Grow Smart BusinessUMDNetwork Solutions


Small Business Success Index 4

Index Score*   Grade
73 marginal
Capital Access 67
Marketing & Innovation 65
Workforce 76
Customer Service 88
Computer Technology 73
Compliance 92
*Index score is calculated on a 1-100 scale.
homepreneur

Search Articles

Venture Capital Articles


Sweat Equity and Broke

June 30th, 2010 :: Steven Fisher

Over the last 10 years as an entrepreneur I have taken many risks and some have panned out and well others…let’s just say that I should have looked before I leaped. Then again, that is one of the truest traits of an entrepreneur, taking risk and making something from nothing.

Recently, I was reading an article called “The Sweat Equity Myth” by George Cloutier, Founder of American Management Systems. In his article he talks about the concept of “sweat equity”:

“The idea that business owners shouldn’t pay themselves a salary while they’re building a business. I call it working for nothing and being a fool.”

I couldn’t agree more with him, because I have done it and it was one of the worst things I ever did. When I started my first business, things were great and we had tons of clients. Sure it was the dotcom boom but we thought it was a whole new world. So when the sky fell and the bubble burst, many clients went out of business so we had to tighten the belt. Instead of swallowing my pride and lay people off I sacrificed my own salary and cut it in half as a message of solidarity, or so I rationalized to myself.

He goes on to mention something that I should have noticed early on, but didn’t:

“The inability to pay yourself is symptomatic of a much deeper financial problem; it’s should serve as a red flag that your business is not working. Lack of sales or quality control, bloated overhead and other financial woes are the real reasons you’re not making a salary.”

When 9/11 happened the clients we did have froze their contracts and put any new business in pipeline on hold for six months or more. My business, like many others, had a “deer in the headlights” look and many collapsed quickly. We did have some cash reserves so we had to make a decision, go on and try our luck or shut almost everything down to fight another day. We chose the later but paying everyone’s severance left me with nothing and extra debt to boot.

Over time, I did recover from that but in another business made the same mistake thinking that it was noble of me to sacrifice my sweat for equity I already had in the first place. Bottom line: Pay yourself first.

I would like to expand on that by including George’s tip to avoid this easy entrepreneurial trap:

  • Always work to make a good salary. Then cover the expenses. Not the other way around.
  • Reward yourself (but within reason). Here’s a rough formula: Pay yourself 3 to 4 cents on each dollar of revenue for doing the job of CEO.
  • Imagine you weren’t in the picture. Ask yourself how much you’d pay a general manager to run your business if you had to go away. That’s the least you should be paying yourself.
  • Remember your priorities. Don’t lose sight of why you’re running a business in the first place-to improve your quality of life.
  • Spread pay cuts around. Take a 5 percent cut along with the rest of your staff, but don’t put a 30 percent pay cut on your own back.
  • Ask yourself this question: If your business doesn’t allow you to pay yourself a living wage, what are you doing wrong?
  • Remember: There are no rich martyrs.

So what will you decide when this moment occurs in your entrepreneurial journey?

Enhanced by Zemanta

Getting Access to Capital for Your Small Business – GrowsmartBiz Podcast with John Backus

March 4th, 2010 :: Steven Fisher

In our second episode of the GrowSmartBiz Podcast we speak with John Backus, Founder and Managing Partner of New Atlantic Ventures (www.navfund.com). He is a seasoned technology investor and entrepreneur with 25+ years of experience investing in and managing rapidly growing, high-technology companies.

His thoughts on Small Business’ challenge to getting access to capital

Here is the podcast:

John shared some of his thoughts on how small business’

  • Funding will be challenging through 2010 and should be
  • Understand Your Customer and What They Expect in Return from Buying and using your product
  • Deliver a product that solves real problems and saves money in the short term

He had some thoughts on those who have become entrepreneurs or thinking about becoming one:

  • Follow your dream
  • Don’t be afraid to start in a downturn. It is actually to your advantage
  • Be doing it, not just talking about it

Top 3 Messages that a Small Business should take away:

  1. Do Your Research before You Jump
  2. Get Very Close to Your Customer and Understand What They Want and are Willing to Pay for It
  3. Focus on generating revenue early

More About John

Prior to founding New Atlantic Ventures in 1998, John was a founding investor and the President and Chief Executive Officer of InteliData Technologies, a Fast 50 growth company in both 1997 & 1998.  John led InteliData’s predecessor, US Order, through a successful $65 million IPO in 1995. John currently manages a $225 million venture portfolio at New Atlantic Ventures.

