Startup Law 101 Series – Where Should I Incorporate My Startup Business?

The Issue for Founders

Founders of startup businesses need to decide whether to incorporate in Delaware or in the state in which they will be conducting business. In spite of the commonly held lawyer view to the contrary, I believe founders should think long and hard before choosing Delaware since it often is not the best choice for a typical early-stage startup company.

Many Startup Business Lawyers Routinely Recommend Delaware

During the high-tech bubble in the late 1990s and early 2000s, the idea of a quick path to an initial public offering became so entrenched that startups began skipping the step of incorporating in their own states and moved directly to a Delaware incorporation to speed up the process of going public. The bubble burst but this practice did not.

So what do we have? The impetus that drove lawyers to use Delaware routinely for startups was to shorten the path to IPO. After Sarbanes-Oxley and certain public accounting rules changes, very few startups any longer go the IPO route. Yet the Delaware filing pattern persists.

Let us consider the advantages of a Delaware incorporation versus the disadvantages to see if it makes sense for startups to file routinely in Delaware as many lawyers urge them to do.

Why VCs Favor Delaware

Delaware law affords substantial advantages and is an ideal state of domicile for public companies and late-stage startups that are about to go public. Delaware has a well-developed and reasonably consistent body of corporate law with which most business lawyers are familiar. It offers various advantages that help shield an entrenched management — such as the ability to dispense with cumulative voting for directors and the ability to stagger the election of directors. Owing to these advantages, Delaware is favored by venture capital investors who typically do control their portfolio companies and who prefer to make that control as complete as possible. Public company managements like Delaware for this reason as well.

Delaware law also typically gives preferred stock investors with voting control of a corporation the unilateral power to merge that entity into another, or otherwise have it get acquired, without need for approval of the founders or other early-stage participants who typically own most of the common stock. This type of transaction can “wipe out” the value of the common stock because it can be structured so that only those who hold a liquidation preference (i.e., the preferred stockholders) get any economic value out of it while the remaining shareholders may get little or nothing. In Delaware, unlike other states such as California, those who stand to get nothing out of such deals often have no voice in stopping them. Thus, there is good reason why preferred stock investors (i.e., VCs) will tend to favor Delaware corporations. It gives them enormous leverage over the remaining shareholders in the event the VCs decide to “take out” the company.

Here is a real-world illustration of how this can work. A few years back, when the tech bubble burst, I was working side by side with lawyers from a prestigious Silicon Valley startup venture firm on some joint client matters. During a lengthy phase, I could never get hold of the senior associate from the big firm who was working with me — he was doing an endless stream of “mergers” for weeks on end. Why, as everything around us was coming crashing down, would there be a rash of mergers? Not because these were success cases. They were not. What was happening was a systematic shedding of portfolio companies by the VC firms with quickie mergers as the vehicle. The dreams of many founders fell fast and fell hard in those short weeks.

Thus, the startup world as dominated by VCs had evolved. Before the high-tech bubble, the typical approach was for startups to incorporate in their home states and only reincorporate in Delaware when they reached a mature stage at which the advantages of Delaware law made a substantive difference to them — that is, on the eve of IPO. In the post-bubble era, the VC preference is universally for Delaware, even from inception.

Founder Concerns About VC Expectations

So where does this leave founders who need to decide where to incorporate their startup?

Founders need to understand how all this works and then make the decision that is best for them without regard to what they believe VCs will think.

Sometimes founders want to incorporate in Delaware precisely because they believe that the venture capitalists who will be funding the company later will insist on it. A few venture capitalists do, but most do not, and many startups will never seek venture capital funding in any event.

In over two decades of representing tech startups, at no point have I seen a VC firm refuse to fund a quality startup in which it was otherwise interested simply because it was not incorporated in Delaware. In other words, during the early funding stages of a startup, most VCs are no more consciously focused on the downstream factors of what happens during a merger than are the founders. They may be told by their lawyers of the key factors but they then need to decide whether to invest in a company that is incorporated somewhere besides Delaware. In all the cases I have seen, they have chosen to invest without regard to the Delaware factor and, indeed, have further chosen to keep the company incorporated in its home state thereafter unless and until it reached a stage where it would want to go IPO. Based on this experience, I would say that the fear factor among founders about VC expectations on this point is almost universally either misplaced or at least much overstated.

Factors Affecting a Founder’s Decision Whether to Choose Delaware

For the typical California-based early-stage startup, Delaware normally does not offer any practical advantages over a California incorporation (to pick as an example the local jurisdiction of Silicon Valley). Perhaps the only near-term advantages are (1) that Delaware allows for a single-member board of directors, regardless of the number of shareholders in the company, where a state like California requires that the number of directors match the number of shareholders up to three, and (2) quicker and more reliable filing of documents in connection with funding events.

The first of these can facilitate easier corporate governance in an early-stage startup, especially a startup controlled by one predominant founder.

The second can avoid sometimes embarrassing delays when fundings are set to close.

Apart from these areas, however, a Delaware domicile normally just adds administrative burdens for an early-stage startup based in a state like California. These burdens include the difference in the way franchise taxes are handled and the need to qualify as a foreign corporation in the local state. There are also downstream risks to founders in connection with losing the value of their interests in mergers without having a voice in the process (discussed above). In general, then, a Delaware domicile imposes more administrative hassle upon an early-stage company than would a local domicile and may create substantive risks down the road for the founding team. The burdens can be dealt with, but the question is whether they are worth the meager advantages, if any, afforded by a Delaware domicile in the early stage.

The major advantage to incorporating in your local state is simplicity. In an early-stage startup, keeping matters simple is important. It saves expenses and does not divert company resources toward issues that can be avoided.

Use Caution in Choosing Delaware

The point is not to avoid Delaware but rather to consider the issues in light of your company’s goals and not simply choose Delaware reflexively. At that point, check with a good lawyer and make your best call, whether it be Delaware or not. Just remember: if you choose to go simple and stay at home, and this proves in retrospect not to be your best choice, you can always reincorporate in Delaware later.

