Tag Archives: Entrepreneurship

‘Treps Funded Through Future Earnings

Previously, I blogged about Ami Kassar’s views on the state of small-business lending. Kassar, the founder of Multifunding, feels that we need to find a way to “break through the gridlock in order to open up access to reasonably priced capital for small-business owners and entrepreneurs.” He is a big advocate for alternative lending approaches.

multifundingIn a newer post from last week, Multifunding’s founder goes so far as to recommend the creation of new financial products with entrepreneur and small business needs front of mind. Here’s his concept: change the rules so that “loans” would have a component that allows lender to be repaid through the entrepreneur’s future earnings. Then, he takes it a step further to recommend that the earnings pay back continue regardless of where the entrepreneur goes in terms of employment, running a company, or starting another one. In his own blog, Kassar elaborates that the payments would need to continue until the obligation to the lender was satisfied in full. Quotes from the NY Times blog post last week appear below:

While I am sure that many will consider this idea controversial, it’s also fairly simple. If you are an entrepreneur looking for a loan, and you have enough confidence in your business or idea, you should be willing to pledge to pay a percentage of your future earnings — regardless of whether your current idea succeeds — until you have fulfilled your obligation. This way, the lender is betting not just on a particular company or idea but on a person, one who is willing to put his or her neck on the line.

Perhaps this financing could be offered by Federal Deposit Insurance Corporation-regulated banks that could leverage their low cost of capital to help small businesses. Of course, this would require federal bank regulators to think outside of the box, but a form of this type of financing exists. It’s called revenue-based financing, and it involves a lender’s making a loan to a company in exchange for a future piece of the company’s revenue. In this case, the financing is tied to the success of a specific company, and not to the future of the entrepreneur. And it comes with expensive rates.

The market clearly needs new forms of collateral in order to keep rates reasonable and in check. In today’s environment, many small-business owners are forced to use their homes as collateral — but with so many homes underwater, many entrepreneurs do not even have that option. The upshot is that this “collateral crisis” either stymies innovation or forces the entrepreneur to obtain capital from an alternative source at very high interest rates.

In the new model I am proposing, because the lender is assured of a piece of the entrepreneur’s future earnings regardless of whether the current business succeeds, the lender should be willing to be more flexible with terms and rates. And finally, the mechanisms to enforce these loans do exist. If we can track down deadbeat fathers for a piece of their future earnings, we should be able to do so with entrepreneurs.

Like the blog author, I wonder if entrepreneurs would be interested in such a loan. To offer up future earnings as a form of collateral seems drastic–unless you really believe that you have some great ideas in you. The upside, as Kassar presents his case, is an interest rate that is lower, though the term would likely be longer. Lenders, on the other hand, seem to be better protected against entrepreneurs who jump ship, but may have to wait longer for repayment. What are your thoughts about the approach?

 

Consider 8 Ways to Start a Business

Through the non-profit EntreDot, I have the opportunity to work with entrepreneurs on a daily basis who are trying to commercialize a business idea. Yet, some people are concerned about their ability to generate original ideas. Last week I had the opportunity to attend a book club meeting in Charlotte, courtesy of BiG Council. The book being considered was entitled Idea Stormers, written by Bryan Mattimore. Bryan shares ideas for brainstorming that can help most anyone in any situation generate new ideas. While some of his methods are whimsical, others are more structured–something for everyone!

In a blog post for Entrepreneur.com earlier today, Jane Porter tackles the challenge of coming up with good ideas to start a business. She cites Stephen Key, the cofounder of inventright.com, and author of One Simple Idea for Startups and Entrepreneurs: Live Your Dreams and Create Your Own Profitable Company as an authority on the subject.

Porter considers the following 8 methods significant from Key’s work:

Ask yourself, “What’s next?”
Think about trends and technologies on the horizon and how you might move into those areas, says Sergio Monsalve, partner at Norwest Venture Partners, a Palo Alto, Calif.-based venture capital group. He suggests, for example, thinking about innovations related to the living room and home entertainment systems now that companies like Apple are developing new television technologies. “What can that mean in terms of new ways to live in your house and be entertained?” he says.

Do something about what bugs you.
When Colin Barceloux was in college, he thought textbooks cost far too much. In 2007, two years after graduating, he decided to take action and founded Bookrenter.com, a San Mateo, Calif.-based business that offers textbook rentals at about a 60 percent discount. What began as a one-man operation created out of frustration now has 1.5 million users and 200 employees. “You just have to look at what frustrates you,” he says. “There’s your business idea right there.”

Look for new niches.
Take a look at what some of the big players in an industry are missing and figure out if you can fill the gaps, Key says. In 2003, for instance, he started the company Hot Picks, now based in San Jose, Calif., after realizing the major brands in the guitar pick industry weren’t offering collectible novelty picks. Key designed a skull-shaped pick that filled an empty niche and was sold in 1,000 stores, including Wal-Mart and 7-Eleven. 

