Budgets…to follow or not to follow…

by BizM on March 1, 2012

I just finished up a budget meeting with a client. It was a mix of year in review for 2011 and looking forward to 2012. Basically this quote sums up my feeling about the meeting, “A budget tells us what we can’t afford, but it doesn’t keep us from buying it.” -William Feather.


One thing I have learned in my experience with startups is that if you are not careful, you are as likely to experience as many challenges with your co-founder(s) as you are with the business itself.

The following are some of the most important questions that should be resolved as early in the process as possible. In most cases, these issues only get more difficult over time.

Top 10 Critical Startup Co-Founder Questions

1. How should we divide the shares? There are actually multiple parts to this. Here, I’m primarily interested in the economic impact. Basically, the question is really simple: Who gets what percentage of the company? This question is often the most difficult to answer (and the right answer is rarely “divide them equally amongst the co-founders”).
Important Questions Startup Co-Founders Should Ask Each Other
2. How will decisions get made? This is often tied to the number of shares (from #1 above), but not necessarily. You can have voting and non-voting shares. You can setup a board. You’ll need to decide what kinds of decisions get made by the board, and which ones don’t. Common areas to address are decisions around capitalization, executive hiring/firing, share issuance (dilution) and M&A.

3. What happens if one of us leaves the company? Though it may seem like a bad idea to be talking about this when you’re starting the company – it’s not. In the evolution of any startup, there will be good times and bad times and there will always be times when one or more co-founders are simply not happy and not committed. You should decide how to treat this situation early (when it is easier and everyone is at least semi-rational). The last thing the company needs is a co-founder that is no longer engaged but is hanging around out of guilt or ambiguity.

4. Can any of us be fired? By whom? For what reasons? Yes, that’s right. Even co-founders can be terminated. Too many people mix the notion of being a shareholder in a startup and having an operating role. These two things should be thought of as somewhat separate and distinct. The company should have a mechanism for gracefully terminating the operating role of a co-founder if that’s the right thing to do. This is often not fun, but should be discussed up front.

5. What are our personal goals for the startup? Though this can change over time, its helpful to at least get a sense of what each of the co-founders wants to get from the company. If you have one co-founder that wants to build a sustainable business that is spinning off cash and run it forever and another one wants to shoot for high growth and some type of liquidity, it’s better to get that out in the open early and talk it through.

6. Will this be the primary activity for each of us? Lots of co-founder conflict can stem from misunderstandings around how committed everyone is. Will one of the co-founders be keeping her day job until the company gets off the ground? Will one be working on another sideline business?

7. What part of our plan are we each unwilling to change? Not all startups need to change their plans during the course of their evolution. Just the ones that want to survive and succeed. Having said that, there may be elements of the plan that you don’t want to change. This could be around the product being built, the market being addressed or some other aspect of the company. For example, if one startup is fanatically obsessed with wanting to create an enterprise software company, then friction may be created if the model needs to shift to a consumer product.

8. What contractual terms will each of us sign with the company? One of the best examples of this is a non-compete agreement. Will each of the co-founders be signing some sort of contract with the company (outside of the shareholder agreement)? If so, what will the terms of this be?

9. Will any of us be investing cash in the company? If so, how is this treated? It is very likely that one or more co-founders will be putting in some cash in the early stages of the company. It is critical to decide up front how this cash will be treated. Is it debt? Is it convertible debt? Does it buy a different class of shares?

10. What will we pay ourselves? Who gets to change this in the future? This can be a touchy issue. Risk tolerance varies by individual, and it is a good idea to factor this into determining the compensation plan for the founders. The issue can be clouded sometimes when one of the founders is investing significant cash into the enterprise. (Though in theory, it shouldn’t matter where the cash came from when determining comp. plans).

What have I missed? What other types of things should co-founders be discussing in the early days of a startup and getting clarity on? Would love to hear your thoughts. If you’re a first-time entrepreneur (or thinking about becoming one), I’d bookmark this page and save it for future reference if I were you. By keeping this checklist handy, you’ll save yourself and your co-founders a lot of angst.


Meaning of Success

by BizM on February 17, 2012

Winston ChurchillI saw this quote at a startup incubator and I thought it summed up the entrepreneurial spirit, “Success consists of going from failure to failure without loss of enthusiasm.” – Winston Churchill

The successful entrepreneurs I’ve met have all had a very positive attitude about life. You can’t let anything get you down if you want to come out on the other side.


