Ideas To Deals

17 words and phrases to avoid in your business plan | VentureBeat

Megan Jones is a Director at Hadley Partners. A modified version of this story appeared on the company’s blog.)

We all have words that make us cringe. That’s especially true in the investment community.

Generally, I can tell a few lines into a business plan if a company just doesn’t “get it”. Sometimes, it’s blatant – like the lack of a clear mission statement. Other times, it’s something more gut-based, like the use of quotation marks as I did at the top of the paragraph (it’s too cute for a serious business proposal).

There are some words and phrases that are real showstoppers, though – and if you’re using them, you’ll need to rethink your pitch before approaching a possible source of financing. They not only fail to sell your story. They often end up having the exact opposite effect.

• “Next big thing”.  If someone would give me a dollar for every time I’ve seen or heard that one, I could retire happily. The proof on that sort of claim is in the numbers. Show me traction in building your business and I’ll see it.  I’ve known people that built the next big thing and they were always too busy working (and scared of competition) to boast along the way.
• “Bigger than Facebook”.  (Or Google.  Or pick your company.)  Never compare yourself to or value yourself off the best winning companies.  Ideas are comparatively easy; implementation requires real work.
• “Game changer”.  Life (or business) isn’t a game.  I don’t know what this means.
• “Guaranteed”.  If its impossible for the opportunity to fail, then why are you sharing it?
• “Paradigm shift”.  Again, I don’t know what this means or why it matters.  Proof on this one is in the implementation.
• “Next level” (or “next generation”).  A completely unnecessary phrase.
• “Unique”.  Not a big offender in my book but I’m probably in the minority.  Everything and nothing is unique.  The word is overused.
• “Unparalleled”.  Um, no. There’s always something that can match some aspect of your product or service.
• “Ad supported”.  Is that the only source of financial support? I heard that pitch in the late ‘90’s and I’m still hearing it now.  What changed (other than Google being the rare company to make it work well)?
• “Viral marketing”.  This works wonders in the gaming world, but where else today?  Define what you mean but don’t use the term unless you really understand it (at which point I’m okay with it).
• “Free”.  Ouch.  Explain to me how that is working right now for you, not how it will at some fuzzy future date.
• “Really”, “very” and “a lot”.  No.
• “Opportunity”.  No thanks.  Opportunity is easy. Explanations (and monetization) matter more.
• “Leader”.  To where?
• “Best” and “top”.  Says who?  You?  You’ll need backup. Prove these sorts of claims; don’t just say them.  (if you were, in fact, the best, you wouldn’t need to look for money – it would find you).
• “Great”.  See “best” and “top”.
• “Solution”.  If you can walk me through it, I’ll follow it.  Otherwise, you aren’t saying much.

Reality: when you are pitching an early-stage opportunity, you are also pitching yourself.  If you are talking to quality investors, most of the above words don’t tell them anything about your business.  But they do tell the investor something about you – you are prone to exaggeration, to vagueness, to hype, to lack of depth.  Those words are setting you back.

via venturebeat.com

What I'm Reading That You Should Be Reading

I read a lot of blogs and even more Twitter posts (not so many books even though I know I should).  Here is a quick list of business blogs you might want to check out:

• Chris Brogan: Anything by Chris Brogan is worth reading but you probably already know that.

• Small Biz Daily: I'm a big fan of Rieva Lesonsky.  Great content specific to the needs of small buisness owners.

• Venture Beat: Heavy focus on the West Coast venture start-up space which I like.
• Redhead Writing: Whether Erika Napoletana is writing or ranting she is entertaining and very smart content.

• prTini: Heather Whaling is very wise in the ways of social media and how to make it work for business.

• Ustrategy: Ravit Lichtenberg is very tuned into the strategy of business and communicating with customers in a way they really want.
•  Spin Sucks: Ovbiously the title is what drew me in first but as I read this I came to realize that Spin does really Suck.

