Category Archives: Advice

Trading Ownership for Services is Risky Business

Q&A, Starting a Business

Over the holidays I received this question from my ask-me form on my timberry.com website:

In todays economy with corporate streamlining and all that technology has to offer, how can one attract investment in the form of an ‘equity swap’? I am in need  of  web development and am willing to trade this for a generous portion of the company.  [Business description omitted]

Wikimedia creative commons stop sign

My answer:

Would you marry somebody you’d never met?

Never use shares of ownership to pay for  services. What you’re calling an equity swap is really a bad idea. Sharing a company is an intimate partnership for the rest of that business’ life. It’s like marrying somebody you’ve never met, the business equivalent of a mail-order bride. Minority shareholders end up with some serious rights regarding second-guessing your strategy, your decisions. Having an incompatible partner in business is a really bad situation.

There are exceptions to this rule: When you have somebody you know well, trust, would be happy to work with forever and ever, who also provides a service, that can be ideal. But you already have the relationship. This is somebody you’d be pleased to partner with.

And furthermore, finding a way to trade money now for money later, the underlying idea, is not so bad. But do it right.

A couple of years ago I wrote 5 non-traditional ways to get startup funding, which is still valid. Find entrepreneurial web development that will work for percent of future revenues, or royalties, or some innovative formula like “I’ll pay you three times more if I make it, so you share the risk.”

I have real experience with this, with my own company. In the early days of Palo Alto Software I found programmers for hire who agreed to work for a small minimum fee plus a percent of future revenues. It was win-win. They made good money eventually, way more than they would have if they hadn’t agreed to take a risk. And I found a way to get started without having any capital. It was really a good deal for all.

However, they never had a share in the ownership of the company. We owed them money. Not shares.

Also, in the interest of full disclosure, I benefitted enormously from a deal like this as a consultant and service provider, once. Some 30 years later, I’m still grateful to Philippe Kahn (founder of Borland International) for that one. But that was one of the exceptions.

(Image: wikimedia creative commons)

How — and how not — to Find a Mentor

Advice, Entrepreneurship, Starting a Business, ,

So you want a mentor to help you start or grow your business? 

mentor, mentoring, find a mentor

Never ask somebody to be your mentor.  Instead, ask a person who might be a mentor a specific question. Find a question an expert can answer quickly without having a lot of specific knowledge about your case in detail. Make it a question that’s interesting or even fun to answer. 

If you get an answer, follow quickly with thanks. And follow not so quickly with another question, ideally a follow-up to that first question.  After that, another question. Find a way to show thanks — testimonials are nice — and keep asking. But go slow.

The best mentoring I’ve seen happened without the formal label “mentoring.”  Nobody asked anybody to go steady, nobody gave anybody a ring. Thoughts were shared and advice given, and it was clearly helpful.  

And my apologies to the exceptions. I’m sure some formal mentorship programs work. Volunteer mentors always have good intentions. There are exceptions to every rule. Still, what I’ve seen in practice is this: 

Mentorship is far more likely when it isn’t formally packaged as mentorship

Do You Want Your Daughter to be a Successful Entrepreneur?

Advice, Business Education, Entrepreneurship, , ,

I stumbled on this question on Quora: How should I raise a 12-year-old girl to be a successful entrepreneur? I have four grown-up daughters. Some of them are “successful entrepreneurs,” all of them have tried, some are still trying. So I care a lot about this subject. 

Quora 12-year-old entrepreneurship

There are good answers already posted. The answer I like best, happily, is the one with the most votes.  It’s also posted by a friend, David Rose, founder of gust.com and head of a New York angel investor group. His highlight is:

By FAR the best thing you can do is be a great role model! Show your sister that girls CAN be entrepreneurs! That being an entrepreneur is cool! That entrepreneurs live larger lives, have a greater impact on society and basically have more fun, than anyone else on the planet!  Tell her stories of Mary Kay Ash and Anita Roddick, of Esther Dyson and Heidi Roizen, of Martha Stewart and Oprah Winfrey…and of yourself!

