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Rhonda Abrams

en•tre• • pre•neur A ReAl-WoRld ship AppRoAch

{

noun. The launching and execution of a new undertaking, typically a business, requiring vision, planning, and risk.

}

Hands-on Guide for Today’s Entrepreneur 6/28/12 8:51 AM


Table of Contents 1

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What Is Entrepreneurship?  Opportunity Identification and Feasibility Analysis  25 Basic Business Research  Business Planning  73

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Your Customers and Target Market  97 Competitive Analysis, Strategic Positioning, and Risk Assessment  117 Money Management  141 Financing Your Business  169 Marketing Fundamentals  Marketing Tactics  227

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ENTREPRENEURSHIP

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Sales and Distribution  259 Management and Leadership  Human Resources Issues  Operations  331

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Technology  Legal Issues 

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Social Entrepreneurship and Social Responsibility 

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Globalization  423 Growing the Venture 

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Resources  Index  481

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355 375

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A REAL-WORLD APPROACH

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PlanningShop Palo Alto, California

en•tre• • pre•neur A Real-World ship Approach Hands-on Guide for Today’s Entrepreneur Rhonda Abrams


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LEGAL ISSUES

Company Legal Structure  376 Dealing with Partners  381

Deciding whether to have a partner  381 Partnership agreements: How to protect yourself  381

Protecting Your Intellectual Property (IP) 

383

Copyrights  383 Patents  385 Trademarks  386 IP agreements  387

Contracts  389 Licenses, Permits, and More 

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Federal tax ID numbers  392 State licenses, certifications, and ID numbers  392 Reseller’s license  392 County and city licenses and permits  393

Taxes 

393 Payroll taxes and withholding  393 Income tax  395 Sales Tax  397

Real-World Case

Giving Away Facebook  398

Critical Thinking Exercise Get It in Writing  400

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learning objectives In this chapter, you’ll learn how to: n Evaluate the various company legal structures and select one n Determine whether to take on a partner n Establish and evaluate partnership terms and draw up partnership agreements n Understand the various forms of intellectual property (IP) and how to obtain IP rights n Analyze and create simple written contracts and agreements n Determine which licenses, permits, certifications, and ID numbers are necessary n Establish a basic understanding of taxes

Company Legal Structure Taking care of your company’s legal health is like taking care of your personal health: An ounce of prevention is better than a pound of cure. Time after time, entrepreneurs end up in legal battles costing thousands of dollars that could have been avoided with a $300 trip to an attorney. When starting a business, one of the first questions you need to answer is what legal form your business will take. This may sound like a question that shouldn’t be important to a lot of businesses—especially when they’re just starting out. Who needs to pay hundreds of dollars in corporation or legal fees to a government agency simply to acquire a certain kind of legal structure? Choosing a legal form affects how much you pay in taxes, who can invest in your company, and most important, your own personal financial security. Three things to keep in mind when choosing a legal form are: n Liability. Legally, corporations and other corporate forms (see the

following section on legal structures) are considered individual entities. As such, the corporation—not individual shareholders—is responsible for the actions of the business. In other words, if something goes very wrong and the company is sued, only the assets of the corporation are at stake, not the owners’ personal assets. (There are some exceptions to this rule, but generally, your personal liability is greatly limited.)

Obviously, having liability limited to the company’s assets is quite desirable, since it means your personal assets—your home, investments, and savings— can’t be seized if your company has a legal judgment against it.

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n Double taxation. No one likes paying taxes, and you certainly don’t want to

pay taxes twice—once on income for the business and then again when that income is distributed as profits to you. Instead, look for a legal form that allows for the profits of the company to pass through to the owners, without having to pay corporate taxes first.

n Ownership. Some legal forms of business limit the number or type of

people who can invest in your company. If you’re seeking a large number of investors or international investors, find a corporate structure (for instance, a C corporation) that permits such stockholders.

Three things to remember when choosing a legal form n Liability n Double taxation n Ownership

en.tre.pre.neur.ship key terms Buy-sell agreement This spells out the terms by which one partner can buy the other out. In the event of a dispute, the departure of a principal, or differing goals, a buy-sell agreement can enable the company to survive.

Nondisclosure agreement (NDA) Protects a company’s ideas. By signing an NDA, a person promises not to disclose any of the confidential information they learn during their dealings with another company.

Copyright Legal protection covering any type of work that is “fixed” and “tangible” from others who would copy, imitate, or steal that work.

Pass-through taxation Allows the income or loss generated by the business to be reflected on the personal income tax return of the owners, eliminating the possibility of double taxation.

DBA “Doing business as” (DBA or d/b/a) is a legal term that means the business name differs from the legal name of its owner(s), whether they are human or corporate.

Patent A government-issued protection of an invention, protecting the inventor from having others copy or sell imitations of the invention for an extended period.

Fictitious business name A business name that differs from the legal name of the owner(s).

Quarterlies Tax estimates paid every three months, generally based on the previous year’s earnings.

Intellectual property (IP) Unlike physical or real property, refers to creations arising from the human intellect and inventiveness, such as inventions, designs, artistic works, software, names, and music. IP is typically intangible and has value in commerce.

Trade secret A formula, practice, process, design, instrument, pattern, or compilation of information used by a business to obtain an advantage over competitors.

Nexus A presence in a particular state. A company has a nexus once it reaches a certain threshold for business activity in that state. At that point, it must pay income taxes and must collect and remit sales taxes to the state.

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Trademark (or Service mark) A word, phrase, symbol, or design (or a combination of these) that identifies and distinguishes the maker of a product (or service) from makers of other, similar, products (or services).

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Types of Legal Forms of U.S. Business Organizations Legal Form

What Is It?

Advantages

Sole Proprietorship

An unincorporated business owned by one person. If you don’t set up a legal structure, and no one else owns any part of your business, you have a sole proprietorship.

Simple. No legal forms or costs to establish. No double taxation.

General Partnership

A business with more than one owner. All partners actively participate in the business.

You have the time and talents of more than one person. No double taxation.

Limited Partnership

A business with an owner or owners who manage the business (general partners) and other partners who do not (limited partners).

Protects the personal assets of limited partners, who aren’t responsible for the debts and obligations of the business. Limits investors’ financial exposure.

Limited Liability Company (LLC) or Limited Liability Partnership (LLP)

A popular legal form that provides much of the protection of incorporating with most of the simplicity of a sole proprietorship. LLPs are LLCs for certain professional practices.

Protects personal assets against most business losses. No double taxation. Relatively simple, inexpensive to establish and maintain. Can distribute profits and losses disproportionately.

“C” Corporation

A corporation is a legal entity, separate from its owners. Major investors often want companies to be C corporations.

Protects owners’ personal assets against corporate losses and obligations. Can issue stock. Unlimited number of stockholders. Costs of benefits for employees and owners are deductible.

“S” Corporation

A type of corporation that allows pass-through taxation instead of double taxation. S corporations are less popular since the introduction of LLCs.

The personal liability protection of a corporation with the pass-through taxation treatment of a sole proprietorship.

“B” Corporation

A type of corporation, allowed for in a few states, that is organized for the public benefit as well as for the benefit of the shareholders.

Gives directors of a company more legal protection and responsibility for making decisions motivated by achieving a public good rather than merely maximizing profits.

Not-for-Profit, "501(c)(3)" Organization

An organization, agency, institution, charity, or company with charitable, educational, or other public benefit goals, that has been certified as tax exempt by the IRS.

No federal income taxes; usually exempt from state and local taxes. Donations are tax deductible. Has members and Board of Directors rather than shareholders.

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Disadvantages

Tax Treatment

Watch Out For

The business owner, and possibly their spouse, has unlimited personal liability for the debts, obligations, and judgments against the company.

Pass-through profits and losses. The business owner can deduct losses against other personal income.

In community property states, spouses may be liable for business debts as well as having an ownership interest in the company.

Each partner can enter into contracts and incur debts for which all partners are responsible and have unlimited personal liability.

Pass-through profits and losses to the partners who pay tax at their individual rates. Partnership pays no taxes but must file a Form 1065.

If in business with others, you have a partnership whether you draw up documents or not, and partners have a share of the business and other rights.

Limited partners cannot participate in running the company. General partners are all liable for the company’s obligations.

Limited partners can deduct “passive” losses against “passive income” only, and the amount they can invest is capped.

If a limited partner participates in any way in the management of the company, they can lose their liability protection.

Each owner can enter into contracts and incur debts for the entire LLC. Must file Articles of Organization with your state; often requires annual state fees.

Pass-through profits and losses to each owner. LLCs pay no taxes but must file a Form 1065.

Can be cumbersome converting from an LLC to a C corporation in order to accept VC financing or to be acquired by a large corporation in return for stock.

Double taxation. Must file articles of incorporation with your state. Annual state fees. Requires record-keeping, annual meetings, and a Board of Directors in most states if more than one stockholder.

Double taxation: Corporation and shareholders each pay tax on income. However, if the corporation keeps significant cash reserves, this can have lower tax consequences than passthrough taxation.

Securities rules affect how you sell stock and to whom. Use a lawyer to help you determine whether to set up a C corporation.

Disadvantages over an LLC include limits on number and residency of stockholders, proportionate distribution of profits and losses, and more record keeping.

Pass-through taxation, but profits and losses must be allocated at same percentage as ownership.

Ask your lawyer if there is any benefit in choosing an S corporation over an LLC or C corporation in your specific situation.

Limited number of states allow this option.

Same tax treatment as other corporations.

Requires an annual "benefit report," detailing which public benefits the company has achieved, that meets independent, third-party standards.

Must not be operated for the financial benefit of any individuals; no profits distributed to individuals. Must meet IRS requirements.

Tax exempt.

May not engage in any political activity. Typically must raise money through contributions and grants. Board of Directors can oust founders or restrict salaries.

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Build-Your-Business Worksheet

Your Legal Structure Legal Form What is the legal form of your company currently?

¨ Sole proprietorship ¨ Partnership ¨ Subchapter S corporation ¨ C corporation ¨ Other, describe:_________________________________

¨ Limited liability company ¨ B corporation ¨ Not-for-profit corporation ¨ No legal entity/status

What is the intended legal form if different from above?

¨ Sole proprietorship ¨ Partnership ¨ Subchapter S corporation ¨ C corporation ¨ Other, describe:_________________________________

¨ Limited liability company ¨ B corporation ¨ Not-for-profit corporation ¨ No legal entity/status

Ownership If a sole proprietor or partnership, list the owners:_______________________________________________________

If incorporated, how many shares of stock have been issued?______________________________________________

Who owns the stock and in what amounts?____________________________________________________________

In which state(s), province(s), country(s), etc. are you legally incorporated or registered to do business? List dates and specifics:_______________________________________________________________________________________

Have you secured written agreements between/with:

¨ Principals, partners ¨ Suppliers ¨ Investors

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¨ Key employees/management ¨ Customers ¨ Strategic partners

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Dealing with Partners Nothing affects your day-to-day work life more than the people you work with. Yes, work can be satisfying when you have challenging tasks, play with cool technology, or make lots of money. But whether or not you feel like getting out of bed in the morning can be greatly influenced by whom you’re going to work with that day.

Deciding whether to have a partner If you’re going to take on a partner, carefully consider why you want or need one. As you start your business, you may feel uncertain about being on your own, but that feeling of uncertainty may pass quickly. A partner will be around for a long, long time. Remember, partners own a piece of the business. Even if you bring in someone with only a minority interest as a partner, your future is tied to them. The best way to take on a partner is with clear-cut definitions of responsibilities and authority. It’s nice to believe you will make every decision together, but that’s not realistic. Who, in the end, gets to call the shots? And be careful about going into business with a friend—often both the business and the friendship suffer. Make certain your partnership expectations are realistic. Are they willing to work as hard as you? Do they bring the same level of talent or skill (although perhaps in a different area) as you? Do they have the same long-term view of where they want to be? Partnerships can be terrific, but when things go wrong between the partners, it can often mean the demise of the whole company.

Getting to know you... Spend time getting to know the business skills, attitudes, and aspirations of any potential partners—even if you’ve been friends or acquaintances for years. Find out whether their goals, work style, and values fit yours. You have more leeway, legally, to ask questions of potential partners than of employees. Of course, make certain your potential partner is honest, but also examine their personal attitudes, how they handle stress, how much money they need and how soon, family or other demands on their time, and any other issues that may affect your working relationship.

