Session #1

Next week's class, on January 30, 2008, will be in a computer lab room 101. Don't forget to bring your library cards!

The one-night class "So you want your own business" is designed to help people to decide if they really want to go into their own business or not. This course assumes that you have already made that decision (although a few here are still deciding). Anyone here already have a business?

This first few weeks will focus on the things that need to take place first: researching and evaluating your business idea and market. It will also tell you the mechanics of filing the forms to start and we will talk a little about legal forms of business. it is easy to start a business - very simple and only about $100. Much harder to actually succeed.

The last 4 or 5 sessions will focus more on the skills that you will need in order to stay in business: finance, marketing, business planning, hiring, etc.

Why we spend time on preliminaries when reality is that most people just dive in. This class, besides teaching you the mechanics of starting a business, attempts to motivate you to think like an entrepreneur. That is why this particular textbook was chosen. The trick: to always keep in the back of your mind the idea that you need to make money and, ultimately, everything should support that goal. Classes are a blend of information from the book and from other sources. And, of course, we will go over things that are particular to the state of Ohio.
• preliminaries might seem a little boring or irrelevant when you are itching to get started or if you already have a going business BUT can make the difference between success and failure
• if your business is already up and running, a feasibility analysis could show you where your strengths and weakness lie and help you move in a direction which will be most advantageous to your continuing success
• if you are considering adding products or services, a feasability analysis can help you determine if your idea is a winner and help focus on the most marketable aspects of that ideaHELPS REDUCE RISK.

I. What makes an idea successful
• class members’ business ideas
• jar exercise - write responses on the blackboard - look at an idea from different perspectives: opposites, turn around, make from different material, deconstruct, add to, modify, turn upside down, get wacky - develop the “unique factor” - important in marketing, will come up again later
• ideas are not opportunities - toy that cannot be mass-produced for example - you get lots of ideas every day - every time you solve a problem for example - commercial potential for it to be an opportunity

II. Develop an idea - TRANs
• look at all possible angles
• think, read, go to conventions and meetings, travel
• eliminate personal obstacles and excuses - creativity comes in many forms - criticism - do not fear but learn to differentiate between constructive criticism and “naysaying”- habits - pros and cons - find new ways of doing things - skills - confidence vs. egoism
• ideas do not have to be original – see page 38
• find a problem and solve it - book is full of case histories
• Loosen up - read case history on p. 40 - allow yourself to be creative - get wacky - play and have fun! - make notes about your ideas - review them periodically and push them around in different combinations
• invention nurseries - Battelle, SRI International, Arthur D. Little, etc. They develop ideas into products which entrepreneurs can commercialize. - inventors are not always good entrepreneurs - Battelle - a stodgy institution known for high flying projects in the sciences - like cancer drugs - invented the LAVA BUNS which was commercialized by a small company - they can invent and/or design a product based on your idea - costs $$$$ or a percentage of your business - works only if product can be mass produced - only 10% reach market - SCAM WARNING

Assignment: write a clear description of your business idea*** using 4 parts as described below

PROGRESSION: idea, opportunity, business concept
III. Testing your idea
• develop your business concept: a way to define an opportunity so that it can be tested through a process known as a feasibility analysis.
• four parts - customer (DEFINITIONS ON P. 47) - value proposition What is the benefit - how do you reduce pain / increase pleasure? - product or service - distribution channel
• money not included at this stage - an enabler and a success barometer
• you sell benefits not features - product definition should take heed of this - use language that is meaningful to potential customers - class exercise: separate benefits from features in jar exercise - spend some time jotting and sharing benefits of their own business ideas

IV. Quick test - use several
• get feedback from family and friends
• list pros and cons
• examine your own feelings carefully - how interested are you really? - are enough potential customers interested? - are people willing to pay?
• talk to people in allied or similar businesses
• Ask why me? why now? - are you well prepared to execute the concept, personally and professionally? - confidence, ability?- market timing good? - can your life support launching of this kind of project?

Assignment: perform a quick test*** Want to hear experiences in 2 weeks!

V. Feasibility analysis
• process where you test each component of your concept and arrive at the conditions under which you are willing to proceed
• not the same as a business plan altho there are some elements in common - business plan assumes that you have a feasible business concept and describes the company that you are going to create - feasibility describes concept and tests each component with decision about conditions for a feasible launch - go/no go at each step - a process of discovery where original concept is modified and refined - process acts to reduce risk and increase chances of success

VI. Elements of feasibility study- TRANS
• Executive summary - 1 or 2 pages with proof that customers want what you have to offer
• concept - description of your business concept including the 4 elements - customer, `product, value and distribution This is where you develop your 10 second commercial for your business idea. The concept should be concise and easy to understand. One sentence. Memorize it!!!!
• industry analysis - will the industry support your concept - trends, growth, competition, etc.
• market/customer analysis - define your segment and target niche. Find under served niche - easier to introduce new product. describe target customers and their needs. What distribution channels will reach these customers?
• genesis or founding team - where are you getting your specialized expertise? essential to prove capabilities to potential funders. Management competence
• product/service development - work flow, raw materials, sources, patents, manufacturing process, etc. For new products, must show that they can be mass produced so you will need to describe scale up from prototype.
• financial analysis - start-up to positive cash flow - not to profitability! know the difference? Also - where will money come from?
• feasibility decision - stop or go - go under what conditions - $$$ of funding? finding a partner?
• time line to launch - task list and due dates

Chapter 5 - Listening to What Your Industry Tells You
Next, we are going to explore where you go to get the information that you need in order to flesh out your feasibility study - information is not only for start-up or for new products but an on-going need: * to stay on top of industry trends * to stay on top of market changes in your area * to keep your skills up to date * to know what your competition is doing
- get in the habit of gathering information about your specific business and about general business conditions

I. Your book is strongly focused on internet sources and that is the easiest way to gather information
A. if you are not comfortable with computers - missing cheap and easy way to research - visit your library to learn - next week will explore - make friends with the research or reference librarian, s/he is there to help you - check out free classes for computer beginners - more advanced classes at Polaris
B. go over hand out: primary and secondary source information, library resources, etc.

II. Background - what you need to know before you go looking for information (how information will be utilized)
A. Product/business lifecycle: can be for an invention or product or for an industry; usually represented on a bell curve - Birth (beginning of curve) - Adaptation: refinement of product and marketing, proprietary protection within timeframe of patents (growth side of curve) - Differentiation, competition: loss of proprietary protection, more competition which produces greater product differentiation, added value, price drops, and so forth; standards established (infant electric industry and computer industry), increase consumer expectations for performance and value (top of curve) - Shakeout: increased competition eventually forces the weak out - survival of the fittest; either they leave the market or are swallowed by those higher on the food chain (downward slope of the curve) - Maturity: a few dominant firms; “cash cows” for the survivors of shakeout (bottom of downward slope)
B. Industry structure and its impact on your venture -
- carrying capacity, uncertainty, and complexity vs where on lifecycle for class discussion * extent to which an industry can accept more business * predictability or unpredictability of industry * number and diversity of customers, suppliers, competitors, etc.
- threats to new entrants - many : * economies of scale and capital requirements - high capital requirements mean that you are going to have to produce and sell a lot in order to break even; established companies that are operating near capacity have achieved economy of scale giving them lower fixed costs per unit of production and more leverage with suppliers * entry marketing costs - what will it take to overcome brand loyalty and buyer switching costs? will you need incentives for luring people to do things different or build new habits? what will it cost to establish name recognition in a market with well-established brands? * industry hostility and access to distribution channels can inhibit your ability to secure raw materials (competition and price advantages of quantity and established relationships) and supplies and your ability to get your product to customers; develop new channels of distribution - Leggs pantyhose example. * Government regulations - environmental, food and drug, local health codes, zoning, licensing for certain kinds of businesses and professions, etc. * proprietary protections - if you have something truly new that can be protected, it can give you time to get on your feet and garner some good profits; can also bar you from entering certain markets until protections expire.
- threats from substitute products also called indirect competition Elements Gallery example
- threats from buyers’ bargaining power: new entrants can’t purchase raw materials and supplies at volume rates and, therefore have to charge their customers more; need to show added value in order to do this successfully
- threat from suppliers’ bargaining power: where few suppliers or labor shortage you are in a seller’s market; real estate a common example when interest rates fluctuate
- rivalry among existing firms: price wars, etc.; characteristic of shakeout phase
C. Selecting an entry strategy
- differentiation: customers perceive that you have something better to offer; important to develop your product definition with “unique factor in mind; need lots of good market research in order to do this effectively
- niche: find an unserved or underserved portion of the market (define niche vs segment); easiest strategy for new businesses; need discipline to state clearly what you are and stick to it in order to establish recognition; need good information about your industry and about the needs of customers in that market
- cost superiority: IF you can be more efficient than your competitors; IF you are in a new industry where competition is on a level playing field; otherwise very difficult in an established industry because you need volume to realize efficiencies of scale

III. Understanding Your Industry
A. Beginning points - validity of information and the internet - use of SIC and NAICS codes - give credit to source: reader needs to know that info comes from a valid source
B. What information do you need? - most of the things we have already mentioned: where is industry on the growth curve? who are competitors? trends, patterns of change, seasonality? threats? most of this is fairly easy to get.
- also need to know about * new technology and research and development spending - how rapidly do products and services become obsolete? how rapidly does business change? * are there any new players in the market and are they having any success? under what circumstances? * what are the typical performance statistics for that industry? things like gross profit margins, average cost of goods sold, etc. If profit margin is low, you have little room for error. For established businesses, knowing average performance data can tell you if your business is on track and where your strengths and weaknesses are. Benchmarking against a representative business.
- competitive intelligence: * Direct vs indirect competition * Who is your competition? Yellow Pages; read advertising * How competitive is your marketplace? ~ are there a lot of competitors in your geographic area? ~ how far do people have to travel to get this product? how far are they willing to travel? ~ how many other business offer this product or service? ~ what is your indirect competition?
* What are your competitors doing? ~ expanding or down-sizing, hiring or laying off ~ relocating, restructuring ~ diversifying with related products or services or with unrelated products
* What do your prospects think of the competition?
*prices charged, marketing strategy, customer service policies, complaint handling, quality, etc.
* easy to obtain information - buy prodicts, read advertisements, visit store, check out web pages, read local newspapers in headquarters towns, check out parking lot at night, attend association meetings, many other ways

IV. Where and how to get information - TRANS
A. Search engines - Google: over 1.6 billion web pages! only 50 in 1995!
B. Many internet sources given in book - will not rehashNOTE: some sources might no longer exist - big shakeout in past 2 years - government sources and sites for long-established businesses and institutions are more stable (mature industries)
C. Trade associations
D. Market research

• Next week in computer lab where we will explore web resources• BRING YOUR LIBRARY CARD!

Session #2

No class notes - see hand out.

