Category Archives: Entrepreneurship

How to Protect Your Business Idea While You Build The Business

How to protect your business  idea while you build your startup. I’ve been kind of hard-line in this space on the value of ideas. I’ve said they are a dime a dozen, aren’t owned, can’t be sold. My personal favorite is this one:

A good idea is like a beautiful day. Everybody owns it.

I’ve posted here on what you do with an idea to make money from it; and also here and here on how you can’t just sell it.

Companies don’t buy ideas. Investors invest in ideas.

Companies don’t buy ideas. You can’t just sell it. You say it’s great, but I say all ideas are brilliant before execution.

Investors don’t invest in ideas. So don’t share it with investors at all when it’s just an idea. It has no value at that point, and you don’t even own it. Real investors don’t steal your idea but resent that you’ve wasted your time with just an idea. Investors never invest in ideas alone. Rarely, they invest in a specific, known entrepreneur, as early as idea stage. But that’s a very special case. You know who you are. And if you aren’t sure, then you aren’t that person.

There are reasons to share an idea

By the way, later on, after you’ve done the work, recruited a team, met milestones, and gained traction, then you share it with investors because they don’t steal ideas. Real investors want the team in place so they can invest in execution, not execute themselves. Real investors don’t steal ideas and don’t sign non-disclosure documents. Make sure you do your homework, check backgrounds and history, for investors who are real and not conflicted with an existing investment.

Second, share it carefully only with people you trust and want on your team. The next step after idea stage is recruiting a team. Trust is essential. Having skills and experience you need is also essential. Bring them into it so they become co-founders and help you develop from idea to business, motivated by sharing the upside. And real people will sign non-disclosure agreements because they don’t have the same reason that investors have not to.

Here’s how to share carefully, and protect as much as possible

  1. Use a non-disclosure agreement wisely. It’s not inappropriate with potential co-founders and team members, or friends and family investors. Don’t depend on it, don’t make it a huge issue, but use it in every case that isnt a big problem.
  2. Patents are for inventions and formulas, not ideas. You can’t patent an idea. If you have something patentable, by all means, apply for the patent. Don’t do a ton of work on it, or spend a lot of money, without first checking with patent experts. (but I’m not an attorney; check with an attorney of course).
  3. Copyright is for creative works. Copyright your code if you have code. Copyright is relatively cheap. It doesn’t protect you against copying because only the code is protected, the actual words; not the idea (but I’m not an attorney; check with an attorney of course).
  4. Trademarks are for commerce. Trademark your logo, your tag lines, your images, your main selling points as quotes. Trademark is relatively cheap too (but I’m not an attorney; check with an attorney of course).
    Register domain name and entity. Neither protects you a lot, but both are a good idea.
  5. Registering the entity protects your business name to some extent, as long as you were the first in the world. It can cost as little as $50. Registering the domain name, if you have a good one, protects you for that domain but not against copycats with similar names.
  6. Write your idea down and mail yourself 10 copies via registered mail. This can protect you later, with sloppy problems that come up, showing legal proof of what your idea was on what date.

(Image: Flickr cc: Snail_race)

 

 

The Billion-Dollar Idea Fallacy

What is wrong, you ask, with thinking your business idea is worth a billion dollar idea? That you have the next unicorn?

Nothing…

Nothing. That’s a dream. We all dream. We dream of writing a great novel, being a pro athlete, being a movie star, or being Steve Jobs, Bill Gates, Mark Zuckerberg.

The younger we are, the grander the dreams. We’re built that way. It’s one of the joys of being human. And dreams inspire us.

That’s why so many young entrepreneurs think their ideas are worth billions.

Unless the dream interferes with reality…

And there’s nothing wrong with the dream as long as it doesn’t interfere with reality. However, the billion-dollar-idea (BDI) fallacy does interfere with reality, and way too often. That’s the dark side. Too many young people delude themselves into thinking that the BDI, alone, has value without work, execution, and getting things done. They think they can sell an idea. They waste their time and energy trying to sell that BDI without realizing that it’s not something they own, not something other people will buy, and not something that has value. And that’s a shame.

