Trash Can Plan Element #1

Put a big ‘ol fat NDA, non-compete, non-circumvent, non-interpret, burn-after-reading clause on the front.  Nothing screams weak business model more than a big “this is super secret” declaration.  I’ve said it before, and I’ll say it again… if your business model is so susceptible to theft that you, as the owner, are basically irrelevant, why in the world would anyone ever buy in?  If some business plan troll can hear of your idea and obviate your competitive advantage… you never had one to begin with.  “But my attorney said…”  In this regard, attorneys are like airport security; your goal on this trip is to limit contact to get where you are going unmolested with minimal headache.

Trash Can Plan Element #2

Make the plan at least 50 pages.  Maybe even longer.  Add everything you can to your plan.  Pack in the kitchen sink and all the superfluous sections you can find.  Go to a government or wiki site and download a table of contents with at least 80 subsections.  Make sure you have a very detailed description of the standard technologies you will employ to meet the minimum standards of performance.  Be sure to make clear that you will use a CRM to properly ensure you “know stuff” about people who might buy from you.  Spend no less than 500 words describing your customers.  Spend at least 3 pages describing how you will handle the most rudimentary of business tasks, like accounting in Quickbooks and leasing an antivirus program for your work machines.  When you start to feel you have enough, make sure you ask an MBA student to read it and add another 3 or 4 more sections no one thought to include.  When done, add an appendix of financial information so the plan feels like a book, not a brief.  If you want your plan in the trash, make it scream “this will take all afternoon to read.”

Trash Can Plan Element #3

Be very clear this is a completely unique idea and that you have no competitors.  Lead off this section with “The company has virtually no competitors in this completely new niche market.”  I’ll bet this one single statement brings investor eye-rolls more than other point.  Everyone has a competitor… even if it’s a substitute product or something indirect.

Trash Can Plan Element #4

Completely underestimate the intelligence of the investor.  That’s why they have the money they do, and you don’t.  The most surefire way to part these low-brows with their cash is through the art of financial projections.  Be sure to show a net margin of at least 30-40%.  Any good business, as these dumb dumbs know, prints cash.  Make sure your zero overhead business displays the most perfect picture.  Investors love to see big big profits and believe them.  That’s how they got rich to begin with – unbridled optimism.  Buy into their gullibility and you can be sure they will read every line of your spreadsheet.

We can guarantee (and we don’t do that often) that if you follow these 4 basic laws of business planning, your plan will never be completely read by anyone… other than your parents or your spouse, and maybe the MBA student we mentioned in #2.  Avoid these, and you just might get your business plan read.

What opportunities, you ask?  If you are unemployed, a stay at home husband or wife, or simply have time to burn, there is no reason you can’t start a small business with nothing but a credit card with a $500 limit.

I call it retail arbitrage.  Back in college, before the Internet was anything close to the force it is today, a friend of mine and I made $50,000 in a single summer using retail arbitrage.  We did it by buying and selling some ugly shoes you couldn’t get everywhere, especially if you had extra large or extra small feet.  This was the heyday before suppliers caught on and shrunk margins to try to eliminate or drastically reduce market inequalities.  (For the most part they’ve accomplished this now, but not entirely.)

In ’99 when my friend said, “Dude, those shoes are like $150 on eBay” pointing at the ugly foam-sided basketball kicks selling in the local outlet store for $29.99, I said “Well let’s buy a pair and check it out.”  Two days later, we had $175 plus shipping in our PayPal account, and the scheme was born.  Almost without fail, we were picking up a pair of shoes at an outlet store for $29.99, posting them on eBay, and getting back $110 a pair – mostly from buyers overseas where there was no outlet mall to speak of.  When we discovered the “market inconsistency,” we fueled up my Toyota pickup and hit the road to every outlet store in Oregon, maxing out our credit cards by buying every pair we could find.  We developed what we called “The Magic Margin” – the shoes had to be marked down either 70%, or be a really odd size (super small or pretty large) and marked down 50%.  We found you generally get 70% of full retail value at auction on popular brands.  Minus eBay fees and processing fees, we would net about a 90% markup per item – and if it we had several pairs to auction at once, which we often did, we could post them all really fast and our hourly rate soared.  It was literally a $50k summer.

I haven’t sold anything on eBay in probably a decade, but even today when I wind up at an outlet store, I find myself mentally scanning for the “magic margin” we came up with and I assure you, it still exists.