Session #3

Optional assignment status:• Did anyone write a description of their business idea?• Did anyone perform a quick test?
Has anyone gone further and identified a trade organization in their industry? Have you been able to contact them or visit their web site? Has anyone begun a feasibility analysis?
Tonight we will talk about filling in additional information needs.

1. Need to register trade name - protects your use in Ohio2. Different kinds of vendor’s licenses (TRANSPARENCY) “anything that’s legal”

The first and second sessions focused on developing a feasibility analysis and on gathering information from secondary sources. This week, we are going to look a little more closely at primary sources and how to use the information you have gathered to develop products and services - that is develop your idea - into a form that will appeal to potential consumers.

Using information to complete your business concept description.

Now, we are going to talk about how to utilize the information you have gathered to develop your product or service and get it into the hands of your customers. The book focuses on developing a product from scratch - as if you were developing an invention or new technology. Is anyone here in that situation? Some parts of this chapter are specific to that kind of product development and we are not going to spend a lot of time on that. However, much of what the author has to say can be applied even to “commodity” products or services - like plumbing or dog training (landscaping, graphic design or interior renovations). That is what we will be spending time on this evening.

Let’s see how information you obtained while researching your business can be utilized to expand upon the elements of your business concept statement.

1. Describing the product or service.
In looking at your product or service, you need to determine if it is what your customers want, if they can get it when they want or need it, and in the way that they want, need or expect it. Case in point - drug stores extending hours and installing pharmacy drive through windows. Think about being sick or having a sick child. You have gone to your doctor - going out when you do not feel well - waited in the waiting room, seen the doctor and gotten a prescription. Now you have to go to the local CVS or Rite-Aid, get out of your car in the pouring rain - it’s always raining on days like this - then hang around and wait for your prescription to be filled. The drive thru window solves this and more - phone call and faxed script from doc’s office helps reduce forgeries and fraud. This is a great example of a service delivery that we have all taken for granted for years but that is changing. So, ANY product or service can improve if you listen to the needs of your customers.

It also illustrates the point made in your book that the line between products and services is blurring. Here the product is the drug but the way that it is delivered is at least as important. When you get into utilizing the internet, this line becomes even fainter.

I. Ways to get products/services (brief review)
• purchase from domestic manufacturers or import
• invent something - inventors and entrepreneurs rarely exist in the same body * core skills different * interests and view of the world different; inventors often paranoid
• team with an inventor - if you are entrepreneurial
• license an invention - pay a royalty or fee for the rights to produce and market - sources from government, industry, universities - some creative people license their designs

II. Product development process
• design preparation: go thru this exercise even if your product is obvious or commonplace - you could come up with a new twist that will help you stand out from the others in your marketplace
* involve all parts of your business: customer, engineering, finance, manufacturing, marketing, purchasing in order to produce a design that is fully integrated - will also help prevent surprises later on
* get feedback from everyone on the team including customers and suppliers
* accounts for 8% of your budget but can determine 80% of the cost: includes analysis of labor, materials and manufacturing methods that will have to go into it
• prototype building and testing
* a physical model of your product - to test, handle, show to potential investors - makes idea into something tangible - service is description of procedures
* if a service, can be a test run of the service or a scaled down form of the service (like the example in the book where a commercial web site is tested on a free web hosting service in a simplified form before rolling out)
* can cost up to 10 times what the final product will cost because of increased costs, labor, etc. - you are making only ONE - time to develop procedures, etc.
• sourcing materials
* pros and cons of one supplier vs several (same holds true in marketing) - always have a backup
* need to ask questions - same questions you address when assessing your market - can you get exactly what you want, when you need it and in the form or way that you want it? reputation of supplier
* spending time on this phase can save $$$$ and headaches
• scale up - where manufacturing process is tested and an actual manufacturing run is done - shakedown run and initial production
• market introduction

2. Describing your most likely customer or customers.
Who are your prospective customers? Review. Optional assignment: write a description of 1.) your primary market and 2.) your secondary market. Use the research sources listed in hand out from first week, sources we explored last week and sources we will discuss this week. Include the following:- demographics * personal descriptors: age, gender, race, educational level, family status, ethnicity * economic descriptors: household/per capita income, home ownership, concentration of businesses
- geographic descriptors: * population density and distribution, climate, access to freeways, other transportation * location of prospective customers
- psychographics * lifestyles: leisure interests, opinions, activities * personal behavior: values, politics, community involvement, caution, ambition * self-concept: how we see ourselves or how we want others to see us
- buying style: purchase frequency, planned or impulse buyer, new product buyer or tried-and-true

Determining what your prospective customers want
- secondary source research (periodicals, internet, etc.) * what is in general literature about product or service you are considering * what is in trade or business publications about this market
- primary research: surveys, focus groups

NOTE: Secondary source research is generally a good way to get at objective info like statistics while primary research can be a way to get at more subjective information like feelings about your product or service. Correlate the hard data - like gender and age - with subjective data such as likes and dislikes.

Conducting primary research: best way to get good information about your target market
I. Use of questionnaires
- Usually cover data in four main areas (TRANS) * interest in your product or service: need, frequency of use, etc. * demographic & psychographic info: male or female, ages, education, where they shop, hobbies, recreation, etc. * media use: TV programs, e-mail, use coupons, read newspaper, internet * competition: likes and dislikes of current supplier, ideas for improvement
- Who to survey: prospects, customers, competitors customers
- Cheap and easy but time consuming, can hire market research firm
- Structuring a survey a real art, not as easy as you might think (TRANS from above and bad example of survey TRANS) * make it easy to complete: short and check off answers * closed vs open ended questions * wording of questions is critical: test before you administer * random sample vs selected sample * order in which you ask questions is important: easy questions first, difficult and personal questions last
- Mail vs telephone * mail response rates tend to be low - book gives 15% but that is optimistic, follow-up required and built in bias of responders vs non-responders * telephone time consuming and expensive but better control over sampling is possible - can be a very good way to research B2B

II. Evaluating results
- plan how you will tabulate answers as you are developing the questionnaire * closed answers easier to tabulate than open ended * include categorizing questions for cross-tabulations
- percentage of responses vs percentage of respondents vs raw numbers
- comparisons to prior surveys, to averages for industry, to census data (if you do this, be sure that your demographic categories are compatible with published census categories)

Optional assignment: put together a short questionnaire asking prospective customers about what they want from a business providing the service you want to offer or from the product you are going to sell. Test it on half dozen prospects.

III. Focus groups
- able to select a representative sample but you need to conduct enough groups to get a “valid sample”
- takes special skills to guide a discussion without imposing your own bias - best done by a professional
- opportunity for clarification and discussion and non-verbal feedback
- good preparation needed but not as time consuming - results gotten relatively quickly

3. How will your product or service be distributed?
I. Current trends
• low cost mass merchandisers: capitalize on economies of scale
• elimination of intermediaries: internet, info-mercials, direct mail * cost reduction of delivery - a.k.a. shortening the supply chain * intermediaries are surviving ONLY if they can add value

II. Distribution is logistics
• includes transportation, storage, materials handling - everything it takes to reach market - everything has a cost and each level adds to the ultimate price the consumer pays - this is why shortening the supply chain can have such a big impact
• need to consider who you want to reach and how you want to reach them * what is your market image? luxury or commodity? * how does that group behave? where do they go? * what are the costs of different ways of delivering your product to your target market?
• intensive coverage: utilize every distributor you can
• selective coverage: utilize only certain distributors; can be determined by geography, the image that you want to project, or a number of other factors Example: K-Mart vs Sacs - sweater story
• need to identify and evaluate suppliers just as you did in identifying and evaluating suppliers for manufacturing your product - ask the same questions concerning capabilities, services, costs, and guarantees * shipping services * warehousing * delivery services
• important for retail, less important for delivery of services but can have an impact in some cases - * while delivery of services is different from delivery of products, it is still important * determine how customers access your service and how you deliver it and plan it out

4. Developing the value proposition.
Goes back to statement at beginning of this evening: if it is what your customers want, if they can get it when they want or need it, and in the way that they want, need or expect it. Researching and evaluating both your direct and indirect competition will help you come to grips with this. Do not settle for the obvious - dig beneath the surface. Keep in mind when structuring primary research projects.

ALL OF THIS IS TO ENABLE YOU TO DEFINE YOUR NICHE - NARROW YOUR MARKET SO THAT YOU HAVE A FOCUSED MARKETING EFFORT THAT MAXIMIZES THE IMPACT OF YOUR MARKETING EFFORT - FASTER, EASIER, CHEAPER.

The information you gather at this stage will flesh out your feasibility analysis and provide the basis for your business plan.

The role of money in the start-up phases of your business.

II. Funding (at development stage)
• mostly out of your own pocket
• hurdles: development takes time (design, prototype, scale up, etc.); need to be able to demonstrate feasibility and that the design actually can be manufactured
• some development sources available, especially if you are developing a new technology * some are the same as for funding your business in general * big difference is that pay back time is longer - person providing $ has greater risk * SBA has some grant money available; also check federal departments listed in your book

Estimating start-up costs. You will want to develop a separate statement which shows your start-up costs. This is a part of your feasibility analysis and will become the foundation for the statements that you will include in your business plan. Some expenditures will be obvious - like the equipment you will need to manufacture or produce your product. In a service business you also need equipment - mine, for example, I need an office, computer, phone line, and other equipment. Be sure to include: equipment; your initial supply of raw materials; design, development and prototyping costs; training - of yourself and key employees; installation of equipment, initial advertising and marketing costs including the design of logo, printing, signage, etc.; deposits for rent and utilities; permits and licenses, etc. etc, etc..
Also, don’t forget to PLAN for the initial losses that new businesses almost always begin with. At first, your revenues will not, most likely, cover your operating expenses. Planning for that is essential. Also, take into account how much expense you will incur before you even open the doors to your business. This can often go on through several years worth of planning and ramping up an operation until you can deliver the level of quality that is acceptable in your marketplace. Dry runs, free samples, etc.

The next step is Estimating demand so that you can begin to make an intelligent assessment of your sales potential. Book give method - get a 3-way fix by gathering information from industry experts, suppliers, etc, talking to customers, and relying on your own experience and knowledge. This is where your quality of market research really comes into play. If you are able to locate good industry benchmark data, trends, seasonalities, etc. This information will ultimately feed into your financial statement projections which are a critical part of your business plan. We will cover financial statements in greater depth later in this course.

All of this should be done before deciding how you will start into business - or at least as a part of the process in evaluating opportunities that might be available to you.

