Entrepreneur Nation – The Voices
Published March 12, 2009 | 
No one has ever been able to accuse the law makers in the U.S. Congress of ever making good decisions based on solid evidence and common sense, and they seem to have set new standards for decisions that basically slap every U.S. Citizen in the face with the amount of largess they are heaping on constituents and special interest groups throughout the country. What has happened is so frustratingly tragic, especially to the “Entrepreneur Nation” that makes up the backbone of the U.S. economy that one might tend to think they are using the recession as an excuse to spend, spend, spend, since that’s what they normally would do anyway, so the result is “congressional spending on steroids”.
It seems like their goal is to turn the “good old US of A” into the western version of the “socialist state”, or the U.S.S.A., and all on the backs of the country’s Entrepreneur Nation. Don’t they realize this has been tried once before with the “New Deal” and things just got worse when the country slipped into the second great depression (1936) after a wave of business closings and employment reduction as a result of socialist idealism.
It will take the collective voices of Entrepreneur Nation to stand up, speak up, let it be heard and shout out “I’m as mad as HELL, and I’m not going to take this anymore” (1976 Movie Network, Peter Finch). Entrepreneurial groups everywhere need to take stock of how their lives and businesses they have built are being laid siege to, and remind whoever represents them in congress that “no job was ever created by a poor man”, and what the “great spenders” need to focus on is determining how to increase available capital to jump start and grow businesses.
The Washington bureaucrats can’t wait to spend extremely large amounts of money that every American has to pay back for generations, well maybe not every American, since the bureaucrats are also increasing classes of people that have no accountability or responsibility, and therefore can never be expected to pay anything back.
Opportunities are dramatically increasing as the competitive field is being shaken out with businesses that are weak from poor cash flow, and heavy debt load, making room for new entrepreneurs and growth-oriented businesses to move in and capitalize on the opportunities, however, capital is required to take advantage of even the smallest opportunities, and instead of giving funding to projects that won’t even start for several more months, make the funding available to businesses now, and watch the positive results quickly start to build the economy back through job and wealth creation.
Without the capital funding, increases in taxes, fees, and additional costs and expenses related to mandatory government regulations will only serve to extend the cycle of recession the global market is currently experiencing.
The Entrepreneurial Nation needs to stand up, speak with one voice and be heard, and now is the time to start a ground swell of opinion needed to move the bureaucrats to take action and provide the capital needed in a timely manner to start the economic recovery, and rebuild confidence in not only the United States economy, but the global economy as well.
Partnership Dangers
Published March 8, 2009 |
Pitfalls abound when entrepreneurs decide to become partners, so it’s a good idea to know what they are ahead of time so you can set up guidelines in an operating agreement that allow partners to walk away if things go wrong.
Partnerships have been an important part of entrepreneurship and startup success for years and the reasons for success are simple, including complementary skill sets, shared equipment or expenses, and the concept that one person with “hard” money capital can create synergy with the intellectual capital of another person so both can profit from their partnership venture.
In theory, a partnership is a great way to start in business, but it has been my experience however, that it’s not always the best way for typical entrepreneurs to organize a business.
The tough thing about most partnerships is that they are just like marriages, and if you know anything about those statistics, you know half of all marriages don’t survive. Making a marriage successful involves handling a volatile mix of partnership issues including ego, money, stress, and monthly overhead and day-to-day expenses. Throw in some employees you must manage, and you have a good idea of the work required to make a business partnership successful.
If you’re thinking about a partnership, consider the following and avoid the potential pitfalls:
Sharing capital instead of expenses: Whenever you share your own capital–be it money, resources, information or property, you automatically give away your enterprise ability, and in a perfect world, the person you are partnering with is upright, full of integrity, and not at all tempted to take this gift and run with it as his own. However, the world’s not perfect, so be careful and instead, work out an arrangement where expenses are shared in an “associative” arrangement that also makes it easier to walk away if things go wrong.
Partnering with someone because you can’t afford to hire them: This is a partnership danger right from the start and the scene is always the same: John has a business idea and Frank has the business skills, but John can’t afford to hire Frank as an employee, so they decide to share duties, expenses and profits. What happens is both John and Frank end up working against each other, and John finds himself liable for Frank obligations (financial and otherwise) under the partnership agreement, so if you’ve got the idea and someone else has the skill, simply hire him or work out an independent contractor agreement, and don’t give away what you don’t have to.