Partnership agreements: How to protect yourself If you intend to go into business with other people, even a spouse or a friend, formalize your arrangement with a written partnership agreement. If you already work with a partner, you still need to do this! If one partner doesn’t want to do this, that’s a big red flag. Take the time to work out as many details as you can. Be certain to include a way to buy each other (or the other’s heirs) out of the business. A messy “divorce” from a business partner is as difficult as a messy marital divorce—with potentially greater financial consequences. Drawing up an agreement, often called a buy-sell agreement, now will help avoid difficulties if you later decide to go your separate ways. And here’s something to keep in mind: In the eyes of the law, you don’t need a written agreement to have a partnership. If, over a beer, you and a friend decide to start selling your own special salsa at a street fair, you make up a batch, and you start selling some salsa to friends, you may have become partners. Your friend may acquire rights to your salsa recipe, and you may each be responsible for all bills and obligations. So be very clear about the nature of the relationship before you begin working with anyone.

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Build-Your-Business Worksheet

Discussing Partnership Terms Work with one or more other students and determine with your “partners� the terms of your partnership. If you are launching a new business with partners, after completing this exercise, meet with a lawyer to draw up a formal partnership agreement.

Ownership Division Who owns what percent?

Goals How big a company do you want to have? Where do you see the company being in five years? What personal goals of yours will affect how much time you have to spend with the company?

Jobs/Responsibilities What jobs and responsibilities does each partner have? Can partners work for any other company or do any other work on the side?

Decisions How will general business decisions be made? What decisions does each partner have final authority on? Who has the final authority for decisions for the company as a whole?

Communication How will you communicate regularly? How will you resolve serious disputes?

Exit strategy and dissolution agreement What happens if one partner wants to leave the business or move? What if one partner wants to sell the company? What happens if a partner dies or becomes disabled?

Other issues:

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You’ll also want to discuss with your lawyer what legal form your partnership should take. A simple partnership does not provide protection for your personal assets or your partner’s. Instead, consider incorporating or becoming a limited liability company (LLC) or a limited liability partnership (LLP).

Protecting Your Intellectual Property (IP) One of the most important legal considerations for an entrepreneur is the concept of intellectual property, or “IP.” Every company has certain intangible assets that are, or can be, extremely valuable. Most of them come under the heading of IP—assets that have value because of the knowledge, recognition, and inventiveness they consist of. Some businesses, such as software companies, publishers, inventors, consultants, and so on, only have products composed of intellectual property. It’s easy to understand and place a value on physical property. We know how much a running shoe or a mobile phone may cost. But what’s the value of the Nike “swoosh”? The design of an iPhone? The content of a Beatles song? We all recognize that these things possess a value far beyond simply the physical property, because of the value of the ideas or the brand recognition behind them: in other words, the intellectual property underlying the “swoosh,” the iPhone design and interface, or the Beatles’ timeless music and lyrics. Entrepreneurial companies quickly acquire intellectual property beyond their physical property, and you’ll want to protect that IP. If you design and manufacture furniture, you’ll want to protect its design and not merely the wood that you use to make it. If you develop a luxury resort, you’ll want to protect its brand name, not just the buildings. If you devise ways to manufacture products cheaper and faster, you’ll want to find ways to protect those processes. While protecting intellectual property is always a challenge—it is, after all, intangible—there are several methods to protect a company’s IP.

Buy-sell agreements Sooner or later, it’s likely that one or more partner will leave a partnership due to personal reasons, disagreements, or death or disability. A buy-sell (or buyout) agreement spells out, in advance, how the company will be valued and how the departing partner, or their heirs, will be paid (for example, over time or with the proceeds of an insurance policy). A buy-sell agreement should also cover what happens if a partner becomes divorced, since part of their ownership interest could become the property of their ex-spouse. It’s highly advisable to put a buysell agreement in place as soon as a partnership is formed. It’s more difficult to discuss these issues once personal situations arise. And without a buy-sell agreement, you may be forced to sell the company to pay out a departing partner or their heirs, end up in litigation with a disgruntled partner, or find yourself in business with the ex-spouse of a partner.

Copyrights If you’re creating works that others might want to copy—content (such as text, books, articles, or blogposts), music, art, software, illustrations, videos, apps (such as mobile phone or Internet-based applications)—you’ll want to protect what you’ve created. This is where copyright law comes in. Copyrights cover any type of work that is “fixed” and “tangible” even if it’s only computer code, words spoken on an audiotape, or images “fixed” in a movie. Copyrights do not cover ideas, no matter how unique—only the particular fixed expression of those ideas. For instance, you can’t copyright your idea for the story of a boy who goes to a school for wizards, but you can copyright your novel telling the story of that boy. Once you have received a copyright, you retain the rights to that creation, and no one else can make a movie about your hero without your permission. You also can’t copyright “facts.” So

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Build-Your-Business Worksheet

Questions to Ask Potential Partners Use the questions in this checklist to discuss the terms of your partnership.

¨ Why are you going into business? ¨ What past experiences have prepared you for going into business? ¨ What are your personal goals for this business? ¨ How much money do you need now? How much money will you need over the next 12 months? 24 months?

36 months?

¨ How much money are you able and willing to invest in the company, if any? ¨ What kind of credit rating do you have? ¨ How big would you like the company to one day be? ¨ What would you like to see as the eventual exit strategy? ¨ How much time do you have to devote to the business? ¨ What other obligations do you have, both business and personal, that will affect your commitment of time, money,

and attention?

¨ How do you see decisions being made? By whom? ¨ What areas of responsibility do you feel capable of taking on? ¨ What areas of responsibility do you want to be in charge of? ¨ How formal/informal do you like to be about such things as work hours, dress code, and so on? ¨ What are your business values and what kind of corporate culture do you want to create? ¨ Is your family supportive of this commitment? ¨ Have you ever been in a partnership before? What happened? ¨ What are your fears in this partnership? ¨ How will you resolve differences? What if one of the partners wants to sell or leave the business? ¨ Are you willing to sign a buy-sell agreement?

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if what you’re creating is purely the compilation of facts, you won’t be able to copyright that. Under U.S. and Canadian laws, the rights to your creation are yours at the moment you create it. Theoretically, you don’t have to do anything to ensure your copyright. But that’s putting you at some risk. You should take at least some steps to protect your asset. The easiest thing to do to protect your copyright is to add a simple copyright notice whenever you produce something. Just add the word “copyright,” the © symbol, the date, and your name. However, this does not enable you to challenge someone who illegally copies your work and it does not, conclusively, establish authorship. Instead, it’s wise, for greater protection, to register your copyright with the U.S. Copyright Office (www.copyright.gov); it’s inexpensive and easy. In Canada, register your copyright with the Canadian Intellectual Property Office (www. cipo.ic.gc.ca).

Patents Unlike copyrights, patents are designed to protect new inventions rather than creative works. A patent is a government-issued right, protecting your invention from competition from other imitators. It enables you to—in the words of U.S. patent law—“exclude others from making, using, offering for sale, or selling” or importing into the United States your invention (or copies of your invention). The three types of U.S. patents are:

Shhhhh! Trade secrets are more difficult to protect and defend in court than are patents or trademarks. One company that has managed to protect its trade secret well is Coca-Cola. For more than 120 years, the company has zealously guarded its formula for mixing its flagship product. Trade secrets are not limited to products, though. Many manufacturing firms have business processes that allow them to operate more efficiently than other firms, and they classify those processes as trade secrets.

n Utility patents: for inventing or discovering any new and useful process,

machine, article of manufacture, composition of matter, or any new and useful improvement of the above.

n Design patent: for inventing a new, original, and ornamental design for

something manufactured (made).

n Plant patent: for inventing or discovering and artificially reproducing a

distinct and new variety of plant.

To qualify for a patent, your new invention or process must be both unique and “nonobvious.” If someone infringes on your patent, it is your responsibility—not the government’s—to pursue legal action. Copyrights are easy to get; patents are very tough to acquire. Copyrights cost little or nothing; patents are typically expensive. Copyrights are yours the instant you create the work; patents can take years to get issued. Patents are also difficult and costly to enforce—if someone violates your patent and starts selling a knockoff of your product, it may take a lot of money (in legal fees) and time to put a stop to it. And if the perpetrator is overseas, enforcement will be even harder. So if you’re building your business around a new invention, process, machine, recipe, or formula that needs to be patented, it will be tough going.

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Methods to protect intellectual property (IP) n Copyrights n Patents n Trademarks

Is registration of my mark required? No. You can establish rights in a mark based on its legitimate use. But in the United States, owning a federal trademark registration on the Principal Register secures the following advantages: n Constructive notice to the public

of the registrant’s claim of ownership of the mark

n A legal presumption of the reg-

istrant’s ownership of the mark and the registrant’s exclusive right to use it nationwide on or in connection with the goods and/or services listed in the registration

n The ability to bring an action

concerning the mark in federal court

n The use of the U.S. registration

as a basis to obtain registration in foreign countries

n The ability to file the U.S. reg-

istration with the U.S. Customs Service to prevent importation of infringing foreign goods

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If, however, your invention is likely to be worth a good deal of money, you’ll want to pursue the patent process. You’ll need a competent patent attorney. An experienced one will warn you of the costs and pitfalls before you get too far down the road.

Trademarks One of the most valuable IP assets a company can develop is the brand name of its company, products, or services. You’ll work hard to get customers to look for and trust your brand names, so you certainly want to keep others from offering similar goods using your names. That’s where trademark laws come in. There are two primary kinds of trademarks: n Trademark. A word, phrase, symbol, or design (or a combination of these)

that identifies and distinguishes the maker of a product from makers of other, similar, products.

n Service mark. The same as a trademark, except that a service mark

identifies and distinguishes the provider of a service rather than a product. (In Canada, a trademark can be used for either a product or a service.)

When your company acquires the rights to a trademark or a service mark, other companies are legally prevented from using your trademark or service mark, whether expressed in a name, logo, tagline, or other distinctive marker, on their competing products or services. Note the emphasis on the word “competing”: Two companies that operate in completely different business spheres can have the same name. It’s only when there’s possible confusion between two entities that trademark law becomes relevant. There are limits to what you can trademark. You may be surprised—and frustrated—to learn that you can’t trademark the simplest names. That’s because the U.S. Patent and Trademark Office requires a mark to be “distinctive” and not simply “descriptive.” For instance, you can’t get a trademark for a health resort called Spa, because it’s merely descriptive. You may run into difficulty if you use a name that’s similar to that of a bigger, better-known company, even if you think you can get a trademark for that name. McDonald’s, for instance, has been very effective in keeping others from using the “Mc” as a prefix for many different kinds of products and companies. A national juice bar company whose name started with the letter “J” was able to keep other, small juice bars from using names starting with the letter “J” just by taking them to court. Often, it’s the company with the biggest bank account and most aggressive lawyers, rather than the ones with the law on their side, that controls a name or trademark.

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Doing a trademark search When deciding on a name for your company, product, or service, first check for trademarks to determine whether anyone else is already using the name you’re considering. To begin a trademark search, go to the website of the U.S. Patent and Trademark Office, or USPTO (www.uspto.gov/), find the section for trademarks, and follow the links to “Search.” In Canada, you can do a trademark search on the website of the Canadian Intellectual Property Office (www.cipo.ic.gc.ca).

When can I use the trademark symbols TM SM , , and ®?

If you’re going to spend a great deal of money investing in a name and trademark, you might consider using a professional trademark search firm or hiring a trademark attorney to conduct a more complete search.

“Any time you claim rights in a mark, you may use the ‘TM’ (trademark) or ‘SM’ (service mark) designation to alert the public to your claim, regardless of whether you have filed an application with the USPTO. However, you may use the federal registration symbol ‘®’ only after the USPTO actually registers a mark, and not while an application is pending. Also, you may use the registration symbol with the mark only on or in connection with the goods and/or services listed in the federal trademark registration.”

IP agreements

– from the U.S. Patent and Trademark Office

To see the various results, try the different ways offered to search. Begin by searching as broadly as possible—singular and plural forms of your words, similar words, alternate spellings, and so on. Results may show both “live” and “dead” marks. Dead marks are those that previous owners have let lapse. Keep in mind that even if a particular name or mark doesn’t show up as being taken, that does not necessarily mean you will be able to trademark the name or mark. Some names may already be in use in interstate commerce but not yet officially registered. Other names or marks may not be allowed to be registered as trademarks. So don’t print up hundreds of brochures quite yet!

