Archive for January, 2010

If you are just starting your business or have been in business for a little while you are probably thinking about where you might expand to or relocate your business. Businessweek.com says that “even with the highest quality products and services, friendliest staff and best prices, a poor location can significantly hamper your business’ success”. Many people when they start out use their kitchen table which is one of the worst places to set up shop. Here are five quick tips on what you should consider when choosing a location for your business:

Tip #1 – If You Work from Home, check all the rules – While working from home can save costs and be incredibly convenient, the unique situation of working from home presents its own challenges. You should definitely have a separate space for work away from kids and other distractions. This is helpful for tax time when you are going for the home office deduction. Also check your zoning rules in case it is illegal and there might be business licenses required.

Tip #2 – If you are a retail business, research traffic counts – Your county’s Department of Transportation (DOT) tracks traffic counts for major intersections in your area which is great when you are evaluating different commercial retail sites for your business.

Tip #3 – Make sure there is a dedicated space to meet with clients – Even if you do work from home, having access to an executive suite building will give you a commercial address and you will look professional. Meeting people in coffee shops can be fine once and a while but there will be times where you need the quiet and privacy of a dedicate meeting space. I used to work out of a large coffee chain virtually for about a year

Tip #4 – If you are open to it, look for SBA HUBZones to locate your business -HUBZones are designated as a historically underutilized business area by the Small Business Administraton. There is federal contracting assistance available to companies that apply for it and get approved for HUBZone status.

Are You Ready to Look for Office Space? What have been your experiences and preparation steps?

We want to hear from you if you have been through this process and if there are any things we missed and lesson you can pass on to fellow entrepreneurs. Leave a comment. We would love to hear from you.

One of the best books that could have considerable influence on how to start a business is written by author, evanglist, venture capitalist and serial entrepreneur Guy Kawasaki. So what does the guy that founded Truemors (sold) and AllTop.com know about starting a business? Quite a bit and he’s sharing it all with you in his latest book Reality Check: The Irreverent Guide to Outsmarting, Outmanaging and Outmarketing Your Competition.

In his book, Kawasaki highlights the realities that both entrepreneurs and investors face in this world of starting a business. Perhaps most notable are his chapters that focus on the top lies each party tells. Here’s the top  lies of entrepreneurs that you might want to try and avoid making or saying:

1. “Our projections are conservative.” According to Kawasaki, an entrepreneur’s projects are never conservative. He makes it a point that when pitched, that he’ll usually add one year to the delivery time and multiply it by 10 percent. Entrepreneurs apparently are prone to thinking that there’s a risk aversion if your numbers are too high or even too low. It’s hard to judge what is that right number to share.
2. “(Big name company) is going to sign our purchase order next week.” Instead of saying that you’re going to get the purchase order next week, Kawasaki says that if you’re going to “play this card”, you might want to do it after the purchase order is signed. Don’t get burned by this because nothing is guaranteed in life…especially purchase orders.
3. “Key employees are set to join us as soon as we get funded.” Kawasaki believes that there could be some controversy about simply saying this line. It’s more prudent and supports your claim if you have those key employees testify to the venture capitalists, investors, stakeholders, etc as soon as you’re finished with that meeting. Time to show them you’re serious.
4. “No one is doing what we’re doing.” Called a bummer of a lie because it’ll lead to two logical conclusions: no market for the product and no sense of understanding technology and a search engine. Kawasaki’s rule of thumb is that if you have a good idea, at least five companies are doing it. If it’s great, expect at least 15 companies.
5. “No one else can do what we’re doing.” Too arrogant can be a big turn-off. Once you’ve launched, expect more companies to pop up that will do exactly what you’re doing.
6. “Hurry, because several other venture capital firms are interested.” Probably not true. Kawasaki says that unless you’re at the top of your game and the “cream of the crop”, you’re going to be able to really claim this, but for most of the startups out there, you’re not going to be able to sell this very well.
7. “Oracle is too big/dumb/slow to be a threat.” Sure, this is probably more applicable for those in the technology sector, but it might also hold true if you swap out Oracle for your market’s biggest player. Some (or maybe all) investors may think that you’re being arrogant and maybe even “stupid” for thinking that big companies wouldn’t be able to innovate and do what you’re doing.
8. “We have a proven management team.” This definition of a proven management team can be deceiving, according to Kawasaki. He says that “truly proven” in a venture capitalist’s eyes is being a founder of company who has returned billions to its investors. If you’re proven, then you wouldn’t need money and by saying you’re proven is pretty repetitive – just something you don’t need to say.
9. “Patents make our product defensible.” Kawasaki says that you shouldn’t rely on patents when talking to venture capitalists. Only use the word “patent” once in your presentation unless you want the investors to think you care only about patents.
10. “All we have to do is get 1 percent of the $X billion market.” According to Kawasaki, venture capitalists want more than 1 percent of the market. In fact, they want enough of the market to face the antitrust division of the Department of Justice. Also, it seems that unrealistic to say that you want 1 percent of the market – it’s just not that easy.