Actually getting into business: PROs & CONs
a. MLM (1) attractive residual income (2) ready format and procedures (3) usually limited initial investment (4) harder than they make it sound (5) sell, sell, sell
b. franchise (1) business in a box - all ready to go (2) training and advice (3) reputation and national advertising (4) big up front investment (5) little flexibility - corporate policy dictated
c. buy a going business (1) flexible financing often available (2) expertise of former owner (3) going concern = cash flow and customers (4) buying someone else’s problems (5) changing something is often harder than starting from scratch
d. start from scratch (1) new idea or already in common usage - assessment of market essential (2) getting everything the way that you want (3) start slow and gear up as you gain experience (4) getting financing harder with no track record (5) building cash flow, customers, etc. from “0"

Session #4

PUTTING TOGETHER YOUR START-UP TEAMS
I like to talk about this at this point because you will need to rely on your start-up team for much of what comes after. Initial self-assessment will tell you what you are realistically able to do yourself and where you will need outside help. You need to be able to competently cover the basics in successfully launching and operating your business - including marketing finance and operations. Special expertise is needed by all businesses in legal and financial areas. You will have more credibility with lenders, investors and prospective customers if you have a team in place.

Your five “teams”
Recommend that entrepreneurs have five support teams: a referral team, a professional team, an advisory team and, depending on your type of business, a subcontracting team in addition to your management team. Each plays a specific role.

The referral team is comprised of businesses and experts whose competence and honesty you know you can rely on. Utilize your referral team when you have a client who needs assistance which is outside of your skill set.

Use your subcontracting team when you have a project where additional skills or extra help are needed. This team should be comprised of people with whom you work well. Being able to utilize independent contractors is often the key to landing bigger projects. You need to clearly define the relationship up front so that the work precedes smoothly. You should have a written agreement specifying the terms of the project and that they are an independent contractor. They should also be insured separately to minimize liability issues.

Your professional team helps guide your business and includes your lawyer and accountant and whatever other consultants and experts you need. These are the paid professionals that will provide you with direct services that you need and can be real assets on your advisory team as well. You are liable for the errors of your agents:” lawyer, accountant, etc.
• Lawyers - Choose one who has experience with small businesses and start-ups. Smaller legal firms are fine for most. However, if you have an idea that might “take off” or if you plan to grow rapidly, be sure that the firm has the connections and resources to continue to provide the services you will need. Ask about strategic alliances with firms with other areas of specialization like patents, etc. Lawyers are your advocate and will represent you in disputes as well as help you avoid them. They will help you with contracts and to negotiate the myriad of local, state and federal regulations. (See article in hand out)
• Accountants - Are bound not only by principles and ethics, but also by statute. An accountant cannot act as your advocate. Your accountant will set up and maintain your books. Basic day-to-day postings can be done by your own clerical help. Payroll is most efficiently and inexpensively done by a payroll company - even if you have only 2 or 3 employees. Your accountants should be relied upon to keep you informed bout deadlines for tax and form filings and payments. They can assist with other chores including preparing budgets, preparing stock holder reports, collections, issuing invoices, etc.
• Banker - Interview just like you wild anyone else. Can be a source of advice as well as good networker who refers you to other professionals you might need or even to business prospects. Many banks now have small business programs but often smaller community based banks work better with newer and smaller businesses. Just because you do not have luck with one, doesn’t mean that you will not have luck with another - some banks look for certain kinds of business. If you have a prior relationship, you are more likely to be approved for like of credit or loan because you are known.
• Insurance broker - Insurance can be a complicated topic and different insurance companies use different terminology so you need to be willing to ask lots of questions to be sure you are understanding what is going on. A good broker can give you advice and see that you have what you need. Strongly related to PROTECTING YOUR BUSINESS.

Your advisory team can include others who have their own businesses or who have skill and knowledge that can be of assistance as your business grows. This is the group from which you get support and advice about both long term strategy and day-to-day issues. Generally work without compensation. Includes accountant, lawyers, consultants, other entrepreneurs, suppliers or others with industry experience.

Forming a board of directors
You will also have to form a Board of Directors if you are incorporated. Your book gives some very god advice about how to go about doing this. Basically, the same principles apply as for putting together other teams. Often, closely held family corporations will include only family members. Remember that the role of a board of directors job is to hold management accountable in building share value. Expertise and objectivity are needed to do this effectively.

Finding start-up partners
As with many other aspects of running a small business, networking is the key to finding and qualifying the people you want to have on your teams. Select team members based on the following, even if they are family and friends:

• Skills and expertise in industry or functional areas
• Similar work styles to yours and others on team
• Objectivity
• Agreement on decision making authority (by area of expertise)
• Good credit ratings
• At least one experienced entrepreneur
• Networked with either money or industry sources
• Passionate and dedicated to goals
• Able to spend the needed time to make the business a success - health, family, debt other problems should not get in the way.

Advice:• Conflict resolution procedure: bring in third party to arbitrate, be willing to ask someone to leave, etc.• Written agreement about areas of responsibility, etc.

PROTECTING YOUR PRODUCTS AND SERVICES and protecting your business
Last week, we talked about how to go about developing a product or service. That development process takes a lot of time, energy and, in many cases, money. Now, let’s spend some time talking bout how you can protect that investment.

LEGAL & LIABILITY ISSUES OF RUNNING A BUSINESS
There are three key tools to protecting yourself when you have your own business: contracts, insurance and the legal structure of your business.

(see insurance hand out) Property and casualty or P&C protects in the event of damage to property or equipment. Professional liability insurance is an umbrella policy which provides protection if you are accused of making “misleading” statements about your products or services. Errors and omissions (E & O) insurance is separate from professional liability coverage. It covers mistakes and omissions. Most of us have either a business owners policy or a home-based business policy which provides coverage for business equipment and some liability in most cases. If you have a home-based business, it is advisable to check your home policy to see what is covered. Often, home-based businesses are excluded. Terminology varies with each insurance company so it is best to consult with your agent.

Independent agent vs. one who works for a large multi-line company like State Farm or All State - some of these companies do not carry commercial insurance but might cover smaller businesses.

Workers’ compensation and unemployment insurance - required if you have employees but not for yourself. Also - health insurance, auto insurance, life insurance on key management, etc.

Contracts are important to keeping business relationships clear and to protect yourself in the event of a disagreement. That is one reason why it is important to include an attorney on your support team. You will also want to consult with an attorney when deciding what legal form your business will take. Incorporating, limited liability companies, sole proprietorship - all have their pluses and minuses.

Several points were made about work related contracts:

• As a general contractor, you are responsible for the actions of your team members.
• Specify that disputes should be resolved in Ohio, especially when doing business outside of Ohio.
• Specify that the client is responsible for content and will “hold you harmless.”
• Have a contract with everyone with whom you do business - even family and friends.
• Be sure that people who you use as independent contractors are appropriately insured.

Independent contractors: being one or using oneIRS rules govern whether or not someone is an independent contractor. (Page 145 in book). You might want to use an independent contractor agreement for yourself or for others to protect the relationship. Advantages and disadvantages -

For additional information, see web site http://smallbiz.biz.findlaw.com.startup/index.html and recommend the book Business Contracts for Dummies.

Patenting: first to invent has the first right to patent. Important to document process from the start - keep a journal in ink with dates of each step. Have notarized or at least witnessed. And file disclosure document right away - do not wait. You can patent a process, a machine, articles of manufacture, chemical compositions, and new and useful improvements to any of the above. This can be a complicated process and utilizing an attorney is advisable. Book gives good overall description of the process.

Copyrighting: works of authorship including literature, music, computer programs. Although computer programs copyrighting is a muddy area. Protects not the idea but the form in which it is expressed. It must be written or recorded in some tangible way in order to be protected but it dies not have to be published in order to be protected. You are not required to register with the copyright office in order to gain full protection but it does make it easier to defend against infringement and claim damages in court. Cannot copyright titles, slogans, familiar symbols or designs, etc. Nor can you copy right ideas, procedures, processes, discoveries, or standard works like calendars, weight charts, rulers, etc.

Trademark: protecting your logo. A symbol, word or design used to identify a business or product. Term of registration is 10 years but is renewable indefinitely.

Guarding your interests: contracts, non-disclosure agreementsTrack, in writing, conversations, offers, commitments, etc. Date and out limits on estimates.

Nondisclosure agreements - have an attorney draw up. To keep employees and others involved with your company from giving away trade secrets. I must include 1) consideration or something in exchange for confidentiality; 2) description of what is covered by confidentiality; 3) procedure describing how party will not use information. Some companies also use non-compete agreements with key employees.

Protecting your Intellectual Property
Deals with development of new technology and is a complicated area. Primarily, have patents properly filed and defended. Utilize licensing agreements which have been carefully drawn. And Be sure to document everything - procedures, materials used, modifications, experiments, etc. - and keep documentation in a safe place.

CHAPTER 14: STARTING WITH THE RIGHT LEGAL STRUCTURE
Understanding the factors: risk, investors, taxes are several things to consider:
1. Risk. What is the possiblity of your manufacturing process or of your product injuring some one? Service business usually have little risk. Manufacturing usually have more. Restaurants should incorporate generally as should health care, other services. Consider not only possible risk to customers but also to employees.
2. Investors. Which form is most likely to allow you to attract the kind and numbers of investors you want and need. Corporation gives you credibility but S corp is limited to 75 investors. LLC format of ownership less clearly defined.
3. Taxes. Quarterly estimates and filings for corporation and taxed at net profit level. S Corp distributes to shareholders - both profit and loss - before corporate tax is applied. Taxed only on non-distributed. Sole proprietorship, partnership and LLC both distributed to owners before taxed.
4. Other considerations: continuity of business, your management skills, long term business goals, possibilities for growth.

Sole Proprietorship
Easiest & cheapest to form, least paperwork - but little protection of personal assets. Isolate business life from your personal life to protect yourself and your home, regardless of what type of structure you choose. Can forfeit protections and tax advantages if you do not. Example- do not pay mortgage on your home with $ from corporate checking account.

Partnership
Governed by Uniform Partnership Act .Advisable to have a partnership agreement which spells out how work, profit, loss, etc. is shared.Partnership is like a marriage. Need agreement that spells things out inluding -

• can’t just give or sell your part of the business to someone else
• who is boss
• credit problems and liability of one become the problems of the other
• what if you can’t get along
• death or illness threatens or destroys the arrangement: death should mean that partner gets to buy out other partner otherwise your partner’s spouse or other heirs could wind up being your partner. Life insurance to pay for partner’s share in the event of death.

Corporation & S corporation
~ If 2 people are involved, they should have a buy-sell agreement stating that, if someone dies, their shares are sold back to the corporation. Life insurance to pay for partner’s shares in the event of death.
~ Initially, stock is worth what the lawyer says it is worth or $1 per share. “anything that is legal” is what you put down as the purpose of the corporation in state filing papers.
~ Right of first refusal with other stock holders for selling of shares in order to provent undesireable outsider from entering business.
~ When signing anything, use your corporate title to invoke the protection of the corporation. If you don’t do this, you are personally liable. Corporate officer who signs the corporate tax return is personally liable for taxes due. Important to keep track of multiple filing dates for different tax and other forms.
~ Costs $500 - $1000 to form a corporation and to do it right. Doing it right, ensures that you are protected from liability.~ Tax rate is 15% of first $50,000 for a C corp. Pay balance as dividend which is taxed as personal income. S corp profit or loss flows directly to shareholders.
~ You can set up your own 401K, etc.
~ Vehicle - if it is your only car, IRS will assume that it is form personal use and, so you should charge back 10% as income to the driver to avoid an audit flag.