Lacking a written and signed partnership agreement is critical and due to the nature of partnerships, every detail and obligation must be clearly defined and written out, and agreed upon by all parties, and this is best done with a written legal agreement drafted by a well-qualified, mutually agreed-upon lawyer. Just make sure the attorney is well-versed in business partnerships, be sure to keep their card handy at all times, as you may need that person again when things go wrong.
Overlooking a limited partnership is one of the main downfalls of a partnership agreement, the assumption of liability each partner makes for the other, and a way around this is a limited partnership, where the limited partner is not liable for the actions or obligations of the general partner, and again, make sure an attorney well-versed in partnership agreements writes this arrangement.
Lacking an out or an exit strategy is like big-time marriages that start with a pre-nuptial agreement, and in business and contractual terms, a pre-nup is analogous to an exit agreement. In any partnership agreement, define the terms of an exit strategy that allows you or your partner to walk away from the partnership, or that provides options to buy out the other party, and this can be done very clearly, simply, and without imploding the operations of a successful business.
Expecting the friendship to outlast the breakup of the partnership is naive, since from the perspective of a marriage, how many ex-couples do you know who are truly friends? I suspect like myself, you don’t know many, so don’t go into any partnership with a friend expecting to remain friends after a partnership breakup. It may sound great to do business with your friends, but remember, in the business world, it’s always business first and friendships second, and also remember, most times when the business ends so does the friendship.
Having a 50/50 partnership is NEVER good, as every business, including partnerships, needs someone able to make final decisions, so if you decide to go the partnership route, make it a 60/40 or 70/30 split. Then you and the business have a point person for accountability and overall operational control. Also, keep your buyout or exit strategy clear and in your favor, and ultimately saving problems down the road.
The partnership formula can be successful if everything is defined in a clear and concise agreement, and the partners have a good understanding of each others strengths and weaknesses, and each share a passion for developing, operating, and growing the business, In addition, a clear understanding of the partnering pitfalls, and a well developed business plan containing strategies to avoid potential issues and problems before they have a chance to occur.
How to Create the Business Plan for Investors
Published February 24, 2009 | 
A business plan is required to gain entry for investor capital, as it’s the future story of your business, and many entrepreneurs have a great story that are not sure how to tell it. If you’re unsure get help, but since no one can create your story for you, experienced advisors can show you how to structure your plan to present your story effectively.
The minimum information your business plan must contain includes a statement of the strategic direction the business is to follow and why that strategy makes sense within the company’s market or industry environment, a detailed description of the products or services to be provided with special emphasis on their proprietary nature, profiles or resumes of the key managers, a brief analysis of the markets served and their outlook, and financial projections on where the business can be taken in sales and profits over three to five years.
A business plan is one, at heart, a story that explains how a business works, and when a business plan doesn’t work, it’s because it fails in either the narrative test or the numbers test, with the narrative test asking “does a story make sense”, and the numbers test asking “does the story at up?”
A business plan is therefore usually broken down into these two test sections, a written section typically called the plan narrative, and a numbers section typically referred to as the financial projections. The projections are simply a numerical representation of the business itself and its marketing strategy that is presented in the plan narrative, and the two sections must be completely entwined.
The narrative of a business plan is usually broken down into three major sections including the business description section, the marketing strategy section, and the management and operations section.
The financial projections section of the plan should be thought of as simply quantifying the effects of what was presented in the plan narrative, although the projections are concerned with the future don’t think of the projections as merely a prediction, instead the projections should be thought of as goal setting with respect to revenues and expenses. We cannot predict the future, precisely why our planning is necessary, but we can make plans, set expectations, and set goals. Projections should include a list of required funds and their uses, a sales forecast with the least monthly for the first year and quarterly for additional years, a variable cost of sales analysis, a fixed expenses operating budget, a projected profit and loss statement, and possibly a projected cash flow statements, a balance sheet, and the breakeven analysis.
