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May 28 - June 3, 2007

SEC Agrees to Revise Sarbanes-Oxley

The protracted squabbles over the impact on smaller firms of the Sarbanes Oxley financial regulations appears to be over -- at least temporarily. Last week, the Securities and Exchange Commission agreed to revise the law’s Section 404, which deals with audits of a firm’s internal financial controls. Under the new revised guidance, smaller firms (with market value under $75 million) were approved to use a less stringent standard for auditing of financial controls. This directive is expected to have a significant effect in reducing oversight costs for these firms.

Learn more about the US Securities and Exchange Commission’s May 23, 2007, Guidance for Compliance with Section 404 of Sarbanes-Oxley.

The State of Entrepreneurship

The latest assessment of entrepreneurial activity by the Ewing Marion Kauffman Foundation provides startling numbers for yet another year. The new report shows that an average of 465,000 people creating new businesses each month in 2006. Besides year-to-year changes in entrepreneurship activity, the Kauffman Index -- defined as the percent of the adult U.S. population of non-business owners who start a business as their main job each month -- captures long-term trends. The 2006 figure is up slightly from the previous year, it is equal to the average rate for the past ten years. Other highlights from the past year include: Asians, Latinos and immigrants far outpaced native-born Americans in entrepreneurial activity; African Americans experienced a decline; entrepreneurial activity for men did not change between 2005-2006, ending a downward trend that began in 2003; and, the rate of entrepreneurial activity for women declined slightly. The report also contains data on activity at the state level. The five states with the highest rates of entrepreneurial activity were Montana, Mississippi, Georgia, Oklahoma and Maine. The five states with the lowest rates of entrepreneurial activity were Michigan, Pennsylvania, South Carolina, Illinois and Delaware.

Conducted by Robert Fairlie of the University of California at Santa Cruz, the Index is a key component and one of the 26 top indicators in the compilation of the Kauffman Foundation's highly recognized State New Economy Index. That report, released earlier this year, is a state-by-state analysis of how state economies are transforming from an old industrial economic model based on "smokestack chasing" to an increasingly global-, knowledge- and innovation-based New Economy.

Download the Kauffman Index of Entrepreneurial Activity.

Innovation in Services

Innovation is not just about inventing some new technology or perfecting a new widget. Innovation in the service sector is an equally important trend in promoting the growth of both companies and regions. An interesting new paper profiles twelve examples of service innovations pioneered by American corporations. The study outlines a mix of large and small firms, ranging from household names like The Hartford and Bank of America to firms that don’t have much of a public profile (e.g. Ingram Micro, MyBizHomepage, and Nine Sigma). All of these firms have introduced service innovations that have helped them grow rapidly and become important players in their respective markets. The report, by Tekes, Finland’s public R&D financing agency, contains numerous insights for corporate managers, but four key findings are highlighted:

  • Firms must explicitly seek to create an innovation culture in the workplace.

  • The key formula to success combines entrepreneurial passion and deep customer focus.

  • Information technology is the real key to service innovation. Service firms should focus on the “information value chain” as intently as manufacturers focus on the physical supply chain.

  • Management must engage front-line employees in the process.

Access the report, Seizing the White Space: Innovative Service Concepts in the United States.

California Angel Receives Hans Severiens Award

Luis Villalobos, founder of one of the most active angel investor groups in the country, was named last week as the recipient of the Hans Severiens Award. The award, presented at the 2007 Angel Capital Association Summit, recognizes individual accomplishments in the advancement of angel investing. A decade ago, Villalobos founded TechCoast Angels, which has since become the largest angel network in North America. Since its launch, its 300 members have invested $84 million of personal capital in 132 companies which have gone on to attract an additional $810 million in capital. Villalobos’ group today consists of four geographic networks in Los Angeles, Orange County, San Diego, and Westlake/Santa Barbara. Villalobos was also involved in starting two other angel groups – Camino Real Angels, El Paso, TX and East Coast Angels in Sydney, Australia. Having made 63 angel investments personally and developed and led over 100 workshops for angel group leaders, angels, entrepreneurs and Bar Associations, he is one of North America’s most active and successful private equity investors. Villalobos is currently working on what he terms his next stage of angel investing – a collaborative venture capital fund. The new company called Angel Venture Partners, will serve as a model to bring in outside capital to angel groups.

Learn more about the Angel Capital Association and Angel Capital Education Foundation.

Learn more about TechCoast Angels.

Small Firms on Health Care

The National Federation of Independent Business (NFIB) has released a major new survey of small business owners’ perspectives on American health care policy. The main finding? They don’t like it. Small business owners overwhelmingly identify high costs as the primary health care challenge they face. They are less concerned about health care quality as 79% believe the quality of health care provided to most Americans is “excellent” or “pretty good.” Ninety five percent of respondents believe that individuals who receive financial assistance for health should be asked to pay for some portion of their benefits. In addition, fifty seven percent believe that those above a certain income threshold should be required to have health insurance. Finally, when it comes to providing insurance to the poor or the working uninsured, surveyed business owners express a strong preference for the use of tax credits to purchase health insurance.

To learn more about the 2007 National Federation of Independent Business survey, “Small Business Owners on Health Care Policy."

Industrial Innovation in Australia

Australia’s economy has been booming for at least a decade, and improved innovation performance in Australian businesses is one factor behind these trends. A new Innovation Index of Australian Industry finds that innovative activity (measured by R&D intensity and other metrics) has increased by 25.8 percent between 1990 and 2006, and this increase has been most rapid since 1996. The health and community services sector has seen the fastest growth in innovative activity, while more traditional sectors such as mining and manufacturing, have lagged in recent years.

Download the 2007 IBM-Melbourne Institute Innovation Index of Australian Industry.

The National Dialogue on Entrepreneurship is an initiative of the Public Forum Institute made possible by a grant from the Kauffman Foundation of Kansas City. Through NDE-news, we bring you short summaries and analyses of various trends driving entrepreneurship around the world. Subscribe now to receive your weekly copy. Archived issues are available online.

Kauffman Foundation    The Public Forum Institute

National Dialogue on Entrepreneurship

Mark Marich, Editor

All stories © 2007 The Public Forum Institute
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