LLC
Limited Liability Company is a corporate partnership. Some differences - not shareholders - members instead. Permits nonresident aliens and other legal entities to be members where an S corp does not. Also, S corp limited to one class of stock and LLC can have different classes.
Good if dissimilar participants - eg. some investors and some sweat equity.
Common for doctors, lawyers, real estate.
One person’s mistakes do not have an impact on the others.
Only 30 states honor it so, if you are operating country-wide, should have a corporation.

Nonprofit corporation: Cannot distribute profits.

Session #5

Recap protecting products & services: explain ownership of designs and copy written by hired help: employee vs. free-lancer and Norman Rockwell case.

Patenting: first to invent has the first right to patent. Important to document process from the start - keep a journal in ink with dates of each step. Have notarized or at least witnessed. And file disclosure document right away - do not wait. You can patent a process, a machine, articles of manufacture, chemical compositions, and new and useful improvements to any of the above. This can be a complicated process and utilizing an attorney is advisable. Book gives good overall description of the process.

Copyrighting: works of authorship including literature, music, computer programs. Although computer programs copyrighting is a muddy area. Protects not the idea but the form in which it is expressed. It must be written or recorded in some tangible way in order to be protected but it dies not have to be published in order to be protected. You are not required to register with the copyright office in order to gain full protection but it does make it easier to defend against infringement and claim damages in court. Cannot copyright titles, slogans, familiar symbols or designs, etc. Nor can you copy right ideas, procedures, processes, discoveries, or standard works like calendars, weight charts, rulers, etc.

Trademark: protecting your logo. A symbol, word or design used to identify a business or product. Term of registration is 10 years but is renewable indefinitely.

Guarding your interests: contracts, non-disclosure agreementsTrack, in writing, conversations, offers, commitments, etc. Date and out limits on estimates.

Nondisclosure agreements - have an attorney draw up. To keep employees and others involved with your company from giving away trade secrets. I must include 1) consideration or something in exchange for confidentiality; 2) description of what is covered by confidentiality; 3) procedure describing how party will not use information. Some companies also use non-compete agreements with key employees.

Protecting your Intellectual Property
Deals with development of new technology and is a complicated area. Primarily, have patents properly filed and defended. Utilize licensing agreements which have been carefully drawn. And Be sure to document everything - procedures, materials used, modifications, experiments, etc. - and keep documentation in a safe place.

Financial Statements
Before we get into talking about business plan because the finacials, along with your marketing plan will be the heart of your business plan. I want to be sure that we all understand what these financial statements are and how they work.

Book gives several examples of businesses that started out with just a few hundred to a few thousand dollars gotten either by selling something like a car or other persoanl belongings, using savings or borrowing from a relative or friend. Forecasting exactly what you need during feasibility study phase tough because numbers change as you become more knowledgeable about what you are doing. At first, you have to base estimates on industry-wide figures or even just “guesses” but as you do your research and make decisions about how you will do things, your figures become more solid and more closely related to what you will actually be doing.

From session #3 - review - estimating start-up costs.
You will want to develop a separate statement which shows your start-up costs. This is a part of your feasibility analysis and will become the foundation for the statements that you will include in your business plan. Some expenditures will include:
equipment; your initial supply of raw materials; design, development and prototyping costs; training - of yourself and key employees; installation of equipment, initial advertising and marketing costs including the design of logo, printing, signage, etc.; deposits for rent and utilities; permits and licenses, etc. etc, etc..

Also, PLAN for the inital losses that new businesses almost always begin with. At first, your revenuse will not, most likely, cover your operating expenses. Planning for that is essential. Also, take into account how much expese you will incur befor you even open the doors to your business. This can often go on through several years worth of planning and ramping up an operation intil you can deliver the level of quality that is acceptable in your marketplace. Dry runs, free samples, etc.

The next step is developing cash flow and income or profit and loss statements.

Estimating demand is starting point: book give method - get a 3-way fix by gathering information from industry experts, suppliers, etc, talking to customers, and relying on your own experience and knowledge. This is where your quality of market research really comes into play. If you are able to locate good industry benchmarrk data, trends, seasonalities, etc.

Forecasting sales is next step. (TRANS)You can start by basing on a product or service that is similar to yours. Original CD sales estimates based on number of tape cassettes that were sold. When I forecast my market potential, I start by looking at the number of new business formations in my market area which is Greater Cleveland - Cuyahoga and surrounding counties. Then, I estimate the percentage that are likely to utilize the services offered by Business Odyssey based both on industry indicators and on the amount of time and energy that I have to expend on developing my business. If you are an innovator, you will also want to take into account any additional demand that might be generated because of additional uses or if you have made a product easier to use - keep in mind what happened to the personal computer market as PCs became more user friendly. Also look at growht rates in your market, seasonality and what level of consumer education and marketing will be needed in order to get people to try the product.

(TRANS - Income statement)
Estimating expenses can range from knowing exactly what will be spent on a category to outright guesses - the idea is to minimize the guessing.
• Cost of goods produced or sold: will vary depending on volume. Includes direct labor for producing product, raw materials, and factory inventory. If you are retailing, this figure will include your purchase costs and shipping to your location. Service businesses with no tangible product, like mine, have no cost of goods sold. Remember, this figure will most likely go down on a per piece basis as your volume goes up and you can get discounts for purchasing larger quantities of raw materilas - and as your utilization of plant capacity goes up your fixed costs per unit will also decrease.
• General and administrative expenses include marketing costs, office administrtive costs, fixed expenses, and administrative salaries. There is a pro forma for a typical G&A giving detailed categories in your hand outs.
• Taxes are the last item you will have to consider. Of course, this is based on the profitablitiy of your company or the “bottom line” of your income statement. As you plan, you must take them into account because they can account for as much as 40% of taxible income. This can be a significant impact on your cash flow.

The most important statement when you are first getting your business off the ground is your cash flow statement. Looks very much like an income statement but key differences (TRANS): includes beginning cash which often comes from sources other than sales such as proceeds of loans made to business, cash from sale of equity. Also might include equipment purchases which are amortized instead of expensed on profit and loss statement. Note: When you develop your cash flow statement, be sure you include $ you have spent out of your own pocket as a part of your investment - including things like the cost of this class! At the very beginning, especially in the planning stages, this can come in drips and drabs as you purchase books, supplies, etc. This does count towards your owner’s investment and will help you when looking for loan money.

INC. START BUS. VIDEO #6 & 7

Questions? Look at what can have an impact on cash flow:
Things that have a profund impact on cash flow
• Getting paid - collections
- be clear about payment expectations and requirements up front
- put it in writing
- techniques to help cash flow: cash up front, interim payments, discounts for early or prompt payment, retainer agreements
- Accepting credit cards, checks
- Collection agencies

• Equally important is understanding your costs. You should understand costs in a variety of ways depending on the type of business you are in. Examples:
~ Manufacturing: per unit direct expenses - raw materials; per unit direct expenses for labor; per unit overhead - rule of thumb: usually one-third of total; per unit marketing and sales costs can be both direct and indirect costs; profit margin; per unit shipping - direct cots;~ Consulting: per client and per project; direct expenses: consultant’s time, travel, supplies, etc.; indirect: administrative expenses like billing, telecommunications, rent, equipment costs, other overhead, and marketing.

Basic formula for pricing consulting work: one-third for overhead; one-third for consultant; one-third for partners. Formula is similar for other service businesses. For example, when you hire from a temp agency, you pay $15 per hour but person who does work is getting less than $5 when you factor workers’ comp and other payroll taxes paid by the employer which comes out of the one-third of the whole which goes to compensate the worker. Dave talks about doing an analysis for a friend and found that, with workers, comp, health insurance and other overhead items factored in, you have to charge around $32 per hour to yeild $10 per hour wage.
~ Retailing: Similar to manufacturing: raw material and labor substituted for purchase of goods for sale

~ Also know costs by customer - not all customers are profitable. Some may require more time, more expensive shipping, special handling. You need to know costs of servicing individual customers so that you can price your products in a way that produces profit. For the same reason, you should also know costs by sales district or region. You will probably come up with other ways to analyze costs as you become more familiar with how your business is organized and with how things evolve as your business grows.
~ Knowing costs and looking at how they play out in various aspects of your business will enable you to focus on the profitable and get rid of or improve performance of the unprofitable by either increasing price; reducing cost of materials, marketing, manufacturing; drop product or service. Story about ESB, Inc. new reports for profitability by region yielding complete restructuring of sales force - reducing field sales and increasing inside sales to handle outlying regions.

Your book gives additional detail on how to go about performaing calculations and how to set up cash flow and income statements on pages 154 thorugh 161.

I. ASSETS: Everything owned by or owed to your business that has cash value.
A. Current Assets - Assets that can be converted into cash within one year of the date on the Balance Sheet. 1. Cash - Money you have on hand. Include monies not yet deposited. 2. Petty Cash - Money deposited to Petty Cash and not yet expended. 3. Accounts Receivable - Money owed to you for sale of goods and/or services. 4. Inventory - Raw materials, work in process and goods manufactured or purchased for resale. 5 .Short-Term Investments - (Expected to be converted to cash within one year) Stocks, bonds, CDs – list at lesser of cost or market value. 6. Prepaid Expenses - Goods or services purchased or rented prior to use. (ex: rent, insurance, prepaid inventory purchases, etc.)
B. Long-Term Investments - Stocks, bonds, and special savings accounts to be kept for at least one year.
C. Fixed Assets - Resources a business owns and does not intend for resale.
1. Land - List at original purchase price. 2. Buildings - List at cost less any depreciation previously taken. 3. Equipment, Furniture, Autos/Vehicles - List at cost less depreciation. Kelley Blue Book can be used to determine value of vehicles.II.

LIABIL1TIES: What your business owes; claims by creditors on your assets.
A. Current Liabilities - Those obligations payable within one operating cycle. 1. Accounts Payable - Obligations payable within one operating cycle. 2. Notes Payable - Short-term notes; list the balance of principal due. Separately list the current portion of long-term debts. 3. Interest Payable - Interest accrued on loans and credit. 4. Taxes Payable - Amounts estimated to have been incurred during the accounting period. 5. Payroll Accrual - Current liabilities on salaries and wages.
B. Long-Term Liabilities - Outstanding balance less the current portion due (ex.: mortgage, vehicle).

III. NET WORTH: Also called “Owner Equity”; the claims of the owner or owners on the assets of the business (document according to the legal structure of your business).
A. Proprietorship or Partnership - Each owner’s original investment plus earnings after withdrawals.
B. Corporation - The sum of contributions by owners or stockholders plus earnings retained after paying dividends.

