Category Archives: Q&A

Q&A: How Do I Get This Startup Financed?

I received this question over the weekend via my ask-me form on I modified it slightly to not include private information. It’s about a web software business. It reads … 

Tim Berry

… we are gaining traction. Financing is difficult. I am looking to find out what resource you would recommend to get financing for the project. Investment would probably be 100-250k. Would like to go to privates like doctor’s groups but please direct me.

I’ve written a lot about angel investment on this blog and on financing a business in the main articles section on the parent site, Check out particularly this article, the right funding for your business type, which talks about the main options and gives you some basic definitions to work with.  And consider these 5 points: 

  1. Narrow your number. Project sales, cost of sales, fixed costs, spend before launch and development costs and come out with what you think you need. Everybody knows it’s just a guess. But there’s a huge difference in options between $100K and $250K. Name your number and have projections to defend it. Yes, that’s part of a business plan. 
  2. Generally it takes as much legal hassle and legal fixed costs to invest $100,000 as to invest millions. 
  3. If you have to ask about venture capital, you’re not a good candidate. Don’t feel bad about it. Venture capital is very rare, usually goes to high-profile startups led by people who’ve already done it. And the amount you need isn’t enough to interest standard venture capitalists. 
  4. If really have what investors want, you understand the hard truths about startups and investment, and you still think you’re a good candidate for angel investment, go to, sign up as a startup (it’s free), watch the videos, read the blog posts, and get going. 
  5. If angel investment isn’t likely, then start looking at what they call friends and family, which is what you call doctor’s groups. Talk to your nearest Small Business Development Center (SBDC) (you can find info on these at The best advice I’ve heard on this is to start asking everybody who they know who might be interested. Don’t ask anybody directly; ask who they know. That’s less awkward and more effective. 

If that doesn’t seem to be getting you anywhere, you should probably read these 10 reasons not to seek investment. And finish up with 5 non-traditional ways to get startup money

Trading Ownership for Services is Risky Business

Over the holidays I received this question from my ask-me form on my 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)

Q&A: I Need a Loan to Fill Orders

This is another question I received via the ask-me form on my website:

I have master service agreements with [omitted for confidentiality] in the midwest.  I am also working on an agreement with a company in South America.  I have a great reputation with upper management and they want to use my services.  The only problem I find is carrying payroll until the invoices start coming in, in this case they are net 60.  I literally have facilities telling me here are multimillion dollar contracts, but I cannot afford the payroll.  Any suggestions?

Yes, I do have suggestions. And the problem that solutions depend a lot on who you are, what resources you have, and your past history. Still, here’s my offer of help: 

cash flow working capital Shutterstock pot of gold

  1. What you’re running up against is banking law that prevents banks from taking risks with depositors’ money. Banks can loan money for a business plan or a possibility. 
  2. The SBA (small business administration) can guarantee up to 70% of the risk so banks can loan you that money without violating the law. You need to submit paperwork, a business plan, and an application. More than 1,000 banks work with the SBA, so there is probably one near you. Ask the small business banks in your area. The deal is done by the bank, but guaranteed by the SBA.
  3. What most entrepreneurs do, if they have the resources, and they can deal with the risk, is borrow off of existing assets. For example, my wife and I had a lien on our house for years to support a credit line for Palo Alto Software. We didn’t like it. It was risky. But we did it, and it worked out, because the company survived and grew. But you can lose your house or whatever assets you pledge, so be very careful. Never bet something you can’t afford to lose. And business is betting. It’s not something I haven’t done myself, but it’s not something I recommend comfortably.
  4. Before Palo Alto Software, when I was still doing business plan consulting, I found a local non-bank financial company to loan me against invoices from a major local corporation. They charged high interest but they advanced me 80% of every invoice and they didn’t take the risk because they had a hold on my bank account and if an invoice hadn’t had been paid (that, thank goodness, never happened) they would have subtracted the amount from my bank account. Google credit line on receivables to see what comes up. And the difference between that situation and yours is I was getting advances on invoices for finished work. 
  5. Some people find investors to advance them money for a non-bankable situation in exchange for a high interest rate, a small share of ownership (called an equity kicker), and drastic guarantees that give them your company if you can’t pay the loan. All of the terms are negotiable. Search the web for “angel lending” and see what you come up with. Ask your local small business development center (SBDC), chamber of commerce, or business school if they have any leads. There is no paved road for this kind of transaction, so you have to beat the bushes. This is hard to feet, and a lot will depend on who you are, your resources, your business plan, and your past history. It’s asking people to bet on your future. 