Financing Your Business – Banks

by BizM on February 15, 2012

What’s the first word to flash in your mind when you think about financing your business?


Bank DebtMy second installment on Financing Your Business has to deal with the very traditional world of bank financing. You can find my first post on the 3 F’s here.

One piece of advice about bank financing is that you should create a relationship with your banker. Shopping around for the lowest rate is fine but you also want someone you can work with and someone who will know who you are if you get into a jam.

I’m not going to go into to too many details about bank financing. It’s fairly straight forward and you only have a couple options for financing.

Short-Term Loan
Short-term loans are paid back in less than one year. Types of short-term loans are:
– Working-capital loans
– Accounts-receivable loans
– Lines of credit

Long-Term Loan
Long-term loans have maturities greater than one year, but usually less than seven years. Real estate and equipment loans can go up to 25 years. Long-term loans are used for major business expansions, purchases of real property, acquisitions and, in some instances, start-up costs. Types of long term loans include:
– Equipment
– Commercial mortgages
– Furniture and fixtures
– Vehicles

Personal Guarantee
Unfortunately the only way a bank, or credit union, will provide a loan to your business is if you can show that your business proposal is sound and you have a good track record. If you’re business doesn’t have a good track record I have two words for you: Personal Guarantee. The only way most startups, or faltering businesses, will get bank financing is if the business owner personally guarantees the business loan. Signing a personal guarantee gives your creditors the right to pursue personal assets if your company defaults—even before the business assets are liquidated.

Be very careful when treading in the personal guarantee waters. Tell your family the truth about the personal guarantee, upfront. You can’t put your home and bank accounts on the hook without telling your spouse.

If possible, don’t guarantee an obligation for a business you don’t own outright. If your stake is just 25 percent, you might think you’re OK, but the bank can still go after you for the whole indebtedness. So unless you own the business outright, think carefully about obligating yourself. Ask the lender if you can limit the personal guarantee to your share. Have a written agreement with the company and your partners that no matter who gets sued on the personal guarantee, the others will pay their share.

How Your Loan Request Will Be Reviewed
When reviewing a loan request, the lender is primarily concerned about repayment. To help determine this ability, many loan officers will order a copy of your business-credit report from a credit reporting agency. Therefore, you should work with these agencies to help them present an accurate picture of your business. Using the credit report and the information you have provided, the lending officer will consider the following issues:

– Have you invested savings or personal equity in your business totaling at least 25 to 50 percent of the loan you are requesting? (a bank will not finance 100% of your business.)
– Do you have a sound record of credit-worthiness as indicated by your credit report, work history and letters of recommendations? This is very important.
– Do you have sufficient experience and training to operate a successful business.
– Have you prepared a loan proposal and business plan that demonstrate your understanding of and commitment to the success of the business.
– Does the business have sufficient cash flow to make the monthly payments on the amount of the loan request?

At the end of the day, the bank is only concerned with getting paid back. They don’t care that your business will be the next Facebook or Apple. And in today’s world banks are very cautious about lending. You have to have either a pristine set of financials with crazy amounts of cash flow or you have sufficient collateral to secure the loan. Remember to watch out. Even the hum drum world of banking can have its share of pitfalls.


Hello Moto – Droid 4 released

by BizM on February 14, 2012

Motorola Droid 4 Review
I love my Motorola Droid X. I use Google Apps at work and it integrates seamlessly. Love it for business. I’m not so impressed with Google Apps integration with the Apple iPhone 4 though. My coworker uses an iPhone and it’s cranky when it comes to Google Apps.

Since I’m sticking with the Android format, I’m now tempted by the Droid 4. What’s tempting me? The redesigned keyboard. I miss my Blackberry Bold keyboard, software keyboards just aren’t the same. Software keyboards are the Turkey Bacon of keyboards. Yuck. But the reviews are looking good on the Droid 4 and I may have to stop by a Verizon store to check it out.

I like this series of Droid 4 reviews by TechCrunch. They’re doing their review a little different. Instead of posting a “review” after spending just 24 hours with the phone like other sites, TechCrunch is living with it for a week, publishing several articles on it and then concluding with a full review after actually living with the phone for a while. Nice, I like that method. I guess one big issue they have with the Droid 4 is that it doesn’t have a removable battery. That’s not a deal breaker for me since the alternative, the iPhone 4S, doesn’t have a removable battery either.

