Moving on

The Start-up Guide is moving! Blogger has served me well, however, I have decided to become a more involved blogger and really develop a valuable online resource for prospective entrepreneurs. I have decided to upgrade to Typepad service, the new blog is located at http://startupguide.typepad.com. The new blog offers additional features such as RSS feeds and Trackback services that will allow me to bring better value to readers. Thank you for the support and check out the new blog! -Dan

What venture should I start?

One of the most commonly asked questions on small business forums and the first question I am often asked by individuals who learn I specialize in entrepreneurship is, “What business should I start?” From franchises to business opportunities to hobbies and opportunity recognition there is a daunting amount of choices for prospective entrepreneurs.

I recently read a post on Douglas Kersten's Small Business Blog entitled “With So Many Options, How to Pick the Right Biz” and although I agree that there are many options I am forced to disagree with Mr. Kersten's proposed solution. I have often times read similar advice from other individuals who tell prospective entrepreneurs to just start a venture “that excites them” or that they “love”. If I have a passion for comic books I should not open a comic book store in my town that already has three comic book stores that all barely earn enough to survive. Douglas feels that even if your business does not earn significant revenue and slowly dies it would still be a great experience to the individual. For an entrepreneur risking a lost 40k a year salary because they quit their job as well as the 50k now missing from their savings to launch the new venture I do not believe a mere 'warm feeling' will last once the venture tanks due to simply starting a venture from 'something that excites you'.

Now by no means do I discount the importance of passion in new ventures. Passion for your business is the only thing that will get you through the inevitable lean times. However, what I am proposing is that thoughtful research on the opportunities available to you is a key component to success along with passion and excitement. Market research to forecast demand, financial requirements and viability, a sense of opportunity recognition, and having the skill sets required to launch the venture are all key components to create a successful new business. A full 20+ page business plan may not be required but at least some dedicated research and planning should be put into these areas of the opportunity.

Best of Luck!

The Magic of Free

Entrepreneurs by definition are in one way or another risk takers. Most importantly you have to take the risk of bringing your product or service to market and hoping it has a compelling value proposition that customers are willing to pay for. Now what if there was a way to create demand for an initial version of your product or service, gain massive PR for free, receive massive amounts of customer feedback to aid you in creating your venture, and provide you with a positive sense of well-bring? Well there is, give it away for free!

Proponents of open source software (such as my new favorite distro of Linux: SimplyMepis) have been touting the advantages of such a strategy for years. Now I do not necessarily encourage one to permanently give away their product or service for free (unless it can be forged into a profitable operating strategy). However, while in the R&D and planning phase of any new venture I feel that it is a provocative and rarely used strategy. If you are truly confident that your new venture has a compelling solution to a problem customers face then why not give it away for free to “test the waters” and improve your new venture’s offering at the same time.

For instance, I am in the process of launching a consulting firm that focuses on individuals starting new ventures. For the month of August I will be offering completely free consulting services to residents trying to start new businesses in my home town. Not only am I positively contributing to the economic development of my town, I am also honing my skills in start-up consulting, testing demand, and “fixing the bugs” in my new venture’s strategy.

Offering a new product? Give free samples or prototypes to a small segment of your target market and test their response while gathering feedback. This is often a key component of primary market research that is skipped (and often is the most powerful).

Launching an internet venture or venture with network effects? Giving your service away for free to the first X amount of members not only increases the inherent value of your new venture, but increases traffic and creates a buzz.

Revel in the power of FREE

Making the Case for Social Responsibility

Entrepreneurs as citizens have an inherit obligation to give back to the communities that have given them so much. Some organizations sponsor a few charity events a year, others donate a percentage of profits, and unfortunately many do nothing at all. In this post I am attempting to reach the demographic of entrepreneurs who do not actively believe in the importance of social responsibility and giving back to their community. I realize I may not be able to sway you with emotionally charged rhetoric and references to a higher power; so instead I will take a much more realistic and quantifiable approach that will hopefully persuade even the most stereotypical scrooge.