He currently serves on the board of directors of MPowerPlayer, Ftrans, Koofers, Qliance & RemitPro. He is the past Chairman of the Wolf Trap Foundation Board of Directors, the past Chairman of the Northern Virginia Technology Council (NVTC) Board of Directors, the founding Chairman and current Board member of the NVTC TechPAC, and was appointed by former Virginia Governor Mark Warner to co-chair the Virginia Research and Technology Advisory Commission which he served on for 4 years.   John began his career at Bain & Co. and Bain Capital, where he was the first Bain & Co. management consultant to take a full time operating role (as CFO) in a portfolio company.

Tell Us How You are Doing

So how are you and your small business doing out there? What things have you learned on getting access to capital that you would share with your fellow entrepreneurs?

How to Fund A Startup

December 23rd, 2009 :: Steven Fisher

startup-fundraisingOk, so you have your billion dollar idea and you have a few trusted people that want to build this product and a few advisors to help you along the way. Most great ideas sit on the shelf because they are lacking in one thing - money. The second thing is execution but if you don’t have money you usually can only execute things so far. We have gathered a few great resources to help you get the basics down.

Show Me the Money - Video on Funding a Small Business

Microsoft has built over the last few years some stellar small business resources and this video below is no different. This video is an overview on the types of funding and how to raising money for your small business. It only 3 minutes long and is really great and to the point. Check this out:

So, you now know there are a few types - bootstrapping, debt financing, friends and family, angel investors and venture capitalists.

Things You Need to Get Ready

In researching a general set of steps to get your business ready for funding I came across this great article on VentureBeat called Startup Fundraising 101. The bottom line is that you must put together right structure, package the business for presentation, figure out how much you need and identify your ideal investor. I would refer to the types of investors reviewed in the video above. Once you are ready you need to think about valuation or how much your business is worth and what an investor would get in exchange for that investment. You need to put your pitch together and get out there.

I picked a particluar section from the post on Venturebeat that dives into figuring out how much you need. This aligns with the theme of this post on funding your startup and there are some points that need to be repeated. Check it out below.

How Much Do You Need?

You can do a simple or detailed analysis of your expenditures for product/service development, salaries, general and administrative expenses and marketing. How deep you go with this is up to you – but the analysis needs to take place regardless.

Obviously, startup costs vary greatly depending on industry. Just remember to have enough runway to raise your next round and not lose momentum.  Also, expect unexpected costs. Adding a 30 percent buffer to your financial projection can be a lifesaver.

startup-fundraising-7

startup-fundraising-8

startup-fundraising-9

Images: Venturebeat

Five Things You Must Avoid With Your Startup

December 21st, 2009 :: Steven Fisher

I was doing research for my upcoming book “Rules for Entrepreneurs” and providing advice on starting a business is mostly about what not to do. You can only provide recommendations so much until you have to just do it. This is why “Startup FAIL” posts are popular and allow a sort of therapy and war story sharing with fellow entrepreneurs. I came across this post from Momentum Venture Partners that I had to share with you below. These are five great things that you must avoid with your startup (MY FAVORITE? You are building a company, not a club):

There’s no shortage of advice for start-up companies to follow, but in my experience working with emerging technology companies I’ve noticed something that’s just as important: there are certain pitfalls that bog down entrepreneurs, costing them money, time and ultimately a chance to break through the clutter. Every new venture has limited resources – and limited time – to get off the ground, and anything that needlessly burns cash or slows progress limits the chances of making it to the next level. Here are five ways to avoid the most common traps that snare new companies.

1 – Don’t overspend on marketing or advertising

During the late 1990s dot-com boom it was common practice for companies to blow millions of dollars on ambitious advertising and marketing campaigns. Remember the Pets.com sock puppet? It was a funny ad campaign – highlighted by blowing $1.2 million on a Super Bowl television spot – but it wasn’t so funny when the company closed its doors nine months after going public, and investors probably weren’t laughing when they recouped just 17 cents on the dollar two years later.

While most early-stage companies don’t have the resources to mount a marketing effort on that scale, entrepreneurs are often tempted to divert valuable resources to advertising and promotional activities before their products are ready for prime time. A great example is a social networking company I recently worked with. They spent a fair bit of money on acquiring members, but their site wasn’t ready to offer the full range of services they were planning. As a result, users went to the site but had a terrible user experience because there was nothing for them to do once they logged in. The company might as well have stacked up their cash, poured kerosene on the pile and lit a match.

Entrepreneurs need to make sure that any marketing or advertising they do is in support of a specific and tangible goal. For example, it might be worth spending money to generate profitable traffic or to reach a critical mass of customers in a “tipping point” business, but writing checks to achieve the amorphous goal of “awareness” is a sure-fire way to lose money with no discernible benefit.

