Poll on Challenges Facing Small Businesses

The TxEN is interested in learning more about the challenges facing small businesses. We are working with the Financial Services Forum – a non-partisan financial and economic policy group representing the largest financial institutions operating in the United States to conduct a survey of small business owners.

We invite you to participate in this brief on-line survey. We hope you can take a moment to share your thoughts and opinions about the current business climate and obstacles and frustrations affecting companies like yours. Your feedback is very important to us.

This is NOT a sales solicitation, nor will it result in any attempt to sell you anything. This is a research project regarding business conditions and job creation, for which your cooperation is greatly appreciated.

Please note that any information shared will only be used for internal research purposes, and will be treated confidentially. Responses will be consolidated into an overall report, which will reflect categories of comments. The report will not identify the input of individual respondents.

The survey will close at 5 p.m. EST on Monday, September 26th.

To participate in the survey, please click on the link below or copy and paste it into your web browser:

http://masurveys.com/nrisurvey2

Please give us your input.

Best regards,
Hall T.

Terry Hazell Talks about RampCorp

Terry Hazell Talks about RampCorp

What is RampCorp?

RampCorp is training, coaching and networking program specifically designed for women who are or who want to be entrepreneurs. Over a period of 25 weeks, meeting one night per week, participants will learn the aspects of launching and growing a business, receive many hours of one-on-one coaching and increase their network dramatically. About half will start a company or change their company’s business model. See can see the list of companies at this link. . We provide some free resources, too.


Who is involved?

Many participants say the coaching is their favorite part. Great coaches like Robin Curle, Laura Bosworth, Laura Kilcrease, Kathy Lindauer and Mary Haskett make the program. Robin Curle has led several companies to multi-million dollar revenues and has been named a “galaxy of entrepreneurship”.

Mary Haskett has run several companies ranging from a skydiving school to a missile launch training SaaS company and her current company is named Top 50 startups by Kauffman Foundation. Laura Bosworth has led product launches and $100 Million programs at large companies. Laura Kilcrease, Investor in Residence, knows how to position companies for funding. Kathy Lindauer, Lawyer in Residence, shares legal topics and weekly legal tips.

Also, members can continue for a second 25 week session. New members benefit from learning from returning “2nd year” women slightly ahead in their entrepreneurial efforts.

Applications are open until late October. You can apply here.


What is your favorite part?

When a woman joins without a business idea, finds an idea, launches and then one night announces a major milestone. A few weeks ago CEO of a newly formed El Paso venture announced she had made her first sale. To me it was the home team winning the super bowl!


What will you include in your upcoming blog series?

I’ll be sharing some of the RampCorp resources and tips on self-promotion, scalable business models, technology transfer and getting ready for due diligence.

Best regards,
Hall T.

Charles Doty of BlueShift talks about Entrepreneurs Transitioning

“Real artists ship.” That statement is attributed to Steve Jobs circa 1983. The message, whether Steve really said it or not, still resonates at Apple.

A successful entrepreneur is first of all a competent risk taker and a visionary; someone who sees an opportunity that few if any others can see, and is willing to take on the task of developing that product or service and targeting it so that the market will embrace it. For now I will refer to that generic successful entrepreneur as Bob.

Bob started his company with a team of dedicated developers who believed in the company and themselves equally. Whatever the obstacles, they were committed to confronting and overcoming them. Work eighty hours a week – no problem. Solve a problem that has never been solved – they will do it. Find a way to do it twice as fast at half the price – you got it. People like this are required if a start-up is to have a chance of getting off the ground.

You know about the runway analogy. The capital investment is the runway and the company is the plane. The idea is that the company must build up enough speed to take off before they run out of runway. Once in the air they have to keep the engine running to stay aloft. Getting off the runway typically means producing revenue, and that means “shipping” i.e. delivering product. Producing revenue means continuing operations which, when successful, requires a markedly different management approach than start-up development.

This is a difficult transition for Bob. He has been a founder-driver of the company since its inception. He has made quick decisions that cut across organizational lines, and he has been the final arbiter in internal disputes. Up until the transition, he has been the one person that accounted for the company’s value: the investors and employees alike trusted him to drive the company to success. The risk is that Bob is unable to envision how the company will succeed after the transition, or he may fear failure because he does not feel that the company is ready. He may see runway extension, that is additional investment, as a recurring goal – in fact it may become his only goal. At some point, however, runway construction (additional investment) stops.

