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Archive for January, 2009

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Weekly Round-Up: Stimulating The Blogosphere.

Friday, January 30th, 2009

-In the most inexplicable news of the week, Twitter the successful (?) start-up famous for having no business plan secured more funding. While the amount was undisclosed, this new investment reportedly brings Twitter’s valuation up to $250 million. We thought VCs were tightening their belts?

-In news that’s unlikely to surprise anyone, big banks—you know, the ones who received the bailout cash?—aren’t handing out as many business loans as they once were. There’s still hope for your business plan, though! Smaller community banks are stepping up to the plate and are increasingly offering more business loans. It makes sense. Local banks don’t have the same, expensive overhead that big banks do. Executive jets aren’t cheap, people!

-While there was little positive in the news on Monday that 75,000 Americans lost their job in one day, we did see one opportunity. Layoffs are horrible, but if you’re interested in launching a start-up, unemployment’s a chance to finally work on that business plan. No, punching us through the screen doesn’t actually hurt.

-Speaking of all the negative news, if you’re working in your business plan, don’t let it get you down. Easier said than done, you say? That’s why we recommend using blinders. Besides, things aren’t quite as bad for entrepreneurs as you may think.

-If you didn’t hate bankers already (just check out the post up about the executive jet), this will probably help with that. Don’t say we didn’t warn you.

-Last year everything was all green business plan this, and green start-up that. So does it surprise anyone else that people now say that global warming is one of their lowest priorities? Oh right. It’s the economy, stupid.

-To the reader who asked us this week if they should get an investor to sign a non-disclosure agreement before handing over their business plan: no. Never. Absolutely not. Just so we’re clear.

-There’s no question that venture capital funding is tight right now. The question then is how much and what you’d give up to get it. Would you accept funding with a catch? See what we mean here. It’s not quite as illicit as it sounds.

-Few things pain us more than corporate attempts at trying to “save money” and “reduce expenses.” And that’s mainly because those efforts end up looking a lot like this.

Now, let’s put this week behind us.

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Zoo Animals Get Axed.

Friday, January 30th, 2009

In what sounds like the punchline to a really lame joke, things are apparently so rough out that there animals are getting, er, “fired” from zoos. We wish we were making this up:

“We’re faced with this very difficult problem of firing the animals, as it were,” Steve Sanderson, the CEO of a conservation society that manages the Bronx Zoo and the New York Aquarium, tells CNN. They’re faced with $3 million in budget cuts this year.

So, if you find yourself faced with a pink slip in the next few weeks, just think—it could be worse. You could be losing your home, your feed, and your chew ball. Rough.

geoffgiraffe

(Image via CNN)

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Small Business Gets A Piece Of Stimulus Pie.

Friday, January 30th, 2009

In case you’ve been hiding under a rock somewhere and missed it, the big financial news this week (aside from John Thain’s $35K commode) was the Economic Stimulus Bill, which passed in the House and is awaiting a vote in the Senate. While we could detail the bill’s provisions and expenditures (new sod for the National Mall!), we’ll skip that in lieu of what you really want to know: what’s in it for small business owners and entrepreneurs?

Fortunately, the Wall Street Journal set a reporter upon the tedious task of parsing out the bits of the bill that are most relevant to small business owners. The good news is that if you’ve got a business plan, there are provisions in the bill for you. The downside, according to some small business groups, is that they’re not enough.

The highlight of the bill for businesses is a provision that allows companies to get refunds to offset current losses and tax credits they can’t use because they’re not generating enough revenues. The bill also includes benefits geared toward entrepreneurs. For instance, $430 million is set aside in the package for the Small Business Administration’s lending programs. There are also breaks for businesses that have clean energy or research tax credits. Yet despite these provisions, some small business groups are saying it’s insufficient. The Small Business and Entrepreneurship Council, for instance, tells the Journal that the package doesn’t do enough:

“‘The ‘economic stimulus’ measure that passed the House includes too much spending that has little to do with helping the economy, and not enough for small business owners and entrepreneurs to help them survive, create jobs and grow their firms. We fear this will do little to help the economy,’ the organization says in a statement. ‘Small business owners are looking for tax certainty, relief and incentives.’”