<p”>In the real world, a good idea is like a beautiful day. Everybody owns it. Some people take more advantage of it than others.

Look at the big wins in history. Jobs, Gates, Zuckerberg and other people who created billion dollar businesses didn’t waste even a second trying to trade on the idea. Instead, they got going with actual execution. They gathered teams together and got work done. The work turned their ideas into billion dollar businesses. The people they gathered turned the idea into a billion dollar business.

(Note: this post started as my answer to a Quora question: Why do so many young entrepreneurs think their ideas are worth billions?)

True Story: Missing Assets Equal to A Year’s Sales

You don’t think finance and accounting matter in small business? Here’s a true story, and it’s about a small business like the ones I write about, in fact one I was involved in, not a large publicly traded company. $3 million worth of assets went missing, but nobody took them. Where do you think they went? Let’s hope this accounting nightmare doesn’t come up in your business.

This really happened

I know, that seems like standard large-company stock market stuff, but here’s a true story of Creative Strategies International, which was then a medium-sized high-tech research and consulting company owned by Business International and based in San Jose, CA. Call it CSI. I should add that this story preceded the change in ownership to the Creative Strategies that is now the brainchild of Tim Bajarin, still exists, and is still in San Jose, CA.

I need to emphasize this, because I like Tim Bajarin and he’s done a great job with the company since he took it over. I’m pretty sure the corporate entity even changed, I know the ownership changed, so I assume there’s no harm in telling an old story. And I think there might be a lesson here.

Shortly after I started to work there, the New York parent company audieted. And, as you suspect from reading the title of this post, assets were missing. In fact, quite a sizable chunk of assets. In a company of 20 or so employees, selling $4 million or so per year, roughly $3 million worth of assets had disappeared.

Needless to say, the parent company was not amused. But there was no theft, no embezzlement, just bad accounting.

What do you think happened? Of course you have no idea, but let me give you a hint first, then think about it. The assets were accumulated research, not chairs or tables or computers or gold bullion, but research. Does that tell you the answer?

Don’t Book Expenses as Assets

It turned out that CSI created what we called group studies, research studies that we’d design to cover some interesting new market in high tech, develop, finish, and then sell to multiple buyers. For example, a study in telecommunications would be created and developed and sold to 10 or 20 or more companies in the telecommunications markets. If you could sell a study that cost $25,000 to 20 companies for $5,000 each, they got a good study — market forecasts, competitive analysis, etc. — at a great price, and CSI made a healthy profit. Whoknows_istock_000000551118small

So have you figured this out? As the studies were created and developed, consultants were paid real money to research markets. They took real checks home and cashed them and paid mortgages and things. They also took planes to places and interviewed people, and purchased some secondary research, sometimes developed primary research, all of which cost money.

All of this spending should have been expensed as product development expense. It was just like computer programming in terms of tax treatment and standard accounting. You aren’t really building an asset, you’re incurring an expense. Product development is almost always an expense, even though it sometimes generates technology that goes into products that get sold for money.

Somebody doing the numbers assumed that since this would be cost of sales when the studies were finished and sold, and instead of calling this money development expense and subtracting it from profits, they’d call it assets, as if it were inventory, and subtract it from profits as direct costs.

It may have seemed logical at the time, but over time many of those group studies were started but not sold. If the sales were disappointing, instead of spending the full $25,000 and finishing the study when only two clients signed up for $5,000 each, they’d just dump the project.

And there’s the rub: nobody went back to those supposed assets, the accumulated investment in product, and wrote it off. It remained on the books as assets, for several years, until the parent company audited. Nobody had purposely or intentionally done anything wrong, there was no fraud, no charges, no money recovered; just several very unhappy people.

Business Numbers Matter

I guess I’m some kind of weirdo, particularly as I was a literature major and journalist-writer before I got into business, but I like the business numbers and I think they’re important. Maybe it’s from stories like this one. No, I wasn’t the accountant, I was one of the researchers, but I was also a vice president and those were bad times for all of us, not just the bookkeeper.