When it is time for the commercialization transition, it is probably time for Bob to bring some new people into the company. These new people will not necessarily be people who would have been valuable in the early stages, but they are likely to make the difference between success and failure during and after the transition. They will facilitate a competent organization that works with processes that drive continuous improvement as a way of achieving excellence. Bob’s role in the company should now change dramatically. The organization will change, and the tendency for Bob to make snap decisions and cut through organization lines to steer the company directly will become detrimental to success.

If Bob does not allow and enable the transition, what is probably the greatest achievement of his life may well end up in the weeds, much like an airplane that goes off the end of the runway before it achieves liftoff speed.

Charles Doty, of BlueShift Consulting

Austin Startup Week

Austin Startup Week happens this week. Modeled after the Boulder Startup Week in Colorado, the event highlights the startup community with events, pitches, meetups and more. Organized by Jacqueline Hughes, the event showcases co-working spaces, successful startups, soon to be successful startups, and other facets of the Austin startup community. Check out the site here for more details: http://www.atxstartupweek.com/

Charles Doty of Blueshift Consulting talks about Succession Management

Charles Doty of Blueshift Consulting talks about Succession Management

What can possibly happen? One of my business partners refers to the six D’s: death, disability, disagreement, divorce, disengagement, and disaccreditation.

When a key person in a small to mid-sized private company dies unexpectedly, his company may die with him. The value of the company is likely to decrease rapidly unless an effective Succession Management project is undertaken quickly.

Succession Management is a process developed to help companies get through the Succession Transition while maintaining the value of the business. A tremendous amount of value can be gained or lost during a Succession Transition, and many companies are underprepared to deal effectively with the crisis.

Each company is different, and often the problems are less related to the business itself and more to the relationships between individuals and groups who own the company, a roles and rules issue.

Assessment

The first priority for a Succession Manager is to understand the owners’ needs and objectives during the transition. The first phase of this effort may not take long, but the entire effort is an ongoing process that continues through the entire transition. Then the current status of the company should be determined with a report on financial status, business processes, personnel, and anything else that is important to understanding the value of the business.

Operations

It is vital to maintain the value of the company, continue to operate the business, and assure all involved that it will continue in the future. It may be that the end result will be replacing the missing person or sale of the business. Whatever the ultimate resolution, the future value of the company will be maximized by maintaining good relationships with personnel, supply chain partners, and customers.

Resolution

To see more about roles and rules and to find out how good outcomes are achieved, check our future posts.

Do Angel Investors Ever Have Down Rounds?

I met a new investor contact last week who happened to be a venture capitalist. At the start of the discussion he posed the question -- Do angel investors ever have down rounds? A “down round” is an investment of capital at a value below the previous fund raise. In thinking back over the last five years, I had to admit I hadn’t seen a down round in that time. In fact, I haven’t heard of anyone even suggesting such a thing.

There are several reasons for this. Previous investors don’t want to see any dilution. Entrepreneurs don’t want to admit they didn’t hit their milestones. Valuations at this stage are based on negotiations more than facts.

He went on to say that as a VC he sees quite a few deals coming to him that have $3M to $5M in revenue but their valuation is at $60M. $60M? After numerous angel rounds --all at increasing valuations they pushed the valuation out of the stratosphere.

So what can the VC do with this deal? Nothing. There’s no way they can fund it at that valuation. The entrepreneur operated under the false assumption that eventually the company would catch up to that valuation. But sadly, no.

My question to entrepreneurs is, “Do you really know what the value of your company is?”
“Do you know what it would take to raise the value of your company?”

Best regards,
Hall T.

Derek Singleton of Software Advice Talks about Choosing Accounting Software

Small businesses need to be vigilant in their accounting practices. A minor misstep can have major repercussions. Accounting software makes doing things like expense tracking, invoicing and billing, and maintaining a general ledger much more manageable. More importantly, most small business owners can manage their accounting needs with a simple software program.