Turning Your Hobby Into Business

Almost everyone has a hobby. A hobby is something that we do as a personal interest during our free time. People have hobbies for different reasons. Some consider their hobby as a form of stress relief; others use their hobby to help them learn something, like patience for instance; others use their hobby as a form of escape, to take their mind off the conundrum of daily living; and there are those who use there hobby to hone their skills. Hobbies may differ from one individual to another depending on their personality and character. There are individuals who like to cook as a hobby. Some like to read and collect books or comics. Others like to detail and tune their cars for different reasons, some for aesthetics and others to race. There are also the collectors; this can range from stamps to artworks depending on the individual. Some individuals take up sports as a hobby as well. There are also some individuals who like to collect guns and shoot competitively although this can be an expensive hobby. Hobbies can be cheap or outrageously expensive depending on the individual’s financial capacity.

What a lot of people don’t know is that hobbies can be profitable. There are a lot of successful businesses out there that started out as hobbies. A lot of custom car and motorcycle shops in the U.S. are owned by hobbyists. They like their custom cars so much that they learned how to do it themselves. They learn how to fix and modify the body and the engine according to what they want. Soon they realize that there are people out there who admire their work and are willing to pay them for their custom vehicles. Some of these shops started in backyard garages putting out handmade custom rides until more people came to like their work that they cannot handle the workload in their garage anymore. It was time for them to set up a real custom shop because business was booming. What was once a hobby is now a successful business venture, and is turning in a handsome profit.

Another fine example of a hobby turned into a profitable business is a cake shop. There a lot of cake shops that started out as a hobby. Some people bake for a hobby. They say that it is a good way to relieve stress. These cake shop owners make cakes for the love of baking and not really for profit. Because of that, they make really good cakes which earn the admiration of friends and family. A hobby such as baking cakes can be turned into a business requiring a small capital. All you need is a small shop to start with and just expand your shop as the demand increases.

Turning a hobby into business is not as difficult as it might seem. In the first place you already know and understand what you are doing because it’s your hobby already. Now all that’s left to learn is the business aspect of your hobby. The best thing about turning your hobby into business is that you’re getting paid for doing what you like to do.

Considering A Dance Company Business in Uganda?

When growing up in Uganda, a person who chose a career in Music, Dance and Drama(MDD) was often ridiculed by being called “Musilu Dala Dala!” [very very stupid].

Now imagine it is the future:

Saturday night on WBS TV. The hottest dance show; “Strictly come dancing: Uganda Chapter” is on. Ugandan musician Jose Chameleon is dancing the flamenco with Monela, an agile companion from “G-force” dance group.

The judges are Stephen Rwangyezi of Ndere Troupe, Roger Masaba, formerly of Footsteps dance company and Sharon O Nalukenge of The Obsessions and Big Brother Africa: Amplified fame. Jose gets 6-6-7 from the judges. Fellow musician Bobi Wine together with Natasha of Kombat dancers win, BUT only because 86 year old ballroom maestro Christopher Kato had declined to participate in this year’s show.

In case you are wondering what I am talking about, Strictly come dancing is a popular BBC show in the UK in which various celebrities get to dance with a professional dancer partner over the season of the show. Judges and the TV audience get to vote who stays until the ultimate winning couple is declared.

And what does Strictly come dancing have to do with investing in the dance and entertainment sector in Uganda, the aim of this article?

Well, I am interested in the future and I can tell you that as long as music(and therefore dance) continues to be the dominant form of entertainment in Uganda then I will not be surprised if this is where the trend is going, you are probably thinking; “not so “Musilu Dala Dala” then hmm?”

Which means that it is a sector worth looking at, however, a person seeking to invest in a dance group should know as a start without me going into further details that for a dance group to survive, they will have to diversify their sources of income or in Ugandan speak, find “side deals” just like say America’s best dance crew champions, the Jabbawockeez who now feature in videos and on TV shows.

First the CONS (of course):

1. Finding a good Choreographer

This is the driving force and inspiration of the group. The choreographer thus needs to be at his/best for the company to compete favorably. The difference after all between a good and poor group lies with the choreographer’s skills.

Sadly there are not many good dance choreographers and trainers in Uganda. There is a huge gap in to be filled in this sector. The likes of 86 year old ball room maestro Christopher Kato are in the evening of their careers, yet there seems to be no ready replacements.

Once you find a good choreographer there is of course a risk that he will be “poached” by a rival, I would therefore recommend that you consider “locking” him/her in through offering equity shares in the company, say 10%. This will hopefully ensure stability for the company.

2. Good corporate governance and investment in soft skills.

A dance group like any regular company should seriously consider aspects of corporate governance like a board of directors/trustees with regular reporting including financial reporting. Other aspects should include well developed policies and human resources skills development. Unfortunately this costs additional money which a dance group often lacks. Boards of directors need allowances and training companies like say Peak Performance are not necessarily cheap.

How many dance groups for example get basic soft skills training like conflict management, motivation, handling stress et al?

In neighbouring Kenya for example, one of the most prominent groups; Sarakasi is set up as a trust with a board of trustees steering it. I would recommend a similar concept for the Ugandan dance sector investor. Whilst you may not start the size of Sarakasi, the concept of subjecting your decisions to independent persons who provide strategic direction is most likely going to result in success.

If you of course cannot afford a board, how about a mentor? Stephen Rwangyezi the man behind Ndere Troupe which is most likely the most prominent dance group in Uganda has been in the sector for over 20 years and will most likely be happy to mentor a dance group. Regardless of whether you are performing contemporary or traditional dance, you could benefit from this experience.

