Category Archives: Starting a Business

Q&A: How Do I Find Investment For My Dream Business?

Entrepreneurship, Q&A, Starting a Business

Question (edited for grammar and spelling):

I want to open a new business related to export and import, but I’m confused … how can I get investment money without having any experience of import and export?

Answer:

Yes, you are confused, but no need: Forget it. Of course you can’t get investment money without having experience with what you want to do. Nobody in their right mind is going to spend their money to invest it in your business.

If you’re serious about starting an import-export business, don’t waste time wondering about getting investment money. Aim for getting knowledge and experience. Find a job related to import and expert, or trade, or distribution channels that might relate to import-export. Find information sources, books, classes, blogs, etc. Find somebody you can partner with.

And change your expectations. Look for how to eventually start your own import-export business as small, focused, and manageable, something you can do with your own resources, without requiring anybody else. Start reading about bootstrapping.

Comment: Dreamsqueezers

Questions as far off base as this one mean that somebody has been taken in by all the half truths, exaggerations, and outright lies slung across the web by sleazy marketers who promise people completely impossible results from their product or services. They exploit people’s dreams. Dreamsqueezers? What this questioner needs to know is readily available all over the web, but often surrounded by all the sleazy stuff that preys on ignorance.

The process from dream to reality deserves more respect.

NYTimes Offers a Welcome Note of Small Business Reality

Entrepreneurship, Starting a Business, , , , ,

I was happy to discover major media dose of reality in Maybe It’s Time For Plan C in yesterday’s NYTimes.com. While it’s so much more popular to talk about entrepreneurship as a matter of passion and persistence and living the dream, I think it’s also important to recognize that failure is common, and failure can be miserable.

The Plan C in the title is a reference to Plan B as people moving out of their corporate jobs to start there own business.  Alex Williams sets the scene with the glamor of the post-recession entrepreneur:

In recent years, a wave of white-collar professionals has seized on a moribund job market, a swelling enthusiasm for all things artisanal and the growing sense that work should have meaning to cut ties with the corporate grind and chase second careers as chocolatiers, bed-and-breakfast proprietors and organic farmers.

Indeed, since the dawn of the Great Recession, more Americans have started businesses 565,000 of them a month in 2010 than at any period in the last decade and a half, according to the Kauffman Foundation, which tracks statistics on entrepreneurship in the United States.

The lures are obvious: freedom, fulfillment. The highs can be high.

And if you pause to reflect, there’s a whole lot of that new entrepreneurship going on. And I’m all in favor. I post a lot about starting your own business in this blog and elsewhere, and I’m a frequent recommender of books like Pamela Slim’s Escape from Cubicle Nation  or Melinda Emerson’s Become Your Own Boss ; not to mention my own book 3 Weeks to Startup . But all of those books temper the optimism with reality and planning. And that’s what Alex adds in the piece yesterday: the other side of the picture.

But career switchers have found that going solo comes with its own pitfalls: a steep learning curve, no security, physical exhaustion and emotional meltdowns. The dream job is a “job” as much as it is a “dream.”

Many are surprised to find the hours and work grueling.

Amen to that. I say yes to those who want to start their own business, but a careful, fully aware yes. Go into it with your eyes open. As this piece in the New York Times concludes:

Plan B, it turns out, is a lot harder than it seems.

10 Points on Where to Locate Your Startup

Starting a Business, , ,

You’ve got your startup brewing, you love the idea, you’re gathering a team, and you want everything to be perfect. So do you move to Silicon Valley? Silicon Alley? Austin TX?

I know of people who’ve moved from where they were to where they thought they should be, before starting the company. Their assumption, when they do, is that the new place is better. It has better access to investment, management team, mentors, and sometimes even channels and such. New York

Does that make sense? Do you move first, then start? Here’s what I think:

  1. Business is to enhance life, not life to enhance business.
  2. I’ve posted here both home is where business is good, and business is where home is good. I don’t mind the contradiction. It’s another example of how almost everything in small business and entrepreneurship is basically case-by-case. There are no general rules.
  3. One of the great advantages of building your own business is that potentially you can decide where you want to live.
  4. And of course there are trade-offs. If I were independently wealthy I might live in Yosemite Valley, but I don’t think that would generally be a good place to start a business.
  5. We can deny that some locations have advantages. Having a startup community, investors, history, and potential team members can make a huge difference.
  6. But there are lots of ideal places to start businesses. Your preference really matters. For example, I’m biased towards the Silicon Valley because I grew up there and did business planning and consulting and startups there during the 1980s and early 1990s. But as I write this today I’m in New York looking at Silicon Alley, the New York startup world, and that has its advantages too. A lot of people in New York want to stay in New York, and here too they have community, investors, history, and potential team members.
  7. Let’s not forget that costs are different in different places. Office space, living space, housing costs, salaries … and of course these costs are higher in the more well-known locations.
  8. On the other hand, you know the ins and outs where you are. You have connections. You know the territory. That reduces costs.
  9. Moving before you start a business, just for the sake of a business, and not because you want to live there, is a bad idea. That increases your uncertainty and your degree of difficulty tremendously.
  10. On the other hand, moving to somewhere you’ve always wanted to live, just before you start a business, that’s not such a bad idea. You take advantage of the flexibility, you make the jump, and add it to the positives of doing your own thing. Yes it adds uncertainty and probably degree of difficulty, but it’s about living well, and choosing where you want to live can be part of that.