In addition to copyrights, patents, and trademarks, the following two agreements may help protect your intellectual property as well: n Nondisclosure agreements. One of the simplest ways to protect your ideas

is to get a signed nondisclosure agreement or confidentiality agreement before discussing your concepts with others, including partners, contractors, employees, and the like. This is a standard business procedure, and you’ll often be asked to sign NDAs if you’re trying to do business with another company. But be forewarned: Venture capitalists will refuse to sign NDAs, because they see far too many new business ideas.

n Noncompete agreements. Once a trade secret is learned, it can’t be

unlearned. So sometimes the biggest fear you’ll have is that a valuable and knowledgeable employee or a partner will leave you and go to work for a competitor or set up their own business. To guard against this, you may want to have employees sign an agreement limiting their ability to work for a competing firm (or start their own competing company) for a given period. However, not all noncompete agreements are enforceable (they must be reasonable and not keep someone from making a living), and the State of California, for one, doesn’t allow them at all except in very limited circumstances. Make certain an attorney reviews any noncompete agreements before you put them into effect.

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Sample Document: NDA Re: (Company Name) Nondisclosure Agreement I agree that any information disclosed to me by ___________________________________ Company in connection with my review of the company will be considered proprietary and confidential, including all such information relating to the Company’s past, present, or future business activities, research, product design or development, personnel, and business opportunities. “Confidential Information� means any information disclosed, either directly or indirectly, in writing, orally, or by inspection of tangible objects (including business plans, research, product plans, products, services, customers, markets, software, inventions, processes, designs, drawings, engineering, marketing, or finances). Confidential Information shall not include information previously known to me or the general public or previously recognized as standard practice in the field. It will also not include information that becomes generally available in the public domain through no action or inaction of myself, my employees, or others associated with me. I agree not to use any Confidential Information for any purpose except to evaluate and, if applicable, implement a potential business relationship with ______________________________ Company. I agree not to disclose any Confidential Information to third parties or to anyone except those who are required to have the information in order to evaluate or engage in discussions concerning the contemplated business relationship. I agree that for a period of five years, I will hold all confidential and proprietary information in confidence and will not use such information except as may be authorized by the Company and will prevent its unauthorized dissemination. I acknowledge that unauthorized disclosure could cause irreparable harm and significant injury to the Company. I agree that upon request, I will return all written or descriptive matter, including the business plan and supporting documents, to the Company. Accepted and Agreed to: ________________________________________________________________________________________________ Signature ________________________________________________________________________________________________ Printed Name ________________________________________________________________________________________________ Company/Title ________________________________________________________________________________________________ Date

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Contracts A contract is an agreement between parties. Although the days of doing business with only a handshake may not be entirely over, having a written contract or signed letter of agreement is a normal, advisable business practice in virtually every instance. As a business owner, you should get used to drawing up contracts or written agreements as a routine part of doing business, whether with customers or clients, vendors, employees, partners, distributors or retailers, landlords, and anyone else with whom there may later be the potential of misunderstanding or disagreement over the nature and terms of your relationship. With a contract or letter of agreement, you: n Spell out all terms, such as what each party will pay or be paid n Detail the nature of the work to be performed as well as the deadlines for

performing it

Types of legal agreements The many types of legal agreements you may need include: n Contracts n Letters of agreement or

engagement

n Leases n Employment contracts n Distribution agreements n Project proposals n Statement of work (SOW)

n Describe the conditions under which the work will be performed

n Work-for-hire agreements

n Elucidate ownership of and rights to any and all work created under the

n Nondisclosure agreements

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n Noncompete agreements

n List all other considerations that are important to all parties

What’s the difference between a contract and a letter of agreement? Nothing, legally. Once you have a letter of agreement signed between two parties, you’ve entered in to a contract. The term “contract” tends to refer to a more formal document. It usually includes more detailed provisions, such as which state or country law applies, but you could include that in a letter of agreement as well. In most businesses, you’ll find that you have a number of types of agreements or contracts that you use repeatedly. For instance, if you’re a consultant, you may have a standard consulting agreement. If you’re a distributor, you may have a contract you use with manufacturers to detail the conditions under which you distribute their products and the commissions or prices you charge. A lawyer can help you draw up standard agreements or contracts, to have them on hand. Attorneys should also be used to help you negotiate and draw up contracts for significant deals. From the start of your business, get in the habit of drawing up contracts or letters of agreement and having them signed by all parties. Failure to get a written agreement leaves you at risk. Ours is a litigious society, and the best way to avoid ending up in court—or in hot water—is to get things in writing. You may be tempted to forgo written agreements—they seem so formal!—but when you’re in business, it’s normal, expected, and prudent to get everything in writing and signed and dated.

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Sample Document: Letter of Agreement [DATE] December 1, 2012 [NAME/CONTACT OF CONTRACTOR] Aaron Hill 3456 University Drive Chapel Hill, North Carolina 27516 [SALUTATION] Dear Aaron: [BRIEF OPENING PARAGRAPH] I am delighted that you will be assisting Telescope Financial Services in launching our new company website, and I look forward to working with you on this project. Listed below are the details of our work together. I have enclosed two signed copies of this letter. Please sign and return one copy to me. I am excited about getting this project under way. PROJECT: Content writing for Web pages for the relaunch of the Telescope Financial Services website. SCOPE OF WORK: Aaron Hill (“Contractor”) will write copy for the new Telescope Financial Services’ (“Client”) website based on materials provided by Telescope Financial Services and interviews with Telescope executives and staff. The Contractor will be responsible for editing and rewriting copy on approximately 50 existing Web pages and writing new copy for approximately 30 new pages. TIMELINE AND DUE DATES: The project will begin on January 1, 2013, and continue through May 30, 2013, with the Contractor expected to devote approximately 20 hours per week to the project during that period, for approximately 160 hours. Client acknowledges, however, that significant revisions of the text requested of Contractor after completing initial drafts may result in the project’s extending beyond the due date and add additional hours. FEES AND EXPENSES: Contractor will be paid a rate of $60 per hour. Contractor will be reimbursed for the following expenses: overnight courier services. Contractor will not be paid for travel time to Client’s offices nor be reimbursed for any other expenses. TERMS AND CONDITIONS: Contractor is engaged by Client as an independent contractor and is not deemed an employee of Client in any manner. Contractor acknowledges that this is a work-for-hire relationship in which all work, including but not limited to the content of the Web pages, is created for Client and is the sole property of Client. Contractor further acknowledges that all information provided by Client shall be deemed Confidential and agrees not to disclose such information unless necessary in the scope of the work for Client and with Client’s prior approval. Upon signing, Client will make a nonrefundable deposit of $1,000, which will be applied against the first month’s billing. Contractor will then invoice Client for fees at the end of each month. Invoices are due upon receipt. Either Client or Contractor can terminate this relationship by giving at least 30 days’ notice. The above is accepted and agreed to by: _____________________________________________

___________________________________________

For Telegraph Financial Services (Client)

By Aaron Hill (Contractor)

_____________________________________________ Title _____________________________________________

___________________________________________

Date Date

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Licenses, Permits, and More You may be ready to start your business, but, in some cases, you must make sure you have the proper licenses or permits. As frustrating as it may seem, you can’t just rent an office or a building and set up shop. Although establishing a business in the United States or Canada is far, far easier than in most parts of the world, you still have to deal with a bit of paperwork. The bureaucratic things you’ll deal with fall into three general categories: 1. Identification numbers. To keep track of your dealings with government authorities. Example: identification numbers for income tax authorities, such as the Employer Identification Number (EIN) in the United States or the Business Number (BN) in Canada. 2. Licenses or certifications. Required to engage either in any business (in a specific locality) or in certain types of businesses or professions. Examples: a city business license, a contractor’s license, a license to sell alcoholic beverages, an optometrist certification, a beautician certification. 3. Permits. Required for particular, often more limited, actions. Examples: construction permits, special event permits. The requirements vary greatly, depending on the type of business you’re opening and the state, county, or city in which you plan to do business. Sometimes these terms are used interchangeably, such as “permit” instead of “license” or vice versa. To make matters more complicated, you may need to acquire licenses, permits, or identification numbers from different levels of government. In the United States, for example, these may include: n Federal n State n County n City

Primarily, you’ll be dealing with state and local licensing and permit regulations. The federal government generally doesn’t regulate local or state businesses. There are exceptions, of course, especially if you’re involved in interstate transportation (such as interstate moving companies or trucking). And there may be federal requirements regarding your production, especially if you use hazardous materials. That’s why it’s important to ask your attorney about these types of licenses.

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How to get a federal tax ID number online Most new businesses can apply for an EIN on the Internal Revenue Service (IRS) website (www.irs.gov). Navigate to “Business Topics” and look for “Employer ID Numbers.” Answer a handful of questions, wait for validation, and the site will generate and confirm your new number, which you can use immediately. In Canada, if you run a business with simple registration requirements, go to the Canada Revenue Agency (CRA) website (www.cra-arc.gc.ca). Find “Businesses” and look for “Business Number (BN) registration” under topics.

Federal tax ID numbers One number you’ll be asked for repeatedly in the United States is your Federal Employer Identification Number. This ID number may also be referred to as your Employer Identification Number, or Tax ID number, or a variety of different abbreviations: FIN, TIN, FEIN, and so on. Getting a Tax ID number is very easy. You’ll need a federal tax ID number if your business has employees, or is formed as a corporation, LLC, or partnership. Don’t be misled by the word “Employer” in the name—you do not need to have employees to get a “Federal Employer Identification Number.” Even if you’re not required by law to have a Federal Tax ID number—for instance, if you’re operating as a sole proprietor—you may still want to get one. That’s because many of your customers, especially if they are other companies, institutions, or government entities, will ask for your Tax ID number. It’s more professional (and safer) to provide a Tax ID number than to give out your Social Security number.

State licenses, certifications, and ID numbers Individual U.S. states may also assign you an identification or account number, for various reasons. The usual IDs are: corporation number for incorporated businesses, employer account number for employer businesses, and certificate numbers and license numbers to operate certain businesses (such as a contractor’s license number). It’s a good idea to ask your own attorney about the types of licenses, certifications, and permits you need in your community and for your type of business. You might also consult with a local Small Business Development Center (SBDC).

Reseller’s license There’s one government permit you won’t mind getting—a reseller’s license or reseller’s permit. If you’re a manufacturer, wholesaler, or retailer, and your state collects sales tax, you may qualify for a reseller’s license. Such a license enables your company to purchase goods or materials for manufacture or sale without paying sales tax, since you’re not the ultimate consumer—your customer is. In other words, if you own a chain of sporting goods stores, you can buy golf clubs from the manufacturer without paying sales tax because you’ll charge your customers the tax. If you’re going to use the clubs yourself, you do need to pay the sales tax, since the exemption is allowed only on goods you will resell. Once again, each state has its own requirements and terminology. So check your own state’s rules. Some states don’t even require a license for you to get an exemption from sales tax—just a signed statement of intent to resell goods.

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County and city licenses and permits Most cities or counties require some form of basic business license, no matter what kind of business you’re in. If you want to open up shop—whether a retail store, a manufacturing plant, a high-tech start-up, or even just a consulting practice—you have to get a business license from your county or city. In addition to basic business licenses, cities frequently require permits to operate certain types of businesses, install various kinds of business equipment, or make changes in buildings or facilities. The more likely you are to be dealing with any kind of food, chemicals, equipment, manufacturing, construction, and such, the more likely you are to need additional certifications, licenses, or permits. If you use a fictitious business name—in other words, any name other than your own personal name—you may also be required to file a DBA (“doing business as…”) or fictitious business name statement with your county, city, or state authorities. In other words, if your bakery is called “All You Knead,” you’ll most likely have to file a fictitious business name statement stating who the real owner of “All You Knead” is. The distinction between an actual and a “fictitious” name is important because with the latter, the world can’t tell who is legally responsible for the business. This lack of transparency in ownership has the potential to give rise to shady business practices. This is why many local governments require companies operating with fictitious names to file a DBA.

Taxes Paying taxes is a part of operating a business, and understanding key tax concerns is critical for most businesses. No matter what business structure you choose—sole proprietorship, partnership, or corporation—there are taxes you need to pay, and pay on time, or face penalties. Be certain to keep track of when taxes are due, and give yourself enough time to prepare them. New entrepreneurs should plan on spending some time with their accountants, talking about taxes. Ask them to help you understand which taxes you’re liable for, when your taxes are due, and how various transactions and expenses are taxed. Have your accountant also help you plan how to minimize your tax liability.