What I noticed last night is that now you can find retail arbitrage available online too.  (Never mind needing a Toyota truck – you don’t even need to leave your house!)  Look here

http://bit.ly/a144QM.  This trench coat just sold on eBay for $69.99, plus a $2 markup in shipping.  However, you can buy this exact jacket here for $49.50, plus shipping of $7 (and if you wait, the price sometimes drops to $39.50 with free shipping) http://bit.ly/clgP7L.  Once you back out the fees, you can still net a quick $10-$15 for what might take 15 minutes.  That’s $40 an hour for nothing other than filling a market need by connecting buyers and sellers.  I found this example in less than 3 minutes, which would lead me to believe it exists 1000 times over online.

So set up your own retail arbitrage business!  Write off your home office, your Internet connection, and gather travel reward points on your credit card.  It’s fun and easy!  If you are unemployed, bored, or just curious about whether you can actually make money online… why not give it a try?

Tell us about your cool retail arbitrage finds.  Once you have taken advantage, of course.

In short, define “help?”  Will we give you a list of investors?  Sure.

Will we make introductions to any of the private equity firms who have reached out to us for our best work over the years?  If it fits.  Will we pitch your business plan for you to people we do and don’t know?

Absolutely not.

In the last 6 months there has been a growing trend for business plan companies to promise some form of capital raising services.  The thought goes, if they offer more than just the business planning engagement, they can secure more clients by touting how much they will help you post-planning.  And you might think, “This will be really helpful to have the same company write my plan AND help me get funding.”  EXERCISE EXTREME CAUTION.

For a company to TRULY represent you or present your business plan for funding, there are a number of legal requirements:

First and foremost, they must be a registered broker dealer.  (Ask if they are, and listen carefully to what you hear.)

Second, any security being offered must be registered or meet the criteria for an exemption from registration in each investor’s state, as well as your company’s home state.  Now, many “capital raising consultants” will tell you they can sidestep this legal obligation by tacking on the caveat, “This is not an offering of a security.”  This claim is laughable and naive.  It doesn’t matter what YOU call it, it’s what the SEC calls it.  For instance, you can call it “constructive receipting,” but if the IRS calls it “tax evasion,” guess who wins?  If you are essentially asking someone to invest in something and they are expecting profits derived from the efforts of others, you are offering a security.  Whether it be debt (e.g., promissory note),  equity (e.g., stock or LLC interest), an “investment contract” (which has been construed very broadly), or any other type of reciprocal transaction, the fact remains:  if someone is investing money in your company with the expectation of profits derived from the efforts of others, it’s a security and it must be registered or satisfy a federal exemption from registration.

So that’s the law, what’s the reality?  The reality is, people send around business plans with ROI calculations, investment propositions, and the like all the time.  99 times out of 100, nothing bad happens.  However, if 1 time you accept investment and later the business goes south, you may be held responsible for anything your UNLICENSED business plan/funding consultant said.  If they were licensed, they would likely have errors and omissions insurance, but your typical unlicensed representative will NOT, leaving you very vulnerable to legal trouble for anything they said.

In summary, DO NOT engage with an unlicensed company that says they will “show your plan around” or that they “have investors to share your plan with.”  You may be personally liable for what they say or present.  Since start-ups by their very nature have high failure rates, it’s likely your investors will scrutinize anything they perceive they were promised.  Looking to recap any money they lost, lawsuits may fly if they feel deceived.  At least if you pitched the plan yourself, you know what was said and not said, and you have some protection as a founder/shareholder in the company.  But bringing in an unlicensed gun is just setting yourself up for an SEC mess you don’t want.

There is a lot of talk of green shoots, rising GDP, and stabilized unemployment which supposedly signals the end of The Great Recession.  It seems to me these stats can be skewed in almost any direction the policy makers want to make the political case they want.  Really it all comes down to consumer behavior.  Here we sat around and talked about what was going on when the economy was good, and came up with these 5 sure signs the economy is coming back no matter what the economists say.

1) Your friend who really should be employed, is.

