TJ’s Weblog has a link to a Q&A piece at Venturecoach.com on how to tackle the sticky issue of dividing equity between the founders of a new venture. The key issues include:
1. Time: This includes time with the company and time put into the company. The more of either you put in the more equity you should get.
2. Power: He recommends that someone hold at least 51% of the stock so that deadlocks are avoided. While this can be good advice, I have seen consensus work in other cases. Consensus requires a lot of preparation and discussion ahead of time to make sure it will work.
3. Money: Even though it seems the most obvious, any money needs to be valued relative to all of the other non-monetary contributions in this list.
4. The rest: Then there are all of the other issues to consider including expertise, connections, intellectual contribution, and so forth, which can really muddy the waters.
The other good word of advice in this piece is to keep the number of partners to the absolute minimum. Each of the issues above will need to be negotiated among each of the prospective partners.
Author: Jeff Cornwall
Dr. Jeff Cornwall is the inaugural Jack C. Massey Chair in Entrepreneurship at Belmont University in Nashville, Tenn. Dr. Cornwall's current research and teaching interests include entrepreneurial finance and entrepreneurial ethics.
E-commerce Taking Off for the Holidays
E-commerce, often seen as the great equalizer for the little guy in retailing, looks to have a strong Christmas season in 2004, according to an article at Red Herring.
“Online spending will surge 23 to 26 percent over last year’s holiday shopping season, consumer research company comScore Networks predicts, as web sites are expected to make more than $15 billion during November and December this year.”
An important trend is growth in non-travel related e-commerce, including niche and specialty gift items that are typically the realm of entrepreneurs selling on the Internet.
“Gift-buyers will spend 43 percent more on…flowers, greetings, and miscellaneous gifts (expected to reach about $1.1 billion). Holiday spending on home and garden will only grow 28 percent over last year, and is predicted to rake in around $1.3 billion.”
Interesting Surveys on Entrepreneurship
The National Dialogue on Entrepreneurship cites two interesting studies on entrepreneurship.
“A new survey from credit card firm Capital One and Consumer Action reveals that the American entrepreneurial spirit is alive and well. The survey found that 40% of Americans dream of owning their own business. The primary reasons for desiring this career option were ‘to do what they want to do’ and ‘to be (my) own boss.’ Within this group of aspiring entrepreneurs, nearly 55% felt that they ‘don’t know where to begin.'”
These results are both a bit concerning to me. The “Be Your Own Boss” myth is one that I try to warn aspiring entrepreneurs about. Entrepreneurs actually have many people to whom they are accountable including, partners, customers, employees, family, bankers, investors, etc., etc. The “don’t know where to begin” response speaks to the need for education for entrepreneurs so they avoid the “ready, fire, aim” approach that I see so many new business owners mistakenly take in their launches.
“Another survey from Wells Fargo and Gallup…found that 86% say they would do it again. Overall, 48% felt that they were very successful, while another 46% said that they were ‘somewhat successful.’ Only 5% felt they had not succeeded. Finally, 76% of the entrepreneurs noted that they believed they were better off financially than if they had opted to work for another company.”
Sounds like a good endorsement to me!
Inc 500
The latest Inc 500 is out, which includes their list of the 500 fastest growing private companies.
While this is kind of interesting to read, there are a few cautions that need to be noted. First, this is a self-report list so there a many businesses that choose not to participate in this type of list. They may not want this type of publicity or may not want the flood of unsolicited contacts that follow getting in this publication.
Second, growth rates are easier off of a smaller denominator (math class time, students…). Assume two companies grow by $100,000. If one only sold $100,000 the year before they would record 100% growth. If the other had $1 million in sales the year before, it would only show 10% growth for the same $100,000 increase.
Third, growing sales at the fastest rate possible is generally not a good thing for any business. Ask any banker.
Carnival of the Capitalists
Trader Mike is hosting Carnival of the Capitalists this week.
Entrepreneurship Education in Australia
We have had the pleasure of hosting Colin Dunn and Kathy Griffiths from RMIT University in Melbourne, Australia. They run an ambitious program in which students receive their actual degree in Entrepreneurship (a BBE degree). While most American universities offer a major or a concentration (typically just a handful of courses), the vast majority of the courses RMIT students take focus on entrepreneurship. It is an applied program that requires their students to start a real business before they can graduate. Admission is selective and looks for not only good students, but those with entrepreneurial and leadership potential that is already in evidence.
I look forward watching this program as more of its students make their way into the world.
Tips on Avoiding Common Financing Mistakes
StartupJournal offers a few sound tips on common financing mistakes in start-up ventures.
1. “Not raising enough capital”. True, but I’ll add a corollary: don’t raise too much either, as it can lead poor spending decisions, over-commitment to overhead, and just general mischief.
2. “Risking everything you own”. Very true! We wife and I had significant savings when I went into business in NC, which got us through a very up and down start-up period.
3. “Borrowing from friends and family”. I generally agree with this as it can lead to rather uncomfortable Thanksgiving dinners! However, I have seen it work when the funds are relatively (no pun intended) small and the transaction is done in a truly business-like manner.
4. “Failing to keep good records”. Amen!
Tips on Creating Balance
I recently wrote about the importance of self-assessment and self-reflection. One of the important outcomes of this process is to keep all of the important things in your life and your goals all in balance. This article from StartupJournal offers four practical tips to help keep your business from becoming all consuming.
1. Define what is important in life.
2. Make personal commitments concrete.
3. Just say “no” to non-essential tasks.
4. Delegate, then delegate some more.
Never Too Young
Robert Shaver at Patent Pending believes it is never too young to get our future entrepreneurs started in this world. He offers a nice story about his own kids in this post.
Gore Becoming an Entrepreneur?
Former Vice President Al Gore is setting up a money management business out of London, according to a report in Bloomberg.
“The new company, called Generation Investment Management and based in London, will target pension funds and wealthy clients.”
I didn’t trust him with my money when he was a politician, so I surely won’t trust him now.