Although I completely agree with that, I really want to add more. This seems important to me, from my experience:

  1. Do everything you can, as a parent, to promote and encourage academic education in whatever your daughter likes. For every successful entrepreneur who dropped out of college there are thousands more, maybe tens or hundreds of thousands, who didn’t drop out. Life and entrepreneurship are easier with a college degree. 
  2. Fight the stereotype: Don’t let your daughter swallow the stupid and obsolete idea that boys do math and science and technology and girls don’t. That unfortunately is a self-perpetuating myth. It’s dangerous.  
  3. Don’t, however — please — be that parent pushing the poor kid towards specific educational directions. Drop that agenda fast. The more you push for a specific path (business, entrepreneurship, high tech, for example) the less likely you are to really help your daughter. It’s her life, not yours. For the record, I know many more successful entrepreneurs with degrees in liberal arts than with degrees in business or entrepreneurship or computer science. 
  4. Give her as much technology as she wants. That means — within reason of course — the computer, the laptop, broadband, smart phone, etc. And of course you have to be careful, as a parent, because there are those well-known dangers. My daughters grew up with computers. I gave them domain names as birthday gifts when they were as young as 10 years old. All of them had laptops for school. One of them liked computer games, so I got her all the games she wanted.
  5. Don’t push your definition of success on her. Help her find her success. It’s her life, not yours. 

I have to add something related to point #5 here, and the qualifier “successful” entrepreneur. That’s a dangerous concept. What we want, as parents, is for them to end up happy, which usually means productive, economically self sufficient, and independent. Is it dangerous that we’re in the context of “successful” entrepreneur instead of entrepreneur? And is a successful entrepreneur happier than than an unsuccessful one, or a professional, or middle manager? Especially where your daughter is involved, always pause to question your assumptions. 

I think I’ll go add this to the question on Quora, but I wanted to put it here first. 

More Proof Why You Can’t Ignore Your Online Self

Advice, Social media, ,

For most of us, doing business requires social proof. It’s  fact of life. And it’s something you have to do over time. The only way to get there is by doing it over a period of time. So it’s a tough challenge for people who haven’t started. 

Social media, social proof, social media today

What’s social proof? Daniel Lay describes it in Social Proof Is the New Currency on the Social Media Today blog:

Whether you like Mark Zuckerberg’s mug or not, the social web is here to stay, and businesses that can integrate social proof into their marketing efforts seamlessly will join this new “socially rich” class. We mean richness in fans and followers, not number of zeroes in your bank account. Social proof is the new currency of credibility.

And that’s not just businesses. That’s also you and me. You aren’t credible for marketing purposes of any kind without a web footprint. That’s what turns up when somebody searches your name on the web. It’s a combination of websites, articles, and your profile on at least one or more of Facebook, LinkedIn, Twitter, or Google+. Employers will look. Prospective clients and partners will look.  A normal response to an interesting business-related email from a stranger is to look for the footprint. 

Of course there are exceptions, like some very local businesses, some highly skilled professionals, lots of middle managers, finance professionals, and so forth. Still, the general rule applies. 

And then there’s the time problem. Your social proof, or lack of it, is related to how long you’ve been there. Even a few months is way better than just having started yesterday. 

Conclusion: an old African proverb says the best time to plant a tree is 20 years ago. The second best time is today. That same logic applies: the best time to start your online presence is 10 years ago. The second best is today. 

My Secrets of So-Called Success

Advice

I’m pleased to see that Rieva Lesonsky has published Secrets of Success: Tim Berry at her blog Forum.web.com. I’m proud of what I have to say there. Rieva asked really good questions. 

Here’s one quote, on why I started my own business:

First, I wanted to do the work I liked doing (forecasting, market research, planning) instead of supervising others as they did the things I liked doing. I was a VP at Creative Strategies International, in charge of what we then called personal computer software, with six people reporting to me. I’m a doer more than a manager.

Second, I wanted to earn more money than what anybody in his or her right mind would pay me as salary. I loved the work but wanted, if I worked nights and weekends, to earn more for my extra production. And I was married with four kids at the time, living in a 1,200-square-foot house with one bedroom shared by all four kids.

That’s not even my favorite; but I’m grateful to Rieva for the invitation, so I’d rather you read it on her blog instead of mine.

And, for the record, a note on the title of this post. I’m self conscious about claiming success. That’s tempting fate, and it makes me nervous. I mean in no way to detract from Rieva’s post. 

Truth is a Believable Story

Advice, Back to Fundamentals, Business Research, , , , ,

I grew up believing that facts, like research, numbers and percentages, told the truth. I believed in objective, verifiable truth, based on fact. I distinguished that from mystical religious truth, based on faith.

I was a mainstream journalist for almost 10 years in the 1970s. Every professional journalist believed in objective verifiable truth based on fact. That was the goal of reporting. We separated subjective opinion from objective truth. Truth was hard to find, yes. It often had to be dug up and uncovered. But it was there.

Now I know better.

Truth is not research and data. Although my generation grew up believing hard numbers were truth, it just isn’t so.  Nowadays there is data to prove anything, regardless of how absurd. And people routinely hide their opinions as data. Eggs are good? There’s data to prove it. No, eggs are bad? There’s data to prove that too. The same for coffee, sugar, exercise, structure, discipline, whatever.  The truth is not in the data.