Every time I hear the “10% unemployment” number I’m generally surprised that it’s a big deal. Yes it sucks that so many people are out of work, but then I think, “even in good times, doesn’t everyone have ‘that friend’, that one of your ten friends who is chronically unemployed?”  They sit around and play Xbox and wait for a management position to come open or a career where they can really apply their degree in Music Therapy?  In the new economy, that guy will still be unemployed, but your friends who should have jobs, will.  Check in with that eligible person now — when they say things are looking better, they are.

2) People stop making money on negativity.

The morning drive listening to CNBC is always a good gauge of what’s going on in the real world.  I’m not talking about the talking heads, I’m talking about the commercials.  This morning in my roughly 20 minute commute there were 8 commercials.  Of the 8 commercials, 6 were hawking products that would only be advertised in a down economy or fear economy.  I had 1 pitch to buy gold, 2 bits on getting caught up with IRS problems, 1 instant business credit pitch, 1 short sale career from home, and 1 loan modification scam.  (The other 2 were weight loss; I figure they are topical in any economy, especially on the heels of a New Year.)  When the commercials switch to 75% positive to neutral commercials, the neg-heads have found the panic marketing on bad news isn’t paying off.  The economy has turned.

3) Someone is “flipping” the house next door and subdivisions are back in vogue.

Even in this real estate market there are probably potential invest/renovate/resell opportunities, but you’ll have a hard time financing them and then lining up buyers.  More importantly, this time around won’t be as easy as the last 8 years, so people with more money and good credit than common sense won’t luck into anything.  The close twin to this is a bank financing dirt for a new subdivision.  For this to happen, someone has to find demand.  “Demand” will equal all kinds of things everyone is already talking about – people spending, banks lending, and so forth.

4) Gas back to $3.50 or more per gallon nationwide.

This is a bit conspiracy theory-ish but I really feel like the fix is in on oil.  The political pressure will just get too high if we are in a recession and OPEC wants to squeeze us on gas.  As long as everyone is hording cash and buying hybrids, demand will stay low.  When people move back to land yachts, they feel like spending money on fuel, cost be damned.  The price of gas will rise in kind, and “we’re back.”

5) Someone jokes about how many credit cards apps they get in the mail.

This has virtually disappeared.  I remember in 2002-2005 I think every 3rd piece of mail was a credit card application.  I don’t recall the last one I saw now.  Banks are afraid if they give you $5,000 unsecured you’ll run out and pay your mortgage with it and the musical chairs of your financial life will end with them without a seat.  Until they believe people are using the cards for big screens and dinners again they won’t go back to spamming your mail box.  But when they do, The Great Recession is toast.

Which ones did I miss?

“Even though there are many hundreds of venture-capital firms with many billions of dollars at their disposal, the types of companies that interest VCs represent a tiny minority of all new businesses, and they have to fit a few very specific criteria,” says Weber. “Most importantly, there has to be the promise of a huge payoff in the event of success—at least 10 times the initial investment (which itself generally has to be north of $1 million for it to be worth a VC’s trouble) in a five-to-seven-year time frame.”

The good news is that Weber – someone who’s been pounding the pavement this year with his business plan – says that’s not reason to despair. There are other, good options, even when it seems like whole world is short on cash:

“Former colleagues or mentors can often be excellent prospects; good angels are usually invested in you as much as your business plan. I’ve also found that angels are very sensitive to who else is a part of the deal, so if you can get one person with a good reputation to sign on, it will be a much easier road from there. A pretty common level of commitment for an experienced angel investor is $25,000 to $50,000, though some angels will do as much as several hundred thousand.”

And he provides some good insight into what it takes to get a bank loan, too:

“If you’re raising money to buy hard assets, conventional business loans can be a good way to go. Banks might be reluctant to lend to small businesses, but it’s amazing how fast that reluctance goes away if there is collateral. Equipment purchases, and things like liquor licenses, are often fairly easy to finance, though, of course, pay close attention to the terms.”

Finally he makes a point that we think too few entrepreneurs consider before launching into fundraising:

“Time spent soliciting money is time not spent building the business. If you definitely need the money, be as targeted as you can in your approach. It’s always easy to find people who want to kick the tires, but finding people to write checks is, almost by definition, one of the toughest things in business.”

Check out Weber’s entire Reuters piece here and then thank us in our brand new spankin’ comments section below.

“Due to the adverse global financial conditions and the continuing instability prevailing in the markets…the assumptions on which its 2007-2009, three-year business plan was prepared have changed and are no longer relevant,” the lender said in a bourse filing.