All in all, first impressions make the Droid 4 look great for the power users and enterprise market.



by BizM on February 13, 2012

A B CAn accounting professor(the one I actually liked) once told me that, “The C students start the businesses, the B students work for the C students, and the A students can’t handle the real world so they go back to school to become teachers“. After dealing with people in startups and corporate life, I would have to say she’s correct.


Yes! Finally I can upgrade and give my iPad 2 to my wife and kids. I hate sharing…
Apple iPad 3 Release First week of March
According to AllThingsD, Apple is setting the stage for an iPad 3 event in March. Exciting news? Yes No?

I was hesitant at first to use the iPad for business purposes. But now I use it for Go To My PC, taking notes at meetings, Evernote, killing time with Words with Friends, etc. It really is becoming a must have tool for businesses.

How do you use your iPad in the workplace?


Financing Your Business – The 3 F’s

by BizM on February 8, 2012

Do you want someone to loan, invest or donate money to your business? Good luck.

In this series I’ll discuss the different types of investors, what the investors are looking for and what type of company fits with each investor.

Today I’m starting off with the oldest type of financing known to man; the 3 F’s.

Financing Your Business

What a nice family...don't mess it up

THE 3 F’s
The 3 F’s are Friends, Family and Fools. Getting a business loan from an Uncle, an old college roommate or some unlucky dope from the local watering hole has been around since the beginning of time. And let’s face it, these type of financing arrangements aren’t loans. The loans almost never get paid back and you end up ducking out at Thanksgivings, college reunions and the local bar to avoid seeing the unlucky soul who lent you money.

What is the 3 F’s investor looking for?
To get paid back! These type of loans are typically interest free and the person loaning you the money is usually giving you the money out the kindness of their heart.

For instance, Aunt Sue loves her only nephew dearly and wants to see him succeed in his new business venture so she forks over $10,000 in seed money. Great story, but Aunt Sue is living on fixed income and really can’t afford to loan the $10,000 but she’ll give it to you anyway because she trusts you. Ugh, please don’t get into this situation. Make sure Aunt Sue knows that there is risk involved in your business and it may not succeed and she wont get paid back.

Also use sites like Lending Karma or Virgin Money to manage the loans. Even though the loan is “in the family”, by keeping it official it keeps everyone honest.

What type of business are the 3 F’s good for?
Startups are the typical recipient of 3 F loans. If you’re a mature business, try a line of credit or a bank loan. Otherwise it turns messy.

This is business financing of the last resort. Remember folks, don’t take money from the 3 F’s unless you’re willing to never see that person again. The process of loaning money puts a lot strain on the best of relationships, so it’s not to be taken lightly.


Ass U Me

by BizM on February 8, 2012

When I was in college a professor(accounting teacher no less) told me that “When you assume, you make an Ass out of U and Me“. Although I don’t think that’s true because I’m pretty sure he’s still the ass.


National Entrepreneurship Week

by BizM on February 7, 2012

What was that? You haven’t heard about National Entrepreneurship Week? Have you been living under a rock for the last 6 years?
National Entrepreneurship Week
That’s right folks, the 6th Annual National Entrepreneurship Week kicks off next week and is going to be legen….wait for it….dary. And yours truly will be a volunteer panelist for the “Calling all Entrepreneurs” workshops in my area.

If you’re a startup, or small business, E-Week is a great chance to grab some free advice. For instance, the state I’m in holds several workshops for business people and the focus ranges from Creative Economy to Finding Investors to Lemonade Day.

Lemonade Day? What’s that? Lemonade Day is an entrepreneurial educational initiative designed to teach children, ages 5-15, how to start, own and operate their own business using a lemonade stand as a vehicle. It also teaches kids fundamental lessons about life, success and themselves. FREE for kids, this program unites a network of youth support organizations, and brings out the entire community to support tomorrow’s entrepreneurs. In other words, total awesomeness.

I love volunteering for this event. It’s great to get out on the front lines of business and meet all of the enthusiastic entrepreneurs. Unfortunately most of them wont actually go into business or succeed(even mildly). But I’m always happy to help out where I can and it’s a great feeling to see a successful business come out of the program.