If you are trying to secure equity, you cannot spend enough time on the executive summary of your business plan, as this is the first thing, if not the only thing, that gets read by an equity investor. The executive summary is your business plan in miniature, and it should contain the scope of the opportunity and the essence of the plan in less than the page.
After reading the executive summary and making the decision to read on, equity investors look to one section of the plan more than the rest, the management team, and savvy investors know that an experienced and well rounded management team can make all the difference when it comes to success of the business. Your management team section should be very comprehensive citing the background, education, experience, skill sets, and responsibilities for every member of the team, and also you should include all of the outside professionals that you will utilize such as your attorney, accountant, management consultants, etc.
Even well put together plans can flounder because of the failure to appreciate the crucial difference between entrepreneurs and investors, and entrepreneurs focus on the potential of an idea, while investors focused on its risks, which makes the key to raising capital lowering risk, not hyping the upside, and entrepreneurs who say how they’ll reduce risk are the ones who get the capital.
It should be noted that investors in growing companies understand risk is part of the equation, but they want to see evidence that an entrepreneur recognizes the risk factors facing the business and has taken steps to control them, which means addressing questions about market risk, financial risk, and the technological risk, stressing not the dazzling upside, but the return investors can reasonably expect, weighted against a limited and carefully chosen and defined set of risks.
If an investor likes what they see in the management team section, they will usually proceed to the financial projections, and it goes without saying that one of the most important things an investor wants to see is what potential return there might be, and for this they turn to the projected profits of the business, and while your business plan need not discuss the amount of ownership you were willing to give up, it should give the investor some idea of what returns they might receive from their investment in your business.
Finally, your business plan should indicate some exit strategy for the investor. An exit strategy is how the investor will get their original capital back and convert their ownership back to the business, and an exit strategy might include converting equity to debt by getting a bank loan to pay off the investor, or it can also include selling the business, buying out the investor, bringing in other investors to take their place, or even taking the business public.
How to Obtain Angel Capital – Part 2
Published February 20, 2009 | 
From the angels point of view most commonly they will value a company at a lower price than the entrepreneur would, for example, let’s say you have a young company that is presently little more than an idea and the team, and from the angel investors point of view, ideas are cheap since it’s the execution that adds value, and potential investors haven’t a clue at this stage of your company’s ability to execute.
When structuring the deal angels will ask “How are you structuring the deal?” and they’re in effect asking two separate questions. The first is on what terms will the angels invest, In other words what type of financing will the angels provide, either equity or debt, what kind of equity, will investors get their cash back before the entrepreneur does, and will the angels have the right to invest in future rounds? The second question is what role will the angels play in your company going forward; will it be silent investors, active ones, or something in between?
During negotiations, the angels tend to focus on the numbers, specifically their initial ownership stake, and the negotiation process tries to spell out just how much of your company you’re going to give up and on what terms. Angels have the advantage of time on their side, while you may need their investment quickly, they most likely won’t face the same time pressures, on the contrary, many angels prefer to take their time during negotiations, not least of all in the hope that you’ll eventually come around to their terms.
An angel’s investment should be just the beginning of the interaction, since angel investors can help your company move toward what investors call “value events”, and these events are anything that can improve the real or perceived monetary worth of your company, as well as its chances for success, and examples include signing deals with strategic partners, lining up venture financing, and landing big customers.
Keep in mind it is a two way street during the support stage of the process, and the best entrepreneurs provide regular updates, maybe two pages worth sent once a month to all their investors, not only does that let the investors know what’s going on, but it also makes them feel they’re an important part of your company.
Finally, harvesting is what investors called the process of getting back their investment and then some, and it comes in five basic forms including, “walking harvest” which occurs when your company distributes cash directly to its investors on a regular basis, a “partial sale” when you’re investors sell their stakes to your company’s management, another stakeholder, or an outsider, a “strategic sale”, when a competitor acquires your company for strategic reasons, and your investors received their negotiated share of the acquisition price, a “financial sale”, when a buyer outside your industry acquires your company for its cash flow, and your investors receive a negotiated share of the acquisition price, and finally the “Initial Public Offering” (IPO) when your company sells stock in the public markets creating a market for your investor shares.