Do We All Undervalue Bootstrapping?

In business schools, in popular blogs, in business publications, and in general discussion of starting a business, we undervalue bootstrapping. We teach starting a business as if every new business requires sophisticated venture capital. I understand how this can be educational. It means teaching business planning, which is the ultimate business teaching tool, and investment analysis, ROI, IRR etc. Still, of the 700,000 or so new businesses launched every year, about 5,000 had VC money, and maybe 30,000 had angel investment. The rest were bootstrapped.
Kids with Boots

Outside investment is overrated

I think the investment option is overrated. It’s better to own your own than to land investment, at least if you can pull it off. As the old song says, “God bless the child that’s got its own.” The opportunity itself should determine whether investment is required. lf it takes more resources than the founders can muster, then it needs investment.

The cliché asks which is better, a piece of a watermelon or a whole grape. But what if that comparison is skewed wrong? Which would you rather have, a slice of an orange or a whole tangerine?

I have good associations with bootstrapping. I was on the board as Philippe Kahn took $20K from his father, plus one $90k bundling deal from a PC manufacturer, and levered up Borland International without outside investment until he didn’t need it. He did it with a great product, strong demand, smart management, and cash-only sales instead of the mainstream, working-capital-hungry channels. Borland went public less than three years after it started. Palo Alto Software grew slowly without outside capital. We had to slipstream a larger vendor whose advertising budget was 10x ours. We ended up with 70% share in our niche and owning the company outright.

The luxury of owning it yourself

Bootstrapping isn’t just about owning the whole pie. It’s also about the luxury of being able to experiment and, at times, making mistakes. Philippe was unconventional. Could he have had that freedom if he’d had conventional VC financing?

A few years ago I was judging a major intercollegiate venture competition in which one team looked especially strong, it’s $5 million 3-year forecast seemed as likely as any of the others, but it didn’t need any outside investment. It was the best plan (IMHO) but it didn’t win. The judges, mostly investors, couldn’t figure out how to deal with that plan. It didn’t win the competition. It should have.

(Image: copyright Timothy J. Berry. All rights reserved.

5 Simple Rules for Better Business Decisions

Yes No MaybeThey teach decision sciences in business schools. Those of us doing business, either as entrepreneurs, business owners, or careerists, talk a lot, and think a lot, about business decisions. We all want better business decisions. I’ve taken some of those courses and heard a lot of the talk, and I’ve survived running my own business for a lot of years. Here are five tips I’ve come up with.

1. Know when time isn’t money … it’s information.

Don’t get pressured into fast decisions. Decisiveness is not just deciding fast; it’s deciding well.

Step back and think. If there is more information coming, and no penalty for waiting, then wait. More information is better. You may have little penalty for waiting, and more information available to you. For example, wait until you land the contract before you change the website. Wait for more sales to clear the pipeline before changing the messaging.

2. Live comfortably with uncertainty

No amount of data and research can completely eliminate the doubt about what’s going to happen. Don’t expect to know for sure, ever, when it’s about what will happen, as opposed to what did happen. Almost all of forecasting is using the past, or sample data, to predict the future. Get used to it.

Work for the educated guess. Make your guesses as educated as you possibly can. Yes, do the research; but don’t just believe the conclusion. Don’t just go by the proverbial seat of your pants or gut, without tempering that with information. But don’t ignore your gut either. Consider alternatives.

3. The crucial difference between wishy-washy and insightful

Smart people change their minds. Thoughtful people change their minds. What’s supposed to happen is that new information prompts new thinking, and what you had thought before might be revised by what you know now.

Never assume that what has always been true is still true. Never assume that what has never worked in the past won’t work now.

4. Use your whole brain

The whole left brain vs. right brain theme is probably a myth, according to the research that turns up with a simple web search. We all use both kinds of process, the gut (or heart, or intuition) and the rational (or logical, or mathematical). But some of us purposely try to block one or the other side as we look at decision making for business. For every go-with-the-gut” suggestion there’s somebody else saying let’s go with the data, or the research.