Payroll taxes and withholding Payroll taxes are the U.S. state and federal taxes that you, as an employer, are required to either pay or withhold from employees’ payroll checks on their behalf. Payroll taxes fall into three basic categories: n Taxes employees pay n Taxes employers pay n Taxes both employees and employers pay

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Build-Your-Business Worksheet

Business Licenses and Permits Use this worksheet to list the licenses and permits you’ll need, including where and how to apply, requirements, and fees. License Type

Agency and Contact Info

Requirements

Fees

Local Licenses

Local Permits

County Licenses/ Permits

State Licenses

DBA Required

Federal Certification

Other:

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You—and your employees—have federal as well as state obligations. In some states, there are also local payroll taxes for cities, counties, or school districts. The types of payroll taxes you and your employees face are: n Income taxes. Employees pay the entire portion of their federal and

state income taxes. As their employer, you do not pay any of these taxes. However, federal and state governments require you to withhold these income taxes from your employee’ paychecks and submit these amounts, as required, to meet federal and state deadlines. In some places, employers may be required to withhold state income tax, or even city income tax.

n Social Security and Medicare. FICA is the combination of Social

Security and Medicare taxes that are paid and deducted from payroll to help ensure an employee’s future retirement and health care. These are federal taxes. Both the employer and the employee pay a portion of these taxes. There’s an annual maximum on Social Security tax, an amount that usually increases every year. Check www.ssa.gov for current and annual limits. There is no annual limit for Medicare.

n Unemployment taxes. On a federal level, only employers pay for unem-

ployment insurance—or what’s referred to as FUTA (Federal Unemployment Tax Act) on payroll slips. You’re also responsible for state unemployment insurance, though rates for that tax vary (and several states don’t require any state income tax at all). Some states require employees to also pay a portion of state unemployment taxes.

Income tax

U.S. taxes you may be required to pay include: n Payroll and other employment-

related taxes (Social Security, Medicare, workers’ compensation, unemployment, etc.)

n Income tax (federal, state,

county, perhaps even local)

n Sales tax n Personal property tax and use

taxes

n Property tax n Special taxes (hotel, food, trans-

portation, etc.)

n Import/export, custom taxes,

duties

n Transfer taxes n Capital gains taxes n Inventory taxes

You’re required to pay tax on the profits you generate in your business. How your company is legally structured determines how your income tax liability will be handled. Most small businesses have pass-through taxation. In other words, the company or corporation doesn’t pay the income taxes, but instead the tax liability passes through to its owners. This is true for sole proprietorships, LLCs, S corporations, and most partnerships. Say you have a small company, structured as an S corporation, that generates $100,000 in annual profits. The corporation files an income tax return, but the profits are deemed distributed to you, the owner, so you pay the tax on those profits as part of your own income tax return. One exception to the pass-through treatment is C corporations. Such corporations are treated as separate entities whose income tax on profits must be paid by the corporations. Any profits distributed to C corporation owners or stockholders are also subject to income tax on those individuals’ tax returns. Because of this, this type of income tax treatment is sometimes referred to as double taxation. For example, if you were the sole owner of a C corporation that had profits of $100,000, the corporation would pay income tax on $100,000. If, after paying the corporate income tax, the corporation then distributed the remaining amount to you—let’s say $80,000—you would

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States with no personal income tax n Alaska n Florida n Nevada n New Hampshire* n South Dakota n Tennessee* n Texas n Washington n Wyoming

*Residents are required to pay income tax on dividends and interest income, but not on wages.

then also pay tax on that amount on your individual tax return, though perhaps at a lower tax rate than on other, earned income. After your first year in business, you will generally be required to make estimated income tax payments four times a year—commonly referred to as quarterlies, because they’re paid each quarter of the year. These are estimates of how much you’re likely to owe at the end of the year, typically based on how much you made the previous year. So, while employees who receive wages or salaries subject to withholding only have to worry about April 15 (in the United States) as tax day, business owners have tax payments due more frequently. Be sure to ask your tax advisor how to handle your quarterly tax payments. Deductions A tax deduction is a business expense the government allows you to subtract from your overall revenues, resulting in a reduction, or deduction from income, in the total tax you pay. This is obviously desirable, and you want to make certain you take advantage of each and every deduction you are legally allowed. For example, if you generated $10,000 a month selling your new gizmo, and it cost you $5,000 to pay your employees to sell, manufacture, and ship your gizmo, plus you had another $1,000 in overhead expenses, you would be able to deduct $6,000 in expenses and only pay taxes on $4,000 of that income. You’d probably also be able to deduct, or “write off,” a portion of the cost of your equipment, lowering even more the amount you’d pay taxes on. You’ll likely make some decisions—or alter them—based primarily on tax implications. Some business expenses are fully deductible. Some are only partially deductible, and others have to be depreciated over a number of years. And still others are not deductible at all. You should have at least a fair understanding of those issues as you make choices in your business. If you purchase a very expensive piece of equipment, for instance, and expect to deduct the total cost of it from your income this year, you may be surprised to discover that the expense has to be spread out (depreciated) over as many as five to 10 or even 20 years. Because all these issues are so complicated, it’s advisable to get a reliable accountant to work with your business and to consult with on financial matters.

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Sales Tax As a business, you may pay sales tax on products you purchase for your use, though inventory and raw materials purchased for resale are usually exempt from sales tax in most jurisdictions. Still, you’ll likely be required to collect sales tax on most of the products and perhaps (in limited cases) some services that you sell. Most U.S. states and some counties and cities tax the sale of most goods and some services. Sales tax rates and rules vary from state to state, even from city to city, and there are an enormous number of laws and taxing authorities. These taxes can go by various names: sales tax, franchise tax, transaction privilege tax, use tax, and more. Some are the responsibility of the seller, others of the buyer. But the government typically makes it the responsibility of the business to collect the tax at the time of sale. Generally, if you’re going to collect sales tax, you must get a license from your state. On each taxable transaction, you calculate the applicable sales tax, collect it from the buyer, keep tax records, and then file a tax return and pay the total taxes to your state. You’ll pay monthly, quarterly, or annually, depending on your level of sales. Each state makes its own rules as to which sales are taxable. Although most products sold to end-users are taxable, major exemptions include: n Prescription drugs

The sales tax clearinghouse Founded in 1999, the Sales Tax Clearinghouse (STC) provides tools and data to help U.S. sellers navigate the complicated landscape of calculating sales and use taxes in more than 7,000 taxing authorities (states, counties, and cities). STC offers two forms of sales tax calculations: manual, in which subscribers can use either an online or a desktop calculator, and automatic, in which an automated service allows businesses to connect their business software systems directly to the STC’s servers to calculate rates automatically. Find more information at www.thestc.com.

n Food, especially groceries and nonprepared food n Animal feed, seed, and many agricultural products n Products for resale—raw materials, inventory, and other items that are

going to be sold, rather than used, by your customer

Many states also exempt services from sales tax. But that varies greatly from state to state, and even within a state the rules as to what is taxable and what is not seem very inconsistent. As to collecting sales tax on sales from out of state, the U.S. Supreme Court has twice ruled that states can’t require a business to collect sales tax unless it has a physical presence—or nexus—in the state. This is obviously important to consider if you sell goods or services over the Internet. Although one of the lures of ecommerce, at least at the beginning, was that goods could be purchased tax free, that is frequently no longer the case.

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REAL-WORLD C ASE

Giving Away Facebook

challenge To launch and finance a new company, the founders promised large shares of ownership to those who helped get it off the ground

solution

Lawsuit after lawsuit after lawsuit, with huge sums of money involved

For a bunch of seemingly smart kids, the guys involved in Facebook’s founding did some pretty stupid things—at least from a legal point of view. This resulted in years of lawsuits and billions of dollars in settlements. Most new start-ups are in the position of having to give up some degree of ownership in return for early-stage financing. After all, investors want to get something for their money, and that is typically a percent of the equity—or ownership—of the company. And they deserve a big payout for taking a chance on an entrepreneur, for risking their money before anyone else. Nevertheless, those decisions shouldn’t be made lightly or without considering the legal consequences, even when a “business” is still in the idea stage. Or when it’s just being discussed in your college dorm. The exact facts revolving around the founding of Facebook remain in dispute. But some things are agreed upon. A site called “TheFacebook. com” was launched in 2004, by Mark Zuckerberg, Dustin Moskovitz, Chris Hughes, and Eduardo Saverin while they were students at Harvard University. Saverin, a wealthy student, provided Zuckerberg with $15,000 to purchase the servers for TheFacebook. In return, Zuckerberg allotted Saverin 30 percent of the company.1 That was generous—extremely so. And it was a decision that would come back to haunt Zuckerberg. In the meantime, while getting ready to launch TheFacebook, Zuckerberg was also working for twins Cameron and Tyler Winklevoss and for Divya Narendra, who had hired him to work on their own social networking site. Their site had essentially the same concept that would become Facebook. The decision not to tell his employers that he was working on a competing site was another problem that would come back to haunt Zuckerberg and Facebook. Those are the facts that are agreed upon. Other issues remain in dispute and have eventually ended up in court. Like many teams in a start-up venture, some founders—notably Zuckerberg and Moskovitz—stayed more closely involved with growing the venture, while others, particularly Saverin, had other demands on their time. When founders don’t clearly delineate their responsibilities and what consequences will happen for failing to live up to their responsibilities (if any), this inevitably creates tensions and disagreements, which is exactly what happened in the case of Facebook. Zuckerberg moved the new company to Palo Alto, California (from Cambridge, Massachusetts). To help finance Facebook’s growth, Zuckerberg brought in other investors, notably Peter Thiel, cofounder of PayPal. As a result of this investment, Saverin’s 30 percent ownership was diluted substantially. Saverin alleged this was done unfairly, and later sued the company. Although the exact terms of the suit were not revealed, Saverin 1. “Facebook’s Complicated Ownership History Explained,” by Ben Parr. Mashable.com. April 13, 2011.

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eventually received 5 percent of the ownership of Facebook. His $15,000 investment ended up being worth many billions. Another complication came about because Zuckerberg failed to disclose that he had a conflict of interest while working on the Winklevosses’ project. He launched Facebook a few days before their intended launch, and they immediately alleged that he had stolen their idea and intentionally delayed the launch of their project so he could launch his. The Winklevosses later sued, winning a lawsuit against Facebook for more than a million shares of Facebook stock and $20 million in cash. Zuckerberg’s legal complications continued. Another person, Paul Ceglia, alleged that he hired Zuckerberg to work on his company, StreetFax.com, at the same time that he was working on what would become Facebook. In 2010, Ceglia sued, producing a document showing that Zuckerberg gave him 50 percent of the company in return for a $1,000 investment. Facebook’s lawyers assert the document is a fake.2 Of course, it’s true that every extremely successful company is likely to encounter legal challenges. After all, once millions or even billions of dollars are involved, many people will want a piece of ownership. But many of the problems and huge settlements encountered by Facebook were avoidable. Zuckerberg was accepting money to work on the Winklevosses’ social networking program while simultaneously developing his own competing program. This was a clear scenario for conflict. It was inevitable that his motives would come into question—especially when he launched a competing site a mere few days before his employers planned to. It may have seemed to Zuckerberg like a mere gig for him to pick up a few extra dollars, but whenever you’re working on another company’s projects, you are responsible for maintaining its trade secrets. Moreover, it’s likely that Zuckerberg was laboring on a “work-for-hire” basis, meaning that anything he produced while working for them—such as computer code—in fact belonged to them. That could have been another area of conflict. But perhaps the biggest problem was that in his eagerness to raise the money he needed to launch, Zuckerberg gave away a huge percentage of the company. He failed to get any kind of legal advice that might have helped him structure an agreement that would have delayed putting a percentage value on Saverin’s investment (such as until the first round of financing) or that would have made clear how Saverin’s percentage would be diluted. As the Facebook example proves, simple college-dorm agreements can later become the basis for extremely serious stock ownership battles. Even though most of those involved with Facebook’s founding eventually got fabulously rich, the complications arising from their lack of legal foresight created tremendous problems, strained friendships, and led to legal battles and settlements worth millions—even billions. n

questions 1. Can you know if you have a potentially hugely successful company on your hands when you first launch it? 2. Should all companies take the precautions Facebook failed to take? Or can some companies be more relaxed about such legal issues as partnerships and ownership? Why or why not? 3. What types of agreements and contracts do you think Mark Zuckerberg, his partners, and Facebook’s early investors should have drawn up? 4. What contracts do you think the Winklevoss twins and Divya Narendra should have drawn up when they hired Zuckerberg to work for their company?