• Speak Schmeak: Lisa Braithwaite provides much needed public speaking tips to all of you mush mouths out there.

• Funnel Principle: Mark Sellers will teach you how to sell, period.

• PerkettPRsuasion: One of the best PR blogs I've ever read.

• Outspoken Media: I think Lisa Barone is a must read in blog form and on twitter.

• NateRiggs.com: Sorry to promote Nate Riggs to you again but he's is a MUST read!

OK that should get you started.  Let me know what you think and who else should be on this list.

5 things that can screw up your exit strategy | VentureBeat

By Curtis Smolar

(Editor’s note: Curtis Smolar is a partner at Ropers Majeski Kohn & Bentley. He submitted this column to VentureBeat.)

When you are starting up your own company, you’re generally not thinking about acquisition.  Any stock you give for services (or sweat equity) is likely done out of necessity and expediency.

For the successful and the lucky, those distant dreams of acquisition can become reality. But there are a number of hurdles you can inadvertently set up for yourself in the early days of your company that can make that more difficult. Here are five to beware of:

Not following the formalities of issuing stock - This may seem obvious, but before anyone can own shares, a corporation has to issue the stock.  Generally this is a two-step process.  The bylaws will say “we, company X, authorize the issuance of Y number of shares.”  But then you actually have to go through the corporate formality of issuing those shares, which includes issuing the physical share certificate after receipt of consideration. It’s just as critical to keep track of the shares.

Too often, I’ve heard stories of companies in the midst of being purchased, when someone walks in with a bar napkin (and their lawyer in tow) upon which the president granted them a large amount of shares.  Suddenly, the stock table looked quite a bit differently.

Deferred compensation - Deferred compensation seems like a great idea.  You get a great addition to your team at a fair price.  If the company does well, you get to pay them what you agreed on originally and everyone is happy, right?

Not quite. The Internal Revenue Service and potentially your state’s labor commission are likely to be quite the opposite, in fact.

When you defer compensation through actual deferred salary or through stock options you will run into the dreaded IRC Section 409A. This covers a multitude of scenarios and is really geared at mandating economic accountability over various forms of compensation to insure that “deferral” is really in place.  It’s an incredibly complex section of the tax code and you will most definitely need the assistance of a seasoned professional to help you navigate through its intricacies.

In addition to other scenarios, IRC section 409A applies to all nonqualified deferred compensation. This is different from deferred compensation in the form of elective deferrals to qualified plans (such as a 401(k) plan).  The penalty for employees violating 409A includes:

• all amounts deferred under the plan for the current year and all previous years become immediately taxable; and
• The employee has to pay an additional 20 percent on the deferred income.

In the labor/ employment scenario, there are additional problems, like employees may claim that although the income was supposed to be deferred, it was not supposed to be deferred indefinitely.  This scenario usually arises in a milestone bump up to the deferred amount.  After which, the company may have to deal with statutory penalties for not paying the deferred compensation, which will be looked at by the government as ordinary pay.  In other words, your company may be liable for penalties to the employee if they never receive the money.

The net result of deferred compensation

via venturebeat.com

Will You Just Take The Money (most of the time)

An Angel investor friend of mine is currently leading a crusade around the concept that entrepreneurs should stop focusing on all the little details involved in funding and should take the money when offered and get it working in their business.  He has a good point.  When you are out pitching your business opportunity you are trying to generate interest and get funding.  You should have a plan of action developed that once you get the money you should be ready to start executing and creating the next big thing.  If you have investors that have  offered you a term sheet you should move quickly to get the money.  Many entrepreneurs, however, will go into negotiation mode to try to get the deal a "little" sweeter from their perspective thus delaying or, in the worst case, stopping the investment.  Both situations are bad for the entrepreneur.  Cash is the fuel that will allow your company to take off.  The longer you delay the investment the closer you are to possibly missing your market window or at minimum you are delaying your launch/growth.   So after all the pitches and all of the negotiation you should just take the money and get moving...right?  Not so fast ~ you do need to protect yourself and your business.  Before you take the money here are a few things are are important for you to focus on:

• Valuation: How many times have I heard, "Investors are always trying to screw you on valuation so you have to fight back".  That isn't really true.   If you have a good investor they want you as the entrepreneur to maintain a fair percentage as incentive to work hard to build company and reap the rewards.  What they will want is a well thought out capital plan.  You should know what it has taken to get to this point and what it is going to take to get to future milestones.  If you have that you can build a good case and get to agreement on valuation early, if not you are not ready to take the money.

