Startup Nation Summary

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Startup Nation

Authors: Jeff Sloan & Rich Sloan

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Chapter 1: Now Is Always the Best Time to Start Up

5 Reasons To Start A Business Now

• Technology levels the playing field between you and big business.
  • Software
  • Wireless communications
• Today, the phrase “corporate job security” is an oxymoron.
• The internet provides an unprecedented opportunity to start an online business at minimal cost.
• Like never before, business can be done from home.
• Corporate outsourcing to smaller businesses creates an abundance of opportunities.

40% not 80% of businesses make it past the 5-year mark.

Most single-person businesses start up with an average of $6,000 in capital.

Chapter 2: How We Started Up and What We Learned Along the Way

Project Management – Viewing the progress relative to the development plan John had created at the outset of the project. This discipline kept us organized and on schedule.

Chapter 3: Plan Your Life, Then Plan Your Business

Planning your life before you plan your business is a sure way to ensure that your business will take you where you want to go in life.

List out your fixed personal expenses, decide what is a necessity and what can be cut. Determine a minimum cost of living for yourself.

The average business owner makes an estimated $112,800 a year. That’s more than twice as much as the annual salary of non-executive employees and far above the median household income.

Write a list of your greatest accomplishments.

List your strengths and weaknesses.

Four Major Skills:

• Great selling skills
  •        Enjoy being around people.
  •        Easily accept rejection and move on.
  •        Love the feeling of closing a deal
• Marketing Skills
  •        Ability to appeal to peoples needs and wants
  •        Gets gratification from seeing their ideas have their intended effects in the marketplace.
• Creative skills
  •        Thrives on creativity
  •        Enjoys problem-solving
  •        Enjoys the process of invention but not necessarily selling an invention or idea
• Analytical skills
  •        Enjoys thinking through existing systems and processes and making them work better.

SUPER STARTUPS: An Introduction

All of the super startup companies described take advantage of technology and depend heavily on outsourcing functions like accounting and logistics, an important and growing trend in business these days.

SUPER STARTUP #1: Devine Color, Inc.

A woman is an artist who does canvas work and then begins painting homes. She realizes she needs her own custom paints and decides to make a business out of it. She pursues one of the larger manufacturers of paint and is turned down but gets accepted by a smaller lesser known supplier. She creates her own brand with her own custom colors and gets into several local retail paint stores. Eventually, she signs a contract with the larger manufacturer she initially pursued.

Key moves:

1. Focus – She knew her strength was in the branding and this is where her focus stayed.
2. Positioning and Innovation – She positioned herself as an expert in color and design and used that to create strategic partnerships and marketing buzz.
3. Outsourcing production – She worked with a supplier for the paint itself.

Chapter 4: Types of Business – What Fits You? What’s Hot?

• E-commerce
• Ebay-preneurship
  •        Large, targeted market
  •        In 2004, eBay estimated more than 430,000 people were making a living selling goods on ebay.
  •        135 million users in 28 countries
•  Franchising
  •        Business in a box. Proven concept
  •        Lose a share of revenue and control
• Home-based
• Brick and mortar
• Multilevel marketing
•  Licensing
  •        The licensee takes the risk of production and marketing and keeps the lion share of profits, paying the licensor a royalty of 5% to 10%.
  •        If your idea isn’t patented, try to get a confidentiality agreement before submitting proprietary information to anyone or company.
  •        Try networking into the company and find an internal advocate for your idea.
  •        Saying “no” is a safer choice for big companies than taking on new products. Anticipate and address concerns
    “Not invented here” syndrome at big companies can be difficult.
  •        If you are offered a license agreement, be sure to consult with a trustworthy specialized attorney.
  •        Always negotiate a “minimum” annual royalty payment, which you will receive whether or not the company is making sales of your product.
  •        “In general, “net” royalties are calculated against the gross price of the product mines shipping, insurance, taxes, and an allowance for returns. But “net” is a subjective term, so defining it is crucial. You may have to agree to a marketing allowance, usually not more than 5 percent. The licensee may also want to amortize the capital costs of tooling if your invention has to be manufactured. Just be sure you don’t let the licensee include general costs of doing business, such as salaries or rent, in their calculations of new royalties. And never let them talk you into a royalty arrangement where they have to make a profit before you get your money. You’ll end up never getting paid.
  •        Always negotiate a “minimum annual royalty” payment, the minimum amount the licensee must pay you even if they don’t sell a single unit. With this requirement, they either pay this amount or lose their exclusive rights to the product.