However, choosing an accounting package for your business can be difficult. At Software Advice, I put together a list of my five favorite accounting solutions for small businesses: Sage Simply Accounting, NetSuite Financials, Sage Peachtree, CMS Professional 2011, and (naturally) QuickBooks.

One of the best ways to determine which system is right for your business is to look at a side-by-side table comparison. I built the one below to provide a snapshot of the functionality offered in each.


Beyond the functionality, each product has some features that makes the solution unique. Here's a quick rundown of three of the five systems included in the table.

QuickBooks
QuickBooks is Intuit's flagship product and is the most well-known small business accounting program out there. QuickBooks is available in five versions - Online, Pro, Mac, Premier, and Enterprise. The price tag will range from $12.95/mo. for Online to $600/user for the Enterprise version.

Sage Peachtree
Closely trailing QuickBooks is Peachtree. Over 3.2 million users in the US & Canada use this system. Like QuickBooks, Peachtree is offered in 5 versions - First, Pro, Complete, Premium, and Quantum. First and Pro support only one user and are good for mom and pop type operations. If you need more than that, look to other versions.

NetSuite
NetSuite is a web-based system that currently has 10,000 users. NetSuite packs in the most functionality of the five solutions. Because it's web-based, users can access it from anywhere that has an Internet connection which makes it cheap and easy to use.

So there's three of the five solutions featured in my guide to small business accounting software. To see more detailed reviews of CMS 2011 and Simply Accounting, visit my article at: Small Business Accounting Systems | 5 Affordable Solutions.

Are you Ready to Meet the Investor?

Recently I was contacted by an entrepreneur who wanted to raise funding for his startup. It was a compelling deal in a growing market space but it was also a fairly complex one with a great number of moving parts. So I decided to send it to the investors. I asked for the usual docs and information. When only the business plan arrived I pressed the request for more information --letters of intent, employer identification numbers, articles of incorporation, financial statements, references, etc. As it turned out they hadn’t event filed for a company entity. The letters of intent were still being written. The reference request sent them scrambling to find. There were no detailed financial statements.

Without key documents in hand to validate the business, there was no reason to pursue investors beyond an initial contact. If the investors are interested they will move into due diligence and will want to see all the documents related to the business including patent filings, contracts, and financial statements.

As a company moves into fund raising mode, I recommend the entrepreneur compile key documents into one place so there’s no delay in the followup process by gathering documents. And if you say you have a contract, you better have something that in writing to show it.

Best regards,
Hall T.

Open Angel Group Model -- The Benefits

I recently posted in the Austin Business Journal about the rise of the open angel group model. In our most recent Texas Entrepreneur Network Funding Forum in Austin on June 8th, I saw the benefits of such a model in action. From the event, five of the presenters received interest and three are in discussions to receive funding. The event brought over fifty people into the room --some were investors who expressed interest in the deals but most were entrepreneurs watching the pitches and listening to the panelists’ questions. This provides mentorship to those who are considering raising funding. In talking with several entrepreneurs afterwards some expressed interest in joining the next round (Sept, 2011) while others talked about the work they need to do in advance of pitching.

To be successful in the Funding Forum you need to have a:

--solid product with some differentiation
--clear and focused target market
--competent management team
--some proof that the product will sell

Also, investors interested in pursuing startup investing find the Funding Forum educational as one learns the most from listening to the questions the other investors ask.

Best regards,
Hall T.

Guest Blogger Brian Wulfe Talks about Top 5 Factors that Determine a Startup’s Internet Advertising Budget

Guest Blogger Brian Wulfe Talks about Top 5 Factors that Determine a Startup’s Internet Advertising Budget

At Effective Spend we work with startups and established businesses alike to improve the effectiveness of their internet advertising campaigns. A common question that we get from clients is “How much should we be spending?” Answering this question for startups in particular can be fairly complex and varies depending on several factors. Below are the top 5 factors that we find most important in determining the optimal internet advertising budget for a startup.