Truth is not just a believable lie, either. It’s more like a matter of angles and reflections and angles of light, like a gas, not a solid. It’s something like what William Blake implied about  300 years ago, in Proverbs of Hell:

Every thing possible to be believ’d is an image of truth.

Truth is a believable story. And much of human truth is better told in stories than a facts, and much less numbers.

And in business, Seth Godin says marketing is stories. I say planning is stories. Truth isn’t what the research says, or the focus group, or the latest survey.

Take a step back from it and ask, always: Does this make sense? Is this credible?

Truth as told in stories is still truth. I love how Harvey Cox says truth is in stories. This is from his book When Jesus Came to Harvard:

All human beings have an innate need to hear and tell stories and to have a story to live by…religion, whatever else it has done, has provided one of the main ways of meeting this abiding need.

I don’t mean it as disrespectful to see the “story” in religious doctrine. On the contrary: The right stories, real stories, the best stories communicate truth better than so-called facts. And it’s almost a proof of God how themes and meanings overlaps between the different stories of the different religions. Maybe there is a God gene, in our species DNA. And the stories are an expression of how humans all struggle to understand God, or creation, or whatever that immensity is, in their own way. With their own background and culture.

My summary: truth is a believable story.

Why Steve Strauss Hires English Majors

Business Education, Personal Productivity, ,

By the way, did I say I was an English major for my BA? Yes, software entrepreneur, yes, business planner, erstwhile programmer, and MBA … but I carry around a degree in English Literature. I don’t push that up a lot in my bio, but it’s there in the fine print.

English Major hired

So I like what Steve Strauss, Mr. Small Business, USA Today expert, says in his post Why I Hire English Majors in yesterday’s Huffington Post. Here’s some reasons he likes us. He starts with (you can see why I like this post) “smarts:” 

They are taught to think critically, and that is exactly what I want in my business. … They know how to think, to think for themselves, and how to analyze a problem. Business majors are fine, but they are preoccupied with theory, proving themselves, and doing it “right.” But the English majors are used to getting a tough assignment, figuring it out, and getting it done, (usually) on time.

Yup. That’s me. 

And how about this one: boldness. Wait. What? Steve says: 

… these folks have to be bold simply to make such a choice of majors at a time when everyone is advising them to think about making themselves as practical as possible in this shrinking, global job market, but the nature of their gig is that they have to be bold. Reading Chaucer, making sense of it, writing a term paper on it, and then being able to defend it, takes far more bravery than, say, analyzing the fall of the Soviet Union.

Well, that’s maybe a stretch. 

Then his third point is writing ability. Of course. One of my favorite clients in business plan consulting told me his group liked me more for readable communications than for anything else. I think that was only half a compliment. 

And his last point:

Easy to work with: This is an underrated trait that I think many people applying for a job don’t get or appreciate. People like working with people they like. I find that, usually, English majors are interesting, well spoken, can take a position and defend it with logic and reason, are (obviously) well read, and are, well, pleasant to be around.

Who could argue with that? 

(Image: istockphoto.com)

Q&A: Is This Partner Arrangement Fair?

Advice, Starting a Business, ,

I get these emails, summarizing one side of an argument, asking me to guess or comment on fairness. For example, in an email I just received, the one asking me has worked for 18 months “with significant intellectual contribution.” He’s apparently resenting the other partner, who has shelled out $560,000 and wants a guaranteed payback before other partners get it, and ends up with 65% ownership. The question:

http://s3.amazonaws.com/timsstuff/blogs/istockphotocontract.jpg

Isn’t that excessive? 

I can’t even start to answer that without asking questions first: 

  1. Was there no agreement before you started those 18 months working? Really? Or are you wanting to change what you agreed? 
  2. Did you put in no money? If not, did you work for ownership, without being paid? And if you didn’t work for free, then why doesn’t the partner who put in all the money and paid your salary own it completely? Why only 65%? How can that be excessive? 

My advice is to get professional help. Ideally you find somebody you can both trust, with some professional qualifications and experience, and talk it through. Make sure that person understands business, business law, and small business. 

There are people who have licenses and professional qualifications to call themselves mediators. Pay somebody to help you solve this. 

What I particularly hate in this context is when people spend the time and do the work and develop the business without spelling these things out, and then, when it’s way too late, discover that they had radically different ideas about who owns what. 

Way too often, you can add up the percent of ownership in the heads of the partners and discover between them they think they own like 200% of the company. That’s because one thinks the idea was worth 50% or more of the ownership, the other thinks the day-to-day work was worth 50% or more of the ownership, and another thinks having written checks and invested was worth 50% or more of the ownership.