Use both. Respect both. Let the data temper your gut. Use the “let’s sleep on it” method sometimes. Let the decision percolate, or simmer. Write it out, think, dream, meditate, and see what your brain says.

Be  careful not to let the data or the research do the decision on its own, when it doesn’t check with your intuition. It takes people to make good decisions, incorporating both research and experience.

I’ve encountered several times the delightful phenomenon of people mapping decisions with spreadsheets, trying to make it all math and logic … and then skewing the results with intuitive inputs to the spreadsheet variables.

5. Give up on democracy

Remember the old adage that when committees choose colors, every wall ends up beige. In the early days of a startup, everybody shares decisions. As a business grows, it develops functional expertise. Good decisions aren’t made by committee. Let the marketing people decide the colors for the packaging, and the finance people decide how to fund working capital. And the owner, ultimately, has to decide strategy. Consensus is comfortable in the beginning, but doesn’t work on the long term.

Adam Osborne on Product Release Brinkmanship

Ah yes, software product release. When do you let that product go? When is it good enough? What if there are more problems? This is publishing at its best.

The joy of easy updates

I will say that what we do with software today is sheer joy compared to the stress of releasing a product in the middle 1990s. Back then we had to finish the software, test it, test it again, and then duplicate physical disks and assemble packages and send them out in pallets to the stores. Some undiscovered mistake could be a disaster. It could literally kill companies. The disks were out there, thousands of them.

Today, in contrast, we can change the masters of downloadable software whenever we want. We can post updates on the web. New versions happen as soon as we add features. We update LivePlan caref when we packaged them up and duplicated disks and sent them out to the world with the assumption that we wouldn’t discover problems soon after. Those disks had a life of their own. Nowadays we can update a web app constantly, let people download the software, change the latest version overnight.

Adequate is good enough? Maybe.

What I do want to write about is the late Adam Osborne, founder of Osborne Computers, writer, columnist, and inspiration to a generation of computer writers turned entrepreneurs.

I had the privilege of dealing with Adam Osborne a few times during the early Silicon Valley days. Two of his sayings come to mind:

  1. “Adequate is good enough,” he said, more than once. He was talking about product development and technology business. “Ship it.”
  2. He also espoused what he liked to call the Adam Osborne Trade Show Theory of Productivity, which was, in detail: “80% of the GDP is finished the night before the trade show opens.”

I have to admit, looking back, that I’m glad now that we have a different system.

Infographic: Women in Business

Thanks to Balboa Capital for this infographic today with a summary of statistics on women-owned businesses.  This all looks like good information to me. With limits. For example, I chronically question the research on factors considered important because I think these surveys are politically motivated and set up to serve political agendas. So in this one, I don’t believe business owners are really concerned about macro economics or tax rates. They are concerned about increasing sales, hiring people or now, and cash flow. But that’s just my opinion.

I also note that according to this, women-owned businesses are financed the old fashioned way, not by high profile angel investors or venture capital. And that the playing field is not level by any means, even after 50 years of attention to gender equality. Women still have a tougher time, in general, building their businesses.

By the way, I recommend Women on Business, the website and blog, as my favorite source for women in business and writing about business. That site has no relation to this infographic.

infographic women in business

Infographic: 46 Facts on Entrepreneurship

I want to share this infographic today because it has a lot of good information. I like some of the surprises in some of the numbers. The credit is down at the bottom. I don’t think every detail here is true (I don’t believe startup failure statistics demystify business failure statistics) I do think the research is sound and the numbers a good reminder, in several points, of the realities of worldwide entrepreneurship.

 

46 Facts on Entrepreneurship

(Infographic courtesy of dealsunny.com)

How to Make Money on Your Brilliant Business Idea

A Pile of CashSo you have a brilliant business idea that will be very successful. My congratulations to you. Now read all ideas are brilliant and nobody is going to pay you for your ideas. Are you still sure? All right then, let’s continue.  And – this is important – do not even think about getting investors yet. Do a lean business plan.