2. “The Guy Who Says He Owns 50% of Facebook Just Filed a Boatload of New Evidence—And It’s Breathtaking,” by Henry Blodget. Business Insider. April 12, 2011.

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exercise: critical thinking

Get It in Writing Goal: Create a strong partnership agreement with a builtin “exit” strategy.

What to Do: Working with one other person, imagine that you are two entrepreneurs considering pooling your talents and resources to create a consulting firm specializing in setting up websites for business clients. You each bring different skills to the table. You need to create a partnership agreement that makes sense for both of you. One of you will put more money into the operations; the other will put in more time. Neither of you will take a salary until you begin to make a profit. 1. First, list all the resources you’re committing to the company. Include funds, time, and all other resources you’ll contribute. 2. List the respective roles and responsibilities each of you will undertake. Who will be responsible for which activities in the company? 3. Determine how you will make decisions. Will either of you be able to make decisions without the other? 4. Specify how much time each of you will put into the business each week. What happens if one of you doesn’t put in the time you’ve committed to?

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5. Establish how you’ll handle the company’s money. Who will be able to make spending decisions? Who will be able to make withdrawals or transfers from bank accounts? 6. Make decisions regarding the following issues: a. Have you agreed upon a business plan? A future growth strategy? Are you in agreement on how big you want the company to be? b. What happens if one of you decides to leave the company? c. What happens if one of you doesn’t perform adequately? d. What happens if you no longer want to work together? How will you dissolve the company? What happens with any remaining assets—including the customer list and active accounts? e. Can one of you buy the other out? If so, how will the value of the company be determined? Will you have a buy-sell agreement in place? 7. Finally, draw up a partnership agreement that spells all this out. 8. Discuss all the other steps you’ll take, both individually and jointly, before you sign the agreement. Include getting an attorney to review the agreement. 9. Be prepared to explain why you think you’ve created an agreement that works for both of you.

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Index A

Abilities, proprietary, 128 Abrams, Rhonda, 94–95 Accountants questions to ask, 165 working with, 163 Accounting accrual-basis, 143, 151 cash-basis, 143, 151 Account reps, 262 Accounts payable defined, 142 in seeking financing, 190 Accounts receivable defined, 142 in seeking financing, 190 Accrual-basis accounting, 151 defined, 143 Accumulated depreciation, 142 Achievement, recognizing, in retaining employees, 324 Acquisition, 450, 458 positioning for, 459 Administrative space, 334 Adobe Software, 31 Advertising, 40 in attracting first-time customers, 205 banner, 234 comparative, 452 cooperative, 452 deciding where to place, 232–233 effectiveness of traditional, 233 in global marketing, 432 of job openings, 318 in print, 230, 231 on radio, 231–232 repetition in, 230 specialties in, 253 strategic position and, 127 on television, 232–233 transit, 253

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Advisory Committee, 294 defined, 289 Agenda, data with an, 68 Agents change, 414 foreign, 425, 427 sales, 267, 269, 270–271 Aggressive pricing as barrier to entry, 124 Aha moment as inspiration for business, 33 Alan, Steven, 167 Albrecht family, 115 AllEarth Renewables, 415–416 Allen, Paul, 10 Alpha testing, 58 Amazon, 29, 211, 353 American FactFinder, 111 Americans with Disabilities Act (ADA), 307, 312 Analytics, 357, 370 defined, 357 Angel investors, 174, 181, 195 defined, 171 differences between venture capitalists and, 174 return on investment for, 183–184 Angelist, 178 Angie’s List, 239, 250 Animal management as social issue, 416 Animal stewardship as component of triple bottom line, 408–409 Annual business plans, 453, 455–456. See also Business plans defined, 445 steps in successful, 456 AOL, 138 Appendix in business plan, 78 Apple Computer, 10, 29, 199, 214, 216

Application, 359 defined, 357 Application programming interfaces (APIs), 361 Assets current, 142 defined, 142 fixed, 142 intangible, 144 as source of financing, 178 Assumption sheets, 79, 80 defined, 75 worksheet on, 84–85 Auction, 40 A&W, 440 AWeber, 241 Azavea, 418

B

B2B (business to business) defined, 27, 101 direct sales and, 39 globalization and, 424, 430 standard billing in, 164 target market in, 56, 104, 220 yellow pages in, 342–343 B2C (business to consumer) defined, 27, 101 direct sales and, 39 target market in, 56 B2G (business to government), 39 Baby boom, 5 Back-office functions, globalization and, 437 Baidu, 432 Balance sheet, 78, 145, 151, 156 defined, 143 sample, 158 in seeking financing, 190 worksheet on, 159 Baldrige, Malcolm, Award, 70

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A REAL-WORLD APPROACH

Banks as source of financing, 175, 180, 187 Banner advertising, 234 Barriers to entry, 40 competition and, 124–126 defined, 119 worksheet on, 125 Base plus commission, 265 B corporations, 378–379, 418, 420–421 Benchmarks, 70 Benefits defined, 199 versus features, 200–201 Best practices in manufacturing, 337–338 Beta testing, 58 in attracting first-time customers, 204 defined, 51 Better Paper Project of Green America, 421 Bids, 275–276 Bidwell, Chuck, 166–167 Big-box retailers, 270 Bilexys, 416 Billing payment terms for, 164–165 tips for, 164 Bing, 235 BioLite, 415 Blame-free atmosphere, 326 Blendtec, 256–257 Blogger, 238 Blogs, 238–239, 251, 432 Bloomingdale’s, 61 Bluetech, 416 Board of Directors, 291, 294 defined, 289 Bonuses, 313 Bootstrapping, 191–192, 194 defined, 171 Brand, 199 defined, 199 Brand identity, 209–211 Branding, 129, 224–225 Brand names, 63, 198–199 Break-even analysis, 79, 161–163 Break-even point, 161 calculating, 162–163 defined, 143

ERA_Ch21_Index.indd 482

Brick and mortar retailers, 267, 269 defined, 261 Bricks and clicks, 267–268 defined, 261 Brin, Sergey, 19, 27 Brokering, 39 Budget. See Marketing budget Build-Your-Business Worksheets Assumption Sheet, 84–85 Average Customer Lifetime Value (CLV), 208 Balance Sheet, 159 Barriers to Entry, 125 Basic Business Concept, 38 Business Licenses and Permits, 394 Business Opportunities, 36 Cash Flow Statement, 154–155 Company Vision, 449 Comparing the Cost of a Cloud Solution to an On-Premise Solution, 366 Competitive Analysis, Customer Perception Factors, 134 Competitive Analysis, Internal Operational Factors, 135 Create Your Identity, 217 Determining Your Supply Needs, 345 Discussing Partnership Terms, 382 Distribution Considerations, 273 Employee Needs, 317 Feasibility Analysis, 44–45 The Four Cs, 17 Global Financial Considerations, 431 Identifying Your Technology Needs, 360 Income Statement, 148–149 International Marketing, 433 Inventory Control, 346 Key Management, 292–293 Leadership Traits, 300 Marketing Vehicles Comparison Chart, 254–255 Market Size and Trends, 112 Milestones, 454 Moving from Dream to Reality, 23 Niche Market Ideas, 132 Organizing Data Sources, 69

Plan Your Distribution Needs, 272 Priorities, 451 Psychographic Description, 108 Questions Investors Will Ask, and Your Answers, 189 Questions to Ask an Accountant, 165 Questions to Ask Potential Partners, 384 Research Prospective Investors, 182 Research Prospective Lenders, 190 Research Questions, 64–66 The Right Documents, 185 Sales, 434 Sales Force, 266 Sales Procedures and Operations, 279 Social Responsibility, 412–413 Sources and Uses of Funds, 81 Start-Up Costs, 193 Supplier Comparison Chart, 344 SWOT: Strengths/Weaknesses/ Opportunities/Threats, 137 Target Market Characteristics, 109 Think Like an Entrepreneur, 9 Trade Shows and Industry Events, 246 Types of Company Information to Research, 62 Types of Industry Information to Research, 55 Types of Target Market Information to Research, 59 What’s the Hook?, 249 Who Are the Customers?, 103 Who’s on Your Team?, 93 Why Customers Buy from You, 203 Write a Job Description, 319 Your Bright Idea, 37 Your Business Vision, 21 Your Company Name, 212–213 Your Core Message, 219 Your Elevator Pitch, 90 Your Legal Structure, 380 Your Management Structure, 297 Your Technology Policies, 369 Your Website Checklist, 236

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inde x

Bundling, 452 Business(es). See also Small businesses characteristics of successful, 29–30 creating consistent focus, 76 defined, 3 established, 99 feasibility analysis of, 40–42 financing, 74 goals for, 89 inspiration of, 32–33 making special, 118–119 owning own, 2 pay rate and size of, 314 technology as backbone of, 356–357, 358 worksheet on ideas in, 37 worksheet on opportunities in, 36 Business concept factors in successful, 26–29 formulating, 75 terminology and, 27 worksheet on basic, 38 Business continuance insurance, 349 Business idea need for compelling, executable, 29 as unique, 120 Business identity elements of, 211 worksheet for creating, 217 Business insurance, 349 Business models changing, in improving financial projections, 157 creating, 46–47 defined, 27, 35–40 types of, 39 Business name choosing, 210 qualities of good, 211, 214 Business Number (in Canada), 391 Business opportunity, 31–32 Business organizations, types of legal forms of, 378–379 Business partners/suppliers as component of triple bottom line, 408 Business Plan in a Day, 80 Business plans, 22, 73–96, 194. See also Annual business plans appendix for, 78 assumption sheet in, 75

ERA_Ch21_Index.indd 483

community involvement and social responsibility in, 78 company description in, 75, 77 competition on, 77, 91–93 components of, 77–78 creation of, 289 development, milestone and exit plan in, 78 distributing, 86 executive summary in, 75, 77, 78 as factor in success, 75–77 versus feasibility analysis, 41 financial portion of, 78–83 industry analysis and trends in, 76, 77 language in, 86 length of, 83 management and organization in, 78 marketing and sales strategy in, 77–78 methods of ruining, 87 need for, 76–77 in getting financing, 184– 185 operations in, 78 prediction of the future and, 79 preparing, 83, 86 presenting, 87–90 sources and use of funds in, 75 strategic position and risk assessment in, 77 tailoring, for your recipients, 83 target market in, 77 technology plan in, 78 terminology in, 75 writing social responsibility into, 410 Business reality, moving from dream to, 20, 22, 23 Business research, 49–72 critical areas in, 53–63 importance of, 50 sources of, 54 terminology in, 51 types of, 51–53 Business skills, identifying, 20 Business tax returns in seeking financing, 190 Business values, 20 Business vision, 19–23 worksheet for developing, 21 Buy-ahead discounts, 251

Buying sensitivities description, 107 Buyouts, 458 Buy-sell agreement, 381, 383 defined, 377

C

Call center workers, 353 Call to action, 230 defined, 229 Campaign Monitor, 241 Campos, Diane, 372–373 Canada Small Business Financing Program (CSBFP), 175–176 Canadian resources, 466 Capabilities, increasing, 358 Capital expenditures, 80 Capitalization risk, 136 Career choices, lifestyle in driving, 5–6 Car-sharing, 46–47 Case studies. See Real-World Cases CaseTracker, 372 Cash defined, 142 entrepreneurship and, 16 payments in, and tax evasion, 315 worksheet on, 17 Cash advances, 180 Cash balance, opening, 144 Cash-basis accounting, 151 defined, 143 Cash flow, 456–457 best practices in identifying problems with, 151 net, 144 in seeking financing, 190 Cash flow statements, 78, 145, 150–151 defined, 143 sample, 152–153 worksheet on, 154–155 Cash management for growth, 192 Cash on delivery (COD), 165 Cause-related marketing, 253 C corporations, 377, 378–379, 395–396 Ceglia, Paul, 399 Census Bureau, 111 State Data Centers, 111 Center for Veterinary Services, 416 Certifications, 391 socially responsible, 406 state, 392

