So Where’s the Golf Picture??

My site sure looked different when I checked in on it yesterday. Bill Hobbs and the IT crew here at Belmont have helped with the transition to upgraded software. So we are playing with some new layouts and features. Hope you like it. I do, except I do miss my golf picture….I always like to point at it when I tell entrepreneurs they need to FOCUS. Although I like to use lots of different metaphors, I can think of no better one for entrepreneurship than the game of golf.
Well, I’m off to my tee time….

Business Blog Book Tour is Here Tomorrow!

Tomorrow, this site will host the Business Blog Book Tour. As I mentioned yesterday, the book is The Start-up Garden by Tom Ehrenfeld. And even if you haven’t read it I know you will find the discussion quite interesting and insightful.
I will be posting a question and the author’s response every few hours throughout the day. So stop by often and join the in the discussion. The author will be checking in to see the comments and questions that you post and will offer additional insights based on what you the visitors have to say. Although we had a few glitches earlier this week after we upgraded our software, the comments feature should now be working smoothly. So join in!
Thanks, once again, to Todd at A Penny For for putting this together. Here is the schedule of this tour, which has already begun this morning at re:invention.

Just Because Someone Wants to Invest is not Reason to Take the Money

If someone is ready to invest in your business you should take the money. Right? Not necessarily! As flattering as it may seem, and as many times as you may hear about the advantages of using other people’s money, taking on equity investors should be done with great caution.
Dilution of Ownership
Each new equity investor reduces your share of ownership, which is known as dilution (think of that glass of ice tea as the ice melts). The argument is that with the additional money, you will create a bigger pie for all to share. Well, maybe. Investors will talk of very high expectations for their rates of returns. Venture capitalists often look for deals that can create 70-100% annualized returns. This is because they recognize that your business is a huge risk for their investment. Failure of any given deal is always a real possibility. Just because they are willing to invest does not mean that they assume that your deal is a safe bet. That is why they want a seat on the board for each investor and to maintain the rights to take over the company (which they often do). So, a bigger pie is not a “given” when it comes to adding more equity shareholders in your business. You may just have less of the same pie, or even less of a smaller pie. Remember, these investors expect you to grow quickly, which increases the overall risk of your business.
The Risk of Sharks
Some investors are best described as predatory. They are looking for deals, not partners they want to be in business with. Although it is not true of most investors, there are a certain number who intend on taking over your company at the first opportunity. The language in the contracts they insist on, give them quite a bit of power to put in “new management” if performance criteria are not met. And they will do it the first time you give them a chance. Again, most investors are not sharks, but there are a few circling out there, and they can always smell blood in the water.
Dynamics of Adding on New Partners
You and your partners have been through all of the excitement and stress of getting things up and going. Hopefully you have chosen each other with a great deal of forethought. Take on an investor and those dynamics change forever. It is like a nice stable family that suddenly has a long lost relative who moves in to stay. There are new relationships that have to be established, rules change, the culture can even begin to change, and certainly the dynamics between the original founders will never be the same. You always have to consider “that person who now sleeps in the bedroom down the hall” in every decision.
There are instances when equity investment makes sense. Start-ups that take a great deal of time to reach cash flow and require large capital investments often have no choice but to bring on investors. Some expansions, especially rapid ones, may need such funding. But, just because you can raise equity does not necessarily mean you should. Be flattered when investors come calling, but think it all through very carefully. If you can reach your goals with your own money, a little more debt, or through slower organic growth it may be a better option for many businesses.

Business Blog Book Tour will be here on Thursday!

This Thursday it will be my pleasure to host the current Business Blog Book Tour that is making its rounds through your favorite sites. The book is The Start-up Garden by Tom Ehrenfeld. It is a great book. But, even if you haven’t read it I know you will enjoy what its author has to say.
I will be posting a question and the author’s response every few hours throughout the day. So stop by often and join the in the discussion. The author will be checking in to see the comments and questions that you post and will offer additional insights based on what you the visitors have to say.
Thanks, once again, to Todd at A Penny For for putting this together. It should be great. Here is the schedule of this tour, which begins tomorrow.

Standardizing Entrepreneurship Education? Sounds like an Oxymoron to me!