Purpose of gathering, organizing and analyzing information and data is to reduce risk. Repeat because this is an important idea.

Where to find the $$$ for start-up and for expansion once you have gotten off the ground - a number of sources. But, first, some preliminaries - need to know, not only how much you need to finance, but also how much you can contribute out of your own pocket. Don’t just look at how much you will need - also look at when you will need it. Finance only what you need at the time that you need it - might enable you to “bootstrap”

Look at the following questions - .
• How much of your own $ do you have in the business? How much are you willing to invest?
• Can cost reducing, better cash management or other techniques provide funds that you need or resolve any financial crunch you might be going through? Lots of place to look for this kind of opportunity - examine personnel costs; look at purchasing - are you getting all of the discounts that are available to you?; telecommunication - constantly changing; delivery routes most effective - saves time and fuel costs; supplier financing of inventory or stretch out payment time with their permission; etc. etc. etc.
• What do you need the $ for? Will it help increase revenues? enough to justify (pay off) the debt? Most lenders will be reluctant to finance operations. Most likely to finance anything that can be collateralized easily - bricks & mortar, equipment. Still need to show how the investment will help to generate additional revenue.

Must have a business plan in order to get any kind of financing. Your plan should provide information and analysis which shows -how much money is needed; when it is needed; what it is needed for; how it will improve your business; how you will pay it back

If you are a new business, you will need to show how long it will be until your business is self-sustaining - or has a positive cash flow. We will get into business plans in more detail over the next few sessions.

Some of the sources of money available
Basically 2 kinds of financing:
1. debt financing where you borrow money then pay it back
2. equity financing where you essentially sell aa part of your business to raise money

Let’s look at sources of debt financing first
• friends and relatives - pros and cons, usually for smaller amounts of money
• “angels” a term more often heard icw Broadway plays, now being use with a new twist for smaller businesses, private sources, need to be in right place at right time or have an introduction, be aware that also used icw equity financing arrangements
• lending institutions like banks - conservative: - better understanding of manufacturing than of service business - shop around - try smaller banks and those with special small business programs; branch bank manager is often the key person - Cleveland is very conservative, tough to get financing, NEO also tough but surrounding counties and smaller banks are sometimes more willing, many have to go out of state to get money - no reflection on whether your business plan is good - this is just a peculiarity of the Cleveland market (refer to handout about local small business financing)
• SBA has hundred of different options. Most are loan guarantee programs administered by banks. Each SBA program has different requirements and different benefits. 9 are outlined in your book but there are literally dozens of programs addressing different groups of people with different needs. See booklet being passed around.

Equity financing
If the % of what you owe is high in comparison th what you own, this is an option. You trade a piece of your company for money. Sources -
• friends and relatives
• SBA licensed investment companies and small business investment companies (SBIC’s) provide equity capital and unsecured loans. Alternative to bank financing. Fills the gap between venture capital and small business needs - venture capitalists often are looking for an investment of &5 million or more. These are for profit firms which share in your success. Must operate according to SBA guidelines.
• matchmakers match up businesses with venture capitalists. Generally looking for companies with some track record - 3 to 5 years in business - and a high growth potential. Venture capitalists have a right to participate in management. this can be a blessing or a curse - you need to know who you are getting into bed with and be clear about your own objectives. usually hands-off if company is successful. Deal is based on who has most bargaining power. Exit strategy required - a way out for the investor - need to be careful that they cannot deliver you into the hand of the enemy or devil! Exit strategy is a part of a complete business plan and you should plan for your own exit if needed - health, market changes, etc.

Relative costs
• Least expensive is using your own money but not from credit cards. Use credit cards with extreme caution.
• Next least expensive is family and friends. You can negotiate prime rate or lower an it is still a good deal for both of you.
• Next in cost is traditional sources like bank or SBA. Problem is banks are generally looking for a sure thing.
• Most expensive is outside lenders and venture capitalists. Because they will underwrite higher risk. Cost is directly related to risk.

When determining the total cost of the financing consider the interest rate; the term of the financing or how long you will take to repay; when will payment begin - don’t forget to plug into your cash flow statement; how big are payment; is loan secured or unsecured - what do you have to use for collateral

for venture capital - how much of business & how much control will you have to give up?
consider timing - do you need to spend right now? Time value of $Look at total cost over the life of the financing. Look at impact on you cash flow statement to determine if $ will make you more profitable & if you will be able to repay.

Getting ready to do a business plan & Chapter 19: The financial plan
Two kinds of plans
• Strategic plan: focus is long term, document is brief, objectives are broad. Very good idea to have one. For example, if your long term objective is to provide you with a retirement fund, then you will want to develop strategies that will either build value into your business so that it can be sold for a lot of money at some point down the road or develop strategies that will produce long term cash flow. UPS case example
• Business plan: focus is short term, document is longer and includes budgets and financial projections, objectives are specific and more operational. Helps you keep track of the performance of your business in relationship to goals. Every business should have one.

Two kinds of business plans:
• To obtain financing: tends to be shorter and focuses on financials. It will tell how much money is needed, when it is needed, what it is needed for, how it will improve your business, and how you will pay it back. If you are a new business, you will need to show how long it will be until your business is self-sustaining - or has a positive cash flow. It will also include justifications for your projections. Required to obtain financing. Cash flow projections are most important part.
• To guide your operations: tends to be longer and includes more detail about how things are actually going to get done. Will include all of the information found in a business plan written to obtain financing plus much more. Highly recommended to keep you on tract - especilly when the alligators are after you.
• Business plan formats are all similar -(TRANS) do not get creative but do adapt to your particular business. Your book has a pretty good format and there is another in the handout, you can find also on SBA web site, books, software, many other place. There’s not much difference between them.
• Do-it-yourself vs. other options: consultant if you fear financials or if you need help with verbiage, etc. Will cost approx. $1000 - $3000 or more depending on complexity. Soft ware and SBS. We offer workshop once a year because it is regularly requested but no one has ever signed up for it. No matter how you approach it - you must still do the head work yourself - you are the decision maker so you need to do a lot of the work yourself even if you hire a consultant. The workshop actually gives you the best of both worlds - economical and support of peers and guidance of instructor.

Plan Fow (TRANS)
Many people stymied in knowing where to start when developing objectives for their plan. Mission statement - if you have not already done one is best place. Mission statement exercise. this is foundation for everything else. Especially for developing a marketing strategy.
mission statement exercise ~ write down 3 most important things in your life ~ write 3 of your own personal core values ~ write 3 action words, use list to help, that describe what you do in your business ~ write your “unique factor” and product descriptionThis is the foundation for your mission statement.

Marketing plan
~ Products and/or services: write a good description - this should already have been done during feasibility and market research phases and refinement is only thing left to do. Also include product mix or blend of complimentary products and services and product line descriptions.
~ Determining your stage of development: stage of your industry, stage of your business. Discussed in prior classes. Life cycle and chart (TRANS)
~ Defining the market including descriptions of how you segment and target your marketing and your geographic market area. Also include a competitive assessment
~ Establish marketing objectives and strategies: in terms of sales growth, market share, wareness levels - should be quantified and measurable. (TRANS on planning flow)
~ Marketing action plan
• activities: advertising, cold calling, networking, sales demonstrations, etc.
• budget: purchases and payroll
• timetable: lead times; seasonality; new products, etc.;
• tie it all into financial projections

Financials and Cash flow statement
Your plan should have, at minimum, cash flow, income or P&L, and balance sheet statements. You should also have detail on start up costs for a new business and detail on how money from outside of your company - like loans or equity investments will be utilized and what kind of projections you have for growth resulting from the additional investments.
~ profit and loss and cash flow projections for at least the first 3 years - monthly for the first year and quarterly thereafter.
~ balance sheets at start up and quarterly during the first year and annualy for the next 2 years
~ break-even analysis for new businesses
~ for existing businesses, 2 prior years and current year history
~ start-up for brand new businesses

If you learn to utilize spreadsheet on computer, makes this job easier - can manipulate data and generate “what if” scenarios easily showing you the impact of dropping a line or of changing the way that you handle one aspect of your operations. Example - Client who needs to hire help but has been putting it off. Did a spread sheet of cash flow showing impact of hiring some one thus giving her more time to sell.

Review Cash flow if necessary and answer questions (Budget projections should be developed then plugged into in the cash flow statement then plugged into other financial statements.

Other parts of business plan
Operations & Administration planning or General & Administrative
• Personnel expense consolidation & Personnel, staffing planning: How many hours do you really have in a day?
~ Carefully consider impact on your time - Rusnak story
Initially, can be very time consuming - plan for it; Training time and expense often neglected; Consider supervisory time also; Look at what $$ might be generated by delegating - one of hardest things for an entrepreneur to do; ~Don’t forget to factor all expenses in - - - Training programs purchased: must include not only job training but also OSHA and state mandated safety training expense and record keeping
Budget for payroll taxes, insurance, benefits, vacation, etc.
Budget for equipment and supplies, desk, etc.
Hiring costs: advertising, interviewing, testing, background check, references checks, etc.
• Building & equipment costs: rent, depreciation, utilities, etc.
• Office expenses, supplies, etc.
• Dues, entertainment, other miscellaneous.

General considerations
• Appearance of plan
Elements discussed must be included: Table of contents must be correct, number pages; Executive Summary; Supporting documents, research, licenses and permits, leases, etc. in Appendix

Must be neat and correct - - - Spell check and proof read carefully; Does not have to be full color, or professionally designed but must be neat and well organized: image does count but presentation and accuracy more important.
• Be prepared to give a 15 to 20 minute presentation

Session #6

For review of cash flow, Chapt. 11 in book does a pretty good job & video is avail. in most libraries.

Take a closer look at balance sheet: You and your business are 2 separate entities - don’t confuse what you own or owe with what your business owns or owes.

I. ASSETS: Everything owned by or owed to your business that has cash value.
A. Current Assets - Assets that can be converted into cash within one year of the date on the Balance Sheet. 1. Cash - Money you have on hand. Include monies not yet deposited. 2. Petty Cash - Money deposited to Petty Cash and not yet expended. 3. Accounts Receivable - Money owed to you for sale of goods and/or services.4. Inventory - Raw materials, work in process and goods manufactured or purchased for resale. 5 .Short-Term Investments - (Expected to be converted to cash within one year) Stocks, bonds, CDs – list at lesser of cost or market value. 6. Prepaid Expenses - Goods or services purchased or rented prior to use. (ex: rent, insurance, prepaid inventory purchases, etc.)
B. Long-Term Investments - Stocks, bonds, and special savings accounts to be kept for at least one year.
C. Fixed Assets - Resources a business owns and does not intend for resale. 1. Land - List at original purchase price. 2. Buildings - List at cost less any depreciation previously taken. 3. Equipment, Furniture, Autos/Vehicles - List at cost less depreciation. Kelley Blue Book can be used to determine value of vehicles.

