GRASSROOTS BIZ!

We have seen a rise in the number of entrepreneurs that are starting smaller side projects. Since the increasing number of layoffs and jobless claims that began in 2008 individuals are trying to create additional streams of income to hedge against the loss of a job.

Here is a quick reading article that highlights a few interesting businesses as well as some interesting SBA facts.

PART 4 - THE REQUEST

This is an easy section of your Executive Summary. It's pretty simple...here you'll state how much money your project needs to execute the strategy and tactics you've outlined in the remainder of your business plan. This is a great section to help you build credibility. If written correctly, this section will show the investor that you have at least given some thought to where you intend to deploy the $5m you just asked for. It should clearly state, in rough estimates, how much you need for marketing, website, equipment, office furniture, and other assets, as well as how much you need for working capital to keep the business liquid until it reaches a level of fitness. You should also state here what type of capital you are looking for...is it debt or equity financing?

Again, as in the other sections of your Summary, don't be overly wordy or detailed. Give them enough info to generate interest and leave the boring and made-up details for the next start-up that is pitching to them.

TAKE YOU DOWN...DOWN TO CHINA TOWN!

As most of you know, I run a boutique firm that specializes in helping entrepreneurs define their start-up idea or business and be able to explain it to potential partners, employees, vendors, investors, bankers, etc. Without a doubt the most common element that our clients overlook is their EXIT STRATEGY...more specifically a COLLECTIVE EXIT STRATEGY. This is the process where all founders, partners, investors, etc. have a clear understanding of how each will exit the business and hopefully capture ROI through a liquidity event.

Here are some common exit strategies:

1. Sell the business to another party such as a competitor, strategic partner, or other business of some type
2. Take the company to the public markets
3. Don't exit and keep the business as a cash flow or life-style business

At any rate, whatever your intended plan is to exit the company you would be well advised to have detailed and thorough discussions with all shareholders prior to launching the business. Also, discuss these strategies with an attorney that specializes in exit strategies. It's well worth the expense.

Here is a great video that is brief but highlights some key points when considering an exit strategy. It's from our friends at FundFindr.tv.

WHERE HAVE ALL THE ANGELS GONE?

Here is a link to very recent article from Inc. magazine. Although the credit markets are beginning to budge some we have seen a dramatic decrease in SBA Loans. At the same time, this article highlights some interesting Angel Investing data points.

Inc. Article

What are you seeing out there? Are funding transactions still taking place?

ALLOW IT TO HAPPEN!

Yes, it's been a while since my last post. I frankly haven't had much to say because I've been preoccupied with our country's energy crisis. I have been actively reading other blogs, news clips, and You Tube videos for a start-up topic that grabs me. Then I ran across this very short article on Vator.tv. Frankly, this article's topic is slightly boring and perhaps unsexy. It's written by a well known author, Seth Godin, and it's about Patience. At the same time, it is absolutely true and very important for entrepreneurs to ponder.

Read the article here.

Be patient and allow your business to take shape.

TEACHING KIDS ABOUT MOOLAH AND BIZ!

Most of our clients aren't just entrepreneurs. Many of them are parents and they want to teach their kids about money and business. Here is a great article from the Start-Up Nation Blog about this topic:

Start them Young! How to Cultivate the Young Entrepreneur

Also, here are some great websites for teaching your kids about money, negotiation, sales, and business in general:

http://www.asmartkid.com/index.html

http://www.moneyinstructor.com/kids.asp

http://www.pbs.org/wnet/moneyshow/makeover/article6.html

GET BETTER AT NEGOTIATING! (PART 2)

Know Your Stuff
You need to learn as much about the other person's situation. This is a particularly important negotiation tactic for sales people. Ask your prospect more questions about their purchase. Learn what is important to them as well as their needs and wants. Develop the habit of asking questions such as;
"What prompted you to consider a purchase like this?"
"Who else have you been talking with about your needs?"
"What has your experience with them been like?"
"What time frames are you working with?"
"What is most important to you about this?"
It is also important to learn as much about your competitors as possible. This will help you defeat possible price objections and prevent someone from using your competitor as leverage.