I like it that my wife once said that since we were putting up with the downside of owning our own business, then we should get the upside and move to where we wanted to live. I think that you should live where you want, but, if you’re building a business, within some reasonable framework of practicality. What do you think?

Is This a Good Time to Start Your Business?

Starting a Business, ,

It’s not about taxes or any public policy, or economic statistics, or red tape. The right time to start your new business is …

  • When you think you can…
  • When you’re pretty sure people will buy what you want to sell…
  • When you understand the market… You know why people might make purchasing decisions, and where. That doesn’t mean, by the way, that you necessarily have some fancy expensive market research full of numbers and charts. It does mean that you understand the market.
  • When you have reasonable educated guesses about the basic numbers … You don’t have to correctly estimate future sales, by the way — nobody does — but you can’t have no idea. And you ought to have to have some reasonable estimate of real costs. Don’t forget your rent, overhead, and what you pay yourself.
  • When you have the resources you need…
  • When you’re not betting your life or your important relationships on business success.

10 Points On Startup Decision: Alone or As a Team

Starting a Business

It’s a critical decision for the entrepreneur that you make before you’re sure and determines you business future: Do you do it entirely  by yourself, or do you build a team first, then build the business?

I had an interesting conversation about this last weekend. They were talking about a credible product line that could disrupt a niche industry, maybe. I saw this choice looming up. I thought about it during a two-hour drive home. This is an especially difficult choice to make because you make it right at the beginning and it determines so many other choices, but all in the future.

Here are some thoughts I had about the trade-offs:

  1. There’s an identity question at the core: Do you like working on your own? Do you like partners to talk to? Can you share decisions? Would you rather control it all?
  2. Putting together a team can daunting. You need people with different skill sets and experience. And you have to work with them, talk things out, clarify who’s doing what, and why, and how much ownership.
  3. As soon as you have two people, you have collaboration. You also have politics, decision making, blaming, and supporting one another.
  4. Angel investors and venture capital firms prefer teams to individuals.
  5. The bigger the opportunity, the more likely you’ll need outside investment to establish the brand and grow fast.
  6. Once you bring other people into your business, you can’t go back. Write up your buy-sell agreement of course, and think of it as the prenuptial agreement, but don’t think that makes it easy.
  7. If you start it alone you can usually bring more people on board later.
  8. Would you rather have a piece of a watermelon or a whole grape? Individual entrepreneurs, when they’re successful, end up owning the business, not a piece of a larger business.
  9. How likely is it that if you do it alone, and therefore grow more slowly, you end up just tipping off a big competitor who swoops in and takes over the market?
  10. How likely is it that if you bring two or three people together that you end up doing nothing but managing relationships and incompatibility.

And I think I could go on with more list points, but 10 is a good number. I hope the combined points give you the impression that there are no easy guidelines or rules of thumb for this one. People are successful either way, and fail either way. You have to make your own choice.

Don’t Give Your Company Away in Pieces

Business Financing, Starting a Business, ,

Too often people in startups think they’re supposed to give pieces of their company away to people who help them. They aren’t. Or they think it’s clever to pay people for services by giving away pieces of their fledgling company. It isn’t.

Reserve the ownership of your company — called equity — for people who are either long-term partners, critical employees, or investors. Never give equity in exchange for a short-term service. Never give equity as a favor. It’s ownership, and it lasts forever.

Unless they are people you want involved in your company, as partners, forever, then you should pay people with money, not equity.

If you don’t have the money, offer to pay them double or even triple later if you make it, and trade that for payment of one third of the value today. I have to admit I’ve never done this as a business owner, but I have taken a deal like that one or twice, as a consultant.

Pay people with percent of future revenues. About 17 years ago my business desperately needed to convert spreadsheet templates to a standalone software application. We didn’t have the money to just buy the programming, but we found a local group willing to do it for a percent of future revenue plus a small monthly guarantee to cover the costs. That worked. They made money, and we made money. But they didn’t own a percent of our company.

That new business your starting is not a cake to be sliced up into random pieces for anything but important reasons.