1. Gather a team

Can you execute on the brilliant business idea yourself? That does happen. For example, take your browser to KiddoLogic.com. That’s a venture built by one very smart woman, on her own. She used her own money and paid the providers she needed, to get going. If you can do that yourself, without help, then I applaud you. Go for it. Forget investors; just do it. You don’t need them.

For the rest of us, your next step is to gather a team of people who have the skills and experience you need to get going. Look for people different from you who can do what you can’t and who know what you don’t.  If you don’t know anybody, or don’t know the right people, that’s a damn shame; but it’s your problem to solve. If you can’t solve it, then keep your day job. Other people have solved that problem millions of time.

If you can afford to pay them…

If you can find suitable people, then  you have to convince them to join you. If you can afford to pay for their services with your own money, then maybe you don’t have to convince them of the idea. Just pay them. This puts you in the category of the smart person on your own. Just do it. You’re special, the sole entrepreneur with a great idea and the means to execute. Skip to the next section.

However, if you can’t afford to pay people, then you need to convince them to join you as co-founders and work on this idea for free. Don’t feel bad about that; that’s what most successful entrepreneurs had to do. And if you can’t convince the right people to join you, then get a clue. Your idea was one of the many ideas that seem brilliant but won’t work. Keep your day job. Revise your plan. Focus on a subset you can do yourself. Or give up.

Get your people together and revise that early plan. Bring it up to date with what you’ve learned while gathering the team, and what your team members were able to contribute to the plan. Remember that plans are made to be reviewed and revised and kept live and up to date.

2. Execute. Get traction. Prove it.

You have a team and you have a plan. Execute on it. Follow your plan. Go as far as your team can take you towards early website, product prototype, discussions with potential buyers or distributors, so-called minimum viable product. Maybe you go on Kickstarter or one of the other sites for pre-launch selling. Get traction. Prove to yourself and future investors that you idea will work. You’ll have to know what that means in your specific case. It’s different for every business.

3. Seek investment if and only if…

Don’t go for investment unless you really need it.  Never bring in investors unless you need them to address an huge opportunity that makes sharing your business ownership with outside investors good for you and them. Read the startup sweet spot.

Furthermore, don’t go for investment if you’re not going to get it. Only a few businesses are good investments. Read this self assessment will you get angel investment, 10 things angel investors ask about your plan. And be aware that the advice in those two posts applies to the U.S. market only. The realities of angel investment are vastly different in other markets.

(Note: I have no association with Kiddologic. I saw her pitch for local angel investors and was very impressed.)

Startup Culture is as Leaders Do

The question over on Quora was How should a new startup develop and sustain a strong company culture? I decided not to answer the essential how-to, but rather to share my experience in this area, which is more like a reality check on startup culture than anything else.  The following is straight from my Quora answer.

Culture is not what you say

Culture isn’t what anybody says, it’s what the leaders do. You can write mottos and pin poster on the wall, send memos around, write mission statements and mantras, develop tag lines, and repeat seemingly meaningful phrases at meetings … but what determines the culture is what leadership values – not what it says it values, either, but what it actually values with actions, policies, decisions, priorities, rewards, praise and everything else that happens all day every day.

Leaders, as people, rarely change who they really are. They will nurture new ideas or not, listen or not, treat their people fairly or not, depending on their values, their past, and who they are. Sometimes people can change over time, but that’s rare.

Leaders frequently believe their words and ignore or fail to realize that their actions contradict their words. This is why businesses are so full of hype and spin and meaningless drivel in mission statements and the like. Have you ever seen a company that doesn’t say they believe customer service (for example) is extremely important? But how many flow that thought into actual policies and performance. Similarly, is there any business that doesn’t say it values innovation? But how many businesses actually reward people for questioning authority or trying to do things differently? These are big-company examples everybody knows, but I use them to make a point about startups.

What’s a strong culture?

And your question itself offers an implicit example in itself. You say “strong culture.” What’s that? One leader could say a strong culture is when people compete with each other constantly, spend infinite hours in the office, and value stress. The next could say strong culture is one that develops a mission to make the world a better place, treats everybody fairly, and cares about its customers. Which is strong?

What matters is who you are and what you do, not who you want to be, or what you say you believe.