(image: shutter stock photo)

Q&A: Keep Your Business Plan Simple and Short

I received this question on my ask-me form at

I have a question about writing a business plan for my [business]. How do I write a business plan reflecting very little start up costs and a loss so far? I have been putting off writing a business plan, but I feel as if I need to set specific goals in writing to strive for.  Most of the business plans seem so complicated for my very small business. Since I am trying to keep my costs very low, I’m wondering if it’s worth paying the monthly fee to create a plan or there another more economical (free) option?  Thank you for your time.

My answer:

Questions ask Tim Berry

Thanks, I’m glad you asked. Coincidentally, I just posted Business Plan Yes, But Comprehensive and Detailed, Not So Much earlier this week. But I’m happy to go over this again because it’s so important for real businesses to plan, but the myth of the big formal business plan so often gets in the way. What a shame.

That’s what my last book, The Plan-as-you-go Business Plan, was about:

  • The plan is for you, to help you manage, to set specific milestones and manage results with plan vs. actual analysis. 
  • It’s a collection of modules. Simple strategy summary, milestones, basic numbers, and so forth. Start anywhere. Get going. 
  • You do only what you need, just before you need it. Only what you’re going to use. 
  • Let it grow organically. 
  • When you have the business plan event, which means you need to show it to somebody outside your business, then you dress it up. Keep it on your computer until you have to print it. 
And regarding that monthly fee question, I have two points:
  1. I’m biased. You’re talking about LivePlan, published by Palo Alto Software. I’m the conceptual author. I believe everybody should be using it. 
  2. Does “keeping your costs low” mean you want to save $20 a month on a planning tool that makes the planning easier, simpler, and better? How much is your time worth? How many hours do you want to spend to save $20 per month?  


Q&A: Who Do I Follow For Business Twitter

(Note: This is my post from, where I posted it yesterday. I was asked to repost it here.) 

Here’s another good question I received from my Ask-me form on my website: 

If I’m trying to build my Twitter presence to support my [omitted] business, who should I follow? How do I find them? How to decide? 

I’m happy to answer that one because I think it could be useful to a lot of people starting to look at real-world business use of Twitter. Following in Twitter is important for several reasons:

  1. Who you follow determines what you see. Your Twitter stream is the collection of tweets from the accounts you follow. 
  2. Who you follow is who you are. Other people can see how you follow. That means they see what you like, believe in, care about, listen to, and so forth. c
  3. Who you follow is who’s likely to follow you back. For most businesses, following is the best way to be followed. About a third of your follows will follow you back — more if your tweets are interesting, less if they aren’t.   

So, with that as background, here’s who I think you should follow for your business twitter account, in order of strategy value:

  1. Leaders. The influencers you respect, want, and need. The people, businesses, and organizations you’d like to have knowing and liking and trusting you. It’s hard to generalize so think strategically for your specific business. For example, a restaurant would want local media, local organizations, hotels, food blogs, night out blogs, restaurant guides, travel guides, reviewers, and local people who comment on restaurants and have followings. The chamber of commerce, restaurant association, chefs’ schools, local university groups might be good targets too.
  2. Media, writers, bloggers, and experts in your field. Authors whose work you like and respect. People who you’d like to see writing about you. Our sample restaurant would look for food, dining, restaurant, travel media. 
  3. Social media stars who turn up in keyword searches. Search the web, search Twitter, using important keywords. The restaurant example might search for #dining, #gourmet, #organic, #vegetarian, #chefs, #fastfood, #slowfood, #meals, for example. And if it is located in Eugene, OR then it would search for #eugene and #oregon too. See who tweets with those hashtags. See what content they tweet. Decide whether you are compatible with them. 
  4. Local organizations, groups, and institutions. The schools, universities, community colleges, public theater, development groups. 
  5. Some general news and bloggers and information sources on idea, places, topics, and people that interest you. This is just because you want to see what they’re offering. They’re not strategic. 
  6. Friends, family, and compatible business associates. 