If you’re building a high-growth startup looking for investment, those random pieces will cause you trouble later on when you try to bring on investors.

And if you’re not building a high-growth startup for investment, then ownership in it is not likely to generate a return. Minority owners don’t get much benefit from their small stake in a stable small business, even if it’s healthy. Return comes when the business sells out to a larger business, or grows enough to become a public company. So what you end up with are partners who have no control, but do have rights, and are yours to deal with forever. Make sure you want them as partners.

And for anybody else, treat them fairly, give them a percentage of revenue until some specified total amount, give them an shot at more money later, but keep your company. You’ll need it.

(Image: istockphoto.com)

Is Entrepreneurship Contagious?

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Is entrepreneurship contagious? Think about it, and consider this: Obesity is contagious, so is quitting smoking, and so is divorce. Why not entrepreneurship?

Think of how people infect (or so it seems) each other with ideas, fashion, eating habits, and customs. Doing something, even something hard, is easier to do when it feels like a lot of other people are doing it.

And isn’t entrepreneurship a combination of ideas, fashion, customs, and like that? So if I start a business and make it, aren’t my friends more likely to do the same? They have a changed risk perception.

Is there strength in numbers? This is a good argument for Small Business Development Centers, SBA advocacy, Women’s Business Centers,S, and special programs offered by different federal and local agencies. And the local groups, like our own Smartups in Eugene OR, and hundreds like it, that promote startups with pub talks, pitch contests, and mentorship.

These are tough times. Unemployment continues, and general business confidence is way down. Every small startup that makes it helps.

Long-Term Successes Don’t Leave Out Investors

Angel investment, Starting a Business, Venture Capital, , , ,

For an investor in a startup, return on investment is as simple as writing a check now and depositing some related money later.  And since startups are risky, you’d expect to hit big when you win because you’re so much more likely to lose. Does that make sense?

So when the angel investor writes a $50,000 check today to invest in a startup, getting $100,000 back out of it five years later is not bad – it’s slightly less than 14% per year return – but it’s not spectacularly good either.

After all, that same investor could buy a cool car or put a down payment on a vacation condo instead. Or she could just leave that money in a bank with decent interest and have $70,000 in five years without risking losing it all.

But here’s the counter-intuitive catch: What happens if the $50,000 creates a healthy and happy company that grows and becomes independent and never creates any liquidity for its investors? The founders don’t want to get bought, and the stock market doesn’t accept it for a public offering, so the early investors are stuck with a share in a long-term business. Growing businesses don’t generally produce dividends, so that $50,000 investment is stuck.

The return on investment of a $50,000 check that never produces a deposit is way less than zero. Getting $50,000 back would be a zero return. Getting nothing back is – well, let’s just say it’s bad. Real bad.

All of which I post here to explain this statement:

Investors are more interested in companies that will be bought. Not in long term companies.

That’s not exactly what I said last Thursday in my credibilitylive.com session for Dun and Bradstreet Credibility Corp; but it’s close enough.  If you’re curious you can click this Youtube link to go directly to seven minutes into the interview where I was was saying that.

Investors appreciate long-term success as much as anybody. But a long-term successful company finds a way to reward its early investors. Maybe that’s through subsequent rounds, a partial liquidity event, a buyout, or some other instrument. But you don’t leave investors stuck in your company with no way to exit.

When my business confronted a situation like that, we practiced then what I’m preaching now: we bought our investors back out of the company.

Concept Meets Code: 10 Tips for Dealing With Developers

Starting a Business,

I’ve seen it too many times: starry-eyed would-be Internet entrepreneur meets real developer, dream in hand. This is culture clash. More often than not, it ends up with wasted time, wasted money and dashed dreams. Concept meets computer code.

In 30+ years in the software business I’ve been a developer, a dreamer, a consultant to the dreamers and an employer to the developers. So maybe I can help. With thanks to several contributors (below), here are 10 tips for the dreamer side of the equation:

  1. Software is usually a compromise between the dream scenario, on the one hand, and what’s actually do-able in software. Think of whatever your favorite productivity software, or app and how, as you learn to work with it, you learn to accept its way of doing things instead of your way. Everybody hates their accounting software, right? But you make do because it’s easier than balancing your checkbook with a pencil and a calculator. Real development takes compromising what’s ideal for what’s actually possible.
  2. You have to listen. Developers think and talk in code (double meaning intended.) Most of the time, as you explain to them what you want, they’re trying to translate between what you imagine and what software code will actually let them do. They are not necessarily articulate, tactful, or very good at explaining. You have to shut up and listen. Catch the clues. Don’t think they’re not understanding you. They probably are, and they’re jumping ahead of you to what they can implement in code.
  3. Understand critical relationship factors. Figure out whether your developer is a partner or just a vendor. It’s really hard to succeed in software, especially at the early stages, without brainstorming, collaboration and excitement about ideas. If you want a developer to just shut up and write code you’re probably doomed from the start. Please re-read points 1 and 2 above.
  4. Who owns the product? You can’t get around this sticking point. The road to startup success is littered with the carcasses of failure caused by disputes over ownership of ideas, ownership of code and points in between. You have to talk about it. Painful, maybe; awkward, maybe, but establish with your developer that you own the work, or that it’s shared. My suggestion: own the work, but listen, collaborate, own it legally and technically (because you’re the one writing checks) but not emotionally or creatively.
  5. Pay for results, not hours. I learned that the hard way, and from both sides of the table. Don’t pay too much in advance. Set milestones together. Pay for achievements. Programmer hours are more volatile than Midwestern summer weather. They’re like airplane seats, where one passenger pays 20 times what it cost the passenger across the aisle.
  6. Identify which developer personality is which. Developers are often multiple people, like schizophrenics. They want security, steady income, power, big entrepreneurial jackpots, ownership, and days off without worrying about anything. They’re geniuses in good moments and pains in the royal ass in bad moments. Which makes them a lot like the rest of us. Try to figure out which personality is which, so you can let the genius soar at the right times, and avoid the pains. Careful with egos. It’s really stupid to shut down creativity with discipline.
  7. Know your developer. Check references before hiring. Call some past relationships. We all work with the assumption that programmers are super smart and eclectic, but some pseudo-programmers are smart as scammers. Ideas get stolen and it’s not illegal. Watch the movie Social Network and realize that the law supports the Mark Zuckerberg character in that script. The twins might have thought of it, but he did it. And keep in mind that most developers are good at some things, but not all things. Some focus on interface, some on system back end and so on.
  8. Design an early check-in point into the project. Never contract a whole project from the start. Instead, find a quick first step that can also be an abandonment point. It’s like in a personal relationship, meeting new people, you want to get a cup of coffee first, before jumping into bed together.
  9. Get the key points in writing. No, I don’t mean some big fat contract, or expensive legal work; but have your developer sign a short letter — in English, not legalese — that establishes who owns what, when the money changes hands and what you’re agreeing to.
  10. Remember the dragons. One of my favorite programmers compared software development to Columbus setting out from the Canary Islands sailing west:

    He hoped he’d end up on the coast of India, but I bet he still feared falling off the end of the Earth into the mouths of the dragons. Software development is like that. You think you’re going to reach land, but you might not.

    And good luck. Enjoy the journey. And may you reach the other shore.

(Note: I posted this on Huffington Post this morning; I’m reposting it here becuse  this is my main blog.)

(image: istockphoto.com)

Ouch. Ex-spouse Using Her Name in the Business

Starting a Business,

I’m really sympathetic to the woman who wrote me this question, but I think I have bad news for her. Maybe the good news I that I’m not an attorney, so I have no real expertise.

In her question she refers to who owns your business name, an old post of mine on this blog. Here’s what she says:

Scenario: couple are dating, he opens a restaurant/pub, then renames it with her Irish surname – Irish bars are big where they live! They get married, pub is trading under her Irish name. Sadly, 4 years later they are divorcing. He continues to own/run the pub, still with her name on it. She worked there too, enhancing the Irishness of it. But because he owned before they were married, she cannot claim any ownership under communal property laws, despite having loaned the company $38k which she will have to sue for to have returned. (He obviously feels the loss of her Irishness and her name as he has set himself up with a Facebook page using his first name and her Irish maiden name!!)
So, does she own the name, her name? Can she request he change the name? Can she use the fact that he used and continues to use, her name to establish a successful and profitable business in any way? He is refusing to provide spousal support etc etc.

First: she should contact an attorney with a practice that includes general small business. Ask around for recommendations, and if she doesn’t know anybody who might know, she should go to her nearest Small Business Development Center (SBDC) and ask there. This is worth talking to an attorney about.

Second: my non-attorney guess, based on my own experience in business, is that she can’t do anything. Anybody who wants can name a bar by any invented last name, it’s legal as long as it doesn’t conflict with a business that already exists. And once the business is established under that name, how the name was chosen and its association with anybody else’s name doesn’t make a difference.

You don’t own your own name for business purposes. People whose last name is McDonald can’t open a McDonald’s hamburger restaurant without getting sued by McDonald’s for trying to create confusion and trade on that company’s reputation. I think that’s pretty much the way the law works, a lot like I said in that earlier post you cited.

But she should still contact an attorney because I’m not an attorney so I can’t give you legal advice, just my layman’s guess. Maybe in this special case there is something she can do. It’s worth asking a real attorney.