Edmunds: Lessons from Booker T. Washington

February is Black History Month and there are many from the past that had the entrepreneurial spirit and have left a light on the path for us. However when it comes to entrepreneurship my all-time favorite person from the past is Booker T. Washington, founder of both The Tuskegee Institute, now know as Tuskegee University and The National Negro Business League, known today as The National Business League.

He had an interesting perspective on personal success. "I have learned that success is to be measured not so much by the position that one has reached in life," he said, "as by the obstacles which he has had to overcome while trying to succeed."

I have quoted Washington's statement many times to people who read and hear entrepreneurial success stories and think that there is something wrong because their businesses didn't make millions of dollars immediately. These folks don't realize that the road to success is paved with many obstacles and stumbling blocks along the path.

Perhaps they haven't read that Washington was born into slavery and as a child was beaten often by slave masters because he wasn't working fast enough or hard enough carrying large sacks of grain to the plantation's mill. Or, after leaving home to go to school in order to get the education that he longed for he had to walk 500 miles to reach Hampton Normal Agricultural Institute in Virginia. Along the way he had to do odd jobs to support himself. I can only imagine what that must have been like.

When talking about Booker T. Washington, we often place the emphasis on the final result; his success. And yet the obstacles he went through were many. Just like those of us in business must face obstacles almost daily as we head toward the goal line marked success.

First, we have to start where we are with what we have. Washington had an interesting take on entrepreneurship. He realized that slavery had taught American blacks many profitable skills and trades. Things like carpentry, cooking, farming, tai! loring and shoemaking were seeds for businesses that could be started at home and with little or no capital. And to utilize those skills to start even the smallest business was both honorable and the right thing to do for the advancement of the race. This message is not only for African Americans but also for all who want self-sufficiency and independence as entrepreneurs.

I am often amazed at the number of people who seek my advice about starting a business in a field in which they have no experience and no knowledge. Rather than honor the trade and skills that they have, they want to reach into areas that they know nothing about.

I am reminded of "Lee," a young woman who frequently asked me about starting an event planning company. We talked long enough for me to learn that she had no experience in planning events. She got the idea from attending a wedding and merely watching the event planner working the party. I have no idea exactly what she saw considering that a good event planner is usually invisible on the day of the event even if the planner is there working it should not be obvious.

Lee would visit often and she dressed to the nines. As time went on I learned that she designed and made all of the clothing she wore including coats and jackets. And yet she didn't recognize the value of her incredible skill. And didn't consider making clothes a true business.

Lee's idea of a "real" business required an elaborate business plan, large capital investment, a commercial space and employees galore.

What she didn't realize was that some of the greatest businesses are started with scarce resources, at home and with existing skills. Some of these beginning entrepreneurs have even endured ridicule from onlookers along with many other obstacles. And yet, in spite of it they built dynamic businesses.

For example, consider the humble entrepreneurial beginning of John H. Johnson. In 1942 he borrowed $500 against his mother's furniture to start the Johnson Publishing! Company.! Along with the borrowed money he had an idea, skills and an inner drive to build a business. I'm sure he had people round him questioning if a "real" business would result from his efforts.

He built a publishing empire that publishes Ebony and Jet magazines and is one of the most prosperous black publishing company in America. In 1982 Johnson was the first black American to make it to the Forbes' 400 wealthiest Americans list.

Was the entrepreneurial flame in Johnson and others like him a result of the words and philosophy of Booker T. Washington? I can't say what fueled the entrepreneurial flame in Mr. Johnson, but I'm glad the fire was lit, and continues to burn.

As we move through this Black History Month, it is fitting to recognize people like Booker T. Washington who made folks realize that you don't need a fat bank account or a huge commercial space to start a business. His message is a timeless one: That the road to success is not an easy one. However, the smallest, most humble entrepreneurial endeavor is honorable and a great contribution to the progress of the human race.

Gladys Edmunds, founder of Edmunds Travel Consultants in Pittsburgh, is an author and coach/consultant in business development. Her column appears Wednesdays. E-mail her at gladys@gladysedmunds.com. An archive of her columns is here. Her website is gladysedmunds.com.

Best Commission-Free ETFs

Are you a cost-conscious fund investor? Check out our list of the best zero-commission ETFs. The list combines what discount brokers offer in commission-free fund buying with our own take on cost efficiency in portfolio management.

Funds from Vanguard and Schwab dominate the winners' circle, but there are also a few from BlackRock BlackRock (under the iShares name), State Street State Street (SPDR) and Pimco.

The bargain fund list includes the Vanguard Total Total Stock Market Index fund (ticker: VTI) and the Schwab U.S. Aggregate Bond fund (SCHZ). Conspicuously absent is the granddaddy of exchange-traded funds, the SPDR S&P 500 (SPY). It doesn't show up on the commission-free list of any of the four discount brokers we looked at.

Over the past two years there has been an explosion in commission-free fund offerings. The trouble is that a lot of the freebies on trading are attached to funds that are expensive to hold—that is, they have stiff annual portfolio costs. You can quickly lose to a high expense ratio whatever you saved by not paying a commission getting in.

The lists below are limited to funds that are both cheap to trade and cheap to hold. They make up a small subset of the 1,285 exchange-traded funds tracked by the Investment Company Institute.

Each discount broker has its own list of funds available for commission-free investing. The Vanguard Group's brokerage operation gives you a free pass only on funds managed by Vanguard. Charles Schwab Charles Schwab & Co.'s no-commission list has Schwab funds plus a few funds run by other companies. Fidelity Investments has deals on iShares. TD Ameritrade has the broadest mix of fund operators on its zero-commission list.

If you are putting $100,000 into a fund trade, it scarcely matters whether you get $8 off on the commission. But if you are investing $2,000, it matters a lot.

Both big and small investors have to worry about the other costs of investing: the expense ratio and the big/ask spread on the fund's shares. We add up the non-commission expenses to arrive at a ten-year holding cost. This is what you give up over a decade on a hypothetical $10,000 starting investment.

Three components go into the holding cost figure. One is the expense ratio: the annual fee imposed by the operator of a fund. An efficient fund sitting on the stocks of big U.S. companies can get this number down to 0.05%, or $5 a year per $10,000 invested. Expensive funds run up a tab 10 or 20 times as high.

Next comes the offset to costs that the portfolio manager generates by lending securities to short-sellers. For funds that own bonds or the stocks of big U.S. companies, securities lending revenue ranges from modest to nothing. For funds holding foreign and small-company stocks, it can be a big item. At a few funds it's more than enough to cover the expense ratio, meaning that your effective holding cost is negative.

Last item on the cost list is the big/ask spread in the ETF's shares. You forfeit this amount to a middleman when you do a round-trip trade.

Our calculation of the holding cost assumes that your $10,000 stake grows 5% a year. It doesn't allow for the tax you may owe on the way out.

Our expense ratio and bid/ask data come from Morningstar and Bloomberg. The figures for securities lending revenue come from the fund operators. "Commission-free" describes the purchase only, and at some brokers you lose this feature if you sell too quickly (such as within 30 days).