Key elements of “hot” businesses

• They address a “screaming need”. Something the market really wants already.
• Find a niche and fill it.
• Streamline your operations. Example: Dell
  •        Sells over the internet, cutting out retail expenses
  •        Customer-financed just-in-time production of each computer
  •        Pays its suppliers on 30-day terms
• Leverage technology
  •        This edge allows online retailers to keep costs low as opposed to their brick and mortar brethren.
• Kick up your customer service
• Be the expert in your industry
• Monitor the trends; macro and micro
  •        The graying of America
  •        Women and Hispanics are examples of population segments that have ever increasing buying power
  •        Desire to be more healthy and more spiritual
  •        Mentoring is becoming highly desired
  •        Disintermediation – Cutting out the middleman

SUPER STARTUP #2: SkyDeck Industries, LLC

Stats

• Founded in 2002
  2.4 million in revenues in 2004
  5 employees

Idea: Re-engineer the roof of RV’s to become outdoor living room.

Inventor, Frank Messano struggles through the patent process, creating the prototype himself and getting the door slammed in his face by manufacturers. He goes to a trade show where it is a hit and then gets the ensuing contracts.

Key moves

1. Protected his product though patents, this also adds value.
2. Due diligence on market research, new the industry well before approaching manufacturers.
3. Frank built the prototype himself.

Patents

• The real power of a patent is in the claims section. You want the broadest claims that will stick and be passed by the patent office.
• A provisional patent will serve as a temporary placeholder that requires less money and information but is not seen by an examiner.
  •        What you claim in the provisional patent must be included in later full filing.
  •        A provisional patent only lasts for one year.
• Patents last for 20 years from the filing, but there are specific dates and fee schedules that you must keep track of to keep your patent active during those 20 years.

Chapter 5: Creating the Perfect Business Plan for Yourself

Keep all of your early brainstorms, even what doesn’t make it into the finished business plan. They are often ripe with ideas about future products and services.

The Defining Dozen; 12 questions that lay the groundwork for a strong business plan

• What is your idea?
  •        Clear and concise. Layman’s language
• How does your idea address a need?
  •        Is your idea revolutionary (more upside, greater risk), evolutionary (less upside, less risk), or simply copycat?
• What model suits you best?
• What’s so different about what you offer?
  •        Do heavy market research, know your competitors
  •        You have to be the expert in your field
  •        Focus on the strongest distinctions for your product, service or business
• How big is the market and how big will you grow?
  •        Think of your target audience like an archer’s target with the different rings representing different tiers of customer need. Focus on the smallest likeliest target first then move out.
  •        Be realistic and know your market well.
• What’s your role going to be?  What part will you play in the business
• Who’s on your team?
• How will your customers buy from you, and how much will they pay?
• How much money do you need and how much will you make?  Detailed expenditure and revenue projections.
• How will you measure success?
• What are your key milestones?

The Formal Business Plan

•        Looks Matter in terms of your presentation
•        Executive summary: concise, 2-4 pages.  Build your case. Need in the market place and how your business uniquely meets that need.
•        Business description: complete, detailed description of the business (key suppliers, strategic partners, facilities etc.) Contrast yourself from other providers. Give facts and figures, cite your sources.
•        Market analysis: comprehensive research of target market. Cite your sources. Hammer home your competitive advantages. Include milestones.
•        Marketing and Distribution: start to make your case. How you will sell your idea or product.
•        Personnel: who is on your team?
•        Exit strategy: the ultimate destiny of the business.
•        The Financials:
  •        Written narrative of key business assumptions
  •        Income statement – P&L
  •        Balance sheet
  •        Statement of cash flows
  •        Cash management report

Key takeaway: “No matter how tightly you plan the first year in business, in the real world there will inevitably be variations in the amount–and timing–of revenues and expenditures.  How sensitive to these variations will your business be?”  This is the key consideration. Too little cushion and your business will be at risk.