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ENTREPRENEURSHIP

A REAL-WORLD APPROACH

Challenges entrepreneurship and, 16 worksheet on, 17 Change(s) anticipating and adapting to, 77 competitive, 8 as constant, 371 coping with constant, 14 entrepreneurial thinking and, 7–8 market and marketing, 8 sociological, 8 technological, 8 Change agents, social entrepreneurs as, 414 Change.org, 418 Channels. See Sales channels Charity corporate, 402 importance of, 402 Chase, Robin, 46 Chief executive officer (CEO), 294 Chief information office (CIO), 371 Chief technology officer (CTO), 371 Child labor, 438–439 laws on, 312 China Baidu in, 432 business cards in, 425 Chipotle, 28 Ciesla, Craig, 194–195 Civic life as social issue, 418 Classes on business plans, 91–93 Click through, 238 defined, 229 Clients, making formal proposal to, 276 Climate change, 415 Close, 458 Closing the sale, 283 Cloud-based nurse management, 372–373 Cloud computing, 370 defined, 357 versus on-premise software, 364–365 worksheet on, 366 Clubs, 251 CNET, 362 Coca-Cola, 119, 128, 199, 211, 214, 430 Cold calls, 262, 279 defined, 261

ERA_Ch21_Index.indd 484

Cold leads, 279 Collateral, 172 defined, 171 Collections defined, 142 tips for, 164 Colors leveraging of your, 215 selecting, 216 Comfort zone, 323 Commercial finance companies, 176–177 Commission, 313 base plus, 265 draw against, 265 salary plus, 264 straight, 263 Commission only, 265 Common stock, 80 Communication, 298 in customer retention, 207 global, 436 in a Web 2.0 world, 436 Community in business plan, 78 as component of triple bottom line, 408 Community-related marketing, 253 Community service, 405 Companies. See also Start-up companies historical performance of, 82–83 legal structure of, 376–377 mission of, 419 resources on credit and other information on, 471 technology for technology, 370–371 values and integrity of, 30–31 Company description in business plan, 77 defined, 75 Company identity, 210 Company information tips for finding, 61, 63 worksheet on types of, 62 Company morale and personnel as internal operational advantage, 127 Company names great, 211 worksheet on, 212–213

Company vision, 20 worksheet for, 449 Compaq Computer, 94 Comparable pay rates, researching, 314 Comparative advertising, 452 Comparative data, 70 Compensation, sales force, 263–264 Competition, 61 asking, for work, 205 assessing your, 119–126 barriers to entry and, 124–126 in business plan, 77 on business plans, 91–93 comparing pricing of, 120 direct, 61, 121 financing and, 183 focus of start-up companies on, 119 future, 61, 122 indirect, 61, 122 large, 61, 121 market share distribution and, 123–124 online, 61, 122 social ventures and, 414 sources of, 121 terminology in, 119 types of, 121–122 Competitive analysis, 133 worksheet on, 134, 135 Competitive changes, 8 Competitive prices in customer retention, 207 Competitive risk, 136 Computing, cloud, 364–365, 366, 370, 375 Concept, 22 Confidentiality, 86 Consensus, 302, 303 gaining, 456 Constant change, coping with, 14 Constant Contact, 241 Consultants, 294–295 types of, 294 Consumers, 99. See also Customer(s) Consumer shows, 244 Contract law, 437 Contract manufacturing, 337 defined, 333 Contracts, 389 comparison with letter of agreement, 389

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inde x

Contributions, acknowledging, 298 Control, entrepreneurship and, 15–16 Convenience as customer perception factor, 126 as factor in successful business concept, 28 Convertible debt, 80 Cooper, Simon F., 71 Cooperation, social ventures and, 414 Copyrights, 383, 385 defined, 377 Co-recipients, 191 Core messaging, 216 worksheet for, 219 Corporate charity, 402 Corporate culture, 20, 299, 301, 302–303 defined, 289 in managing growth, 457 Corporations B, 378–379, 418, 420–421 C, 377, 378–379, 395–396 charity donations of, 402 S, 378–379 Cost(s) comparisons and evaluations of, 337 estimating, 455 fixed, 144 start-up, 192–193, 340 of technology, 362 variable, 143, 161 Cost of goods sold (COGS), 150, 160 defined, 143 Cost of sales, 143 Cost per acquisition (CPA), 238 Cost per action (CPA), 238 Cost per click (CPC), 238 Coulombe, Joe, 114–115 County Business Patterns, 111 CouponSherpa, 242 Creativity entrepreneurship and, 15 worksheet on, 17 Credit cards, 180 payments on, 164–165 as source of financing, 179 wise use of, 178 Credit insurance, 430 Credit resources, 471 Credit score, 176 Crossing the Chasm, 107

ERA_Ch21_Index.indd 485

Cross-selling, 281 Crowdfunder, 178 Crowdfunding, 177–178 defined, 171 sites for, 178 CSAs (community supported agriculture), 33–34 Cultural norms, 427 Culture corporate, 20 in globalization, 425–426 Currency fluctuations, 429 Current assets, 142 Current liabilities, 143 Customer(s) acquisition and retention of, 202–209 actual, versus end users, 101–102 attracting, 301 as component of triple bottom line, 408 defining, 57 demographic description of, 105 geographic description of, 106 identifying, 98–103 importance of, in building a business, 29 lifestyle/business-style description of, 106–107 market characteristics of, 104– 107 primary, 102 psychographic description of, 107 purchasing patterns description of, 107 reasons for buying, 203 retention, 207 secondary, 102 terminology and, 99 worksheet on identifying, 103 Customer acquisition cost, 202 defined, 199 Customer-based niche, 131 Customer lifetime value (CLV), 205–207 defined, 199 worksheet on average, 208 Customer loyalty as barrier to entry, 124 enhancing, 358 Customer loyalty programs, 251–252 tech tools for, 251 types of, 251

Customer perception factors, 126–127 worksheet on, 134 Customer relationship as customer perception factor, 126 Customer relationship management (CRM), 209 cloud-based, 209 defined, 199 software for, 35, 362–363 Customer service, 347, 352–353 in customer retention, 207 elements to superb, 347 globalization and, 437

D

Daily deals, 240–241 in attracting first-time customers, 204 Danielson, Antje, 46 Danko, William, 12 Data with an agenda, 68 comparative, 70 effective management off, 370 evaluating, 63, 67–68 government, 67 leveraging, 370 organizing, 68, 69 private research company, 67 recency of, 60, 67 tips for organizing, 63 Data sources, 63, 67 organizing, 69 DBA (doing business as), 393 defined, 377 Deadlines, setting, 456 Dead marks, 387 DealChicken, 242 Death, taxes and, 161 Debt financing, 80, 172 defined, 171 sources of, 180 Debt retirement, 80 Debt service, 171 Decision making, corporate culture and, 301 Deductions, 396 Delivery system as factor in successful business concept, 29 Dell Boomi, 373 Dell Computers, 128, 270, 421 Demographics, 105 defined, 99

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486

ENTREPRENEURSHIP

A REAL-WORLD APPROACH

Depreciation accumulated, 142 defined, 143 Designers, 294 Design patents, 385 Development in business plan, 78 Dickson, Tom, 256–257 Diffusion of innovations theory, 107 Digital presentation, 87–88 defined, 75 Dimagi, 417 Direct competition, 61, 121 Direct mail in attracting first-time customers, 205 solicitations by, 278 Directors and officers insurance, 294 defined, 289 Direct sales, 267, 269, 274 to consumer/end user, 39 Direct-to-consumer sales model, 284–285 Disabled, hiring the, 312 Discounts after purchase, 251 buy-ahead, 251 Discrimination, 311, 439 Disney cruises, 122 Disposal Rule in identity theft, 350 Distribution, 452 reliable, 271 terminology for, 261 worksheet for planning needs, 272 worksheet on considerations, 273 Distribution chain, 265 defined, 261 Distributors, 268, 269, 270–271, 279 Diversification, 450 Diversity, 323 Dividends, 184 defined, 171 Documents for investors, 184–185 for lenders, 188, 190 worksheet on right, for obtaining financing, 185 Dollar Stores, 116 Domain name, choosing, 210 Donations/grants, 40 Do Not Call List, 280 Dot-com bust, 29 Dove Beauty, 224–225

ERA_Ch21_Index.indd 486

Draw against commission, 265 Dream, 22 moving to business reality from, 20, 22, 23 Dress code, 324 Drishtee, 417 Due diligence, 174 defined, 171 Dun & Bradstreet, 61 Durability, as customer perception factor, 126 Duty, 428 defined, 425 fiduciary, 291

E

Early adopters, 107 Earnings, retained, 145 Ease of management, 361 Ease of use, 361 eBay, 74, 128 eBay Business and Industrial, 343 EBITDA (earnings before interest, tax, depreciation, and amortization), defined, 143 Economy of scale as barrier to entry, 124 as internal operational advantage, 127 Edison, Thomas, 26 Education. See Training and education Elevator pitch, 88, 247 components of, 89 defined, 75, 229 sample, 89 worksheet for, 90 Eligibility to work, 312 Ellis, Steve, 28 Email newsletters by, 241 policies on, 368 as sales contact, 278 Emergency preparedness and disaster recovery, 349–350 Emerson, Ralph Waldo, 121 Emma, 241 Employees attracting, 76 benefits for, 314–326 compensation and incentives for, 312–315 as component of triple bottom line, 407–408

distinguishing between independent contractors and, 295, 308–309 diversity in, 323 dress code for, 324 empowerment of, 298 enabling growth of, 326 exempt, 307, 310 finding, 315–324 full-time, 308 key, 290 letting go, 327, 330 loyalty of, 301 motivating, 76 non-exempt, 307, 310 part-time, 308 personal conduct of, 324 recruiting, 301 responsibilities and roles of key, 291 retention of, 76, 324, 326–327 seasonal, 308 status of, 306–310 temporary, 308 training and education of, 316 turnover of, 105 workplace atmosphere and, 324 worksheet in determining needs in, 317 Employee satisfaction, social responsibility and, 406 Employer Identification Number (EIN), 391 Empowerment of employees, 298 social ventures and, 414 End users versus actual customers, 101–102 defined, 99 Energy management, as social issue, 415–416 Energy Star certification, 406 Enterprise Rent-A-Car, 28 Entrepreneurial approaches for social ventures, 414 Entrepreneurial thinking, 7–10 defined, 3 Entrepreneurs capability of, as factor in successful business concept, 30 cash and, 16 challenges of, 16 control and, 15–16 creativity and, 15

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inde x

defined, 3 employment of others by, 306 impact of, on changing world, 402 impact on world, 3–4 in making a difference, 24 personal goals of, 447 resources on, 473–475 Entrepreneurs groups, 244 Entrepreneurship, 1–24 advantages and challenges of, 11–14 economic impact of, 2 factors driving the growth of, 5–7 global, 5 growth of, 4–5 personal wealth and, 2 risk and, 2 terminology in, 3 understanding, 2–7 Environics, 405 Environment, 439 EPA Power Leadership Club, 421 Epinions.com, 239 Equal opportunity, 311 Equal Pay Act (EPA), 307, 312 Equal pay for equal work, 312 Equipment, 340–341 Equity, 313 defined, 144 Equity financing, 80, 172–173 defined, 171 sources of, 181 for start-ups, 173 Established businesses, 99 Ethics, 298 Events, 458 defined, 445 Execution risk, 136 Executive summary, 75 in business plan, 77, 78 Exempt employees, 307 criteria for, 310 defined, 307 Exit plan in business plan, 78 Exit strategies, 457–459 defined, 445 Expansion, 448 Expenses, lowering, in improving financial projections, 160 Expo Comida Latina, 245 Exports, 424–425, 438 defined, 425