That sentiment tends to echo Republican concerns about the bill. But on the flip side, Democrats insist that government spending will have a more powerful impact on the economy as a whole. Do you think there’s enough in the bill for small business?

pieceopie

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No More Fat Cats. For Real.

Friday, January 30th, 2009

We think the multi-million dollar Wall Street bonuses that were handed out over the past few years are as retarded and disgusting as any one else (mainly because we didn’t get one). But that aside, can we please put a moratorium on the use of word “fat cat” to describe the recipients of these bonuses? Yes, we get that it’s apt because it describes how many of these Wall Street-types look (humor!), but we’d like to see it go the way of Joe Six-Pack and maverick. In other words, die. It’s an over-used, trite cliche and we’ve had enough!

We’re talking to you, CNN, ABC News, Rudy Giuliani, and John McCain.

fatcat

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Venture Capital: The Quick and Dirty.

Friday, January 30th, 2009

Writing for a business plan blog, venture capital is a topic we cover – a lot. And while we like to make fun of VCs—er, like we did yesterday—and make light of absurdities in the system, it’s still a process that every entrepreneur who’s chasing that kind of funding should understand. But the truth is that the steps to securing venture capital funding are not something most people know a lot about. Unless you’ve been through the process, known someone who has, or just incessantly read the Internet about it (that’s us!), it’s probably just a nebulous concept. That’s why we like this article that endeavors to explain VC in terms that even your grandma would understand. While it doesn’t go into the nitty-gritty details of securing VC funding, it covers the basics you should know before you show up on your local firm’s doorstep with your business plan.

Say you have an idea for a business. You have a great business plan, and maybe a partner. You’ve valued your start-up at $1M (and nevermind how you got that number), which means that you and your partner each have stock worth $500K. You decide you need venture capital. And you actually convince a VC to invest. Here’s what happens next:

“You convince a venture capitalist that your company is going places and he or she wants to put in $500K. Everyone agreed that the company is worth $1M before this happens. This is called the pre-money valuation. The VC wires $500K to your bank account and you give them stock for 1/3 of the company. Suddenly your company is worth $1.5M, consisting of $1M for the company as it was the day before, plus another $500K sitting in the company bank account. This is called the post-money valuation. So you and your partner each own 1/3 of the company and the VC owns 1/3 of the company. But the valuation is higher so your 1/3 is worth $500K, exactly the same as your 1/2 was worth the day before. You’ve neither lost nor gained anything.”

But don’t think you haven’t given up anything. You have: a share of the future gains. While you used to own 100% of the start-up, now (and yes, this is a perfect world situation), you only own 2/3:

“If the company suddenly becomes worth $60M then you each have $20M and the VC has $20M (the VC has a preferred stock, which is different from what you and your partner probably have, so this might not be precisely accurate but it is close enough). What you gave up was that if the company was suddenly worth $60M before, you and your partner would have $30M each. But realistically, that wasn’t going to happen because you didn’t have enough money on your own to fund the company over time. So if this scenario plays out you get a nice payout. But, of course, if the company becomes worthless then everyone’s share goes to zero. 1/3 of zero is zero.

You might assume that if the company nearly goes bankrupt and is sold for just, say, $300K that you’d have 1/3 of it, namely $100K. But that is where the biggest difference between preferred stock and your stock comes to light. The preferred stock is so called because it gets preferential treatment and in this scenario the VC gets all of the money. You have a loss of $500K but then you never put in any real money so it is a paper loss. The VC has a very real loss of $200K since they put in $500K, you spent it, and the company pretty much failed.”

And that’s that. We’re not sure our grandma could quite digest all that, but since we’re assuming you’re leaps and bounds smarter, you did, right? Questions?