Partnering with and contributing to a recognized charitable organization will provide numerous benefits to any new venture. For instance, partnering with an established charitable organization will give your venture nearly instant credibility and cross branding opportunities. You may be able to leverage your partnership with the organization to gain access to essential contacts through their network. You can also develop interesting methods to help the organization as well as further extend your brand. For instance, profileAds allows users to donate their points to the Accelerated Cure Project for MS. One of the most quantifiable and logical reasons to partner/contribute to a charitable organization is the PR leverage that is available afterwards. Newspapers and other media outlets that would previously ignore your press release will in most cases be more than happy to provide coverage on your new venture and how you are being a responsible social entrepreneur.

While at first glance this post may seem heartless and calculating, I am aiming this towards the entrepreneurs who place charitable contributions and giving back at the bottom of their priority list. I am offering an alternative and quantifiable perspective as to why they should make their start-up a socially responsible venture. Regardless of the reasoning the end result is still a benefit for the greater good (as well as for the new venture).

The Great Legal Structure Debate

Numerous websites, forums, blogs, books, and magazines offer to give advice on which legal structure is best for your new venture. Tax implications, protection from liability, ease of raising capital, and reporting requirements are all important issues that should be considered when making the decision. Major law firms have divisions dedicated to forming new ventures and there are numerous online ventures (http://www.legalzoom.com) that will incorporate your venture for a very reasonable rate (although the quality and level of diligence is minimal). However, I have rarely seen (if ever) people telling prospective entrepreneurs the benefits and strategies of not incorporating (at least in the short run).

I have run into countless prospective entrepreneurs who have nothing more than an idea and one of the first things they do is run to a law firm or online service and form their corporation. From my perspective this is a waste of both time and money and hurts the new venture in various ways.

From a bootstrapper’s point of view you should plan for the venture’s legal structure but do not implement it until necessary. Here are some reasons why:

1) As you begin networking and telling others about your venture you never know who will volunteer their legal services or consultation (it happens all the time).

2) The capital structure and external financing needs of your new venture may evolve in the short term as you’re planning your venture; as such there are numerous implications to your legal structure.

3) Even if you incorporate your venture online (depending on the state you live in) you are most likely looking at incorporation costs in the $300-$2000 range. These are sunk costs and as such you should preserve these precious start-up funds as long as possible.

4) As soon as you start your venture the law automatically (at least this is what a few lawyers have told me) considers your venture a sole proprietorship or general partnership (if you have a partner). As such if you are still in the research and development phase their really is no major rush to incorporate.

So when do you incorporate? As I said you should constantly be prepared for incorporation (choose a law firm and meet a lawyer to discuss the costs and services provided, or choose the online provider in advance and analyze the fees and requirements). Key events that hint you should be incorporating ASAP are: signing an agreement with the first major customer, receiving a large amount of outside investment, entering into a major contract (such as a lease, employee contract, loan, etc.), first major purchase of inventory, and so on. Basically, any major contract or cash flow that is foreshadowing the real start of your new venture is when you should incorporate.

So law firm or online? I have gone both routes with my own start ups and I have consulted clients on both routes. It really depends on the venture. If all you need is a pretty standard cut and dry legal structure then online may be the way to go. Make sure to do your own independent research first and possibly consider talking to a lawyer while still in the planning phase to gain some insight. A law firm is going to also point out critical risks and liabilities that impact your specific venture (something the online services will not). If they are experienced they may also know better than your research and know that you need a specific legal structure that was different than what you previously had thought.

Best of luck in your legal structure decisions, and remember that cash is the lifeblood of a new venture and should be carefully spent where it will bring the most value at the best time.

The Importance of Teams

Many start ups require a founding team. It is practically impossible for one person to have a broad enough skill set to start a successful new venture. I am a huge proponent of teams. I am a strong believer in the fact that no person is an island and that it is much better to have a smaller piece of a bigger pie than a large piece of a much smaller pie.

So who do you need on your team? Where do you find them? What values and characteristics are most important when forging your team?

Who do you need on your team?