II. LIABIL1TIES: What your business owes; claims by creditors on your assets.
A. Current Liabilities - Those obligations payable within one operating cycle. 1. Accounts Payable - Obligations payable within one operating cycle. 2. Notes Payable - Short-term notes; list the balance of principal due. Separately list the current portion of long-term debts. 3. Interest Payable - Interest accrued on loans and credit. 4. Taxes Payable - Amounts estimated to have been incurred during the accounting period. 5. Payroll Accrual - Current liabilities on salaries and wages.
B. Long-Term Liabilities - Outstanding balance less the current portion due (ex.: mortgage, vehicle).

III. NET WORTH: Also called “Owner Equity”; the claims of the owner or owners on the assets of the business (document according to the legal structure of your business).
A. Proprietorship or Partnership - Each owner’s original investment plus earnings after withdrawals.
B. Corporation - The sum of contributions by owners or stockholders plus earnings retained after paying dividends.

Chapter 17: Organizing Your Business for Growth
In developing your business plan, you should plan for growth.
• Challenge is to how to balance limited resources against the need to take on more staff ~ cash flow analysis essential (cash flow transparency) ~ (Transparency - Realities of Growth)
• Skills needed to start company different from those needed to manage ~ entrepreneurs have difficulty in delegating - letting go of control ~ risk takers vs. risk avoiders - basic personality difference that goes beyond skills
• Advisory board can help a lot when these decisions need to be made - especially if you have chosen carefully members with experience
• Establishing or discovering corporate culture ~ read list on page 256 ~ role of mission statement: cite Business Week survey - profitability, need to keep focus when you are dealing with the alligators --- help in hiring good people
• Develop a “team” rather than hierarchy - flat management models more flexible in times of rapidly changing environments
• Document “best practices”
• Hire the best people you can
• Use the internet - more on this later

Many people stymied in knowing where to start when developing objectives for their plan. Mission statement - if you have not already done one is best place. Mission statement exercise. this is foundation for everything else. Especially for developing a marketing strategy.
mission statement exercise ~ write down 3 most important things in your life ~ write 3 of your own personal core values ~ write 3 action words, use list to help, that describe what you do in your business ~ write your “unique factor” and product description.This is the foundation for your mission statement.

Next: develop a few, clear objectives, preferably quantifiable ones. Like: increase sales by 20% or, if you are just starting out, your might be to have sales of $20,000 per month by the end of the first year. The flow then goes like this: TRANS for planning flow. then TRANS for example.

We have already talked about the financial part of your business plan. Now we are going to focus on the marketing part.

Chapter 18: Reaching the customer - developing a strategy & using the right tools. First, you need to know exactly what you are dealing with.

Marketing by the numbers
1 sale requires that you make approx. - - -
5 - sales presentations. For retail, 5 people will enter your store and spend some time before 1 will make a purchase. Additionally - - -
6 - 7 - number of times a person needs to be exposed to information about your product or service before they are ready to make a buy decision. In other words, before that 1 person in 5 makes his or her purchase, chance are that they will have heard about your store or the product at least 6 or 7 times before making the purchase.
40 - cold calls needed to book 1 sales call. Translates into 40 people walking by your store before 1 enters it or 40 people finding out about your business before 1 begins to get serious about considering getting more information. In other words, - - -
200 - people need to be contacted to make 1 sale - or 200 people need to walk by your store before a sale is made - or 200 people need to have access to information about your company.

Increasing the odds
• Corporate image that reflects your target market --location --name, logo, look --presentation
• Segment
• Work your list - follow up
• Utilize marketing techniques and sales tools to get to the 6 or 7 exposures and move toward the center of the marketing circle (TRANS)

Promoting Your Business
Objective in utilizing promotional activities is to move your prospects closer to the center of the marketing circles diagram - warm them up.

What EVERY business should have
1. An image - Includes - Color, Style, Type face
Styles can be classic, modern, techno, formal or casual, etc. B2B tends to be a little more formal, serious. Consumer styles can be more informal, whimsical.

Corporate image or identity
Why: You only get one chance to make a good first impression.
• Stability
• Professionalism
• Name recognition - it is easier to introduce new support and services; Gateway box in UPS ad.
• Image - if you have a positive image, it is sought after by both consumer and distributor. Also, attracts talented employees (everyone wants to the part of winning team)
• Defines product.

What comprises corporate identity? Location, decor, logo, sales presentation, language, taste, touch, smell, etc.

Stock logos or hire a professional designer.
• Cost• Applications to letterhead, signage, etc. Designers will know how a design will look and reproduce in various media. Knows impact of papers, inks, sizes, etc. on design.• What kind of image do you want to project.• How much time , expertise do you have to DIY?

Questions to ask yourself/that a designer should ask: • Do you already have a logo? Are responses to it positive or negative? Is it up-to-date? Should be in style without being trendy. You want an image that will wear well. • What ideas do you have for your logo? What are your color preferences?• What does your company sell? What is the target market?• What do your competitors’ logos look like?• What kind of image do you want communicate? Contemporary, nature, classic, etc.• To what will your logo be applied? Stationery, invoices, signage, etc. Use logo in all advertising and promotional materials.

Types of corporate identity marks
• Symbol: is a mark without type. Abstract, unique. Must be learned; costly to promote.• Lettermark: uses letters to abbreviate logo company name. Abstract; costly to promote.• Logos: mark with word that identifies company name. Phonic; easy to promote. Good for small businesses with limited budgets.• Combination marks: mark that combines symbol and logo. Has label effect. Phonic; easy to promote. Good for small businesses with limited budgets.

Development of corporate identity mark
• Thumbnails. Brainstorming for visuals to communicate desired image. Considerations: type of mark, target market, competitor logos, type styles, color, applications for logo, reproduction quality & readability at small and large sizes.• Choose & develop four or five ideas.• Present to client.• The final art. Drawing visual and type for mark.• The final art for different applications also called mechanicals.

2. Basic materials - Stationery, Business cards, Basic brochure
• Business cards cheapest and most flexible tool. Bures story. Probably first thing you should have produced. Think carefully about what needs to go on the card - give all of the information that is needed. (OH examples of business cards) Tip: great for building prospect data base - collect. Spread word about your business - give to family and friends. Exchange with suppliers, colleagues, even competitors. Tip: printed business cards give the best impression but you might want to test several designs by printing off of your own computer. Lots of things change during the first year in business. Utilize if you can’t afford a designer during first months in business. Also: flat vs. raised print.
• Letterhead and envelopes but also labels, bills, invoices, proposals, bids. Utilize your identity everywhere.
• Brochures for different needs - several basic types - showcasing product - like a mini-catalog: focus on product information and how to order, often includes an order form. - corporate image brochure - usually “touchy-feely” focusing on corporate philosophy and culture - why they are nice guys to do business with. - capabilities brochure - tells what company can do - both goods and services but also qualifications and credentials, facilities, equipment, etc; gives contact information but not order form. Used mostly in custom mfg. or service based businesses.
• Signage - on your building, car, truck, etc.
• Print advertisements
• Premiums like t-shirts, pens, calendars, etc.

Selecting a printer
• Desk-top at first - you will do a lot of “tweeking” during first few months.
• Printers run gamut from dreadful to pretty good. Need to know who you are dealing with. - price: cost per piece goes down with higher numbers, fewer colors - quality of work - see samples - get estimate in writing and be sure that all elements are included - folding, stapling, etc.
• Printers usually specialize in certain kinds of work. - how many colors do you want printed vs. equipment printer has - short run or long run - few hundred or thousands - some printers will not do long run and others will not do runs less that 2 or 3 thousand.
• Designers understand print business and can ensure that piece will be produced as designed - screens, colors, etc. TrueTitle story.

Several approaches to developing a brochure
• Focus on your business: quality, experience, qualifications, why you are good people to do business with. Good for services where experience and credentials are important.
• Focus on products: descriptions of products, benefits to purchaser, sales services, ordering procedure. Might or might not include an order form.
• Uniqueness factor: what makes your business different. Especially effective in a competitive market.
Tips: • Do not include changeable information which might make your brochure outdated - use “in business since 1990" instead of “in business 10 years;” do not use names of employees, do not include pricing. Pricing can be put on an insert. • Leaving plenty of “white space” improves appearance and makes it easier to read • Keep it simple - more colors and more complicated designs are more expensive to print - do not use 4 color when 1 or 2 color will do - can get great effects with shading, etc. Also, over-designed pieces can detract from your message

3. A good sales approach
• Selling is a) presenting your case about why someone should buy your product or service and b) relationship building. People like to do business with people they know or think they know. 80% chemistry - learn as much as you can about your prospects: why they want or need your product: lifestyle, profession, hobbies, family – even in B2B situations. Keep everything you learn on your data base.
• Ask questions.
• Hit the numbers - like we talked about above.
• Appeal to as many senses as you can - everyone takes in information differently. TRANS Sound - your verbal presentation: be thorough but brief and well organized. Sight - have visual aids: diagrams, photographs, present statistics in chart and graph form. Have everything organize in a way that makes presentation easy - flip book, etc. Touch - feel the materials used in your product, feel the quality. Smell - if appropriate: food, cosmetics, etc. Taste - if appropriate.
• Be ready to write up the order - have writing instrument, paper order form, etc. Keep them out where the prospect can use them if desired and present the order to them several times in the presentation.
• Ask for the order.
• Follow up - if buy or no buy: people change their minds. Ask if you can call agin at a later date. Mail them news clippings which might be of interest. Send them your newsletter. Check to se that they are satisfied with your product. See if they can use anything else from your product line - make logical and reasonable suggestions. Send them a birthday card. Send a thank you note for their business.

4. Networking - among professional colleagues, prospect groups, friends, even among competitors. Building a professional reputation among the local business community and within your profession can reap business and psychic rewards.
networking clubs - be ready to give a 30 second commercial and have lots of business cards ready.
professional organizations - those that represent your business and those that represent various business functions like NEOSA, SME, the Ad Club.
charitable organizations
social organizations, church, etc.
Have a good, concise way to explain what you do - a sentence or two. Ask people you meet what they do.
• Join forces with other businesses to increase coverage and stretch promotional $$$. ~ complementary businesses ~ make clear agreement on sharing of costs, prospect leads, etc.

Other important marketing tools
Publicity
It’s free - use it. Go over the elements of a press release via TRANSYou should also have a fact sheet which includes very basic information about your company - like year founded, market area, owner/key management, headquarters office, branch locations, number of employees, main products and services, gross annual sales. Fact sheet can be included with your press release especially where you have a more complex story to tell. This way, you can keep your release short. If the publication wants more information, they will have a reporter call you.
How to get your information published: Media Guide info - deadlines, contact information, etc.
Send to appropriate editor - check to be sure you submit information in the way that the publication wants it - if you don’t, they will not publish - example the job change notices in Plain Dealer and Crains.
Smaller, local papers more likely to publish - include a phot if you have one. Especially good for smaller, community oriented business. Try both in the areas where you do business and where you live.
College alumni publications are great, very responsive - also send photo of you , not your product.
Check out editorial policies of trade publications.