BATNA

BATNA stands for best alternative to a negotiated agreement. This is an important negotiating theory that you should understand. Click here for a good description of it.

GET BETTER AT NEGOTIATING! (PART 1)

Negotiation is a skill that is very important for many reasons. For your start-up it can mean the difference in margin percentage on a sale, or the additional service you may need from a vendor or supplier. As an entrepreneur, don't underestimate the power of negotiating.

Practice, Practice, Practice:
Many people lack confidence when it comes to negotiating. You can develop this confidence by negotiating more often. Ask for discounts from your suppliers and vendors. As a consumer, develop the habit of asking for a price break when you buy from a retail store. Here are a few questions or statements you can use to practice your negotiation skills:

• "You'll have to do better than that."
  
• What kind of discount are you offering today?"
  
• "That's a bit too expensive." Wait for their response afterwards.
  It's ok to flinch!


• Be pleasant and persistent but not demanding. Condition yourself to negotiate at every opportunity will help you become more comfortable, confident and successful.
  

Be Prepared to Walk Away:
When you're the one selling, remember, tt is generally better to walk away from a sale rather than to give away the farm. This is particularly tough to do when you are in the midst of a sales slump or slow sales period. But, remember there will always be someone to sell to.

2 KOOL 4 SKOOL!

In my last post I briefly discussed the importance of evangelizing your start-up. There's a great web tool that may come in handy and help you create some buzz. It's called Zentation. It's essentially a free (for the basic service) service that allows you to upload a Power Point presentation and easily sync it with video of you talking about it.

Here's some suggested uses:

• Create a marketing message
• Explain the features and benefits of your product idea
• Pitch your business to investors
• Create a message about your company that's geared toward recruiting
• Train your customers on how to use your product or service
• Etc....

Don't underestimate the power of your pitch!

EVANGELIZE!

When starting your business one of the most important things you can do is to create buzz. Creating buzz starts the minute you decide to start the business. Don't wait until your product is ready or your business plan is written. Start evengelizing NOW!!

My mantra when starting a new business is this: "TALK TO A LOT OF PEOPLE...EVERYDAY."

Here's a good article about creating a pitch for investors: Guy Kawasaki

Here's a great video reference for presenting: Steve Jobs

Here's a useful tool for pitching your business online: VisualCV

HAMMER YOUR CUSTOMERS!

There was an excellent book written in the 90's called The Discipline of Market Leaders. This book discusses the importance of choosing your customers wisely. This is very important for an entrepreneur to consider. We generally get so excited about the prospect of passing the wallet test that we take a customer that is just flat out not worth it. This generally happens because the value proposition that we are offering isn't in alignment with the one the customer is looking for.


For example: if your business is set-up to sell hammers at a low cost and you have a customer who wants your sales person to spend an hour with them talking about the features of each hammer, then guess what? Your margins are negative! You need to sell to customers who are looking for the lowest price. This customer group probably already knows about the features of each hammer and just wants to find the one they need fast and cheaply.


Here's a great article about firing your customer.

START YOUR BIZ 10 MINUTES AT A TIME!

Being an entrepreneur can be daunting. Here's a common scenario:

Bob Smith was just downsized after 15 years at XYZ Inc. He now has the chance to start his own business just like he has always wanted to do. Bob was quite successful in his sales position so he is feeling confident that he can take on the world. However, after a couple of weeks of entrepreneurship Bob finds that he is overwhelmed with things to do in his business. These are things such as filing an LLC., setting up an accounting system, obtaining a business license, setting up email addresses, bank accounts, merchant accounts, partnering with vendors, building a website, finding a retail space, oh...shall I go on? So, what should Bob do? Give up and go work for the Man?