First thing you need to do is objectively look at yourself and your own skills and abilities and compare that to what you need to start this venture to see where the gaps are. Are you a good sales person? Organizer? Accounting & Finance? Marketing? Researcher? Writer? Speaker? These are just some of the fundamental areas you will most likely need while planning and launching your new venture. It is hard to critically analyze your own skills and abilities so you may need a third party to help you, there are also tests online that evaluate what type of entrepreneur you are and what other types of entrepreneurs you need to add to your team (check out http://www.peoplethatclick.com/). There may also be specific technical roles you need to fill on your team (such as software engineer, website designer, etc.). You need to make the decision in the beginning whether these key roles will be paid positions or are they so critical to your venture’s success that you should be making them a partner.

Where do you find them?

This is possibly the hardest question, where do you find good partners? Well the internet has helped make this a lot more feasible to reach a larger geographic area. Not all of us are fortunate enough to be in entrepreneurial hubs like Route 128 or Silicon Valley (or the top entrepreneurship college for that matter) so you need to keep that in mind while you are searching for your team. Also, keep in mind that friends and relatives may seem willing and able at first to be a part of your new venture, but, I highly recommend that these are the people you are most critical of in adding to your team. Many friendships and family relationships have been torn apart by new ventures that began to turn sour as one person began to not pull their fair share of the weight (which is bound to happen in almost all scenarios).

Networking is crucial, keeping a good contact management system (as simple as collecting business cards from people you meet and writing a short summary of who they are on the back) so you know who people are and what they are interested in. Attend events and forums as well as chamber of commerce events, take a class on entrepreneurship at a local college and network with your classmates, post a classified ad, getting yourself out there is perhaps the most important thing of all! Countless potential entrepreneurs are so afraid of people stealing their idea that they do not tell anyone and their venture never goes beyond a concept. Tell as many people as are willing to listen to you! You never know who knows that certain someone that will become your ideal new business partner and help make your vision a reality.

There are some great key resources for building a team online. A quick search on Yahoo! for forums relating to entrepreneurship or small business will get you started in the right direction in terms of networking with folks online. A free classified ad on Craigslist will begin to generate potential partners if you know specifically what you are looking for and can post an effective ad. If your partners are not located locally your start up can still be successful, services such as Skype (free voice telephony & conferencing), instant messenger, or email help make the world a much smaller place and can provide effective means of communication and file exchange. In fact, some new ventures find they are more effective with their time by utilizing these communication methods as opposed to sitting in the same room together with their partners from 9-5.

What values and characteristics are most important when forging your team?

If I was a venture capitalist the stock answer would be that they attended an Ivy League school, have either an MBA or engineering degree, and have launched at least one highly successful new venture. However, seeing as how for most of us finding someone with those qualifications is not an option in the start up phase I am going to throw out that list of criteria completely. You need someone with integrity, with knowledge and experience in the functional areas that you are most lacking, with drive and the entrepreneurial hunger, someone you can work well with but who will challenge you, and most importantly someone that agrees with your gut. On this area you never want to go against your gut feeling, our subliminal mind picks up things we may not at first and hence the “gut feeling” is often right on the mark in this area. If something inside you tells you this person may not be the right partner, do not let them be a part of your new venture. Countless people make this mistake (including myself), always go with your gut instincts on this issue. On a side note, do not be swayed by individuals who approach you bragging about their immense personal network of connections and how they can contact numerous individuals who will greatly help your venture. Contacts in many instances are nothing more than a business card or a friend of a friend of a friend; while in some cases they may pull through, do not put as much faith in other individual's “contacts” as they would lead you to believe….just a lesson learned through personal experiences multiple times.

First Post!

So after continual recommendations that I start up a blog to share some entrepreneurial insights I have finally decided to step up to the plate and take a stab at blogging. I am still trying to decide the focus of my blog, my main idea right now is to find posts on various start-up forums that concern general issues that face aspiring entrepreneurs and then post my opinion/advice on this blog. Of course this is just my idea at the moment and it will probably change over time. I am looking forward to posting what hopefully some people will find useful advice. For now I will leave with my current favorite quote...

"...And then there is the most dangerous risk of all, the risk of spending your life not doing what you want on the bet you can buy yourself the freedom to do it later." -The Monk and The Riddle