Advertising
Note: ad does not necessarily equal sales. More for building awareness, warming up prospect.
Note: You do not need to hire an advertising agency unless you plan to place a lot of ads on a regular basis. Then, ad agencies can help in getting good positioning and technical aspects of ad design and production.
Considerations: • Target market: who is going to see the ad? Who do you want to see the ad? Guides placement.• Desired ad size vs. budget: how big an ad will your budget allow in the best choices for your placement?• Deadlines: on what date does your selected media need your ad in order for it to run on time?• Timing: in conjunction with opening or promotion? Seasonal?

Working with designer
• Develop 3 - 4 layout variations in which your concepts are translated into visual form.
• Considerations: - most important elements are visual and headline: if successful will catch eye of audience and entice further investigation of ad. - determine image space vs. copy space. - balance: symmetrical or asymmetrical? - symmetrical is more formal and easier to design but is less interesting, stagnant. - asymmetrical is harder and informal but interesting, eye-catching. - flow: sequential order of elements - type styles: - serif typefaces are distinguished by short stroke that projects from ends of a character; delicate, suitable for body text; guides eye across the page - horizontal flow. - sans serif does not have the short stroke; strong and powerful; good for headlines, callouts, captions because they contrast with serif types which is best used in body text; strenuous if used in body text. - other technicalities like kerning or letter spacing which affects legibility and leading: space between the lines can change the way your text appears on a page
• Layout presented
• Final art produced - designer becomes coordinator - hires outside suppliers - illustrators, photographers, printers, typesetters, etc. - brings all materials together -“keylines” ad: pastes art and copy together for reproduction.
• Presentation of final art to client
• Provide publication with “camera ready” art for publication

Placement of Advertising
Phone for a media kit - go over elements in Crain’s media kit: rate card, editorial calendar, circulation and readership data - audit statement - look for this, other data might be available for the asking.
• Newspapers - smaller ones are easier to work with - Plain Dealer is very difficult to work with and very expensive. However, they have a large research department and might be willing to share data about their readers with you.
• Magazines - look at the magazines you are considering and see what kinds of ads are in them. Most are pretty easy to work with. Be sure you understand deadlines.
Tip: some publications have excellent in-house graphic design. Some are free and others charge. Small Business News is very good - and last time I worked with them it was free. Crain’s on the other hand is terrible and they charge for the service. You would be better off hiring a designer.

Tip: be sure you include adequate info - how to contact you, how to order, where you are located, etc. Be sure ad is easy to read - some ads look great but do not have right info or are hard to read. Must have eye appeal as well as other aspects.
• Other print advertising: high school newspaper, other high school programs, church newsletter or directory, play programs at art centers, programs for community activities. All are relatively inexpensive and show that you are community minded. sometimes more of a reputation builder that source of business.
• Radio might be easier and cheaper than you think. Different stations appeal to different audiences - select the right one for your target market - not the one that you like to listen to the most! Again, production services might be available to write and product the ad. On-air personalities sometimes read ads on air other times ad is recorded. Think twice about doing it yourself - must be clear, easy to understand and sound friendly and business-like.
• Television tends to be expensive unless small, local cable stations which might actually suit smaller, local businesses.

Direct mail
One half of one percent is a good response rate for direct mail. That means that you will get about 5 responses out of 1000 pieces mailed. Again, the numbers which we talked about last week apply - so that will not necessarily mean 5 sales. You need to consider a number of factors in planning a direct mail campaign:
• Postage: You need at least 200 pieces to begin to consider bulk mail rates. If you utilize a mailing service, you can piggy back your mailing onto their bulk mail permit. Getting your won permit requires training program from the postal service. Check out USPS web site for details.
• Other postal regulations will have an impact on your design - how it is folded, size, size in relation to the postage class you want to use. Big thick boring manuals or web site.
• List selection: purchased or generated on your own. You can purchase over internet, from many publications - check out the ones that hit your target market, from list services.
• Processing responses. What will your mailing generate - leads or orders. If you send out 20,000 pieces all at one time and the mailing will generate leads, will you be able to follow up on a timely basis? Think about the whole process and what impact the mailing will have on other parts of your business - how does it fit into your overall marketing operations?
• Design of the piece: what will it consist of - cover letter, brochure, order form, self mailer, response mechanism, return mailer, etc.

Yellow pages
Key question to ask is “Do your prospects look in the Yellow Pages when they need your kind of product or service?” If the answer is a solid “yes” then you need an ad in the appropriate section or sections of the YPs. If the answer is no or maybe, then you should consider other sources of advertising. YPs are expensive. If you have a business phone, you get a listing under one category. Problem is, many products and services fit under more than one category and it is sometimes not easy to choose one that will be place people are most likely to look.

Newsletters
Great way to stay in touch with both old customers and with prospective customers. Can be either on paper or by e-mail. Be sure it contains useful information and is not just a sales piece. You want people to read it and to look forward to receiving it. keep them informed about new developments in your industry and business, new products and services, new ways to use your products or services, and information which might or might not be related - travel businesses might write about stress reduction, packing tips, what to do to secure your home before going away, etc. Restaurant might write about dining out with kids, planning a night out for special occasions, recipes, who is more likely to ask for a doggie bag, etc. Keep articles short and simple. Use color and art - can be clip art. Newsletter will help with reselling, selling additional products and service and will help hit number of contacts needed to make a sale with prospective customers.

Trade shows & Conferences: Trade show displays can be expensive but worth it to generate good sales leads. Depends on your business and how you handle it. Takes thought and planning - good display and how you will handle leads, etc. Drawings, promotional gimmicks, etc. A better bet might be conferences and seminars - - - give your own seminar or offer your services as a free, expert presenter at a larger conference.

Telemarketing: problematic but sometimes the best way to secure appointments. Be honest and polite. Expect abuse when doing consumer calls but not for calling businesses.

Couponing/Discounts: couponing can generate interest and help build your mailing list. Name and address, etc. spaces on coupon or required for redemption. Response rates about the same as for direct mail - 2% good. Depends on what the coupon is for, haw large the discount, how well targeted, etc. Val-Pak, others, relatively inexpensive. Look for exclusivity, targeting, etc when dealing with these companies, They all handle things a little differently.

Promotional gimmicks: promotional gimmicks like t-shirts, pens and fridge magnets can be fun and can keep your name in front of your prospect or customer or they can just be junk. Choose wisely.

Internet: Two primary ways to utilize the internet ~ to advertise your business ~ to conduct your business

Advertising your business on the web
• On your own web site ~ free available from GeoCities, Homestead, others - but you do not get your own domain name and search engines do not list these web sites. Advantage is templates and other assistance in designing page that makes it easy to do. good place to start. Also good if your marketing is not contingent on utilizing contacts from search engines. ~ paid hosting as mentioned above. Advantage is your own domain name and listing in search engines. ~ utilize as an electronic brochure and or newsletter. Advise to keep content fresh - update regularly. ~ offer free samples, especially if you are in a consulting type of service. Easy to do on line.
• Web advertising ~ banner ads and other paid ad space similar to other medial advertising. Smaller and “click here” to access more information - utilizes teasers. some charge by space, others by number of hits - evaluate which is better for you. ~ sponsorships, etc.
• E-mail ~ to your own list ~ e-mail services but usually wind up in people’s junk mail box or spam filter. ~ cheap and easy to do yourself

Run your business on the web
• Buy and sell on your web site ~ security an issue - be sure that you have right software ~ must be able to utilize credit cards ~ interactivity - must be able to complete order forms
• Actions which can be managed on a web site ~ information, dates, prices, exchange policies, etc. easy to keep up to date ~ ordering and cancelling; order acknowledgments ~ e-mail inquiries ~ booking appointments ~ needs analysis ~ information gathering - surveys, etc.

Work the circle
• Brand new businesses work close to the center (family and friends) at first then work outer edges as they get the word out.
• Early stages - emphasis will be on outer edges.
• As you gain contacts and the word gets out about your business - emphasis should shift closer to the center.
• Problem is many business do not make the shift and continue to work outer edges - inefficient and wasteful of time and money resources.

Different tools for different parts of the circle
• Outer edges - PR, advertising, yellow pages, direct mailings
• Inner parts of circle - customer satisfaction, coupons, newsletters, repeat purchase discounts, promotional gimmicks, etc.
• When you develop your marketing plan, take all parts of the circle into account - and what stage of development your business is in.

Session #7

Location Considerations:
• Accessible to your target market: transportation, parking, proximity. Drive in the country?
• Location of competition: can be good or bad - McDonalds vs Burger King
• Access to sources of supply & delivery: distance, truck, rail, etc.
• Access to labor: source of labor might be in conflict with target market
• Cost: cheap not always best - why is property vacant? how long has it been vacant? are problems correctable? compatible with your corporate image?
• Zoning: 1) for use of property - don’t take anything for granted 2) for use of surrounding areas - compatibility 3) for future usage for your property and surrounding areas
• Expansion room
• Plans for area: additional development, road construction, etc.

Shopping mall: pros - parking, access, co-op advertising, easier to find. Cons - mall operating rules, pay % of gross as rent, pay upkeep for common areas and landscaping. Look at history of shopping center - % of vacancies, successful businesses, other merchants compatible, etc.
Business incubators: business grouped in a building for sharing of expenses, overhead. In many cases, run by university or government with advice and guidance, sometimes tax breaks.

Lease considerations
• Rent: flat monthly payment; set percentage of gross sales (no consideration of your expenses, etc.); sliding percentage of gross sales; combination.
• Term: length and option to renew
• Sublet: Do you have this right? Might be important at beginning if you have too much space or if business does not grow as quickly as you had hoped.
• Leasehold improvements: Who pays for initial improvements needed to make location work for you? Who will own the improvements if you add lighting or carpeting for example? Is building up to code? ADA compliant for public access? Electrical adequate and up to code?
• Insurance: what is covered by landlord?
• Security deposit
• Termination: for both parties. Be sure that you aren’t kicked out just as your business is getting off of the ground.
• Restrictions: do not take landlords work about zoning or other governmental restrictions. Understand all restrictions placed on you by the landlord. Be sure that you will not be hindered in conducting business.