Your Elevator Pitch (answers the following questions)

1. What’s the idea?
2. What’s the status of your idea?
3. What market need does your idea address?
4. What feedback do you have indicating you’re onto something hot?
5. How are you going to get people to buy what you offer?
6. What’s special about you or your team?
7. What’s the total funding you’re seeking?
8. What’s the funding strategy?
9. What’s the projected return on investment?
10. What’s next?  Finish with a strong question like “Can I walk you through my business plan – it really outlines how big this opportunity is.”

Business entities 

Sole Proprietorships

•        Easy to start and maintain
•        Low cost
•        No double taxation
•        Personal-liability exposure

 Partnerships

•        Allows for multiple owners both active and passive
•        Provides liability protection for passive owners
•        No double taxation
•        Personal-liability exposure

 Corporations

•        Well-know and universally understood
•        Low-risk liability
•        Can sell stock to investors to raise money
•        Expensive
•        Must be detailed and meticulous in accounting, taxation and reporting matters
•        Double taxation

Limited Liability Companies

•        Low risk of liability
•        No double taxation
•        Can have multiple owners both active and passive
•        Not as widely known or recognized in Texas

SUPER STARTUP #3: Fresh Baby, LLC

Stats

• Founded in 2002
  $300,000 million in revenues in 2004
  2 employees

Idea: Create a business based on making homemade baby food and promote it as an answer to childhood obesity.

Cheryl Tallman decided to create a business around homemade baby food. She ruled out production and decided to sell a kit. She slowly gained more and more distribution by marketing her product as a solution to childhood obesity.

Key moves

1. She used grassroots marketing with the obesity route as opposed to costly paid advertising
2. She outsourced the bookends

Creating your own brand

Create a “marching brand”

•        First, identify your brand attributes
•        Understand your target audience
•        Promote your brand consistently across the board.
•        Create a quality logo
•        It’s more cost effective to develop a two-color logo vs. four color.

Create a web presence, Key questions to ask

•        What will the maintenance cost be?
•        Where will the site be hosted?
•        Will the site be optimized for search engines?

Creating demand for your brand

Grassroots marketing

•        PR – can generate editorial content that you don’t pay for
•        Establish yourself as an expert or go-to guy in your field
•        Promotions; often useful and effective
•        Direct mail
•        Email communications
•        Networking: join groups and associations important to your business

Chapter 6: Finding the Funding That’s “Just Right”

The Goldilocks approach – Finding the right funding for your specific needs.

Financing options

• Bootstrapping
  Debt Financing
  Angels
  VC’s

First find out what you need money for, and when you’ll need it.

•        Build off of the financial needs projected in your business plan. Spend every dollar wisely.
•        Timing is critical.  Will vary based on your business model. See chart on pg 189 for difference b/w high-tech, fast-growth businesses and most other businesses.

How much money do I need?

•        See cash-flow projection in business plan.” If you believe you’ve accounted for the most critical and the most necessary expenses in your forecasted budget, and if you believe your revenue projections are conservative and accurate, your cash flow projections will indicate when cash shortages will likely occur and by what amount. Make sure you’ll have sufficient capital to help you get through these shortfalls.”
•        Bootstrapping – use of your own money to jumpstart your business.

Getting the money w/o giving up equity

•        Traditional debt financing. Banks will want to see evidence that the business is viable. Always confirm that you understand the terms of the loan completely.
•        SBA Loans
  •        7(a) Loans issued by banks but backed by the SBA. They can be used for working capital and fixed assets
  •        504 loans – These loans are clearly earmarked for fixed assets such as land, buildings, major equipment etc.
•        Friends and family.  Your relationships will change.  Be upfront about strategies and risks.
•        Using your equity to raise money
•        Angel investors
  •        Usually $25,000 to 1 million
  •         Upside
    • Will invest in pure startup
      Will invest in equity
      Mentorship
      Patient
  •         Downside
    • Hard to get their attention
      You give up equity
      You lose control
      They want formalized reporting

Do your homework and don’t lose control.