Q&A: How Do I Finance My Company Without Losing Control?


I need $250,000 to get my business started, but from what I see on the web, I’m going to have to give away the business, practically, to get that money from investors. And I don’t want to borrow the money because it’s a startup and I can’t be sure I’ll succeed.

cash ball and chain

My answer:

  1. You may be worrying about the wrong thing entirely because investors want know part of you or your business. Don’t even try to get angel investors unless you can convince them that there’s a reasonable chance that the money they give you today will give them ownership in a company that they’ll be able to sell to somebody else for 5, 10, or more times that amount of money in 3-5 years. “Reasonable chance” is just that, a decent shot at it, we know you can’t be certain. But can you convince people that it’s worth spending money on your business for their chance of return?   Ask yourself: do you have what investors want? If you don’t, then don’t waste time on this.
  2. Investors write checks. They expect something back in return. If they they write checks for your business instead of to buy a fancy car or second home, that’s because they expect to own something for a while and make money on it when they sell it. Don’t complain about giving them ownership.
  3. Real investors want control for good reasons. Good investors end up as partners. Don’t give up control if you don’t have to, but depending on how good your business looks, and how much startup experience you have, sharing control might be the only way to go. Or the best way. 
  4. I’ve written it many times, although this isn’t mine originally: choose an investor like you would choose a spouse. Find somebody compatible, who can offer help and advice, and ad to your team.
  5. If you manage to convince friends and family to invest in your business and give them a bad deal, you’re going to have to live with that problem for a long time.
  6. 10 good reasons not to seek investors for your startup.
  7. You don’t want to borrow the money because there’s too much risk? But it’s your startup, right? Why should anybody else take the risk you don’t want to take. Banks aren’t supposed to take risks either; it’s against the banking laws.
  8. Not that you should borrow the money, even if you can because you have house equity or something to pledge as collateral. Weigh your own risks and returns.
  9. If you want peace of mind, scale that business plan back to a size you can manage with your own resources. It’s possible for some businesses.
  10. Look for alternative financing like early prepaid sales, or share of future revenues, etc. Read 5 non-traditional ways to get startup money.

(Image: cash chained,

Q&A: Are There Business Classes That Busy Smallbiz Owners Can’t Afford Not to Take?

Over this weekend I was in email with a college student who asked me to answer some questions about business education, as part of a class project. I found this one interesting, and one that comes up a lot, so I decided to post the question and my answer here today. 

The question: 

On your blog, you strongly recommend getting an education for the purpose of living your life better. However, I know many people who have sadly passed that opportunity — they are parents and are overtaxed by their own small businesses. Is there a minimum curriculum you recommend to help these people deal with their own businesses — classes that busy owners can’t afford NOT to take?

My answer: 

I like your question and I think that’s a very useful idea. I would recommend basic courses in accounting, finance, and marketing. Most of business is learnable outside of a classroom but understanding cash flow and the principles of marketing is a very real advantage. Debits and credits, the difference between sales, costs, profit, assets, liabilities, and capital, and the difference between cash and profits are essential, in my opinion. Also, the fundamentals of marketing including market segmentation, target marketing, and market focus are every bit as important in the new world of social media as they were 50 years ago in the old world of advertising. Although you can learn those outside of a classroom, it’s the kind of knowledge base you can pick up quicker in a class.

For the record, I practiced what I preach. I did the Stanford MBA while married with 3 kids with no economic help from family, from savings my wife and I had managed from a Journalist’s salary while raising our kids, and working part time. The meager savings lasted just the first quarter of the first year and the rest was financed with my own part-time income and debts. So I know that’s hard to do because I did it, and I don’t want people to think that when I recommend it that I’m being unrealistic about what it takes. And I want to add, also, that when I have recommended it, I’ve always been respectful of the fact that it may be a luxury that not everybody can afford. 

Thanks for asking. 


Q&A: When to Quit the Day Job and Start On My Own

This Q&A post is different. Usually I highlight questions here for my answer, meaning I’m answering a question I think others are asking, for which I’m hoping my answer might be useful. In this case, however, I’m posting because of the question itself: It’s extremely common, very important, and doesn’t have any obvious single answer I can think of. 