3. Professional ethics and conduct

It is difficult enough for a typical company to prevent work place romance considering most people spend the better part of their lives at work, it is even more difficult maintaining professional ethics in a dance company, considering that a lot of dance movements are pretty intimate by nature and so this is a difficult. I nevertheless expect that with good corporate governance highlighted in point 2 above, there may for example be a policy on personal relationships (wife, lover or illicit affair at work (In Ugandan speak; a lover/illicit affair is a “side dish” while a wife/girlfriend would be referred to as the “main dish”). Judging by Ugandan press reports (or indeed international news) it is not uncommon for dancers to be involved say with principals, choreographers and the like which has lead to the demise of what would otherwise be a successful group.

Whilst romance in itself is not necessarily a bad thing(who am I to act for Cupid?) there should be policies. In many corporate companies for example there are restrictions on work place romances or say spouses working in the same department. Princeton University for example has policies limiting conflict of interest arising from work place relationships(for example you cannot appraise your wife/girlfriend/lover). A dance company should be no different, it is a work place. An alternative for the dance group which is small in size (Usually 5-8 members) could be that there is a strict ban on the choreographer who is strictly speaking a teacher from having a personal relationship with the dancers, who are strictly speaking students. There would after all be a breach of fiduciary trust and it disadvantages the other dancers who may feel favouritism in respect of the Choreographer’s wife/girlfriend/lover.

4. Recruitment of quality dancers and performers

It is difficult enough dealing with the social stigma in Uganda surrounding becoming a dancer (remember the alternative MDD phrase?), how does the investor and/or choreographer recruit the quality all round team that will deliver and keep the group chemistry at a high?

There are many options to find dancers. Luckily Uganda is endowed with many people who love dancing. Auditions can be held say once a month (depending on turnover and the nature of the next project). Other options may include use of social media like Facebook or “guerrilla” scouting (Luring a dancer from another group to join the company).

One alternative option for many Ugandan dance groups is to incorporate corporate social responsibility with “talent spotting”. It is not uncommon for dancers to be say orphans and/or poor. This is a concept that has been embraced by Crane Performers

5. Start up capital, profitability and return on capital

So what do the numbers of this sector look like?

In my model, I advocate that the dance group has two different “departments/units” the “traditional” and the “contemporary” one. The reason for this is quite important.

This is a “weekend” based business meaning most activities will take place over weekends and the key risk is therefore that revenue is not regular. The problem is however more acute for the dance group because to keep being good, the dancers need to rehearse regularly and therefore the company needs to provide meals and transport allowances. The company therefore may have to incur venue hire and labour costs regardless of whether there are performances or not. Having two units ensures more regular performances owing to the demand for both traditional and contemporary types of dance in Uganda.

a) Traditional. This unit does traditional Ugandan dances.

Why? To the outside world(in case you have forgotten it) we are African and any visitor (say that Mzungu) is interested in knowing about Ugandan culture. They are not so keen to know that you can dance as well as Sean Paul or that you got street dance moves that put UK Street Dance Group Diversity to shame. Embassies in Uganda may provide a grant for the dance group to perform traditional dance or may even sponsor an educational project that is steeped in promoting African culture compared to that focusing on contemporary dance. There are of course exceptions like say Tabu flow, a hip hop group or say Tofo Tofo A Mozambique group whose Southern African dance moves (predominantly Kwaito and Pantsula) were featured in Beyonce’s video for “Run the world(girls)”. The grant income may not be limited to embassies. The ministry of Culture or even National Theatre most likely has a budget for promotion of culture and so do several international organizations like UNESCO et al.

b) Contemporary. This unit does contemporary dances for example; Hip Hop, Dance Hall, Ballroom, Salsa et al.

Why? Ugandans are not necessarily that keen on “traditional” dances and Hip Hop is for example considered to be “hip” especially among the younger Ugandans. Ugandans likewise love Dance hall and with the continued growth of the music industry, a contemporary unit to say provide back up dancers is critical [say for music videos which I expect to be the trend in the future].

The full financial analysis is located on my website (Link at the bottom of this page) but from that analysis this type of company has a loss of over Shs 10m! It is therefore imperative to consider the importance of the other income.

The total other income from my analysis(on the website) is Shs 12,960,000 per year. This will therefore reduce the projected loss of Shs 10m and therefore the company would then have a profit of Shs. 2,151,000

Return on capital

On the basis of the profitability analysis above, the return on capital therefore is 6.257 years being:

Total start up capital: 13,457,910/ Net profit = Shs 2,151,000

AND NOW THE PROS

1. Opportunity to command significant fees from diverse activities.

Dance companies are not your conventional business venture thus incomes and profitability are not fixed per say. But the key pointer is the ability for the company to be able to perform in diverse roles of the industry like acting, drama and video appearances. A dance group like anything in the entertainment sector (or generally) follows that principle that if you are good, you can command fees way in excess of the market rate.

2. Grant income/sponsorship and international festivals

I have mentioned previously the opportunity that lies in having a “traditional” unit which is often viewed as a means of enhancing Ugandan culture. Assuming say you recruited talented dancers from disadvantaged backgrounds, then there is a high chance you can apply for a grant from embassies or other bodies that support the arts and culture.

There is therefore an opportunity if not for grant income/donations, then for exposure to the international stage which can result in income in excess of the local market rates. African dance troupes are not uncommon in many international festivals.

SUMMARISING AND THE FINAL WORD

The basics you must get right before investing.

  • Group cohesion. It is important to start off with good start up capital to give you that initial push but what’s more important to note is that the key resource is not money but the individuals who consist of the group. Thus how you motivate them and keep team chemistry is important.
  • Performances/Marketing. In this business, performances (“gigs”) sell the company brand. What people see and like is what they demand! Thus good stage performances, outstanding costumes and designs are important to make a mark to the people who need these services. Marketing is likewise critical and so having say a Face book page with contacts, latest events, pictures and information should help.
  • Other opportunities. The other opportunities for dance groups are as diverse as members can capitalize on individual talents to break even and expand their list of clientèle. Like I said, the “side deals” are endless. If you get these right, then there is a good possibility the return on capital will improve and of course getting on “Strictly come dancing” will cement your other income.