2 – Don’t confuse years of experience with ability to execute

One of the most difficult parts of being an entrepreneur is hiring the right team. After all, one misstep in a key area could not only cost you money, but could also set the company’s growth plans back. For example, hiring a director of engineering who lacks the right skills or acumen to deliver on your vision could delay the release of your products, which could have devastating consequences for a new company trying to succeed in a crowded marketplace.

Many entrepreneurs overspend on seasoned executives so that they can make sure that their mission-critical work is done quickly and efficiently, but it doesn’t always work out that way. I worked with a start-up mobile applications company that hired a seasoned business-development person to generate deals with major advertisers. They paid him an annual salary of more than $200,000, but never saw any results. In addition to his high pay, he was racking up exorbitant travel costs, including expensive hotel rooms and dinners. It was pretty clear that he was enjoying the lifestyle, flexible hours and good salary without the pressure of incentives to deliver results. In this case, hiring a scrappy, less-experienced candidate with bonus or stock-based compensation would have been a much better choice.

3 – Don’t lock yourself away from the world

Deciding on the right product strategy is a never-ending tightrope walk between sticking to your vision and building products that will generate short-term sales. After all, no one wants to build the wrong solution for the market, but at the same time you can’t spend your time “chasing the rainbow” looking for the next big trend. I have seen companies that are so busy responding to others’ points of view they lose focus on the core rationale for founding their business. But I have also seen companies that go to the opposite extreme, locking themselves away from the world for months on end to build the “perfect” product.

The best approach for start-up entrepreneurs is to try your best to walk the line: pursue a vision while at the same time taking time to really understand the problem you are trying to solve. Sit down with potential customers to hear their pain and really figure out what they’re looking for and take advantage of experts in your own community or industry by recruiting advisors who can help you determine your sales, product and marketing strategies. In many cases, they won’t even ask to be compensated! Also, you need to get out in the world to start refining your elevator pitch. Before you ever get in front of a VC, you’ll have to sell yourself to potential employees, landlords, strategic partners, banks and many others. Get used to it so you’re good and ready for the investor pitch.

4 – Don’t forget you are building a company, not a club

Part of being an entrepreneur is relying on your friends and personal contacts to help you get off the ground, but be wary of hiring or partnering with people who don’t add value to your business. It’s happened to me personally, experiencing the thrill of starting a business with a group of friends only to hit painful bumps in the road later as people show different levels of commitment or value. For some businesses, these conflicts can become debilitating.

While there are no tried and true rules for dealing with friends and family, there are a few things to be aware of. First, make sure you pick partners that have a passion and an expertise that can move your business forward. Second, make sure they are committed to leave their current jobs to join you full time. I’ve seen several companies suffer major conflicts when one partner can’t get himself to leave the comfort of the corporate world. Third, look for warning signs that might indicate your partner isn’t cut out for startup work. Does he panic every time something takes longer than it should? Does he demand an outlandish salary? Does he analyze every decision to death? Take care of partner mismatches as soon as possible! The pain of fixing the problem only gets worse when you bring in outside capital. There’s nothing more damaging to a relationship than having to side with an investor when she demands you fire your college roommate.

5 – Don’t be timid

The meek may one day inherit the earth, but the present belongs to those who are decisive and assertive. If you need help or advice don’t beat around the bush: just come out and ask. Plenty of people are willing to give guidance, but chances are that they’re not going to come to you without being asked, and you’ll never get anywhere unless you make a conscious decision every day to actively pursue what you need.

Don’t even know where to start? It’s easy – you just need to pick up the phone and start dialing. Looking for someone to help you write a column for your new women’s fashion site? Go out and buy every fashion magazine and start calling every name on the masthead to see if the editors or writers will spend a few minutes answering your questions. Most likely, they will. Looking for that first reference customer? Go to the industry trade shows and strike up conversations with people you meet on the floor. If you have your pitch down, you’ll be surprised how many people will be willing to help or get involved. It takes guts at every step to be an entrepreneur, and if you’re skittish about asking for advice and guidance today, chances are you’re not going to be very successful when you have to start asking professional investors for money.

Got Another Pitfall We Should Add to the List?

After reading that, do you think that there is another major pitfall that should be added to the list? Leave a comment.

Out there raising captial? See how Mint CEO did it from seed round to acquisition

November 2nd, 2009 :: Steven Fisher

Are you out there raising money? Have you raised money for your business in past? Well, it is hard to find good advice on how it is really done and even harder to get the details on how someone else did successfully and then sold the company.