(Article via The Wall Street Journal)

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Confidence Is Good For More Than Scoring A Date.

Friday, January 30th, 2009

When it comes to fixing the economy, there’s no silver bullet. But with stormy debate over the Stimulus Package on Capitol Hill this week, and with lawmakers tussling over the best way to repair the weakened economy—Republicans say it’s tax cuts, Obama says it’s spending—we thought we’d look at the problem from that perspective for a change. So, for this week’s survey question we asked what you believe is the key to the nation’s economic recovery. In other words, we asked you to grossly oversimplify a complex problem. Here are the results:

The majority of you responded that restoring consumer confidence is the key to economic recovery. It makes sense. Consumer confidence drives sales, which in turn impacts the markets and the general economic mood of the nation. The runner-up response was boosting lending. A third of you believe that an uptick in lending is critical to fixing our financial woes. If you’re working on your business plan, that’s certainly true. Finally, 20% of you fall in-line with President Obama’s stance that government spending will be a major driver in getting the economy back into shape. Of course, none of these are mutually exclusive. If government spending works as Obama and his team hopes, that should help stimulate lending and boost consumer confidence. Likewise, if confidence begins to rise and the markets begin to rebound, banks are more likely to stop hoarding their cash, and to start lending.

Surprisingly, none of you thought that tax cuts -the primary solution that Republican lawmakers have proposed—will do any good. Maybe it’s that we all learned something from the Bush tax cuts; after all, if they’d worked, would we be where we are today? Similarly, none of you voted for further shoring up the financial system (translation: giving them more money to play with). We understand: it’s hard to see how paying for a new jet for Citi helps the economy.

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A Pretty Picture.

Thursday, January 29th, 2009

wallstreetbonuses

As it should be.

(Image via Valleywag)

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Your Business Plan Isn’t The Only Thing Full Of Hot Air…

Thursday, January 29th, 2009

Investors are always harping on entrepreneurs for long-winded, rambling business plans jam-packed with jargon (we are too, incidentally). But you know the expression about throwing stones in glass houses? Here’s why it’s not such a great idea: VCs aren’t exactly the most eloquent lot either. Take this zinger from a blog post over at Union Square Ventures where a partner tries to explain what the firm invests in and why they do it:

“Our investment strategy is to arbitrage the difference between the capabilities of the new medium and readiness of the existing economic and social structures to exploit those capabilities.”

What? Even more mind-boggling is that another USquare partner, Fred Wilson, whose blog we actually enjoy, calls that his “favorite line” from the post. Your favorite? We really think we get the most for our money out of this paragraph:

“That brings us to media. Many people think of us as media investors. We’re not. But it should be no surprise that we have made a lot of investments in and around media. It makes perfect sense that information markets will be the first to be disrupted by the web, but media is not the only market where services can be delivered as bits over the web. Banking, education, healthcare, and government will also be fundamentally changed. Media has fallen first because it is consumer facing and there are fewer gatekeepers to slow the adoption of a more efficient delivery model. ”

Right.

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Cutting Costs Doesn’t Have To Be This Painful.

Thursday, January 29th, 2009

Sure times are tough. And sure, it makes sense for businesses to find ways to cut costs. Hey – we’re the first ones to tell you that you should excise the fat from your business plan. But has anyone else noticed that some of the cuts companies have been making are, um, a little odd? Obviously nothing’s new about corporate idiocy, but when you hand a bunch of middle-management types an economic crisis and en edict to go forth and make cuts, things get especially retarded. Gawker grabbed the bull by the horns on this whack trend, asking its readers to send in examples of weird cost-cutting measures at their place of employment. Here’s what we suggest you do with what you’re about to read: save them as a perfect example of how not to reduce expenses in your own business plan. Trust us, saving a few dollars by buying the cheap toilet paper isn’t really worth having your employees not-so-secretly hate you. Here’s a few of the more egregious examples, via Gawker:

-At Martha Stewart Living Omnimedia, they’re apparently limiting the pens to red and black ink only. They say it’s a cost-cutting measure (blue ink costs more?!), but we’re chalking this one up to Martha’s reportedly uptight attitude.

