’s according to John Hendrix, director of economic development for the Mississippi Band of Choctaw Indians, who cites research from the Kauffman Foundation showing that more than half of the companies that have been on the Fortune 500 list were started during bear markets.
Hendrix recently issued a call for Native entrepreneurs to seize the opportunities presented by the slowdown, which has led to a larger pool of available workers, cheaper leases and equipment and lower interest rates, among others.
“There is data that indicates that an economic slowdown can be an ideal time to form a new business, and as we are facing that reality in our country, it’s a good time for entrepreneurs to think about moving forward and launching their new product or service,” he said.
Hendrix spoke with Tribal Business News about why Native entrepreneurs should have reason to be optimistic, despite the overall economic situation that might suggest otherwise.
Why do you want to encourage Native entrepreneurs to start a business right now?
There just has been so much negativity and people feeling a little down based on the COVID-19 pandemic situation. We just wanted to start sending a message that this might be a good opportunity for entrepreneurs to actually launch their new venture. We try to ground it in fact, that it’s not just wishful thinking.
What are the facts?
We actually did a little bit of research and went back and realized that a majority of the Fortune 500 companies were actually founded during economic slowdowns and bear markets. Almost half of the fastest growing companies on the Inc. list were also founded during an economic downturn and bear markets. With those two facts, combined in terms of some of the largest companies we have today and some of the fastest-growing companies of the decade were actually founded in times like this, we just thought now would be a good time to start sharing a positive message and maybe getting people thinking in a different direction.
Has encouraging entrepreneurship been a focus of your office traditionally?
We have always had small business support programs. Tribal members that need financial resources to start a business can go through our Choctaw entrepreneurial loan fund. We have always provided members with support if they’re trying to write a business plan. We have had a series of workshops for an extended period of time where tribal members get to think about how to research their plan and put their business plans together, and we’re planning to launch another one this fall.
What outreach have you heard from entrepreneurs during the pandemic?
We were gearing up to expand our small business focus in 2020, and then the pandemic hit and we got hit pretty hard with COVID-19. For the last several months, people have been under a shelter-in-place order, so it really got quiet and there was minimal economic activity.
Once we had the opportunity to flatten the curve, so to speak, then we started to get back to business. We thought now’s the time to start spreading the word and trying to get some people thinking about entrepreneurship. We were planning to do it at the beginning of the year and the virus definitely slowed that down, but we’re ready to pick it back up.
What best practices do you encourage prospective startups to adopt?
The business plan document, in and of itself, is not going to be that playbook that tells you exactly what you’re going to do, because things change as soon as you open the doors to your new business. We see the business planning process as being more helpful than the actual plan itself in thinking through all of the variables to your business, thinking through who your customer’s going to be.
The second thing that I would encourage is to fail fast, fail often and fail cheap. Having the business idea is kind of the easy part; actually executing and figuring out what people are willing to pay for is the hard part.
Think about it in terms of coming up with your idea and then figuring out a pretty quick and inexpensive experiment to get some feedback on whether there’s a market there or not. Then you just kind of fine tune. The outcome of that is you actually create your business model and get a better understanding of what products are in demand and who your prime customers are.
Do you think that tribal economic development offices have been getting the word out about the importance of entrepreneurship among members?
There are several tribes that have small business support programs, and it’s just been one of the tools in the toolbox for most tribal EDOs. I don’t know that people have really stopped to think about: Would this be a good time to promote entrepreneurship and economic growth? To me, if you think about somebody who maybe got laid off: The entrepreneurial-type person is the person who’s not going to wait for somebody to fix their economic problems, but they actually go out and create a job for themselves. We are trying to find people who may have been thinking that way, but really felt like now’s not the time because of the economic downturn. We’re trying to maybe motivate them to actually take action. The entrepreneurs are the type of folks who can actually make a difference and start getting some more growth back in the communities.
How well does Indian Country do at teaching young people about the opportunities that come from entrepreneurship?