Final Word:

I do hope the numbers or projected losses have not necessarily put you off investing. They should give you a goal and target to work towards. You should note that with very little capital start a dance group say together with friends, not getting paid and practising in a garage/friend’s house. As long as you have the passion to dance, you will succeed and go on to Run the world(girls)! so come on;

Go out and break a leg (not literally I hope).

Developing Self-Discipline For Starting Your Own Business

The American Dream

More than 50% of all Americans dream of starting their own business some day, but only 3% ever do, in their entire lifetimes. In our free market economy, where it is extremely easy to start and build your own business, and where there have never been more opportunities in all of human history than exist today, why is it that so few people follow their dreams into entrepreneurship and business building?

I have studied the subject of entrepreneurship, business and management for many years. I have started and built several successful multi-million dollar companies from scratch. I have read literally hundreds of books and thousands of articles over the years, and taken a masters degree in business and administration on the subject. I have worked with many thousands of entrepreneurs and business people in large and small organizations all over the country and all over the world. I have trained many tens of thousands of entrepreneurs, managers and executives on subjects ranging from sales and marketing through to strategic planning and finance.

Even today, with all of this experience, I really don’t consider myself to be an expert. However, I am a little bit more knowledgeable than the average person and I have some very definite ideas on what you can do to start and build a successful business.

You May Not Get Rich

First of all, why would you want to start a business in the first place? Most people think that the reason for starting your own business is so that you can make a lot of money and retire rich. This is a great idea but it is not the real reason that people take the risks of entrepreneurship.

The number one reason, ahead of all the others, is for the personal freedom offered by owning your own business. There is a little joke that says that when you start your own business, you only have to work half days; and you get to decide whichever 12 hour period you prefer.

In my work with entrepreneurs over the years, I have found that, although they do not necessarily become rich, they do become happier, more self-confident and more self-reliant. Very few entrepreneurs would ever go back to a salaried job. Even though they don’t make an enormous amount of money, they love the freedom so much that they could not imagine turning their destiny over to anyone else.

You Can Do It Too

Someone once said that you can only be a successful author if you cannot not write. You can only be a successful entrepreneur under the same conditions. You can only be successful starting and building your own business if you cannot not do it. The starting point of success as an independent business person is a burning desire for independence, freedom and opportunity. It is the desire to be your own boss and not be controlled or dictated to by anyone else.

But let’s go back to the first question. Why is it that so few people actually start their own businesses? And the primary reasons are fear and ignorance. Fear and ignorance are and always have been the greatest enemies of human success.

Don’t Be Ignorant

Fear blows even the slightest risks out of proportion and paralyzes the person, holding him or her back from ever taking that giant leap of faith into the uncertainty of entrepreneurial business activity. And fear thrives on ignorance. The less you know about anything important or risky, the greater is your level of fear and the lower is your likelihood that you will ever take any action at all.

The good news is that when you begin to chip away at your ignorance, your levels of fear and hesitancy decline at the same rate. When you become thoroughly knowledgeable about what it is that you want to do, you will find yourself with far more confidence and courage than you have fear and doubt. And from that point on, you can begin to make some real progress.

Three Types of Businesses

More than one million men and women start their own businesses every year in America. More people are starting more businesses, selling more products and services today, than at any other time in human history. Remember, there are three types of businesses that you can form. They are corporations, a sole proprietorship and a partnership. Only corporations are registered and the registration is running at over 850,000 per year. The number of sole proprietorships are in the hundreds of thousands. Nobody really knows., You can start one by simply deciding to, this very minute as you listen to this tape, without even registering it, The number of partnerships is also in the hundreds of thousands, maybe even millions every year.

Because so many hundreds of thousands of men and women are starting various business organizations each year, this means that you can as well. Maybe one or two of these people are smarter or better than you, but you can be sure that hundreds of thousands of them have far more problems and obstacles in their lives than you could ever dream of. In other words, there is no reason whatsoever for you to be afraid of starting your own business.

The key is to make your business a low-risk operation at the beginning with a high possibility for success later on. And these are what you will learn here.

You are the President

By the way, you are already the president of your own company, whether you know it or not. You are the president of an entrepreneurial company with only one employee, yourself. Your company has only one product to sell on the marketplace, your personal services. So, you are the head of your own personal services corporation. And if you name your company after yourself, you don’t even have to register it to protect the name. You can go out and print business cards with your name, John Jones Enterprises or John Jones and Associates, and your title, “John Jones – President” with your home and address phone number. The next time you are out with someone and they ask you what you do, you can tell them that you are the president of your own company. When they say that they thought you worked for such and such a company, you can reply by saying that, “Yes, I do work there. They are my best clients right now.”

As the President of your own company, you decide how much you earn. Maybe not in the short term, but over the long term, by the things that you do, or fail to do, you determine your own income. If you want to earn more money, go to the nearest mirror and negotiate with your “boss.” Your raise will become effective when you do.

Two Categories of Business Owners

You have heard it said that most businesses fail in the first two years. But this is not entirely accurate. If you divide businesses into two categories, those started by people with extensive knowledge and experience and those started by people with no knowledge or experience at all, you get two totally different failure rates.

Businesses started by people who have done what I will tell you about in this session have a success rate in excess of 90%. Businesses started by inexperienced people who have not done their homework have a failure rate of more than 90%. And even if your business fails initially, it is only by failing in business that you eventually learn to succeed greatly. As Phil Knight of Nike once said, “You only have to succeed the last time.”

On the David Susskind show many years ago, they interviewed four young entrepreneurs, each of whom was a self-made millionaire by the age of 30. David asked them to calculate how many different business start-ups they had been involved in before they found the business that enabled them to make more than a million dollars. The average was 17 businesses per person! But they had not been failing while their businesses had been failing. They had been becoming smarter and smarter as time passed until finally they were so knowledgeable and experienced that the very next business opportunity put them over the top. And this can happen to you as well.