These are the most common lies that Kawasaki claims entrepreneurs make.  as a result, investors may make it a sticking point when rendering their decision. But don’t be mistaken that only entrepreneurs tell such lies…venture capitalists also tell similar lies. The part to note here is whether or not you get caught.

In keeping with this month’s theme of “Starting a Business”, I thought I would share with you some information that I found while attending a recent event here in San Francisco organized by Dealmaker Media and the law firm of Manatt, Phelps & Phillips, LLC. While you can read the entire recap on the Solutions Are Power blog, I thought I would highlight some of the more relevant parts here. Why? Because out of starting a business, one of the things that people might be concerned about is funding, especially in 2010 when the economy may not be working in their favor.

During this event, dubbed Investor Outlook, several venture capitalists from well-respected firms shared their thoughts on the idea of being solicited for money and where it might be going in the next 12 months.

Speakers this evening included:

• Jeff Clavier, SoftTech VC
• Jonathan Ebinger, BlueRun Ventures
• Mitchell Kertzman, Hummer Windblad Venture Partners
• Brian Pokomy, SV Angel

What follows are questions and paraphrased answers posed by moderator Craig Miller of Manatt, Phelps & Phillips, LLP:

What’s can startups do to get a competitive advantage in order to be funded?

Brian Pokomy: It’s important to get 5-6 referrals a day. We look at the source of the referral and whether the startup is in the space that we like. We also look primarily at the team. The biggest factor is how much interest you can generate around financing. If we like a company and decide to meet them, we need to show interest right away or risk missing out.

Mitchell Kertzman: We look at young companies. Ultimately we’re “reality-based investors” — we evaluate the market need. We invest in core technologies with intellectual property. Need to solve a problem that customers & prospective customers want solved and are willing to pay. We’re big believers in highly automated and analytical marketing with inside sales. Believe in subscription-based model pricing. Every company can be a stand-alone company – worth $100 million.

How can startups get funding in 2010?

Jonathan Ebinger: We’ll look at the individual and see if they have a good head, but aren’t bullish to reject advice. It’s a matchmaking process to find the right investor. Make sure that the relationship is sound – don’t just take the money.

What’s NOT hot in 2010?

Jeff Clavier: Someone who says they have a better implementation of an existing startup but with a smaller tweak of the system. Needs to be thousands times better.

Jonathan Ebinger: User-generated content has run its course and mobile businesses is done. Mashups are emerging & incremental improvements aren’t going to happen. Very bullish in mobile technologies.

On reaching venture capitalists, what should startups include in initial email?

Email should be 1-2 paragraph with link to demo. Give enough of the pitch to get to the first meeting, then enough to get to the second meeting.

Three things to remember when trying to break through:

Brian Pokomy: Launch something, bootstrap to get a live product to show some traction/usage & get multiple referral sources. Find people to have face-to-face conversations. The biggest factor that we look for is the reference source.

Jonathan Ebinger: Get recommendations & referrals. Make sure that you do your homework on who you’re pitching to get funding.

Mitchell Kertzman:Understand that as an entrepreneur, you have a lot of power – VCs need you for business. Do some research in the firm to see if they invest in your space. Don’t send an email to EVERY partner in a firm. Look at partners and find who they invest in – look for one invests closest to you. Have you raised money before & what are you wanting now? Don’t be offended by a short email from VCs.

There was much more explained during this three-hour conversation, but it seems that the above pieces of information is a good start on what you would need to do in order to get funding for your startup. A common theme that emerged from this event was to do your research when you pitch an investor. Don’t assume that investors will do the work for you. Also, before you start doing any work, make sure that you have consulted with a lawyer or legal team to make sure all the documents are completed correctly the first time – you don’t want to spend extra money trying to fix a costly mistake.

I am assuming you already know what your business is and what you want to do to change the world, put your kids through college and have a lot of fun. So here are a few things you will need to do to establish your business.

First You Need a Name

One of the team writers, Ken Yeung, just wrote a great post on creating good brand names. Here is an excerpt that sums it up nicely:

Consider the logo and the sound - while you have a brand, remember that it’s not just a word. There’s a logo that is your “symbol” of your company. Don’t forget the graphical element of your brand. If you have a greatsounding brand, you can’t rely on that. Make sure your graphic of your brand (aka logo) is equally as impressive.

Got Trademarks? – don’t forget that just because you have a name in mind, everything will be fine. You should check on trademarks and make sure you’re not violating any patent or trademark laws in choosing a brand name.

Find domain name – in the Internet age, you should make sure that you have the right web address. Using a domain registrar like Network Solutions, you should be able to find out whether a web address that matches your brand name is available. If it isn’t available, using a WHOIS directory on Network Solutions should help you find out who owns that domain.