My first instinct is to go with the money. The one who put in all the money deserves all the ownership. That’s simple enough. 

On the other hand, if two partners agreed that one would earn ownership by working for free or less than market rate, then that can equate to money. Or if one contributes existing intellectual property such as written material or software code, that can equate to money too. But that should be spelled out and agreed upon before you start. 

And I personally don’t believe having had the idea, or not, matters. Ideas have no value. Work has value. Creative work and patents have value. Content has value. And money has value. Ideas don’t. 

To me this is yet another example of why I’ve said, and written, over and over again, get it in writing. Not necessarily all legalese like a contract, but at least the basic points of agreements, with signatures. Here‘s what one lawyer (and I’m not a lawyer, so don’t think I’m giving you legal advice here) says about that:

It goes without saying: the best way to deal with a botched verbal contract is to avoid the whole mess in the first place. Get it in writing. People remember things differently. People don’t remember. People lie.

Get it in writing. And then stick to it. 

Don’t Drown in That Wave of Bad Startup Advice

Advice, Starting a Business,

“The availability and ubiquity of bad advice has exploded over the past few years,” writes Dave Lerner in How To Avoid Bad Startup Advice. Amen to that. He explains it very well: 

Dave Lerner Amex OPEN bad startup advice

This is due to many factors, the primary one being the tidal wave of entrepreneurship washing across the country, which has brought to shore not only many great things, but also a great deal of flotsam and jetsam.
The tremendous personal broadcasting medium of Twitter, as well as blogs, have allowed for an extreme amount of entrepreneurship discussion and advice—so the bad and the good are now delivered via the same firehose and with the same breathless intensity. Who can you trust?

It’s easy to note that wave, and I’ve posted here on bad advice; but Dave, to his credit, offers a specific list of “red flags” to avoid. My favorite is this one: 

You go in to talk about your consumer Internet startup and the first person you get paired-up with as a “mentor” is an IP attorney who encourages you to file some patents and “protect your idea.” (Translation: No one knows what they’re doing here—consumer Internet is not patentable, and you better start running away fast.)

That’s just one of several. His list is definitely worth a read. 

Decision Making is Way Easier Than Decision Doing

Advice, Management, Reflections, ,

Imagine a dark shape in the distant sky, moving towards you. Slowly. It’s white or perhaps off white, but not as clear a color as a cloud, speckled. And it seems more solid than a cloud, and it moves in ways clouds don’t. As it comes closer, maybe a mile away now, it’s as if it’s a flying giant creature. Then, as it gets closer still, you discover that it’s really an unusual flock of birds, flying very tightly together. 

bigstock cloud of birds

That’s a good metaphor for a hard fact about decisions we make. Most of the important big decisions are really made up of thousands of small decisions.

That’s life as well as business. Maybe more life than business.

For example, everybody wants to stay healthy. That’s the big decision. But it doesn’t happen without thousands of small decisions, probably dozens every day. Do I eat the big fat breakfast? Do I take the walk? Do I work out? Do I eat too much, the wrong things, or just right for lunch? Do I drive myself crazy worrying about next week? Do I dwell on my fears or just exhale and let it go? Staying healthy isn’t a big decision but rather a steady collection of small decisions.

For example, everybody wants to do well with their work or school. That’s the big decision. But it doesn’t happen without all those small decisions. In the context of school, every day it’s the choice of homework or not, more study or not, review or not, school work or television, take a nap or read the next chapter? Do I take the extra time to research SEO? Do I write that blog post, or put it off? Do I address the poor performance or let it go? Do I make those calls or put them off? Doing well in work or school isn’t a big decision but rather a steady collection of small decisions.

In my favorite topic area, business planning, doing it right isn’t a big business plan. It’s a just-big-enough business plan that gets reviewed and revised regularly. What makes it valuable is the process, the review, the management that happens because of the contrast between what was planned and what actually happened. And that happens not once but every month, in some contexts every week. Here too, the big decision is really a collection of small ones.

And, dammit, staying with it through the small decisions is hard. We’re human. The big decisions are glaringly obvious. Do you know anybody who doesn’t want to stay healthy, or do well in work or school? But actually executing on those decisions is really hard. We are so human, all of us, that it’s really hard to stick with the big decision without wavering through all the small ones. You can make nine out of ten healthy eating decisions and if the tenth is a Big Mac it nullifies all of the other nine. You can exercise all day one day and then not again for a whole month, and you’re worse off. Consistency is the collection of the small decisions.

Making the right decisions is easy. Making them stick is hard.

(image: bigstockphoto)