• Deal Structure: Typically deal structure is to the benefit of the investor.  It is the golden rule, "he who has the gold makes the rules".  The investor is trying to get their investment to result in a big payout and the structure is designed to lessen the odds of  the business going down the drain.  Terms, structure, redemption rights are all about providing a way to get a business moving if it starts to go sideways or begins to tank. It may seem harsh as you look at it during negotiation (Because you are going to succeed right?) but everything down to removing the management team is designed to make sure things continue to progress.  Knowledge is power.  You must know what is going on with your term sheet and understand the ramifications of various points.  Beyond that what should you do?  See next point.

• Business Plan: This is the key.  As long as you have created a solid business plan with achievable milestones and good assumptions that everyone agrees on everything in the previous point will be moot.  Be sure you layout your milestones and the progressive steps in between each step.  You should know what it will take financially to move from milestone to milestone which will help you determine how much you need to raise.  It is the half-assed plan with no good direction or progressive steps that causes problems.  Be strategic and you will be fine.

Final advice...Be ready to take the money but don't do it until you have the agreement in place, on paper and signed.  I knew an entrepreneur that worked on a part written (ownership percentage and rights of refusal) and part verbal agreement (what the investors would provide and when that would happen).  The entrepreneur took money, the investor didn't provide the services they had promised or the follow-on funding.  The company needed more capital but couldn't get anything past the investors relating to future funding.  We tried everything to get the investor to let other investors in but they wouldn't and the company died from financial suffocation.

Be smart, be prepared and when you get the money focus on execution and creating a business that will kick butt!

Does Your Website Stink?

As the recession progresses and financing remains difficult to come by more and more small businesses are asking me about ways to increase revenue by getting more customers (nice strategy).  To do this they are looking at combinations of marketing, sales and an enhanced web presence.   To begin to address this demand among my clients I contacted Oxiem Marketing Technology and asked them to deliver a workshop for the Ohio Small Business Development Center to discuss some things that small business owners can do to create a better web presence especially if their current site stinks.  Here are a few insights I took away from the workshop that might help your business.

Think of your website as not just a website but a marketing tool. 

Good marketing should be thought out in advance and this is especially true with your website.  Developing a strategic marketing plan should reflect how you are going to develop and handle your brand.  As I have stated in previous posts your brand is how people percieve your company.  Tools such as websites help you attempt to influence the preceptions of others.   A poorly designed site will reflect on your business especially as society continues to expect more from their web experince.

Here are some indicators that your current website needs an upgrade/refresh:

• Your site is more than 4 years old.  The web is changing constantly.  New fuctionalities and expectations of your customers demand that you keep your site fresh.
• If you can update without knowing code.
• If you haven't changed the content since the site originally launched.
• If all you expected from your site when it was designed was to have a site to let customers know you were "legit".  Expectations of the web have moved way past that point.
• You can't measure your site's performace.
• Your site talks alot about you and not much about what is in it for the customer.
• You have no idea how your site performs in serach engines.
• Customers frequently can't find what they are looking for or understand the organization of your site.

OK now you have determined your site stinks and you need to do something about it.  Here are some steps to consider as you move forward.

Planning  ~ Things to do before you move forward

• Take the technology out of the site at this phase.  Focus on your business goals.  Make your site about your customer and what you would like them to be able to do on your site. 
• Assess your brand identity and how that should translate to your site.
• Produce a starter sitemap that outlines content needed in your site.  Again, kind of like a roadmap of your site ~ do all the parts connect?