Home-based businesses
Advantages
Income tax deductions for home office and mileage
Convenience - save time with no commute
Lower overhead
Great way to start part-time business

Disadvantages
Closer IRS scrutiny -- red flagged for audit with home office deduction; IRS can visit home without notice to see that you are in compliance with regulations
Takes up room in your home -- inventory; loss of privacy if you have clients, customers in home
Hard to leave work/household distractions
Isolation
Local community regulations: limits type of business; traffic; consideration of neighbors
Liability
Image

Overcome disadvantages and misperceptions by operating in a business-like way
• Determine business hours: tell family, friends, customers; discipline yourself to work those hours; protect your free time;
• Maintain a professional image: dress right; professionally produced materials: stationery, brochures, etc.
• Protect your work space both for IRS and business purposes: do not use computer as family computer; make it clear to family that office is “off limits” and that equipment is not for general use
• Join professional organizations to ward off isolation

Pricing
DISTRIBUTION ICW PRICING
• considerations: * how long it takes to get the product from manufacturer to customer - is it out of date by the time it gets to customer - if manufacture is triggered by consumer order
* final price after all mark ups along the way
* total marketing cost
* single or multiple channels: do channels compete with each other?
• consumer channels: * direct sales - shortest distribution chain- more work for you: need to cover market and do all of the administrative things associated with selling - internet, direct mail and TV, also outlet stores
* retailing - most common - marketing to consumers is their responsibility
* wholesalers and distributors - buy in bulk and sell to retailers - choosing right distributor - one who is familiar with your market and offers the right combination of marketing and services - is important - do a lot of the work including warehousing, stocking, marketing, etc.
* manufacturers’ reps - independent contractors who find good retail outlets for your product - do not actually purchase your product themselves but work on a commission basis - need to make their cut attractive and show them that market is there; get a performance commitment

• industrial channels - selling to other businesses; similar options

IV. Intermediaries
• assume tasks that do not fall within the core competencies of the manufacturer
• add value by assuming these tasks or offering additional service
• ways to utilize intermediaries * sharing risk by purchasing and holding in stock until sold * placing within a line of similar products (specialty foods, plumbing supplies) * breaking bulk - so that retailers do not have to meet manufacturer minimums * source of market information because they are closer to the market they tend to know what is going on

V. Evaluating your channel: feasibility analysis method
• cost - as we talked about and was illustrated on the transparency * retailer often keystones or doubles their cost (at least)
• coverage * intermediaries can allow you to get coverage faster
• control * control important if you are in a highly specialized market * can be an issue if product or service is new and customers need to be educated

Barter - first kind of pricing

Then came the invention of ----> Cash
Haggling was original form of pricing

Next: fixed pricing or “take-it-or-leave-it”
This is “Bottom up pricing” where you start with the cost of producing or acquiring your goods or services then add a “profit” on top of that. Often called “cost plus” pricing, it is often used by deep discounters like Marc’s. They acquire their goods at exceptionally low prices from manufacturers who need to “unload” because of packaging changes, manufacturing over-runs, design changes, etc. They then factor in overhead and ad a profit on top of that.

With this type of pricing, some tweeking can be done based on competitive pressures, seasonal factors, supply, etc. Most smaller businesses follow this approach.

Dynamic pricing is next step and is more difficult to implement. Used for many years but becoming more practical for smaller businesses because of the internet

Forms that have been in use for a long time -
Market influences (dynamic pricing) include strategies in which factors like supply and demand and competition is the foundation for pricing. Require sophisticated mathematical models and lots of market research to do it right. Used by big consumer products companies.

One common form of this type of pricing is often called “What the market will bear or selling for as high a price as you can get. Jewelry for example will go for a multiple of the seller’s cost - 400% perhaps. A subcategory of this is called “Keystoning” which means doubling the cost.

Another form of pricing is the auction. The auctioneer starts the bidding at what he feels is an acceptable minimum then “offers” or “bids” raise that price depending upon the demand for that item. Some auctions use the reverse strategy and start with a very high price and keep lowering until it is sold. Some discount stores use this strategy too, lowering the price of an item each week or so until it is sold. Some stores run “gamblers” sales that use this pricing strategy.

Of course, the internet has made the dynamic pricing format much more practical. Just think e-Bay. It has taken the auction format to the extreme. It is a full 2-way market where buyers bid and sellers ask. Both play a role in determining the final price.

Different kinds of products call for different pricing strategies.
~ Commodity products: food, paper, etc. Lots of competition.
~ Proprietary products: cutting edge electronics. Little competition
~ Semi-proprietary: in transition.

Remember, pricing is an integral part of your marketing strategy. It has an impact on your prospect’s perception of quality as well as an impact on his ability to make the purchase.

Session #8

Hiring & managing employees
Business plan and business model need to allow for growth. You can choose to stay small but most will want to grow and any business that is growing has to face the inevitability of hiring help, At first, your help might be clerical in nature.. You might be able to utilize family and friends that you can trust. But how you handle hiring and managing employees can make or break you business.

1. Be sure that you have a very clear idea of what tasks the indivual will be required to do. The tasks should be dictated by what your business needs - not what your cousin Bob can do. Write a job description which spells out the responsibilities, hours, and reporting relationships. Then you can determine what qualifications (skilles and knowledge) are needed including personal characteristics. “I’m a people person!” Determine the level of trust and dependability that will be required - will person be handling cash, driving, running machinery, etc.

2. Determine where the person will perform their duties and be sure that you have the equipment that will be needed for them to do their job.

3. Develop a cost analysis - remember to include insurance, vacation, training, equipment purchases, etc.

4. Be sure your liability insurance covers the new employee - and check local zoning especilly if you have a home based business.

5. Solicit applications - advertise: ask for resume & cover letter if some standard of literacy is important; give enough info in ad but remember - screen in, not out in ad. - a good agency can be helpful if you do not have time or expertise to do skills screening but are expensive - expect to pay 1.3 of first year’s salary. - cheaper: contact schools like community colleges, proprietary schools, and training programs like those here at Polaris. - post office, library, grocery store fliers. - networking - one of best ways.

6. Screen applications based on criteria developed when you wrote job description. (we do this because, once you meet the person, hiring is 80% chemistry and 20% qualifications. screening based on qualifications first helps reverse this figure and gets you an employee who will make a meaningful contribution to your company.) - if resumes, interview by phone first - saves time and $. - verify education and employement up front. - then call in for a personal interview

7. Check references and run a background check. (knowX.com) Do not rely on letters of reference. During interview, ask about names of prior supervisors - especilly ones that might not be on their reference list. PHONE references. Check several. If person will be driving - check driving record. If person will be handling cash - check criminal record for resident and surrounding counties as well as state. Find out about out of state residences.

8. Make the offer and agree on a start date and time. Be sure that everything is understood and write down job offer, salary, benefits, etc.

9. Set aside time for adequate training - both your time and new employee’s time.

Operations & Administration or General & Administrative
• Personnel expense consolidation & Personnel, staffing planning: How many hours do you really have in a day?~ Carefully consider impact on your time

• Initially, can be very time consuming - plan for it
• Training time and expense often neglected
• Consider supervisory time also
• Look at what $$ might be generated by delegating - one of hardest things for an entrepreneur to do

~Don’t forget to factor all expenses in

• Training programs purchased: must include not only job training but also OSHA and state mandated safety training expense and record keeping
• Budget for payroll taxes, insurance, benefits, vacation, etc.
• Budget for equipment and supplies, desk, etc.
• Hiring costs: advertising, interviewing, testing, background check, references checks, etc.

• Building & equipment costs: rent, depreciation, utilities, etc.
• Office expenses, supplies, etc.
• Dues, entertainment, other miscellaneous.
• Cleaning & maintenance: equipment, building

Exit plan
• Planning for how you will leave your business is a critical part of determining how you will set up an operate your business ~ need to build value can’t be done effectively right before you try to sell ~ company needs to have value without your presence ~ contingency planning in the event that things do not go as you had planned: slow sales, low profits, changing markets, changing regulations, dissolved partnership, change in health, etc. ~ protect yourself from having an “ungraceful” exit
• Several “graceful” ways to exit ~ sell entire business and assets ~ sell part of business ~ liquidate ~ restructuring: becoming a “figurehead” ~ ESOP - selling to your employees (need to have 25 or more, revenue at least $3million annually, payroll at least $500,000, good cashflow and $ for set-up costs)
• “Ungraceful” ways to exit ~ Chapter 7 bankruptcy - forced liquidation ~ Chapter 11 - reorganization ~ walking away
• Protecting yourself from the “ungraceful” ~ have a plan ~ have sufficient liquidity ~ run “lean and mean”

Business plan format & handling
General considerations
• Appearance of plan - -
Must be neat and correct

• Spell check and proof read carefully
• Does not have to be full color, or professionally designed but must be neat and well organized: image does count but presentation and accuracy more important.
• Elements discussed must be included - Table of contents must be correct, number pages; Executive Summary; Supporting documents, research, licenses and permits, leases, etc. in Appendix includes resumes of key players, patents, etc.

Title page, executive summary and cover letter for business planEspecilaly important if you are using your business plan to obtain financing
Title page should be professional looking - simple but elegant (TRANSPARENCY)
Executive summary and cover letter should be customized for individual sources • executive summary hits highlights of your plan, can be included - Business concept or mission including statement about market and industry, statement about immediate overall goals, and statement of current situation; Current situation including current stage of your business, challenges and opportunities; Key success factorscan include managment team, reputation, market position, special capabilities; Financial needs including how much money you are seeking and how you intend to repay it
• cover letter clearly states what you are looking for - no subtleties (TRANSPARENCY)

• Be prepared to give a 15 to 20 minute presentation

Thinking like an entrepreneur
From the mission statement exercise that we did, has anyone drafted or revised their mission statement? Want to share? What about your product description and “unique factor”? What about your 30 second “commercial” or the description of your business that you use when meeting someone at a business or social function?

Class exercise: on a blank piece of paper, write down the primary way that your company generates revenue or that you expect your company to generate revenue. Now, keep that nearby and jot down any ideas that come to you as we talk about business models.

A business model describes the way that you are going to make money from your business. (Remember writing your 4-part business concept?) It is a critical part of your business plan and what your lenders or potential investors will be examining very carefully.

Now, we are going to try to generate some more ideas on how your business can make money. In developing multiple business models, the objective is to think of all of the ways that you can squeeze $$$$ from your product or service. Remember back in one of our first class sessions when we tried to think of all of the ways that an ordinary water bottle could be made into a marketable product? Well, we are expanding on that. Think outside of the box. Internet gives you many more options without a lot of investment. Think of selling the same product in different markets, different packaging, different channels of distribution. Think of spin-off products. Think of complementary products and services. (Brainstorm)

With multiple revenue streams, your business will have a better chance of being successful and will be more valuable. If it generates revenue while you are absent, it will be more valuable. This is important when you get to the point where you want to “harvest” or exit the business - like we talked about last week.

The standard business model is “bricks and mortar” - the usual retail outlet or factory we are familiar with. You have a building - a physical location, a product or products, and someone who runs the operation. But, nothing happens in that arrangement without that person. The digital age gives you some options that did not exist just 10 years ago.

Because of technology and the internet, barriers to entry are low when you identify a niche that is not being served. But you had better get going fast because it won’t be that way for long (Establish a strong position in market and dominate to be able to withstand onslaught of increasing competition and eventual market saturation.)

When the euphoria wears off:
• Keep improving your skills.
• Stay up to date on your market, industry and the economy.
• Network, join professional organizations.
• Find a mentor
• Get started

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