Apply your skills to an entirely new field.
Think about your skills and whether they might be useful in a new area, suggests Bill Fischer, professor of innovation management 
at IMD
, the top-rated Swiss business school, and co-author of The Idea Hunter: How to Find the Best Ideas and Make them Happen (Jossey-Bass, 2011). Consider, for example, JMC Soundboard, a Switzerland-based company that builds high-end loudspeakers. Jeanmichel Capt invented the speaker by applying his experience building guitars as a luthier, using the same resonance spruce to create a loudspeaker that produces a high-quality sound and looks like a sleek wood panel. 

Find a category lacking recent innovations.
For example, when he realized there were few new developments in the product information label business, he created Spinformation, a label consisting of two layers—a top layer that rotates with open panels through which you can see, and a bottom label that you can read by spinning the top layer over it. Companies needing to fit more information about a medication, for example, could use the extra label space for the details.

Make a cheaper version of an existing product.
Take Warby Parker, an eyeglasses company launched in 2010 by four business school friends. The New York-based business sells prescription glasses, which are typically priced at $300 or more, for $95. Since its launch, it has grown to 100 employees.

Talk to shoppers.
If you are interested in mountain bikes, hang out in the aisles of sports and bike shops and ask customers what they wish they could find in the marketplace. If you’re interested in developing an e-commerce business, consider sending an online survey to potential customers to learn about their needs and interests.

Play the mix and match game.
Walk up and down the aisles of a drug, hardware or toy store combining two products across the aisle from each other into one, Key says. That should spark quite a few ideas, but be prepared for most of them to be bad. “You will come up with all these horrible ideas, and every once in a while you will find some brilliant idea out there,” he says.
 

Do these concepts stir your creativity? Great! Go start a business – EntreDot would love to help!

 

Avoid Deskitis

Business owners are a very interesting breed. In the early days, when they are most entrepreneurial, most are willing to do “whatever it takes” in order to get the business off the ground and well established. The average executive at this point in the life cycle of a small business wears every hat and can predictably be found doing dirty jobs because there’s no one else there to do them. As the business experiences a little success, hirings are made and there are others to whom some tasks can be delegated. At this point, the owner may still take on tough assignments like outside sales, negotiating contracts with vendors and customers, and handling sticky customer service situations. If the business grows beyond the first 5-10 employees, some specialization of labor begins to occur and the owner should be smartly stepping away from  business disciplines that don’t match what I’ve heard referred to as “motivated ability.” 

However, it is very common that a business will hit a plateau at some point in it’s first several years. When this occurs–whether due to changes in the competitive environment, or simply apathy on the part of the original 5-10 employees, it is time to do something that hasn’t been done in a while. One must roll up his sleeves and get the job done. What job? Spending time outside the office, talking to customers, suppliers, even competitors in an effort to determine what is working and what is not. Why don’t most executives do this? It can be attributed to an acute case of deskitis.

desk chainIn case you are not familiar with the term, deskitis is an affliction in which the infected feels attached to his desk at work and that prolonged contact with the desk will resolve all problems known to man. You chuckle only because you’ve encountered people who suffer from the malady described and it seems to you to be as trivial as the common cold. Unfortunately, this is a very severe disease and must be treated with the utmost care and concern.

Who are the prime sufferers from this affliction?

  • Billable hour professionals who think that billable work is more important than community involvement, networking, and relationship maintenance.
  • Owners of a trade business (one that relies on a specific skill that is often learned through apprenticeship)
  • Any executive in a small business whose base compensation is over six figures per year

What can be done to counteract onset of the condition known as deskitis?

  1. Leave the office, damn it!
  2. Visit someone who is important to the success of your business–
    • a referral source
    • a client
    • a fellow board member of a non-profit
    • your attorney, CPA, banker (as long as they are not going to charge you for the appointment)
    • your spouse
    • an association executive in your industry
    • someone who is a good networker
    • the local chamber of commerce executive
    • your friendliest competitor
    • a supplier
  3. Ask the other person what they think about the direction of your niche market.
  4. Take notes!
  5. Ask many follow-up questions; you do not know it all!
  6. Buy their lunch, coffee, etc; thank them; ask what you can do for them in return.
  7. Go to your vehicle and review your notes.
  8. Identify what new questions come to mind, what nuggets you’ve found, and actions you think you should take.
  9. Review your lists the very next day with your leadership team.
  10. Reinvent your business continually!

Hope that these suggestions are helpful to you. As a business development mentor, organizational development consultant, and management succession resource, I observe deskitis more often than I should. Don’t become a statistic–become vigilant instead!

 

Succeeding As the Little Fish in the Big Pond

When you set out to start a business, you can’t possible anticipate all of the challenges that will be faced. Many, many days you will find that something totally unexpected can come into your world and dominate your thoughts, perhaps even threatening your livelihood. However, most every entrepreneur knows that they start out the underdog. It is your job number one to figure out how to compete with the market leaders, outfoxing them when you can to carve out enough market share to pay your employees and pursue your dream.