Here are two quick tips for Bob:

TIP #1 Take it step by step! If starting a new project seems overwhelming, think small. Cornelia Flannery, co-author of Take 10! How to Achieve Your "Someday" Dreams in 10 Minutes a Day, advises entrepreneurs to start with a clear vision and then break tasks down to the basics. Ask yourself what you can do in the next 10 minutes that will move your business forward, says Flannery. Every step you take is one step closer.

TIP #2 - Make a SMART list of tasks that you can accomplish in less than 7 minutes, perhaps on a sticky pad on your desk. These are tasks that you can take action on in between scheduled meetings, phone calls, etc. For example, if you have a conference call scheduled at 1pm and your previous meeting ends at 12:45pm then you have 15 minutes in which you can putter around or you can tackle one of the items from your SMART list.

A HIGH TOLERANCE FOR PAIN!

You've probably seen a news clip about the new Brazilian airline called Azul. This is the current project that David Neeleman the Founder and former CEO of JetBlue is working on. David is a very successful entrepreneur and apparently has developed a much needed high pain tolerance. If you remember JetBlue took a beating a few years ago when it left hundreds of passengers stranded on the tarmac due to an ice storm.

So, here's a guy who obviously has made some money and probably doesn't need the massive headache associated with starting a new airline. Why does an entrepreneur subject themselves to this type of experience? With crude oil at all-time highs it's not an easy time to enter into the airline travel space. So, what is it that drives this type of entrepreneur? Why not just sleep on a bed of nails, walk barefoot over hot coals, or put on your old Milli Vanilli cassette? (come on...I know you had one!)

What is it that drives us?

ITZ TIM 2 MUV 2 BIZ 2.O

I've rattled on a few times about the importance of moving your start-up from business 1.0 to business 2.0. In fact, I've even hosted a whole audio-cast on this subject and had a well respected guest speaker that rattled on about it as well. The basic gist is this...run your business like a business and not like a hobby. To do this you need to get some help. This help doesn't have to be in the form of employees. Those may come later. It may come in the form of some good tools.

So, I've decided that I will periodically introduce a tool that I think will benefit my fellow entrepreneurs. My first tool is called GnuCash. Guess what? IT'S FREE!!! Woohoo! Oh, I guess I should explain what it is before getting too excited about it being FREE! Woohoo!

GnuCash is a solid small business accounting application. It is very intuitive, which is perfect for those of us that don't like numbers. IT'S FREE!! Here are a few quick features:

• Double Entry System - which means it ensures your "books balance"
• Reporting System - It has customizable reports and graphs for your P&L, Balance Sheet, Cash Flow Statement
• Multiple Currencies
• Small Biz Accounting Features - Vendor tracking, invoicing, bill payment, taxes, etc.
• General Ledger
• Check Printing
• The list goes on...

Here's the bad news...we entrepreneurs no longer have an excuse for poorly managed financials.

Did I mention that it is FREE!!!

WHAT'S YOUR SOLUTION?

In my previous and magically well-written post we discussed the importance of clarifying the "problem" that your customer has that you intend to solve. This can also be stated as the customer pain that you are alleviating. This is a very important piece when starting your business. Your business plan should contain a clear description of not only the the problem that your customer has but also the solution that you are offering.

Gaining some intense clarity around these two important elements of your start-up will ensure that you are not just a solution looking for a problem. If you've spent some time identifying your specific customer's pain then you will have less trouble selling your solution and ultimately have more success in passing the wallet test.

As entrepreneurs we tend to get overly excited and often overly attached to our great ideas. When this happens it is easy to focus on the technical aspects of our product or service without enough focus on what the customer's problem truly is. However, if you think about it, our great ideas aren't really so great if there isn't a customer with a problem or pain that our business can alleviate.

Additionally, investors, partners, and vendors will be much more excited about the size of the problem than with the elegance of your solution.