•         VC’s
  •  Upside
    • Usually 1 million and more
      Good source of additional funding once their in
      They’re helpful in bringing about exit opportunities for the
      business
  •  Downside
    • Rarely invest in pure startups
      Typically require you to already have experienced management
      and the beginnings of revenue
      They require a significant amount of control
      Exit strategies are usually a sale or IPO

SUPER STARTUP #4: Cirrus Design Corporation

SUPER STARTUP #3: Fresh Baby, LLC

Stats

• Founded in 1986
  190 million in revenues in 2004
  900 employees

Idea: Build safest, most consumer-friendly small airplane in the industry – complete with a parachute that can be deployed in case of emergency.

Klapmeier brothers build several prototypes, all of which blow up or have problems. They raise funding via angels, friends, and general investors to get the business off the ground. Though they had many setbacks they eventually got 100 million in VC and since then have been able to dethrone Cessna as the #1 in their industry.

Key moves

1. Perseverance
2. Listening to customers
3. They became experts in the FAA code in order to get certified
4. They used creative means for raising funding

Chapter 7: The Power of People

Power Brokers wield influence and are powerful allies

Find people with proven skills

Find people with potential

3 important HR pointers

1.        Don’t try to fit round pegs into square holes
2.        Don’t promise what you cannot deliver
3.        New blood can turn into bad blood

Keeping great employees

•        Recognize the whole team
•        Communicate more than you think you need to.

The value of mentorship

•        Find someone who can lend an experienced, critical eye to your business.
•        Consider structuring your interaction

Do not forget your customers

•        They pay the bills.  Your business cannot survive without them.
•        Customer service pointers
  • Communicate your CS vision statement to your employees
    Make CS real, put systems in place to ensure good quality
    Define what you mean by customer service and measure the results

Bottom line

• Mediocre people typically cannot make even the greatest idea into a success, whereas great people can make even mediocre ideas succeded.
• Build a solid team
• Focus on your customers

SUPER STARTUP #5: Garden Fresh Gourmet, Inc.

Stats

• Founded in 1997
  12 million in revenues in 2004
  80 employees

Idea: Create a fresh salsa with no preservatives that tastes so good it flies off shelves.

Jack Aronson had a restaurant where he made salsa that was very popular. It ended up being so popular that he closed his business just to produce it. After winning several salsa awards, he decided to sell the salsa at grocery stores etc.

Key moves

1. Extensive use of customer feedback
2. He found a niche with fresh salsa as opposed to competing against the already heavily saturated non-fresh market.
3. He stayed close to the front lines of his business
4. Low price for a premium product.
5. Grassroots marketing

Chapter 8: Get Ready! Get Set!

In your first year of business, work from your heart and keep you mind in the game.

Five things to help you succeed

• Be bold.  Don’t become complacent. “Just because you’re on you way doesn’t mean you can put your business on autopilot.”
• Keep the entrepreneurial spirit alive. See suggestions on pg 250ff
  •        Jumpstart the vision
  •        Communicate the vision
  •        Create a culture of entrepreneurship
  •        Stamp out the 9 – 5 mentality
  •        Organize the Org chart
  •        Remember to reward the entrepreneurial behavior
• Keep innovating by listening to customers and tracking competitors.
  •        “Avoid the common pitfall of innovating without receiving feedback from the market.”
  •        “Beware of competing only on price.”
  •        Watch the competition
• Work hard and work smart
  •        Take 5 minutes at night and 10 in the morning to assess an plan for the upcoming day.
    Delegate early and often.  Break away from the attitude that you’re the only one who can do it right, esp. if you have built a strong team and have accurately assessed your own strengths and weaknesses.
    Focus on the things where you create the most value.
    Get rid of inefficiency.
    Remember the three categories of relationships: customers, employees, owners (CEOs of communication).
• Constantly manage your burn rate.

• Strategies to Optimize the value of your business

  •        Develop a committed and capable team that could continue on with the business after the sale.
  •        Build solid relationships with vendors, retailers, customers.
  •        Establish customers and contracts that generate recurring revenue.
  •        Develop a marching band.
  •        Develop a portfolio of proprietary products and the patents and trademarks that protect them.
  •       Avoid overburdening your business with debt.
  •       Take a lower salary over time. Instead of milking company profits along the way, plow to profits back into the company in order to position yourself for a bigger payoff at exit

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