First to market can be a hard advantage to overcome. Note – not impossible – just hard. 

little fish quote The Office imageWriting for Inc.com recently, Mayra Jimenez described how she and her husband found a way to compete with “the big dogs” in their industry. Her designer swimwear business, The Orchid Boutique, has grown nicely into a multimillion-dollar business. Here are some of the insights she shared earlier this week:

Separate “professional” from “robotic”

Larger companies tend to present themselves in a rather corporate manner. Their frosty approach gives you a chance to charm the market with your personalized company story. Clients want to feel they are shopping with a company that cherry-picks their products or personalizes their services in some manner. Casualness and customization are not your enemy! Take advantage of the fact that your ideas don’t have to go through a string of departments to get approved, and make it as personal as you can.

React quickly to industry trends

The most important advantage that you have over your competitor is your ability to react quickly. The bureaucracy of large teams and approval processes are tedious and time-consuming. While your senior competitor moves like an elephant, you’re a vibrant cheetah running rapidly towards your next milestone. Stay abreast of innovative strategies and implement them. This is especially important in ecommerce, as blogging, videos, and social media have changed the rules of converting browsers to customers.

Push the boundaries of your industry playbook

Let yourself think outside the box. Way outside the box. Be bold. As long as the end goal is increasing profit or branding, go for those ideas that sound crazy. Monitor the results closely, and if it’s not working, change it, cheetah.

Consider Mayra’s recommendations in your own business. How can you improve the customer experience to be more friendly, less obtrusive, an easier to navigate? When technology or another factor causes your market segment to shift, how can you respond nimbly and be on the cutting edge of innovation (though not out in front, as that often carries unnecessary risks)? All too often, established companies suffer from the “TTWWADIH” syndrome – that’s the way we’ve always done it here. Since you don’t have as much history, use it to your advantage and brainstorm new approaches that make sense for you, your team, and your target customer- without the constraints of worry about whether it will seem outlandish! 

Long ago, I heard the saying, “when small, act big; when big, act small.” The adage is just as wise today as it was when I first heard it. Think about how you can copy the things you like about your competitor but outmaneuver them in a subtle myriad of ways.

Becoming an Overnight Artisan Success in Only 5 Years

When someone is touted as a wunderkind in any line of work, many line up to try and figure out how success was achieved. So many become disheartened when their passion or education does not produce immediate results. While most recognize that success does not come over night, it is not at all uncommon for an artist or artisan to go from unknown to well known in a short amount of time. Achieving recognition, however, is a cumulative process. How does one go about doing so on a shortened time horizon?

Fundamentally, an entrepreneur in this space must be willing to undergo wholesale change. It’s not enough to become masterful at creating great designs; without the corresponding strategies to maximize business operations and processes, success will be hard to come by. Too few artisan entrepreneurs take the time and make the effort to understand that sweet convergence of operational, artistic, and marketing opportunities. Those who do create value that is appreciated by the target market.

If you seek to identify and serve target buyers with relevant offerings, create cross promotions with other artisans and handmade entrepreneurs, and craft an airtight plan to execute your strategies, you will be far ahead of the average artisan. Hopefully, your artisan start-up will resonate with the target market, sales revenues will provide the opportunity to grow your team, and you can become strategic about roles and responsibilities. In addition to your design, production, and sales efforts, you will need to task team members with the following responsibilities:

  • strategy
  • vision
  • marketing
  • advertising
  • social media
  • partnerships
  • scheduling
  • logistics

artisan potterObviously, one person cannot handle all of these important roles for very long. That’s precisely why a focus on sales, production, and design early will help create the capital structure to build a team.

If the skill sets listed above are foreign to you as an artisan, you are not alone. Those with degrees in the fine arts, and related disciplines have been prepared to pursue a skill, but not necessarily a business. More importantly, planning, confidence, and diligence go a long ways towards helping you execute on your idea. Since many artisans are not prepared through educational instruction to be proficient in such things as negotiation and team work, they have to learn these things from a mentor. Please find a suitable mentor with a background different form your own who understand business principles well enough to guide you into disciplines that are needful but likely unfamiliar!

Basic business principles in marketing, communications, customer service, selling, and relationship management are undervalued in the art and design community. Disciplining yourself to learn and apply nest practices in each of these principles will yield wonderful results. Very, very few artisan entrepreneurs are able to transition from hobby to avocation to employing others. For you to be more successful, you must work on the business side of your brain, engaging more left brain convergent thinking.

Friends who have been successful in the arts community have told me that, not unlike big businesses, change is hard for an artist. The willingness to tinker with what you make, how you describe it, who you make it for, how you determine who will buy it, how you promote your wares, how you replicate success, and how to transition from sole proprietor to small business are all based on being able to hold your talent with an open palm. Objectively stepping back from your creations to seriously consider who may appreciate them will, by nature, cause you to think differently about what you are making, how you are making, and what it will take to sell enough to pay not just yourself but others.

Best wishes on your journey!