Special Disciplines

To start and build your own successful business you need special disciplines; disciplines that are practiced by all successful entrepreneurs and self-made business millionaires. You can either learn and practice these disciplines early in your entrepreneurial career or you can learn and practice them later. Sooner or later you must become knowledgeable and skilled in each of these seven areas if you are going to build a successful enterprise. And the longer it takes you to master these seven areas, the longer it will take and the more it will cost, before you eventually achieve your financial and business goals.

The first discipline is the discipline of market analysis. This is where most entrepreneurs fail. They start off with a great idea, and often don’t want to tell anybody about it; for fear that someone will steal their idea. So they go off half-cocked into the marketplace with a product or service that has not been thought through properly and they are amazed when it fails.

The fact is that people are far too busy to steal your idea. 99 out of 100 new business ideas fail anyway. People who are operating their own businesses are far, far too busy to have even a minute of time to “steal” your idea, whatever it is.

Ask People’s Opinion

In fact, if you have an idea for a product or service in a particular industry, you should go to someone who is already in that industry and ask for their opinion. If you are really smart, you will get in touch with as many people in that industry as possible and lay out your idea to them in full and ask for their candid comments.

What you are looking for is “negative thinking.” A negative thinker is someone who will point out the holes and flaws in your plan. If you cannot patch the holes or fix the flaws in your plan for a new business, that is probably a pretty good indicator that your business is not going to succeed.

Beware of “Positive Thinkers”

The most dangerous people you can talk to are “positive thinkers.” These are people who will tell you that your business idea is wonderful and that you should “go for it!” They will tell you that this is a great time to start a business and that you will be a great success. Often these are your friends and relatives. But don’t get carried away. The only advice that is of any value to you is advice from people who are thoroughly knowledgeable and experienced in the area that you wish to start a business. Anyone else may be well-meaning but their advice is not worth much.

If you had a sore stomach, you wouldn’t ask your coworker if you should have surgery or whether or not he thinks that you have cancer. This is not the right person to talk to. For something as important as this, you need a specialist.

The discipline of market analysis requires that you thoroughly examine every detail of your market segment before you commit your time and money to offering your product or service there.

The Law of Three

Every new business starts with an idea to serve customers with a product or service that is faster, newer or better in some way. In fact there is a Law of Three that applies to a new business start up. Whatever you are offering, it must be better by a factor of three than anything else currently being offered to the same customers.

It must be a little faster, a little cheaper and a little bit more effective. It must have at least three benefits that competing products do not offer. If it has only one or two, you will probably fail in the long run.

Market analysis means that you find out if there is a real market for your product or service. How big is the market? Where is the market concentrated? Is the market concentrated sufficiently so that you can reach it effectively with advertising and sales? Who are your competitors in the marketplace? Why are your prospective customers buying from your competitors today?

Give People a Reason to Buy

And here’s the most important question: “Why should someone switch from their existing supplier of a similar product or service and buy from you?” The failure to ask and accurately answer this question has been the downfall of many small businesses. You have no idea how hard it is to get a customer to switch from a known supplier to an unknown supplier.

When I started one of my businesses, I thought that people would buy from me because it was me! I thought that because I was so positive, enthusiastic and convinced in the value and quality of my product, that customers would find my enthusiasm contagious and would buy it and use it in high quantities. What I found was that customers were not interested in switching at all. I had to call on customers over and over again before I could even get them to test my new product.

Eventually, I had to give my product away free, and give guarantees before people would even test it. Once I had given away free products with absolute guarantees of satisfaction, and people tested and used my product, I finally began to sell it. And I began to sell it just in time to avoid going broke completely.

What inducements will you have to give to your prospective customers to get them to switch from what they are doing to buy from you? How will you be able to describe your product or service in such a way that customers will be willing to give up the “devil they know,” for the devil they don’t?

Plan, Plan, Plan

The second discipline that you must become very good at is the discipline of planning. What this means, at the bare minimum, is that you must take the time to prepare a complete business plan before you start operations. Most entrepreneurs fail to do this, for a variety of reasons. And this is the reason that most entrepreneurs go broke.

The purpose of a business plan is not to acts as a road map or as a precise guide to the future. The purpose of creating a business plan is that the preparation of the plan forces you to think through every single critical issue that you will deal with in the future.

The very best and smartest business people are those who have already given a lot of thought to the various things that could happen and to the various things they might have to do, should those things happen. The least successful business people are those who have given no thought at all.

When you prepare a business plan, you are forced to sit down and carefully analyze and justify every single penny in it, first of all to yourself and then second of all to anyone from whom you are trying to raise money.

Three Parts to a Business Plan

A business plan consists of three main parts. The first part is the top line. This is the quantity of your product that you intend to sell on a monthly basis, projected forward 12to 18 months. Your ability to accurately project your sales is a key measure of your intelligence and your business ability. Once you have conservatively estimated your likely sales, you should cut that number in half to get the number that will turn out to be closer to reality once you begin business activities.

Remember the great rule of entrepreneurship is that everything costs twice as much and takes three times as long. I have shared this idea with thousands of entrepreneurs who have then told me that they were going to violate this principle and prove that it was too conservative. They came back shattered, like survivors of a battle, with their tails between their legs, finally admitting that the two times, three times rule was extremely realistic.

The middle line of your business plan includes every single expense that you can possibly imagine incurring in order to achieve your top line. You must deduct the total costs of the goods or services you plan to sell. You must deduct expenses like rent, telephone, utilities, printing, stationery, stamps, photo copiers, fax and Federal Express, staff costs, furniture costs and every other single detailed cost that you can imagine. These are called the “Costs of doing business.”