There’s room for improvement. I think just teaching at the high school level, that’s a great place to start. It’s teaching kids to get in the mindset that they have the ability to create their own economic future. They can go start their own business and be their own boss, so they could provide a job for themselves and also provide a job for the people in the community once they grow and expand and get bigger. But even if they want it to work for somebody else, just having an entrepreneurial mindset is really just about adding value and being innovative and continuing to improve on things. I think that entrepreneurial mindset is a valuable skill, whether you’re wanting to own your own business or not — even if you’re working for somebody else, even within tribal governments.
Access to capital is always a challenge for anyone starting a business, particularly in Indian Country. Should Native entrepreneurs look to make themselves attractive to investors outside of their normal circle of family and friends, maybe even outside of their comfort zone?
I think so. The typical startup business actually starts with friends and family funds, because it’s hard to get just a straight bank loan for a startup idea before it’s proven itself. In many cases, startup entrepreneurs should be assuming that they need to self-fund them and have family and friends to invest with them. If they’re able to actually secure some of that (outside) funding, that’s a little bit of reinforcement of the idea that they have. If other people are willing to invest, then that’s a sign that other people believe in the idea and you as an entrepreneur.
How can tribes help members access capital?
The tribes should think about what their lending assets look like. Do you have a tribal credit union? Do you have a tribal bank? Do you have a small business loan program? If not, does the tribe have banking relationships? Maybe the tribe is a big depositor or borrower of money, and could you encourage those banks to lend within your community, because they get CRA credits for lending in many cases. (Banks) have an incentive to do it, especially if the tribe is one of their good customers. If the tribes don’t have that in place yet on their own, they could probably find partners.
What other resources can tribes offer to help bridge some of the gaps for Native-owned startups?
There are some things that the tribal government can do to lower the cost of getting started. For tribal members who are starting a retail-type business or somewhere where they rent space, we give them a discount on the rent if they’re a tribal member.
Other tribes — and this can get a bit complicated — may actually have purchasing policies that favor either locally owned businesses or tribal member owned businesses. That can be a double-edged sword depending on how the policies are written. The tribe can be one of the first friendly customers for a startup business or entrepreneur, but you don’t want to end up being their only customer and you don’t want to be subsidizing them. There’s got to be some thought put into how you structure those purchasing policies to help them get started, but don’t make them dependent on you.
It could be potentially providing direct loans, providing technical assistance on their business planning, providing coaching during the startup phase, maybe lowering the cost of doing business at the beginning by lowering rent payments, that kind of thing.
By starting companies, tribal members could be creating new generational assets and wealth. How could that trend help transform the economy in Indian Country?
It has the potential to have a really big impact. Number one, just having people in the community with the mindset that they can create their own economic future for themselves, their families and even their community — that is a very productive mindset. You’re not waiting on somebody else to come in and solve this problem or fix your economic pain. You’re able to do it yourself.
The fact that we’ll then have tribal members and families that are financially independent, then they could play a lot of positive roles. Depending on how your tribal enterprises are structured, they could be on your advisory boards, they could be on your board of directors, they could support nonprofit organizations in your community. So those entrepreneurs could become philanthropists and really start benefiting the community as well.
We’re in a constant struggle with how to diversify the economy from gaming and entrepreneurship can be part of that.
What’s your message to tribal members who might have a business idea but are nervous about taking on that risk of launching a startup?
The first thing would be just do your homework. If this is very new to you and if it’s an idea and you don’t have a background in running businesses or starting businesses, then I would find a trustworthy mentor. Whether it’s your local banker or the Small Business Administration person or the tribe’s economic development director, find a mentor that you trust to give you honest feedback and advice. Find a mentor or a coach to help you.
Number two: There’s a whole industry set up around supporting small business. Make contact with those types of folks, build your network with those folks who do this kind of all day every day for a career. A good relationship like that could be valuable.
How would you address concerns about the financial risk they would be taking on?
Going back to this (notion of) fail often, fail fast, fail cheap, and just run some experiments.
You don’t have to commit everything up front. In fact, you shouldn’t. You should just continually run smaller experiments that give you really quick feedback about the business idea, whether it’s a product or a service, and just fine tune what it is you’re thinking until you find the right step to get your product out to customers. Then you can get the confidence and scale up and get bigger.