ERA_Ch21_Index.indd 487

F

Facebook, 4, 10, 22, 138, 139, 234, 238, 239, 242, 256, 351, 398–399 Facilities, 333–335 Failure, entrepreneurship and, 8, 10 Fair and Accurate Credit Transactions Act (FACTA), 350 Fair Isaac Corporation (FICO), 176 Fair Labor Standards Act (FLSA) (1938), 307, 310 Fairness, 298 Fair pay, 438–439 Fair trade certification, 406 Family and Medical Leave Act (FMLA), 311 Family as source of financing, 177, 180, 181 Fantasy, 22 Feasibility analysis, 40–42 versus business plan, 41 defined, 27 worksheet on, 44–45 Features benefits versus, 200–201 as customer perception factor, 126 defined, 199 Federal tax ID numbers, 392 getting online, 392 Fed Ex, 10, 28, 94 Fedstats, 111 Feedback, providing, 298 Feelings in marketing, 202 FICA, 395 Fictitious business name, 393 defined, 377 Fiduciary duty, 291 FIFO (first in, first out), 343 defined, 333 Finances in business plan, 78–83 in growth of entrepreneurship, 6 in marketing, 201 taking control of, 76–77 terminology in, 142–145 Financial books, reviewing regularly, 164 Financial forms, guidelines for preparing, 82 Financial instability, dealing with, 13 Financial projections

bottom up versus top down, 156–157 improving, 157, 160 sales versus cash and, 157 Financial resources as internal operational advantage, 127 Financial statements avoiding emotion in viewing, 144 balance sheet as, 151, 156, 158–159 cash flow statement as, 150–151, 152–155 income statements as, 145–150 reading and understanding, 145–156 Financial symbols, 143 Financial worksheets, obtaining electronic, 156 Financing, 169–196 bootstrapping and, 191 of business, 74 competition and, 183 co-recipients in, 191 debt, 171, 172, 180 equity, 171, 172–173, 181 in managing growth, 456–457 negotiating deal in, 186 questions for sources of, 179 raising money through revenue, 191–192 securing investors for, 179–186 securing lenders in, 187–191 sources of money for, 170, 171, 173–179 start-up costs in, 192–193 terminology in, 171 type of money sought, 172 Firing of employees, 327 First-mover advantage, 122–123, 128–129 defined, 119 First-time customers attracting, 202, 205 strategies to attract, 204 Five Fs, 201–202 Fixed assets, 142 Fixed costs, 144 Flat-hive management, 302, 303 Flat management, 295 Fleiss, Jennifer, 284–285 Flexibility, 4, 365 Floor salespeople, 262 Focus groups, 58

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488

ENTREPRENEURSHIP

A REAL-WORLD APPROACH

Food production as social issue, 417–418 Forbes Top 30, 421 Ford Motor, 119, 128 Foreign agents, 427 defined, 425 Foreign Corrupt Practices Act, 438 Foreign ownership, 438 For-profit companies application of social entrepreneurship to, 4.3 bottom line and, 411 Fortune 500, 3 Founders, 289–290, 294 roles for, 289 401(k) plans, 315 Four Ps, 201 Franchisers as source of financing, 179 Franchises, 450, 458 Franchising, 40 Freedom in marketing, 201 Free offers in attracting first-time customers, 204 Friends as source of financing, 177, 180, 181 Friendster, 138 Full-time employees, 308 Function in marketing, 201 Funding resources, 475–478 Funding rounds, 79 defined, 171 FUTA (Federal Unemployment Tax Act), 395 Future competition, 61, 122 Future in marketing, 202

G

Gap, 31 Gates, Bill, 10, 411 General business and industry resources offline, 469–470 online, 467–469 General Motors (GM), 119 General partnership, 378–379 Geographic description, 106 Gillette, 128 Global business, resources on, 478–480 Global competitor, 448 Globalization, 423–442, 450 culture and norms in, 425–426 entrepreneurship and, 5

ERA_Ch21_Index.indd 488

growth of, 424–425 international partners in, 427–428 legal issues in, 437–438 logistics in, 437 management and labor, 435–436 marketing in, 430, 432, 433 money in, 429–430 operations in, 436–437 reasons for, 425 sales in, 432, 434 social responsibility and, 438–439 target markets and customers in, 428–429 terminology in, 425 worksheet for financial considerations, 431 Goals, 22 as basis for marketing budget, 220–221 listing, 455 sales, 275 Going public, 446, 458 Google, 10, 19, 27, 29, 74, 138, 140, 211, 235, 370, 414 Keyword Tool, 237 Google Docs, 34 Google Groups, 244 Google Places, 250 Government agencies, as source of financing, 175–176 Government data, 67 Government regulations as barrier to entry, 124 Grand openings in attracting first-time customers, 205 Great Clips, 28 Green operations, 350–351 as component of triple bottom line, 409 Greentech, 416 Green technology, 6 Gross margin, 160 Gross profit, 144 Gross sales, 144 Groupon, 240, 242 Group-specific entrepreneur associations, 244 Growth (of company). See also Venture growth funding and cash management for, 192

management of, 163 venture capitalists in, 174 Guarino, Jennifer, 166–167 Guerrilla marketing, 252 defined, 229

H

Hand down, 458 Hard-to-reach market, 220 Hardware, 359 HARO (Help a Reporter Out), 247 Health care as employee benefit, 315 as social issue, 417 Health insurance, 349 Health Insurance Portability and Accountability Act, 368 Hewlett-Packard, 94 High-growth start-ups, 19 Historical performance of company, 82–83 Hobbies as source of inspiration, 32 Hobby business, 32 Home Depot, 121 Honest, 298 Hook, 230 defined, 229 worksheet on, 249 Hoteling, 334 Hot leads, 279 Hourly wages, 313 Hsieh, Tony, 352 Hughes, Chris, 398 Hulme, J. W., Co., 166–167 Humane certification, 406 Human resources, 305–330 employee compensation and incentives in, 312–315 employee retention in, 324, 326–327 employee status in, 306–310 employee termination in, 327, 330 employing others and, 306 finding employees in, 315–324 legislation involving, 310–312 permatemps and, 328–329 resources on, 471 terminology in, 307 Human rights as social issue, 418 Hunger as social issue, 417–418 Hyman, Jennifer, 284–285

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inde x

I

Identification numbers, 391 Identity brand, 209–211 company, 210 Identity theft, Disposal Rule in, 350 ID numbers federal, 392 state, 392 Image as customer perception factor, 126 Imports, 427, 438 defined, 425 Imputed interest, 177 In-bound telephone sales, 262 Income, middle class, 4 Income and expense statement, 145. See also Income statement Income statement, 78 defined, 143 reading from top to bottom, 150 sample, 146–147 in seeking financing, 190 worksheet on, 148–149 Income taxes, 395–396 states without, 396 Independent contractors, 307, 308, 328–329 defined, 307 distinguishing between employees and, 295, 308–309 IndieGoGo, 178 Indirect competition, 61, 122 Industries analysis and trends on in business plan, 77 finding opportunities in old, 33–34 growing, as factor in successful business concept, 30 investigating health and trends in, 76 new, 4 pay rate and, 314 Industry associations, 244 Industry events, worksheet for, 246 Industry information, 54–56 tips for finding, 54, 56 worksheet on types of, 55 Industry insider, 31 Industry leader, 448 Industry specialists, 294

ERA_Ch21_Index.indd 489

Industry-specific applications, 363–364 Industry-specify technology, 364 Inertia, 123 Inflated numbers, 185 Influencers defined, 199 recommendations by, in attracting first-time customers, 204, 205 Infographics, 82 Information company, 61, 63 industry, 54–56 market, 56–57 qualitative, 51, 53 quantitative, 51, 52 Informational interviews, 58 In-house marketing staff budget, 221 Initial public offering (IPO), 29, 47, 458 defined, 445 Innovation as factor in successful business concept, 27 social ventures and, 414 Innovator, 448 In-person interviews, 320–321 Inside sales force, 262 Inspiration, source of, 32–33 In-store marketing, 253 Insurance, 348–349 business, 349 business continuance, 349 credit, 430 directors and officers, 289, 294 health, 349 malpractice, 349 in operations, 348–349 workers’ compensation, 348–349 Intangible assets, 144 Integration, 361 defined, 357 as factor in successful business concept, 29 vertical, 29 Integrity of company, 30–31, 77 Intellectual property, 383, 385–387, 437, 459 agreements on, 387–388 as barrier to entry, 124 copyrights as, 383, 385 defined, 377 patents as, 385–386

trademarks as, 386–387 Interest, imputed, 177 Intermediaries, 270 Internal operational advantages, 127 Internal operational factors, worksheet on, 135 Internal Revenue Service (IRS), in distinguishing between employees and independent contractors, 308–309 International marketing, worksheet for, 433 International Organization for Standardization (ISO), 338 International partners in globalization, 427–428 International resources, 467 Internet, leverage and, 362–363 Interns, 308 Interviews, informational, 58 Introductory offers in attracting firsttime customers, 204 Intuit GoPayment, 242 Inventory, 332–333 defined, 333 just-in-time, 333, 343 sources of, 436 watching, 164 Inventory control, worksheet for, 346 Inventory management, 343 FIFO, 343 LIFO, 343 methods of, 343 Investments as barrier to entry, 124 characteristics of good, 183–184 customer service as a, 353 from principals, 80 Investors, 428 angel or private, 171, 174, 179, 181, 195 information and documents wanted by, 184–185 lead, 291 researching, 179–183 worksheet for, 182 securing, 179–186 service on Board of Directors, 291 worksheet on questions of, 189 ISO 9001, 338 ISO 14000, 338 ISO 26000, 338 ISYS, 372–373

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ENTREPRENEURSHIP

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J

JangoMail, 241 Job descriptions criteria in writing, 315–316 ingredients of strong, 316, 318 worksheet for writing, 319 Job duties, pay rate and, 314 Job interview questions, 320–322 legal issues in, 322 open-ended, 321 self-appraisal, 321 situation-based, 321 strength and weakness, 321 Job offers making, 323 sample letter for, 325 Job opening, advertising of, 318 Jobs, Steve, 10, 31 Job stability as factor in growth of entrepreneurship, 5 Joint ventures, 428 Just-in-time inventory, 333, 343 Just-in-time manufacturing, 338

K

Kaye, Deborah, 94 Kentucky Fried Chicken, 440, 441 Key differentiator, 119 defined, 119 Keywords, choosing, 237 Kickstarter, 178 Kleenex, 128 Kroc, Ray, 19 Kroger, 115

L

Labor in producing a service, 340 Language, conveying success in, 86 Large competition, 61, 121 Law, contract, 437 Layoffs, 327 Leadership, 296, 298–299 in attracting first-time customers, 204 versus managers, 299 in managing growth, 456 worksheet on traits in, 300 Lead investors, 291 Leads, 279 cold, 279 defined, 261 generation of, 279

ERA_Ch21_Index.indd 490

hot, 279 qualified, 279 Lean manufacturing, 338 Lean start-ups, 361 Leasing, 39 Leaves, 311 LEED certification, 406 Legal agreements, types of, 389 Legal issues, 375–400 globalization and, 437–438 legal structure of companies, 376–377 terminology in, 377 worksheet on, 380 Lenders information and documents wanted by, 188, 190 securing, 187–191 worksheet on researching prospective, 190 Lending institutions as source of financing, 180 Letter of agreement comparison with contracts, 389 sample, 390 Letters of credit, 430 Leverage, Internet and, 362–363 Levi Strauss, 31 Liabilities of companies, 376–377 current, 143 defined, 144 long-term, 144 Licenses, 391, 427–428 county and city, 393 reseller’s, 392 state, 392 worksheet on business, 394 Licensing, 40, 268, 269, 452 defined, 425 Life cycle management as component of triple bottom line, 409 Lifestyle/business-style description, 106–107 Lifestyle in driving career choices, 5–6 LIFO (last in, first out), 343 defined, 333 Limited liability company (LLC), 378–379 Limited liability partnership (LLP), 378–379 Limited partnership, 378–379 Line of credit, 175

Lines of authority, 295–296 defined, 289 LinkedIn, 238, 239 Liquidity, 446 defined, 445 Liquidity events, 183–184 defined, 171 Living Social, 240, 242 Living wage, 439 defined, 425 Localization, 440 Location, pay rate and, 314 Logistics, global, 437 Logo, 214 characteristics of good, 214 Long John Silver, 440 Long-term liabilities, 144 Long-term loans, 80 Loss leaders, 241 defined, 229 Loyalty programs in customer retention, 207

M

Macy’s, 61 MailChimp, 241 Mail order catalogs, 278 Maintenance as customer perception factor, 126 Malpractice insurance, 349 Management across borders, 435 advantages and disadvantages of different styles of, 287 in building successful business, 30 in business plan, 78 ease of, 361 evaluating as a team, 290 flat, 295 globalization and, 435–436 hiring capable, 76 open-door, 296 planning, 288 structure of, 295–296 worksheet on, 297 worksheet on key, 292–293 Management consultants, 294 Management information system (MIS), 343 Managers versus leaders, 299 Manufacturing, 335–340 best practices in, 337–338 contract, 337