Design ~ Things to do as your develop

    Your brand is more than you logo.

• Capture and communicate emotional benefit to customer.
• Create immediate connection.
• Be consistant throughout.
• Make sure your site works.

    Big things ~ What are the two or three big things you want the site to accomplish

•     E-Commerce to sell product
•     Drive visitors to specific conversion
•     Multimedia
•     Social media integration
•     Event and news promotion
•     Intranet
•     Current customer support

    Little things ~ the details

•  Make the site efficient and  functional
•  Make it easy for the users to navigate.  Well organized with white space and multiple ways to access information.
• Have a High Functioning Content Management System (worpress, Drupple, MobX) that staff can make edits to without an IT expert.  

 Where Do I Start ~ Things to do when selecting a developer

• Design: Request examples of work they have done that are similar to what you want.
• Technology: What platforms have they developed on?  Remember, if they only have experieince with one or two platforms they may not be able to meet your needs if you need something other than what they know.
• Search: Do they have demonstrated experience in developing sites that perform in search engines.  Can they explain SEO to you?
• Content: Do they talk content - the most important/difficult part of a site design.  The person should understand your business.  Are they making technology or design suggestions?  Design starts with your strategy/goals/needs.  One size technology does not fit for all.

Choosing a website design partner

• Great Software + bad design = FAIL
• Great design + bad software = FAIL
• Great Design + Google hates it = FAIL
• Great Design + Search Friendly + Great Software = Success!!!

A few final thoughts to develop websites by

• Be conversion focused. Get information from your customers you need to convert ~  make it simple for the user to buy.
• Be Mobile Friendly. More customer activity will come through smart phones and you need to be ready.  See how your site looks on various phones.  Can you work your site on a phone?
• Be Social and Fresh Tie all of your social media activity and your website together. 

Sites that look beautiful are good but a sites that work, gets your business found and make you money are GREAT!

 

 

 

Lean v Small

I recently came across this video of Ann Miura-Ko, co-founding partner at Floodgate, discussing lean start-up operations versus small or shoestring operations.  What I like here is the concept that a start-up should focus on developing an efficient, strategically driven operating philosophy regardless of financial resources.  Money is needed but how you deploy funding is more important.

 

Are You Going To Get Big? Act Like It

There is a difference between a traditional growth business and a high growth business.  There is nothing wrong with either one but you can't be both at the same time.  It is not uncommon for a traditional business to inquire about seeking investors which their growth path can't support but more and more I am hearing from early-stage entrepreneurs that have an opportunity to really grow that are acting like a the corner store.  They are asking for dollars to pay for start-up or initial roll-out expenses but not looking at the big picture and thinking about the future growth needs.  If your business is going to be big and scale you need to build it like a business that is going to be big.  You can't expect to be big and act small.

Here are some of the differences between traditional businesses and growth businesses:

• Traditional businesses have a slower ramp relating to sales thus need less growth capital.
• Traditional businesses can grow slower because they don't need to support large ROI requirements of investors.  The corollary to that is that traditional businesses don't have the growth needed to support investors so they need to look to other financing sources such as bootstrapping and debt financing.
• Growth Businesses are typically product oriented not service oriented which will allow them to scale.
• Growth businesses need to look at what it takes for them to move from milestone to milestone not just the next step.  They need to think and act strategically.

These are just a few of the differences but if you are building a growth businesses you need to build the business appropriately.   It is going to take more than initial funding the get you to where you need to be.  Initial revenue will not support the speed that you need to scale.  I equate growth capital to the difference between adding brush and sticks to your camp fire and pouring gasoline on the fire.  The gas will make it burn quicker, brighter and higher but you need to keep adding it or it will burn out.  If all you think you will need to grow is a one time infusion of capital you can expect to burn out pretty quickly.