This question came through my ask me form on 

I am at a crossroads in my working life. The company I am working for is going through retrenchments and no-ones job is secure. I have good experience in the industry and was aproached by a former employer who suggested that start my own business and sub contract to them. I do not have capital and because of the problems that the company I am working for have had my finicial situation is not looking good. I have always wanted my own small business and this seems a great opportunity except I am worried about the finances. My question is simply this: Do i take the risk and go on my own or find a another better paying job and sort out my finances at the risk of loosing this opportunity?

Your advice would be greatly appreciated.

My first reaction to this is not to answer out of respect for the importance of the question, and how little information I have.  Yes, this is one of the most important questions I get, and I get it a lot, although not often as well worded as this one. And in my case respecting the question means I’m afraid to answer it simply. It’s a life-changing decision and no thoughtful person should answer it from afar, with an email answer. 

My follow-on reaction is easy answers that are cliches: things like follow your gut that sound good but don’t really help. 

My best answer is you should do a business plan. Not a formal written business plan, a plan-as-you-go business plan, a simple practical plan that’s just big enough to reduce the uncertainty; that may never get printed; that may be as simple as a target market and business offering, key milestones, and projected sales, costs, expenses, and cash flow. 

The right kind of business planning is the best way to break the huge fear and doubt down into more manageable pieces. 


Help Me Answer This Deep Question From a Young Entrepreneur

What would you say to this question? I think it’s too deep for me to answer by myself. Please join me in the comments, with your answer. 

Here’s the question: 

I have an idea that I am hopelessly passionate about, but I question the wisdom of trying to execute at this point in my life. I’m young and inexperienced. I’ve started companies in the past, but they were barely minnows. And my passion is to build something truly special, with longevity, that adds real value to life. In other words, it’s a whale of a project.

I’ve asked myself a thousand times, and I sincerely do believe I can do it. I’ll surround myself with people smarter, better, and greater than me who share my vision. Collectively, I truly believe we could do it; but I also know I will make innumerable mistakes a long the way; many of which I could potentially avoid with more experience. My rational brain tells me to continue to learn and make mistakes under the shelter and guidance of others. Learn to be a better leader by following first. But I’m consumed by my idea. I’ve tried boxing it up, putting it in a safe spot to be dusted off later – but I fail hopelessly, each and every day. I’m just not sure what to do.

So I guess where I could really use guidance is: is my uncertainty a sign that I’m not ready? Were you ever uncertain about your timing or level of experience?

And my answer is:

First: No uncertainty is not a sign that you’re not ready. Uncertainty is an indication of intelligence and understanding. I mistrust certainty in almost all areas of life. People who are sure of something probably don’t fully understand the something. 

Second: Yes, I’ve been almost always uncertain about timing and I still am. As for level of experience I am very confident in my areas of expertise but I also remain very respectful of what I don’t know. 

But please help. Add your answer here as a comment. You know as much about this as I do. 


Q&A: What To Do With Those Web App Ideas

This is question I received over the weekend via my Ask Me page at

I have 3 great app ideas that I think many people will benefit from. I am only 18 and I am absolutely clueless on how I am going to turn my ideas in to a reality…. Any sort of advice will be truly appreciated.

I should start by saying that this is definitely not my expertise.  On the other hand, like you, I see what’s happening in mobile apps, it’s clearly a huge opportunity. So I did some investigating. I do know people in the apps business, I’ve talked to several, done some research, so here is my quick-and-dirty summary.


Good news or bad: If you’re going to pay somebody else to do an app, it’s going to cost at least about $75,000. I say at least because it’s often much more. To keep costs down you must be good at managing developers, probably from remote locations; and you have to have good design.

Good news possibly: some of the best apps are do-it-yourself apps by smart people who learned programming and just did it. Do a good web search. There are lots of learn-programming facilities available on the web, for amazingly low prices. Do you have the persistence to stick with it, learn it, and get good at it? Few do. I’d venture to say the ratio of people who start this path to people who finish it is about the same as the ratio of people who start a novel to people who finish one. But it’s there. Start with

And here’s a tip: Go take a look at Take a look at what they do to bring international developers into a project one by one. Look at some of their examples for design projects, then some for development/coding/web projects. (disclosure: I’m a happy customer, I have no business relationship except I’ve paid them money).