In a strange twist, it seems that the banks- the very institutions that require three years worth of financials in every business plan—are the ones proving a point they’ve yet to concede: when it comes to a business’ financials, no one knows what’s going to happen in three years let alone, three months. It sounds simple and clear enough, but try telling that to a banker. The respone you’ll likely get is rote: “You need three years worth of financials to be considered for a loan…’

Unsatisfying? Yes. Frustrating? Absolutely. Still, National Bank’s debacle does illustrate an imporant point: bankers know just as well as you do that figures three years out aren’t likely to be terribly accurate. And here comes the takehome lesson for those of you working on a business plan. Rather than wasting your time toiling over what may happen three (or even two years) down the road, focus instead on the first six months of your financials, and ensure that those are as accurate as possible. The truth is that no bank expects you to have accurately predicated your business’ financials in three years when, with their teams of financial modelers and economic forecasters, even they can’t get it right.

“‘In fact, Starbucks created the market for the small coffee shop,’ says Bryant, whose new book ‘Everything but the Coffee: Learning about America from Starbucks’ is due to be released in October.

Simon argues that 20 years ago you couldn’t find a ‘good’ cup of coffee anywhere, until Starbucks came along and ‘created a desire and a taste for specialty coffee’ that eventually gave birth to the corner specialty coffee shop.”

So the guy’s got a book to sell, and those kinds of statements make headlines because they fly in the face of what most entrepreneurial types believe to be true. But what do you think? Does the argument hold water? For once we’ll refrain from commentary until you weigh in. More tomorrow…

“For instance, a business owner who already has a $1 million 504 loan could now refinance that to buy $500,000 worth of equipment, said Hayley Matz, a SBA spokeswoman.

There’s a catch, though. For every $65K the SBA guarantees, the entrepreneur must create or retain a job.

What do you think? Will this help struggling entrepreneurs?

1) Don’t just jump into social media without planning first. Not only that, look at your existing resources and figure out how they can fit into a social media context. Says Lee Aase, the manager for syndication and social media at the Mayo Clinic: “We didn’t just immediately jump into blogging, Facebook, YouTube, and Twitter. It was a natural, gradual progression that incorporated what I like to call, ‘The MacGyver Mindset,’ creating new solutions out of resources we already had on hand. Mayo Clinic created its ‘Medical Edge’ syndicated weekly TV news resource in 2000 and offered local stations trustworthy health and medical news content. In 2004, we established a similar daily program for radio stations. Our first ‘new media’ foray involved creating an RSS feed for the radio segments to publish a podcast and because of its early entry into the iTunes podcast directory and the Mayo Clinic brand, it was featured on the front page. This led to a significant increase in downloads, which provided impetus for further new media exploration.”

2) Make sure you have a real passion for social media before you get involved. That’s because while social media, YouTube, Facebook, etc, may be free, they still cost you in man hours maintaining profiles and uploading new blog posts and videos. If you’re in the enviable position of the Mayo Clinic—”We had a passion for the projects, so no one was getting any extra pay, and we didn’t add staff”—that’s one thing. But if you’re wasting hours that could be better spent elsewhere, that’s another.

3) If you’re not a big organization like Mayo, expect that you might not get as much bang for your buck. A lot of entrepreneurs seem to be under the impression that by simply throwing a blog up on the Internet, traffic will increase and that will result in an immediate increase in conversions or leads. The same goes for the concept of “viral” videos, blogs, and content. One of the most common things you may read in a business plan’s marketing strategy section these days is that the business will “go viral.” The trouble is that it’s not as simple as just posting a video or blog: “You can’t and shouldn’t start a blog or a YouTube channel with the expectation that you’ll have a viral video. Viral isn’t a strategy,” says Aase.

4) Don’t expect immediate results. Says Aase of the advice he’d offer small business owners and other interested in social media: “It’s not an overnight process, so start by listening and taking advantage of the free or low-cost tools. By keeping your costs low, you will be able to create the breathing room you need to have time to achieve results…if you use the social tools with your existing staff as a way to accomplish your current work more effectively, you will get some wins that will enable you to expand your scope. I would also stress that a video with 3.7 million views is a nice bonus, but it’s not the goal. The real power is being able to create niche videos that may reach only a few thousand views, but they’re seen by the people who are most interested.”