Once you have added up all the costs, you then take the total and add another 20% as a fudge factor to get a more realistic estimate of your final costs. Your ability to budget and project your sales and your costs accurately is the true measure of your business acumen. Leave nothing to chance. Go over every detail again and again.

When I prepare business statements, I will go through and estimate every number. I will then do a complete assessment, with documents, research, estimates, and actual proposals to justify every number in the business plan.

For example, if a person says to you, how did you estimate these costs for postage? You should be able to say that you estimated a certain number of letters of a certain weight going out on a daily basis over a one month, two month, three month and 12 month period to come up with an average postage cost of the amount that is in your business plan. Don’t ever let yourself be caught flat footed.

The Bottom Line

The bottom line is the amount of profit or loss that you expect to experience on a monthly basis. You then accumulate this amount along the bottom of the page so that you know how far ahead or behind you are on a monthly basis according to your projections.

You should probably expect to lose money for the first three, six or nine months. The minimum rule is that you should have six months of operating expenses set aside before you launch your new enterprise. You should assume that you will not make a single sale for six months. This may be conservative, but it is much better than the alternative of finding yourself broke and wiped out because you did not plan well enough.

The Discipline of Money

The third discipline you need for starting your own business is that of money. As I just mentioned, you need six full months of operating costs, in the bank, before you go into business. If you are thinking of starting a second income business, you can usually start with a small capital investment and use “sweat equity” instead of actual financial capital. Many people have become extremely successful in life starting from a low base and growing based on cash flow and profits from selling a product or service.

There are an enormous number of successful multi-level marketing businesses nationwide and throughout the world. If you start a multilevel marketing business, your first consideration should be an extremely low up-front cash investment in inventory and sales materials. After that, all your expenditure should be for products that you have already sold at a mark-up from the price at which you are buying them.

Many multi-level marketing companies allow you to start up as an independent wholesale distributor for as little as sixty dollars. In a case like this, you invest your time and your energy rather than your cash, and you keep your full time job while you are getting your feet solidly under you.

If you need money to start your own business, you should be aware that 99% of all start-up money is called “love money.” This is money that people give you because they love you, or money that you provide yourself by taking out a second mortgage on your home, selling everything that you have that you don’t need, and even borrowing cash against your credit cards.

Don’t Count On Banks

Banks simply do not lend money to new business start-ups. The failure rate is too high. Banks are not in the business of taking risks. Banks are in the business of making good, solid loans that they know will be paid back on a timely basis. Banks then make the margin between what they can borrow the money for and what they can lend it to you at.

Banks typically require three times, four times or five times collateralization to lend you any money at all. This means that no matter who you are or what your background, a bank will want proof that you have five dollars in liquid assets that they can seize and sell for every dollar you want to borrow from them. They will look at your business plan and listen attentively to your business ideas. But they won’t lend you any money.

Be an Outstanding Salesperson

The fourth discipline you require is the discipline of selling. You must be an absolutely outstanding salesperson for your product or service before you open your doors or you should not bother opening your doors at all.

The fact is that all successful businesses are started and built by someone who has a remarkable capacity to sell the product in a competitive market. The biggest mistake you can ever make is to think that someone else is going to do your selling for you.

The second biggest mistake you can make is to think that advertising or direct mail is going to sell your product or service for you. The only way that you are going to sell your product or service is by going out and getting face-to-face with critical, skeptical, cautious customers who can buy it if you can convince them of its value. Don’t waste a cent on advertising when you start up. That is one of the fastest ways to go broke sooner rather than later.

Listen to every audio program on selling that you can get a hold of. Read the books on selling written by people in your same industry. Attend sales training seminars and courses and then see as many customers as you can, all day, every day until you begin to bring in sales in excess of your costs of operation. The discipline of selling is the heartbeat of your business and the way you deal with this discipline will determine your success or failure.

The discipline of managing is something that you learn as your business begins to grow. There are thousands of books and hundreds of university degrees on management, including entrepreneurial management. Your ability to plan, organize, staff, delegate, supervise, measure and report is absolutely essential to being a good manager. Fortunately, you can learn these skills by study and practice. And always remember, your weakest important skill in management will set the limit on your success in your business. Whenever you are having problems of any kind, resolve to learn what you need to learn to become very competent in that area.

e Secrets of Power Negotiating

The sixth discipline is the discipline of negotiating. There is perhaps no better program to teach you negotiating than Roger Dawson’s The Secrets of Power Negotiating.

You learn how to negotiate by first of all studying the process of negotiating, and then second, practicing negotiating at every opportunity. You negotiate for better prices for your products and services when you are buying. You negotiate for higher prices and earlier payments for your products and services when you are selling. You negotiate for extended payment terms from your suppliers. You negotiate for better loan terms and interest rates from your bankers.

With regard to money and negotiating, the rule is that you preserve cash at all costs. You never buy when you can lease and never lease when you can rent. You never rent when you can borrow and you never get anything new if you can get it second hand. Negotiating for and protecting your sources of cash flow is the most important thing that you can do for a small business. If you run out of cash, you’re dead. Cash is to a small business as blood and oxygen is to the brain. You must fight, scramble, negotiate and do everything possible to assure that you always have cash reserves.

It has been said that every new business start-up is a race against time. It is a race to find a way to generate cash in excess of your costs before your cash runs out altogether. You stay in business to the degree to which you bring in enough money to pay for your mistakes until you are finally generating excess cash.

Become Resilient

The final discipline is the discipline of resilience. It is the ability to bounce back from the inevitable setbacks and disappointments that you will experience virtually every single day in starting and building your own business.

One of the marks of the superior entrepreneur is that he or she is always looking into the future and considering the worst possible thing that could happen in every area of the business. This is the mark of the superior leader as well.

I call this “Crisis Anticipation.” There are many books and articles on it. What it means is that you are constantly scanning the horizon and asking yourself, “What is the worst possible thing that could happen?” In your sales; with your staff; with your cash; and with your business? And then you think through and decide what you would do if that were to occur.