WHAT'S YOUR PROBLEM?!?!

Actually, this post is less about "your" problem and more about your "customer's" problem. When starting your business, you need to begin by answering some basic blocking and tackling elements...aka...fundamentals.

Today, let's discuss FUNDAMENTAL NUMERO UNO...

THE PROBLEM: You need to clearly identify the problem that your customer has or the pain they have that you can alleviate.

For Instance:

Problem: I'm a coffee drinker but I hate truck stop or convenient store coffee.

Problem: I spend all day dialing phone numbers.

Problem: My weapon doesn't load fast enough.

Problem: I can't carry everything I need when I go out.

Problem: I'm tired of getting out of bed to turn off the TV and lights.

Problem: I'm tired of waiting in line for rides at Disney Land.

Problem: It's a hassle to try to return items I've purchased on the internet.

Problem: I have to go inside the restaurant to get the food.

Action Plan: Yes, whip out the trusty sheet of blank paper and jot down what your customers problem is or the specific pain they have that you can alleviate.

Stay Tuned: In the next post we'll address the "solution" you provide your customer.

6 POWERFUL WAYS TO MANAGE CASH FLOW! (part 2 of 2)

4. Increasing Sales. One would think that increasing sales would lead to increased cash flow. However, if you invoice your customers for a large portion of your sales, when sales increase, your accounts receivable increase, not your cash. At the same time, inventory is depleted and must be replaced. Because receivables usually will not be collected until 30 days after the invoice, a substantial increase in sales can quickly deplete your firm's cash reserves. So, yes, increasing sales can help to improve cash-on-hand. However, this will be dependent on how well you manage your receivables. (additional tip: we have many clients who have used PayPal or Google Checkout to improve their cash position)

5. Managing Payables. A key strategy in managing cash is to shoot for bringing cash into the business as quickly as possible, then hold onto your cash as long as you can by managing your payables. That means, quite simply, take as long as you're allowed-without incurring late fees or interest charges-to pay your company's bills. Remember that a bad credit history can stifle your business, so you need to protect yours. Know which vendors you need to pay first. Better yet, negotiate with some of your vendors to extend to your payment terms. Also, you have to balance this with the necessity to have solid relationships with your vendors. You want to manage your payables but you also want to have a partnership with your vendors.

6. Investing Spare Cash. If your cash flow has become stable and predictable, you can consider investing your excess cash. This is also applicable if you raise a large sum from angel investors or venture capitalists and you will not need to spend it all quickly. You can earn additional interest income, as well as have the necessary cash to dip into during tough times. Can I interest you in some swamp-land in Florida?

Here's a recent audio cast from our Start-It-Up Cafe Cast on managing your books: http://startitupcafecast.blogspot.com/2008/03/get-your-books-in-order.html

6 POWERFUL WAYS TO MANAGE CASH FLOW! (part 1 of 2)

The Importance of Good Cash Management:

Cash flow is the lifeblood of your start-up businesses. Cash comes from sales, collections of account receivables, and the sale of assets as well as loans and credit lines. On the other hand, cash flows out to meet all expenses and debt obligations of the business. The goal of good cash flow management is to have enough cash on hand at those important times such as when it's time to pay employees. This is a simple concept, yet in practice, it eludes even the biggest operations. So long as more money seems to be coming into the business than going out, many entrepreneurs do not give cash management a second thought. This leaves them vulnerable to a quick and painful death.

Learning good cash flow techniques ensures that the company always has enough cash to meet its obligations. Adequate cash helps obtain whatever funds are required from external sources at the right time, in the right form, and on the best possible terms. A shortage of cash flow could result in the loss of valuable trade discounts or, in extreme circumstances, financial embarrassment and bankruptcy.