There is a movement afoot to standardize entrepreneurship education. While there are some benefits to setting standards and even to accreditation, I hope that the traditional academics can keep their hands off entrepreneurship education for at least a while longer.
Certainly part of what has made entrepreneurship education flourish has been the creative juices that flow in many of its pioneers. We seem to be hung-up on finding legitimacy with our peers in the academy, so we fret about developing a theory base. The truth is, business education itself is in its infancy. We have only been teaching business education since the 1950’s (Authors note: I believe that anything developed within my life time should be considered relatively new, or even down right modern. It may be denial, but that is my premise and I’m sticking to it!).
When I compare my own business education which began about thirty years ago to today, much has changed. Why? Some is from new knowledge, but much of it is because we live in a changing world. Business operates within a complex context. Governmental policy can drastically change major parts of what we once knew to be true. The Finance and Banking text I studied from is no longer even close to today’s understanding. Deregulation of banking and financial services transformed this sector beyond recognition from what we learned in my MBA program in the late 1970’s. Social trends have had a tremendous impact. My wife was part of the first major wave of women going into the traditionally male work world. Human Resources texts are now full of discussion on sexual harassment and gender bias in the workplace. Amazing new theories have fundamentally changed the fields of finance and economics. And entrepreneurship? It wasn’t even a word that we learned. Now it is everywhere in business curricula.
So relax! Entrepreneurship is a fundamentally part of our current economic transformation. Let the creativity that is so much a part of entrepreneurship do its work. Let the market judge what programs and what knowledge work for entrepreneurs. Let us continue to play with the concepts and tools and how to teach them. I continually change my courses, and advocate that we reinvent our whole curriculum every few years. Just as entrepreneurs find that their businesses look very little like they envisioned in their business plans, I imagine that how we teach entrepreneurship will continue to evolve and improve. After all, entrepreneurship education is really still in its start-up phase and the world around us is in a period of amazing change. Give it time.

Not just for the young

I continue to be amazed at the trend toward more and more new business formation. Even as the economy picks up, we see experienced executives moving into the entrepreneurial ranks, as seen in this post by Anita Campbell at Small Business Trends. The biggest challenge these executives face is to understand that they are not forming a small, “big business”.
Most of these folks find that to survive in the entrepreneurial realm they must unlearn many things they know from their big business experiences, and more importantly develop many new habits. I had an entrepreneur in my MBA class last night who stressed what a challenge this can be. He began his career moving up the ranks of a large corporation. Then he caught the bug, and decided to strike out on his own.
One day, he needed some Post-it notes, and was ready to tell someone to get them for him. That’s how it worked in his old job, after all. But, wait! There was no one but he and his partner. So, he did what every entrepreneur does: he got in his car and drove down to Office Depot. He also found that he began to write notes on the back of used paper, rather than pull out a clean sheet of letter head as he did when in a big company. He started to stay in Microtels and fly Southwest, rather than stay in the best hotels and fly first class.
Another challenge is that some big business converts find that raising money can be relatively easy. This actually can be a mistake if it is too easy. Too much money is almost as bad as not enough. These new entrepreneurs find it easy to spend this “extra” money on overhead and “lifestyle” expenses. This can burden on a young business by creating too much fixed overhead, which will eventually catch-up with these entrepreneurs. The business cannot grow large enough, quickly enough to cover these fixed expenses. And when they do realize the problem they created, it is often already too late for their business to recover.
But many do make the transition and are now filling the ranks of this growing army.

Working with Attorneys

I visited an interesting weblog this morning called the [non]billable hour. It is written by an attorney named Matt Homann who is trying to change the practice of law–for the good–as he puts it, “one lawyer at a time”. An interesting site for entrepreneurs, as well.
It took me a few tries to find an attorney for our business who really understood entrepreneurs, how we work, and how we need them to work. Don’t give up if you are trying to find a new attorney.
Here are some tips on choosing and working with an attorney that I talk about with entrepreneurs that is based on a great book, The Entrepreneur’s Guide to Business Law by Constance E. Bagley, Craig E. Dauchy:
Choosing an Attorney
1. Understand the advantages and disadvantages of large vs. small firms. Large firms have specialized expertise that can become critical as you grow. Small firms can offer a more personal touch and can be more efficient. Most entrepreneurs need something in between. Understand your needs (e.g., intellectual property, environmental law, employment law, etc.) and make sure they have an expert that can address your needs as these issues arise.
2. Get at least three referrals from people you trust. Your best source is other entrepreneurs.
3. Interview each firm carefully. Think about things such as: personality (you may need to spend a lot of time with these folks during stressful times in your life), how compatible you think the working relationship would be with these folks, their use of technology to make things more efficient (and cheaper) for you as a client, the timeliness in returning phone calls (they will never be more responsive than when they are trying to get your business–so if they are slow now….), knowledge of your industry (not essential, but helpful), do they add networking potential to sources of funding or new business, and finally find out how much they cost and how sensitive they are to your limited budget (be honest and direct–if they are defensive about their rates, run for the hills!).
Working With an Attorney Effectively
1. Talk openly about fee structure for any project and be honest about your budget. Their are more than one way for them to bill, and they should be willing to work with you, especially if you are a newer venture. If not, go to the list above and find a new attorney. Some attorneys will reduce the fees for working with a promising entrepreneur with the hope that as you grow, they will reap the benefits of more business when you can better afford to pay for it. Ask about this!!
2. Your attorney should be willing to let you preparing your own drafts on documents. This can save a lot of money and will result in documents that better reflect your business and your strategies.
3. Organize your meetings with your attorney. Batch issues so you have fewer, more efficient meetings that can cover several issues at once.
4. Be proactive. If you think you might need to talk to your attorney, you probably do. They should let you send a quick e-mail to see if they really need to talk with you about an issue as a regular practice.
5. If you have questions about your bill from them, ask them about it! If they get defensive, you may want to start shopping for a new attorney.
By the way, make sure to get your lawyers to visit Matt’s site. Then talk with them about it–OFF THE CLOCK!