-We found this one especially mind-numbing:

“I work for a company that is contracted by a state department. We used to work in the state office in an outer borough, but now, due to a new, budget-oriented contract, we can no longer exclusively occupy the state’s space. This means we now work a half day in the state building, then trek to our company’s building, in another borough, for the rest of the day. We can’t use state property anymore, so we had to get laptops, which we get to carry around during rush hour on the 4 train. Also, our phones at the state department have a GIANT ‘no outgoing calls’ sticker on them now, in red, as if we’re children. We can’t use anything to do the work they need us to do. The best part of all of this, is that NO ONE uses our office in the state building. It sits there empty, while we no longer have our own desks.”

-And this tale wanted to make us bang our head against a brick wall:

“When I was at the Wall Street Journal Online in 2000/01, Dow Jones decided to cut out the plant service at the Journal. HR sent a memo that the company would no longer be paying for someone to come in and water the plants, so employees could either take over responsibility for the plants near them or take the plants home.

A bunch of people ended up taking the plants home and it wasn’t till a few weeks later that word trickled down that the paper hadn’t owned the plants and had to reimburse the company for all the ones that had disappeared.”

Er, whoops. Then there was this story, which filled us with particular proletariat angst:

“Every year, each dept. of our company would have an ‘Employee Appreciation Lunch’ to give something back to the employees that help our company thrive. Just yesterday, we received a ‘company-all’ email:

‘All-

While the staff appreciation lunches we enacted a few years ago are very nice and something each of us enjoyed doing – they are not necessary. Hence, I am officially cutting all staff appreciation this year because of the spending freeze.

Lucky us. Thank you.’

The CEO always signs off his emails with ‘Lucky us for getting to do this with our lives,’ or just ‘Lucky us.’ I found that particularly comical given the context of this email. Lucky us for not being necessary to appreciate.

Oh, and the day after this email went out, said CEO began his 3 week vacation in the Bahamas.”

Does anyone else have any example of bizzaro cost-cutting measures? Or better, how about some tips that actually work without managing to incite mass rage among employees?

lumberg

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Funding – But With A Catch.

Thursday, January 29th, 2009

When it comes to securing funding with your business plan, you can expect that you’ll have to make some concessions. Maybe you don’t get all the money you’d hoped for. Maybe you have to give up a larger part of the company than you’d wanted to. Maybe you have to tweak your business plan. But what if an investor asked you to make a really big change – to your entire business model? Would you still accept the financing? That’s the dilemma numerous entrepreneurs are faced with these days, particularly now when venture capitalists and other investors are able to make more demands on cash-starved CEOs than they could have in the past. It happens more than you think. Vlad Shmunis, an entrepreneur who started the website RingCentral, found himself in this position several years ago, according to the New York Times.

“Mr. Shmunis said that when he was trying to raise money for his start-up company eight years ago, the venture capitalists he approached would not invest unless he changed his business model. Instead of serving small business owners, they wanted him to aim at private consumers.

‘We had a fairly solid vision of what we wanted this company to be,’ he said, adding that he had built a previous start-up by selling software to small businesses and knew he could find strong demand in that market. But the investors did not agree. ‘Many V. C.’s just follow the leader, and for a time it was in vogue to just fund consumer-based plays.’”

Shmunis (who didn’t take the money – and who’s business survived the dot-com bubble-burst) makes a good point: investors don’t always know best. In many cases it’s actually the entrepreneur who’s down in the trenches and who has the best handle on the quickest way to success. Still, if you’re desperate for investment—as many entrepreneurs are these days—the real question is not whether your investor is right, it’s whether the benefit of securing capital outweighs the strings attached.

What do you think? If an investor asked you to make a major change to your business plan in exchange for cash, would you do? Tell us your thoughts in the comments section below.

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