And finally, once you have determined the worst possible outcome and decided what you would do, you focus all of your energies on making sure that the worst possible thing does not happen, under any circumstances. You become resilient to the degree to which you have thought through what might happen and prepared yourself against any eventuality

Sometimes, a small setback can seem almost overwhelming if you’ve allowed yourself to get tired and run down. You become resilient to the degree to which you get lots of rest when you are starting and building your own business. As Vince Lombardi once said, “Fatigue doth make cowards of us all.”

You develop resilience by resolving to persist in the face of any difficulties, no matter what happens. Be clear about your goals but be flexible about the means of attaining those goals. If one thing doesn’t work, try something else. Be willing to be flexible and adaptable in the face of a changing market.

Remember, as they say in the military, no plans survives first contact with the enemy. No business plan survives first contact with the marketplace. Be willing to chop, change and try something else. Just make a decision in advance, that no matter what happens, you will keep on keeping on.

You have within you, right now, the ability to start and build a successful business. Millions of people have done it in the past, and millions more people will do it in the future. These people are not smarter or better than you are. They have simply learned what they needed to learn and then practiced it, over and over until it became second nature. And so can you. And when you learn how to start and build a successful business within our economic system, your future will be unlimited.

Get Greedy: How Working for Free Is Killing Your Small Business

To be sure, I don’t mean “greed” in the popular sense, in which you may be envisioning Ebenezer Scrooge miserly spending his Christmas Eve counting gold coins while his hard-working and loyal employee trudges home through the snow to his meager dinner and his crippled son.

I am directing my advice to “get greedy” to new business owners and freelancers, far too many of whom seem to lack the belief that their product or service has value or that they should demand good money for that value.

WHAT IT MEANS TO GET GREEDY

I hear all the time from new business owners who feel they need to give away their services for free or dirt cheap so that they can build their brand/get exposure/make future sales/gain experience.

If this is you, I am here to tell you something that will save your business: You do not need to give it away for free to be successful.

Ever.

Never, ever, ever.

Not even if you’re just starting out.

Never.

If you just started a business or you have a business that you feel you are working very hard at with little return on investment, I want you to do yourself a favor, right now: Start being greedy.

This doesn’t mean stealing from others. This doesn’t mean undervaluing others. This doesn’t mean providing others with less than what they pay for. And it surely doesn’t mean making Tiny Tim’s dad work on Christmas Day.

Being greedy, in business, means that you make the decision that YOU are just as important as the customer and that you deserve fair pay for your work.

WHY GIVING IT AWAY WILL KILL YOUR SUCCESS

Let’s take a look again at the unfounded reasons that I hear all the time for giving away free work.

1). “I need to give some stuff away to build my brand:” Unless you want to brand yourself as someone who doesn’t value their own work and isn’t worth the money, there is no logic to the belief that free stuff will improve the way people view your business. Ethical business practices, good quality product, attentive customer service and fair (“fair,” not free) prices will improve your brand. Depriving yourself of the living you deserve will do nothing but put you out of business.

2). “Giving away my work will help me gain exposure:” If you think that giving away your work is the best way to build your portfolio or get the word out about your business, then you must never have heard of such formerly-small businesses as Microsoft, Apple, Harley Davidson or Disney. What do these companies have in common? They all attach a very weighty value to their brand, people willingly pay it (even standing in line for hours in the case of Disney and Apple) and none of them are hurting for “exposure.”

Here’s the deal: If someone loves your product or service and had a fantastic customer experience, they are going to tell their friends and family. Giving them free stuff isn’t going to change their opinion of you. It may encourage them to try you out, one time, but it likely won’t result in the type of lucrative, mutually-beneficial business relationship that results in success.

Your goal should be to offer value, not freebies. Value doesn’t mean “free” because “free” is not a fair price. Value means that your customer walked away satisfied that the price was right (whether it’s a high price or a low price) for what they received in exchange. No matter how cheap your prices, it is your deliverables in quality and experience that ultimately make the customer feel happy with your brand.

3). “But, by giving this stuff away, I increase my opportunities to make future sales:” This makes no sense to me. If someone can afford to pay you in the future, they can afford to pay you now, right? Plus, once you give something to someone for free, you train them to devalue your work and they are more likely to try to haggle you when you finally decide to charge them full price.

4). “I need to do free work to gain experience:” O.K., so this has some merit but if you are giving products and services away to people who really should be paying, you are doing this wrong. There are some cases in which giving it away for free is necessary and there is more to come on this shortly.

Hopefully you started your own business because you have a special talent or skill set that you thought was marketable. If this is the case, your product or service has value and you deserve pay for that. You may not deserve the same pay you’ll get when demand increases but you definitely should assess what your real, true value is right now, in this moment, and charge this price.

SEVEN TIMES WHEN IT’S O.K. TO GIVE IT AWAY FOR FREE

1). It’s an industry-accepted norm: If you are a fashion designer and Vogue magazine wants a dress sample for an upcoming issue, then, yes, give them one. This is o.k. because doing so is an industry norm and even Donatella Versace would probably do the same. There is also a very clear and direct investment return to you, in the form of very good publicity, that probably outweighs the cost of whatever frock you supply to them.

2). When it’s a good investment for you: Giving away free samples of your special hummus recipe at a Farmer’s Market, when you know it will draw people to your booth and increase how many containers you sell, is fine. Holding a “buy one, get one” sale to drive traffic during times when business is otherwise dead is also fine if it makes you a profit. Cooking a free gourmet meal for a local culinary magazine writer to promote your new catering company is good publicity if it results in a write-up in the magazine and turns readers of the publication into customers. If you’re approaching an opportunity to give away your product or service with the best interests of your bottom line at heart, you will be able to tell the difference between a good opportunity and a situation in which you’re being taken advantage of.