1. Business Plan:

Using revenues and profits to decide how much to spend on internet advertising is popular throughout many different business models. An established internet retailer might find that they can spend up to 10% of sales on advertising, above which ad spend starts eating into margins and below which the retailer starts to lose market share. Since sales can fluctuate during the initial stages of a startup’s business plan, tying advertising spend to a percentage of sales is difficult. Some startups, for example, might not plan on generating any sales or revenue during the first few phases of their business. In these cases it is beneficial to tie advertising budget to other important milestones within the business plan such as reaching a key number of subscribers or active users, as might be the case with some tech startups.
For example let’s say that your business model calls for generating at least 100K active users before you transition into the monetization phase. Once you are able to determine an active user’s acquisition cost per advertising channel, you can begin to get a rough idea of the total budget needed for that milestone. Additionally you should take into consideration that your acquisition cost for each additional subscriber or conversion will decrease over time as your advertising campaigns and website conversion processes become more efficient. We have seen many startups begin with an initial internet advertising budget that amounts to 25% - 30% of their total budget and as the marketing channels become more efficient and revenue rises we see their marketing budget as a percentage of total budget steadily decrease to 10around 10%.

2. Advertising Effectiveness:

Eventually the amount you spend on internet advertising should more than pay for itself. However, if you limit your budget with expectations that all ad dollars should bring in a profit, you might be slow to capture market share and see competitors react in a manner that prevents your startup’s growth and potential success. That is in no way to say that your budget should not be shaped by the effectiveness of your internet ad campaigns. In fact the allocation of your budget should entirely be shaped by its relative current and potential performance. There are many ways that you can measure the effectiveness of your internet advertising campaigns, but in all cases you should be concentrating on two things: the quality of visitors produced by your advertisements and how much those advertisements cost. By maximizing this quality-over-cost ratio and distributing budget accordingly, you will ensure that the effectiveness of your internet advertisements continues to improve over time. As your advertising ROI continues to increase, so should your budget.

3. Management Resources:

Having a qualified individual who is committed to managing and optimizing the online marketing program can make a large difference in determining the advertising budget. Some business plans go as far as to account for personnel, such as an advertising specialist, to be included in the marketing or advertising budget. Other startups chose to partner with a digital marketing agency or a more specialized search marketing agency, such as ours, Effective Spend . Although we do not find that there is a set minimum amount of ad spend at which a startup should start looking for an internal marketing specialist or agency, a good rule of thumb is for a startup to spend 18% to 20% of ad spend on resources (internal marketing specialist or marketing agency) to manage that ad spend. As the advertising budget increases and the growth rate of that budget starts to level off, a business can expect to spend less as a percentage of spend (14% to 15%) due to economies of scale. Generally we find that if a startup is planning on spending at least $2,000 per month, the additional savings or added revenue they will see with better campaign optimization justify the management expenses.

4. Consumer Purchase Behavior:

Despite the multitude of different advertising channels, companies still push more than 85% of their online marketing budget towards search engine advertising due to its efficient ability to match highly qualified consumers with the product or service for which they are in the market. Determining a startup’s internet advertising budget, therefore depends on its ability to advertise effectively through the search engines. Generally search engine advertising works best to convert searchers who already have an idea of what they want. Startup businesses that are able to determine when the searcher is in the market for their products or services by the keywords they use, stand the best chance at succeeding in search marketing. Conversely products or services that require a lot of education before the consumer understands the benefit are generally harder to advertise using paid search ads. Startup businesses, who have products and services with a simpler purchase cycle and who have a clear way to identify their target consumer, spend significantly more on internet advertising than those who do not. I have listed the following industries to give you an idea of the businesses that generally do well with search advertising: Retail, Education, Banking, Healthcare, Local Services, Software, and Travel. Conversely extremely high tech, Aerospace, and complex software businesses might not do as well due to the complex nature of their product offering.

5. Capacity:

Most startups have a point at which capacity constraints restrict their ability to increase sales. This issue is most obvious in the manufacturing industry, but is also seen in several other industries due to limited personnel, inventory, bandwidth, etc. Your internet advertising campaigns can serve to throttle sales velocity and help to prevent exceeding capacity. For example at Effective Spend we work with several day spas that deal with capacity issues on a regular basis. We have developed a tight communication process that allows us to incorporate information related to their projected capacity into the online marketing campaigns. When sales are within 80% or more of capacity for a particular service offering, we strategically reduce the marketing spend by 20 – 30% in that area, ensuring that they are not wasting ad spend on visitors who are not likely to convert. Alternatively we help to boost demand driven by the online campaigns when we see that there is a good deal of extra capacity.