This is why when I came across this post on TechCrunch about Mint CEO Aaron Patzer’s 45 minute presentation on building startups from the ground up I had to share. In the video below, Aaron shows how he raised and spent money, and generated revenue, throughout the lifecycle of Mint, from the very beginning to the $170 million acquisition. Michael Arrington points out that “if you are an aspiring startup entrepreneur, you’ll want to watch that more than a few times. The candid disclosures and advice he gives is rarely seen in Silicon Valley”. He is so right that I can’t even begin to tell you. The video is below and the presentation is farther down the post.

Mint CEO Aaron Patzer on Startups from Techcrunch on Vimeo.

In the presentation below Aaron shows historical slides from early presentations to investors and compares those to the actual results. Here is the presentation and it is truly revealing and from personal experience VERY accurate. This is an approach and model that every startup should study closely. Not only because they have a good model but because they built this and sold it which many are never able to accomplish.


Startup Building 101 -

Great Resources for Funding Your Business

September 9th, 2009 :: Steven Fisher

You probably have figured out by now that I am resource and tip junkie. If there is anything that will help me run my business better and learn from others so I don’t make the same mistake, I am all in.

I recently came across this web site from Microsoft as part of the “Startup Zone“. This section of the site is an amazing list of blog posts, links to templates and great articles on raising capital. This is not limited to the venture capital side of fund raising but covers raising capital from banks, angels and government. It also includes great stuff on writing your business plan, building a financial model and doing your pitch.

You can find it at http://www.microsoftstartupzone.com/Resources/Pages/Get_Funding.aspx and I would take a few hours and dive into this stuff. You will learn a ton.

Announcing the Second Edition of the Small Business Success Index (SBSI)

August 7th, 2009 :: Steven Fisher

downloadEarlier this year Network Solutions in partnership with the Smith School at the University of Maryland, College Park surveyed 1000 small businesses the good old fashioned way - they talked to them. The survey covered many data points and its goal was to get a baseline on how small businesses rated themselves in six key areas - capital access, marketing & innovation, workforce (HR), customer service, computer technology and compliance (accounting and tax). The results were surprising in some areas and expected in others.

With the economic crisis in full swing, access to capital scored a ‘D’ which was not very surprising, customer service and compliance rated B+ and A respectively. This showed that people felt they did an excellent job keeping records and serving their customers which was the key to managing their cash flow and retaining their customers.

Marketing, Technology and Workforce was in the surprising ‘C’ range. This showed people were still trying to find ways to effectively use their technology, working hard to innovate and market effectively and hire good people.

The Second Edition is in and the results surprise again

The second wave was collected in June 2009 from 500 small business owners. Small businesses included in the study are privately owned, for-profit, have fewer than 100 employees, and have a payroll and/or contributed to at least 50% of the owner’s household income. The data are weighted to ensure representativeness to the entire population of small businesses in the U.S. The survey is longitudinal in nature, tracking small business trends over time; the completion of the second wave provides a six month trend line.

Released on August 1, the second edition of the Small Business Success Index, which you can download here, was released and after reviewing it I have to agree with the sentiment of the report. As a small business owner myself, I can attest to the fact of how hard it is to get funding from banks. Aside from the SBA loan rescue program implemented from the TARP program over the last few months, the credit markets have really tightened up but they are improving which might account for the slight uptick

The other area where things ticked up is customer service and that reflects the focus that small business are working hard to keep the customers they have happy and impress them to get referrals which are the lifeblood of many small businesses.

Where things went down is on the “Marketing Innovation” section and that according to the report “Surprisingly, the June 2009 wave revealed that relationship to be weaker than originally thought; businesses with minimal technology were nearly as competitive as the tech-poweredones. This is likely due to falling demand in the current economic climate, which has restricted the effectiveness of companies’ marketing efforts. Internet business solutions have their greatest impact on success in the Marketing and Innovation area of the SBSI, but in an environment with declining sales, the weak economy blunts the benefits of these technologies”.

There are a few negative quotes from the report:

“More small businesses think the economic climate for their business is worsening (38%) rather than improving (25%)”.

But there are some uplifting sentiments from small business owners:

“More small business owners expect the economy to improve in the next 12 months (38%), than decline (28%).”

“As many small businesses believe their 2009 revenues will be higher than in 2008 (29%) as think it will be lower (30%), with 38% expecting revenues to be the same.”

DOWNLOAD THE REPORT and leave a comment

Download the Report at this link and take a read. We would love to hear your thoughts and if you are experiencing the same thing.