3). As part of a marketing gimmick: Sprinkles, a chain bakery specializing in cupcakes, is known for using their social media to engage customers and drive traffic to their store. They do this by announcing “secret” words on their Facebook page that, when repeated in-store, result in a free cupcake. Presenters at fairs and events are often able to collect information on potential customers in exchange for opportunities to enter a drawing for a lucrative free gift. These “give-aways” are all examples of greed at work because they actually hold far more sales value for the company than they do the recipient.

4). Nonprofit organizations: If you are really interested in building your portfolio, volunteering your services with a nonprofit organization is an excellent way to create sample pieces of your work, build your experience and keep your dignity at the same time. Plus, talk to your accountant. It may also provide you with a write-off come tax time.

5). As part of an exchange of services: When my hairdresser, who is fantastic but pricey, needed a new website, I jumped at the opportunity to write her content in exchange for her creating some new layers on my head and getting rid of my grays. My website design was courtesy of the editing skills I shared with my website designer and I got the bumper on my car painted for the cost of some marketing materials and social media content. If you can receive something you really, truly need in exchange for giving someone else the same, it’s a win-win.

6). To say “thank you” to a valuable customer: If you must give away something to a customer, the appropriate time to do so is not at the beginning of your relationship, but after they have already proven themselves a valued customer. If you own an automotive repair shop and a customer comes in frequently, refers you to her friends and family and has been a joy to work with then, by all means, throw in a free oil change or tire rotation every now and then with her transmission service. But let your customers earn this sort of treatment first. They’ll appreciate it more.

7). It’s Your Mom: O.K., so greedy is good in a business sense but not always a personal one. Select a few obvious family members and close friends who are genuinely worth the time investment and work for them for free. Keep this list very small and make sure your loved ones don’t take advantage. To date, my list has only included my sister, my father, my fiancĂ©, a good friend I’ve known since childhood and a cousin who was really in need. I have a much larger “second tier” list of friends and more distant family for whom I charge half-price.

Everyone else pays full price.

Every time.

Building Your Business – Are Politics and Peacemaking Mutually Exclusive?

It is easy to assume that all politics and peacemaking can be mutually exclusive. The truth is that there are many situations that in order to keep the peace, politics may be involved or even get in the way. Where there is a dispute of uncommon interests, whether it is to gain control, power or leadership that is politics. God teaches us on how “we should be” if we are to be His children. As human beings created by God we are asked to be images of the Father. In doing so, we bring peace to ourselves and to others.

In many organizations, there are internal conflicts, and even key leaders begin to make their case and use politics in what they hope may either bring the peace or put an end to what they believe is disrupting their peace. Vice Presidents will threaten other departments by flexing their control should those departments not do as they are told. When we discuss politics, we discuss the policies and processes that are brought up for debate. These same policies dictate the path towards peacemaking as a societal whole. But it is also important to remember that it also brings about additional conflict within the groups and hence another opportunity for peacemaking. Take a look at what took place in Ireland in 1997.

“In August of 1997, less than a month after the second cease-fire took hold in Northern Ireland, thousands of Presbyterian pastors and lay leaders gathered in Belfast to make a, historic public recommitment to peacemaking between Protestants and Roman Catholics.

Michael Cassidy, a South African evangelical influential in producing open elections and the end to apartheid in South Africa, challenged them to a new level of personal responsibility for bringing about reconciliation and tolerance. At his invitation, nearly two-thirds of the 3,000 in the audience stood up to signal their pledge to peacemaking. Earlier this year, the Anglican Church of Ireland took similar steps when its general synod voted to condemn the presence of sectarian views within their denomination and to conduct an inquiry to determine how severe the problem is” (Morgan, 1997).

Without politics they would not have taken the additional steps to really determine what the problem was and rededicate themselves towards peace. But there are other examples where politics and peacemaking are not mutually exclusive. Take the military for example. Our leaders wage war on other countries that have different political views than ours. We are sent to war using force. And only as the victor can we then define what we believe peace to be. Whose war were we fighting? Whose definition of peace were we attaining? Ours, the people, another nations?

Business Problems? Use A Mind Map To Solve Them

A mind map is a process of writing things down in a way that makes a map of your ideas and thoughts. You can use shapes, symbols, and more to represent different points and ideas. This makes it easy to look at and digest quickly because it makes your main idea the central part of the map.

Change It Up

When problem solving, you want to change a few things. For example, you’ll want a new solution to the problem to be the central idea of your mind map. Ensure that you add resources for solving the problem. For example, money, people, and technology.

Remember that one problem may have more than one solution. By separating out each solution, including all the resources you’ll need, and noting the roadblocks, you’ll be able to choose the right solution for your problem more easily.

Once you notice the main solution that you need to implement, or you’ve identified a couple of solutions that work together, you can make more branches to the details of the solution and how you want to implement it.

Understanding The Bigger Picture

Putting all the information in one spot is going to help you look at the problem through new eyes that understand the big picture more. Using an online cloud-based mind mapping solution can also help you make a cleaner more useful mind map, because you won’t have anything marked out when you look at it.

Mind maps are good for both big-picture thinking and narrowing down things to target. For example, on a solutions mind map, you’re going to end up with steps to the solutions you’ve chosen, and then be able to go right out and start adding tasks to your calendar so you can be successful.

Even if you’re not naturally creative, you can learn to be more creative by developing your creative thinking and problem-solving skills.

Problem Solving is A Process

Problem-solving skills are important both in the workplace and in your private life. Whether you work for yourself or others, you’ll need to be open to solving problems. You’ll want to develop your mental, analytical and creative skills if you want to be a good problem solver because you’ll need to be able to think logically, put things in order, and evaluate whether a solution is right for a problem or not.

When you can identify issues, understand the stakeholders’ points, list all the solutions you can think of, evaluate them, and then select one (and one step further – implement it), then you’re going to be a good problem solver that others seek out. Being creative helps because your mind will be more open to new possibilities and potential.