Your start-up can increase cash-on-hand in a number of ways:

1. Collecting Receivables: Start-ups can improve their cash position simply by making certain that their billing, collections, and payables systems are operating as efficiently as possible. If this means getting help...then get help any way you can. Small businesses do not have the luxury of large accounting and collection departments of big corporations. More so if you are a home-based entrepreneur working alone. First, get your customers to pay you as soon as possible! To the extent possible, adopt the business practice of requiring up-front deposits when making sales. However, if the account payment is a receivable, then make sure that you actively manage its collection by billing promptly, aggressively following-up on overdue invoices, and quickly collecting on overdue accounts. You stand to lose revenues if your collection policies are not aggressive. The longer your customer's balance goes unpaid, the less likely it is that you will receive the full amount. Then you have to consider hitman alternatives starting with limbs. (Did I say that outloud?) (Legal disclaimer: I was joking.)

2. Tightening Credit Requirements: If you think that you offer the best product or service relative to your competitor, you can obtain the best possible credit conditions. I know this is a tough one for start-ups because you just want to close deals. But, be sure to tell your potential customers upfront about your credit terms - before you provide your product or service. To improve your cash flow position, you can be more stringent in your credit terms, requiring more customers to pay cash for their purchases. This will increase the cash-on-hand and allow you to sleep at night. However, there are trade-offs to tightening credit in the short and in the long run. Looser credit allows more customers the opportunity to purchase your products or services. But, this can lead to spending more time chasing down bad-debt. Another way is to get as much information from the client as you can in the form of a "customer agreement." The more information you have about the customer or client, the easier it is to take their first born in the event the person rescinds on the payment.

3. Short-Term Loans and Credit Lines: Loans from various financial institutions are often necessary for covering short-term cash flow problems. Revolving credit lines and equity loans are types of credit used in this situation. Don't be afraid to use them, with care.

FRONTIER AIRLINES...WHAT THE @#%$!

Some of you may have never even heard of Frontier Airlines. They are a carrier based out of Denver, Colorado. I personally love this little airline that could. However, today they became the 4th carrier in as many weeks to file Bankruptcy protection. Although, on the positive side, they will still be maintaining operations until they can get a grip. Good for me since I am on one of their flights tomorrow morning.

At any rate, this news prompted me to blab about the greatness this airline possesses in a few critical areas. One of these key areas is CUSTOMER EXPERIENCE. This airline simply provides a superior traveling experience. The planes are new and include, leather seats, satellite TV, and a generally acceptable and fun-loving staff. Note: "generally acceptable" equates to superior in this business.

My Point: It's hard to make a best practice case out of a Bankrupt business. However, I'm taking a stab at it anyway. They have done a great job of dialing-in the customer experience. This is an element of any business that we entrepreneurs must continue to focus on and revisit on a regular basis. If nothing else, Frontier Airlines serves as a reminder to me to continuously improve the experience my customers have.

WHY ARE YOU AN ENTREPRENEUR?

A recent report by the U.S. Small Business Administration looked at 685 businesses.


MOTIVATIONS FOR STARTING A BUSINESS: Women are more likely than men to start businesses to achieve a work-family balance. Women also more often listed a desire for self-fulfillment and job satisfaction as reasons for starting a business and wanted to be challenged personally and have self-determination. They also are more likely to start a business to gain the recognition of others. Men are more likely to start a business to make money or build a company.



My Advice: Be sure you are starting a business for reasons that are close to your heart. Whether it's to spend more time with family or to build something using your creativity. Remember building a business and being an entrepreneur is very different than being an investor in a business. They are two different animals!

I was involved with a franchise start-up a few years ago. I had several partners at the time and the business had a very successful launch and is still doing very well today. However, it wasn't the type of business that interested me very much. I believed in the concept but there was no passionate involvement from me. I wound up having disagreements with my partners, which is very normal, but the business became more of an investment for me where I ended up cashing out early. Had I been more emotionally attached to the idea then I probably would have put more effort into making the partnership work.

So, what are the reasons for starting your business?