The Art of Raising Venture Capital

July 2nd, 2009 :: Steven Fisher

Most of you who know me know I am big fan of Guy Kawasaki and not just because he was an Apple evangelist but because he understands startups. He invests in them, launches his own and writes no BS books on the topics that are must reads for anyone out there looking to start a business, especially if you are looking to raise capital for your business. The SBSI notes that the most challenging problem for small businesses is raising capital.

I wrote extensively about raising venture capital when I used to run VentureFiles and write about my experiences as an entrepreneur in the trenches raising money from angels and then venture capitalists. It is hard to impart this kind of real world experience into lessons. But Guy Kawasaki has done just that.

These videos are from his post “The Art of Raising Venture Capital” and attempt to explain the art of raising venture capital. It is broken into three parts.

Study says investors ignore business plans? No they don't.

May 19th, 2009 :: Steven Fisher
Business Plans (photo by Raymond Yee)

Business Plans (photo by Raymond Yee)

Apparently a new study from the University of Maryland’s business school says that business plans don’t matter and that venture capitalists don’t read them and it will do nothing to improve your chances of getting financing. In an article from the New York Times, they present this surprising conclusion of a new study by Brent Goldfarb, an associate professor of management and entrepreneurship at the Robert H. Smith School of Business, who wrote the study with David A, Kirsch, also an associate professor at the school, and Azi Gera, a doctoral student.

From the article: “they pay little attention to the documentation from entrepreneurs about their academic credentials, work or start-up experience, previous success in raising equity capital, ability to form a top-notch management team or even how much money they want.”

I totally disagree.

I have written many business plans in the past and this study takes on the small sliver of investors called “Venture Capitalists”. For those not familiar with the term, they are institutional investment firms that setup funds comprised of limited partners that can range from wealthy individuals to pension funds. These funds range in size ($10 million to $2 billion) and are high risk investments for qualified investors but usually present a high return over a 5-10 year period.

Venture Capitalists use the fund to invest at specified levels and stages (i.e. Series A, Series B, Series C) that they have already outlined in the fund’s prospectus. These funds are the large investors you read about in the news that put money into a company usually after a business has had angel investors (smaller sub $1 million investment) or friends and family invest in it to get the business off the ground.  If the business has built a good product and developed a business model that will scale well, the venture capitalist is a dream investor and with some additional funds to increase traction puts the company in a mega-growth position.

From the article: “Venture capitalists and other investors “will never start by reading a 50-page business plan and examine a full set of forecast financials — they have too little time for this,” Mr. Zehle wrote by e-mail. “But they will read a one-page elevator pitch-style executive summary, and if it stimulates interest, go on to read a five-page executive summary.””

This is true but should have been near the top of the article in the New York Times.

During good business times, a venture fund gets about 2000-4000 business plan submissions per year and it is true many of them end up in the trash. It is like submitting a script blindly to a movie studio. Getting these things reviewed at a cursory level usually involve some personal relationship doing the introduction. It could be an attorney or accountant that works with some of their portfolio companies or if you are really lucky it will be a fellow entrepreneur that has worked with them in the past and made them money.

That previous quote said “they will read a one-page elevator pitch-style executive summary, and if it stimulates interest, go on to read a five-page executive summary”. So how do get to this stage? You have to write a business plan.

I mentioned before that I have written many business plans in the past, some for projects that never got off the ground, some for businesses that never received funding and a few that raised money from this type of investors. What I personally have found, and I would like to hear from people in the comments, is that the business plan is the focus document. It will eventually be read by the venture capitalist partner or a senior associate during the due diligence phase so you going to have to have it eventually or you won’t look like you have truly thought out your business. The one-page executive summary? That is constantly tuned and tweaked from the business plan document and will be your entry document to get to the point and see if there is interest. The five-page summary is expanded upon and goes into a bit more detail on team, business model and operations but still it is rooted in the business plan. Once you are in the door, you will use those two documents to create a 5-7 minute pitch to present your business and keep them engaged so they invite you back for a 20-30 minute presentation. At that point they will ask for your business plan and financials in addition to your projections so the associates at the fund can do some stress tests and prep the partner for your next meeting to see if you can address any concerns (they will always have concerns) and discuss various scenarios if you got different levels of financing and what milestones you would reach in order to demonstrate success.

Lastly, I would add that even though the study focused on just the venture capital sector, other avenues that you may use for raising capital are Small Business Administration loans, local banks, angels, and friends and family. All of these groups are going to expect a business plan. So get started and if you need some help, check out my 15 part series on Writing a Business Plan.