Check company names – If you’re planning to incorporate, check with the Secretary of State (or other appropriate office outside the US) of the state you’re planning to incorporate in.

Protect your brand – A US trademark or service mark costs $325. While it may not be important for small businesses, this may be something that is advantageous to check out.

Now You Need A Corporate Structure

After you have your name, you need to figure you a specify your business structure. As explained in an earlier post on Unintentional Entrepreneur, there are several different kinds: sole proprietorship, partnerships, corporations and limited liability corporations. You can read more about these different structures by clicking here.

Next Thing, Register Your Business

This means that in order for you to exist as a business you need to register with the IRS and the state you are operating in. You file your corporate docs with your state to acknowledge you are a valid business. After that you need to register your business with the IRS. Another important thing you should do is register with Dun and Bradstreet which tracks business activity and is a sort of credit bureau for companies. It helps establish your business so that when it comes time for a company to do a search and background on you and ask for your “D&B DUNS number” you will have it.

Permits and Licenses

Every business needs one or more federal, state or local licenses or permits to operate. Licenses can range from a basic operating license to very specific permits, (e.g., environmental permits).

Regulations vary by industry, state and locality, so it’s very important to understand the licensing rules where your business is located. Not complying with licensing and permitting regulations can lead to expensive fines and put your business at serious risk.

You should check out Business.gov’s “Permit Me” tool. It asks for your zip and your type of business and gives you the list of things you definitely need to do and might need to do but require further research.

Bank Accounts

It would be safe to say that if you are reading this and looking at starting a business you probably have a personal bank account. When you start a business one of the most important things is opening a bank account for the business. There is a great post on About.com on the Five Reasons Not to Mix Personal and Small Business Banking. I made this mistake early on in my first business with using personal credit cards which is the worst thing you can do.

The other thing you need to consider with banking is what kind of bank do you prefer? Sure you will work with some one at a local branch but do you prefer something more community based or a larger entity with greater reach and programs? Since I travel quite a bit I needed a bank with branches all over the place. If you are a non-profit there are certain banks that have programs best suited for that so the bottom line is to go with your personal feeling and then research the services that match your needs.

Wow, that was a lot and we haven’t even opened our doors yet. So what are you waiting for? Get started and if you have any questions, leave a comment. We would love to help.

Not all business planning involves documenting and strategic work. You’re going to need to worry about the financial side of it. The United States Internal Revenue Service (IRS) has outlined several basic steps that you’re going to need to follow in order to make sure your business is in compliance with federal laws.

The first step that you’re going to need to do is apply for an employer identification number (EIN) or perhaps more commonly known as the Federal Tax Identification Number. It’s your means of verification with the US government that you are a business entity, which you can easily obtain for free. To get an EIN, you can apply online, by phone, fax or by regular mail.

After you’ve done the application for an EIN, just specify your business structure. As explained in an earlier post on Unintentional Entrepreneur, there are several different kinds: sole proprietorship, partnerships, corporations and limited liability corporations. You can read more about these different structures by clicking here.

Did you know that there are two different calendars? And that it was also important to choose which of the two you wanted to follow when running your business? The next step from the IRS is to choose your tax year: fiscal or calendar. Defined by the IRS as an annual accounting period for keeping records and reporting income and expenses, your tax year is used to help define your taxable income and report to the government. So what are the differences between a fiscal and calendar year?

• Calendar year – A calendar tax year is 12 consecutive months beginning January 1 and ending December 31.
• Fiscal year – A fiscal tax year is 12 consecutive months ending on the last day of any month except December. A 52-53-week tax year is a fiscal tax year that varies from 52 to 53 weeks but does not have to end on the last day of a month.

It should be noted that there are specific rules and regulations that should be adhered to when choosing a tax year. You can read more information on the IRS website by clicking here. Should be noted that once you’ve chosen a tax year, you may not be able to change it without IRS approval.

The IRS also instructs all taxpaying entities to choose from among two different accounting methods: cash and accrual. Here’s the definition according to the IRS:

Under the cash method, you generally report income in the tax year you receive it and deduct expenses in the tax year you pay them. Under an accrual method, you generally report income in the tax year you earn it, regardless of when payment is received, and deduct expenses in the tax year you incur them, regardless of when payment is made.

To help account for everything, don’t forget that you’re going to need to have your employees fill out forms I-9  and a W-4 – these forms will help make an accurate assessment of your taxable income.

Lastly, pay your taxes. The IRS wants to make sure that you’re prepared to pay for the variety of taxes that you might incur as a business. Some of the taxes you might have to pay include: income tax, estimated tax, self-employment tax, excise taxes, and more.

While these are the things the IRS recommends you consider and plan for before starting your new business, do not take what is written here on it’s face value. Consult with a certified public accountant for what you will need to do in order to suit your business.