6/18/12 9:58 AM


491

inde x

global, 436 just-in-time, 338 lean, 338 resources on, 472 Market(s). See also Target market changes in, 8 as factor in successful business, 29 understanding the, 75 Market driven, 110 Market information, 56–57 tips for finding, 60 Marketing, 197–226 acquisition and retention of customers and, 202–209 brand identity in, 209–211 budget in, 218–221 in business plan, 77 cause-related, 253 characteristics of effective, 198–199 colors in, 215 community-related, 253 core messaging in, 216 in globalization, 430, 432, 433 guerrilla, 229, 252 importance of marketing plan in, 198–200 in-store, 253 logo in, 214 message in driving, 218 mobile, 241–242 online, 233–242 packaging in, 215–216 pricing of products and services in, 221–223 reasons why people buy, 200–202 resources on, 472 versus sales, 199–200 search engine, 229, 432 social media, 238–242, 432 tagline in, 214–215 terminology and, 199, 229 viral, 229, 238 word-of-mouth, 250–251 Marketing budget, 218–221 goal-based, 220–221 increasing, 216 in-house staff, 221 percentage of sales budget as, 218, 220 Marketing collateral, 242–243 defined, 229 keys to effective, 242

ERA_Ch21_Index.indd 491

Marketing consultants, 294 Marketing plans, 41 importance of, 198–200 Marketing program and budget as internal operational advantage, 127 Marketing tactics, 227–258 advertising as, 229–233, 253 cause-related marketing as, 253 community-related marketing as, 253 customer loyalty programs as, 251–252 elevator pitch as, 247 HARO (Help a Reporter Out) as, 247 hook as, 249 industry events as, 246 in-store marketing as, 253 leading, 228 marketing collateral and, 242– 243 marketing vehicles as, 228–229, 254–255 networking as, 243–245 online marketing and, 233–242 press release as, 248, 249 product placement as, 253 public relations as, 245, 247 sampling as, 253 signs as, 253 terminology, 229 trade shows as, 244–245, 246 transit advertising as, 253 word-of-mouth marketing, 250–251 Marketing vehicles, 228–229 worksheets of comparison of, 254–255 Market leader, 448 underserved or new, as factor in successful business concept, 27–28 Market research, 57 conducting your own, 57–58, 60 government websites for target, 111 Market risk, 136 Market saturation as barrier to entry, 124 Market segmentation, 110 defined, 99

Market segments, identifying, 110–111, 113 Market share distribution, 123 Market size and trends, worksheet on, 112 Market trends, 110 Markup, 144 Materials, 336, 340–341 Mature-financing environment, 6 McDonald’s, 19, 100, 120, 129, 199, 256, 386 Meal breaks, 311 Media kit, 230, 231 defined, 229 Media outlet, 230 choosing a, 231 defined, 229 Medicare, 395 Megastores, 270 Memberships, 251 Mendelsohn, Jeff, 420–421 Merchant accounts, 164–165 Mergers, 458 Message in brand identity, 209 core, 216 developing effective, 198–199 in driving marketing, 218 Microsoft, 94 permatemps at, 328–329 Middle class income, 4 Middleman, 268, 270 Migicovsky, Eric, 178 Milestones, 452–453 in business plan, 78 worksheet for meeting, 454 The Millionaire Next Door (Stanley and Danko), 12 Minimal viable product, 337 Minimum wage, 263, 311 Mission, company, 419 Mobile marketing, 241–242 techniques in, 242 Mobile sales, 278 Mobility, 362 planning for, 363 Money. See also Financing in globalization, 429–430 raising, through revenue, 191–192 saving, 356–357

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492

ENTREPRENEURSHIP

A REAL-WORLD APPROACH

Money management, 141–168 accountants in, 163 billing payment terms in, 164–165 financial projections in, 156–157 financial symbols in, 143 financial terms in, 142–145 key terms in, 143 measuring success in, 160–163 reading financial statements in, 145–156 terminology in, 143 tips in, 163–164 Monster, 209 Moore, Geoffrey, 107 Mortgage loans, 80 Moskovitz, Dustin, 398 Multilevel marketing, 274 MySpace, 138–139

N

NAICS codes, 56 defined, 51 searching by, 56 Narenda, Divya, 398 National Do Not Call Registry, 280 Negotiations on price, 282 Net cash flow, 144 Net margin, 161 Net profit, 144 Networking, 243–245 reasons for joining group, 180 Network marketing, 274 Net worth, 151, 156 defined, 144 New business, 220 New Leaf Paper, 420–421 New market as factor in successful business concept, 27–28 News Corporation, 138, 139 NeXT, 10 Nexus, 397 defined, 377 Niche carving out a, 130 choosing, 113 customer-based, 131 defined, 27, 113, 119, 129 defining your, 130 finding your, 35, 110–111, 113, 129–130 product-based, 131 service-based, 131

ERA_Ch21_Index.indd 492

worksheet on ideas, 132 Niche leader, 448 Nike, 199, 211, 214 Noncompete agreements, 387 Nondisclosure agreements, 86, 387 defined, 377 sample, 388 Non-exempt employees, 307 criteria for, 310 defined, 307 Non-technology industries and markets, application of technology in, 34 Nordstrom, 28 Norms cultural, 426 in globalization, 425–426 North American Industry Classification System, 56 Notes payable, short-term, 145 Not-for-profit, 501(c)(3) organizations, 378–379 social entrepreneurship and, 403, 411

O

Occupational Safety and Health Act (OSHA), 307, 312 Office space, 334 Offshoring, 339–340 defined, 333, 425 issues to consider, 435 Offsite events, 250 Old Navy, 421 Olympus Capital Investments LLC, 167 O’Neill (surfboard maker), 102 Online advertising, pricing, 238 Online “chat” personnel, 262 Online competition, 61, 122 Online marketing, 233–242 in attracting first-time customers, 205 websites for, 234–235 Online review sites, 250 Online sales, 267–268, 269, 278 On-premise software, 361 versus cloud computing, 364–365 worksheet on, 366 defined, 357 Onsite events, 251 Open-book management, 296, 303 defined, 289

Opening cash balance, 144 Operational efficiencies as internal operational advantage, 127 Operations, 331–354 in business plan, 41, 78 customer service in, 347, 352–353 emergency preparedness and disaster recovery in, 349–350 facilities in, 333–335 globalization and, 436–437 greening of, 350–351 insurance in, 348–349 inventory in, 332–333 location in, 335 order fulfillment in, 347 product manufacture in, 335–340 research and development in, 341–342 running of business and, 332– 333 service production in, 340–341 start-up costs in, 340 supply chain management in, 342–346 terminology in, 333 Opportunities balancing risks and, 136–137 worksheet on balancing risks and, 137 Order fulfillment, 347 Organic certification, 406 Originality of ideas as factor in successful business concept, 30 Other paid time, 311 Out-bound telephone sales, 262 Outside sales force, 262–263 Outsourced sales force, 263 Outsourcing, 339, 437 defined, 333, 425 Overtime, 311, 314 laws on, 263 OWN (television network), 11 Owner’s draw, 144 Ownership of companies, 377

P

Packaging, 215–216 Page, Larry, 19, 27 Partners dealing with, 381, 383 questions to ask potential, 384

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493

inde x

Partnership agreements, 381, 383, 400 Partnerships general, 378–379 limited, 378–379 limited liability, 378–379 worksheet for discussing, 382 Part-time employees, 308 Pass-along readership, 231 Pass-through taxation, 395 defined, 377 Password, characteristics of good, 367 Patents, 385–386 defined, 377 design, 385 plant, 385 utility, 385 Pay, fairness of, 298 Payment terms, evaluation of, 338 PayPal, 242, 398 Pay per click (PPC), 238 Payroll, processing, 314 Payroll service, 314 Payroll taxes and withholding, 393, 395 People choosing the right, 298 commitment to, 408 as component of triple bottom line, 407–408 in determining success, 288 meeting, as sales contact, 278 reasons for buying, 200–202 social issues and, 416–418 Pepsico, 119, 430, 440 Perceived value as customer perception factor, 126 Percentage of sales budget, 218, 220 Performance, 302, 303 Performance bonds, 348 Permatemps, 328–329 Permits, 391 county and city, 393 worksheet on business, 394 Personal conduct of employees, 324 Personal interests as source of inspiration, 32 Personal leaves, 315 Personally identifiable information (PII), 367 Personal observation, 57 Personal use of company equipment, 368

ERA_Ch21_Index.indd 493

Personal wealth, entrepreneurship and, 2 Personnel. See Human resources Per-use fees, subscriptions versus, 207 Pinterest, 238 Pizza Hut, 440, 441 Place in marketing, 201 Plagiarism, avoiding, 68 Planet commitment to, 409 as component of triple bottom line, 408–409 social issues and, 415–416 PlanningShop, 94–95 publications of, 80 Plant patents, 385 Politics as social issue, 418 Portfolio, 179 Positive corporate image, social responsibility and, 405 Positive reviews in attracting first-time customers, 204 Posters, 312 Poverty reduction as social issue, 417 Preferred stock, 80 President, 294 Press releases, 245 sample of, 248 Per-use fee, 40 Pricing aggressive, as barrier to entry, 124 changing, in improving financial projections, 157 comparing for competition, 120 as customer perception factor, 126 importance of, 200 levels of, 223 lower, as factor in successful business concept, 28 in marketing, 201 negotiations on, 282 of online ads, 238 of products and services, 221–222 skills for discussing, 283 strategy for, 222 talking about in sales, 281–282 Primary customers, 102 Primary market research, methods of, 58 Primary research, 51 defined, 51 versus secondary research, 52

Principals, 290 defined, 289 Print advertising, 231 designing, 230 Priorities, 450, 455 worksheet for determining, 451 Privacy, 367–368 laws on, 368 policies on, 368 Private investors, 174, 181. See also Angel investors Private research company data, 67 Product-based niche, 131 Production, global, 436 Productivity levels, 275 Product line breadth, as internal operational advantage, 127 Product names, 63 Product placement, 253 Product risk, 136 Products benefits versus features of, 200–201 changes in, in improving financial projections, 160 differentiating your, 27 manufacturing of, 335–340 in marketing, 201 minimal viable, 337 proprietary, 128 quality of, 338 shipping, 339 Profit as component of triple bottom line, 409–410 defined, 144 gross, 144 net, 144 social ventures and, 414 Profit and loss statement, 145. See also Income statement Profit margins, 156–157, 160–161, 220 defined, 143 types of, 160–161 Profit sharing, 313 Pro forma statement, 144 Promise in brand identity, 209 Promotion in marketing, 201 Pronto Markets, 114 Property, plant, and equipment, 142 Proposals, 275–276 worksheet for creating, 277

6/18/12 9:58 AM


494

ENTREPRENEURSHIP

A REAL-WORLD APPROACH

Proprietary product, technology, abilities or relationships, 128 Prospects, qualification of, 237–238 Prototype benefits of, 43 creating product, 42–46 defined, 27 developing, 289 Psychographics, 104 defined, 99 worksheet on, 108 Public relations, 245, 247 in attracting first-time customers, 205 Public testimonials, 250 Purchase, discounts after, 251 Purchasing decision, reinforcing, 283 Purchasing patterns, 104 defined, 99

Q

Qualified leads, 279 Qualitative information, 53 defined, 51 Qualitative research versus quantitative research, 52–53 Quality consistency of, 340 as customer perception factor, 126 as factor in successful business concept, 28 improving, 357–358 Quality assurance, 256 Quality improvement, 70 Quality leader, 448 Quality management, 338 Quantitative information, 51, 52 Quantitative research versus qualitative research, 52–53 Quarterlies, 396 defined, 377 QuickBooks, 372 Quick Facts, 111 Quick-service restaurant (QSR) company, 440 Quizno, 209 Quotas, 264 QWERTY keyboard, 122

ERA_Ch21_Index.indd 494

R

Radio advertising on, 231–232 public, 232 Raw materials, 336 defined, 333 global, 436 Reach, 230 defined, 229 Reality check, conducting, 455 Real-World Cases Blendtec, 256–257 Dove Beauty, 224–225 Facebook, 398–399 Hulme, J. W., Co., 166–167 ISYS, 372–373 Microsoft, 328–329 MySpace, 138–139 New Leaf Paper, 420–421 PlanningShop, 94–95 Rent the Runway (RTR), 284–285 Ritz-Carlton Hotel Company, 70–71 Sky Factory, 301–302 Tactus Technology, 194–195 Trader Joe’s, 114–115 Yum! Brands, 18–19 Zappos, 352–353 Zingerman’s Deli, 18–19 Zipcars, 46–47 Reasonable accommodation, 311 Recipients, tailoring business plan for your, 83 Record-keeping, 312 Recruitment, social responsibility and, 406 Red Bull, 209 References, checking, 322–323 Referral programs, 250 Refocus, 450 Relationships, proprietary, 128 Reliability, 337 Repetition in advertising, 230 in marketing, 199 Reputation, establishing a positive, 301 Research. See also Business research on comparable pay rates, 314 primary, 51 secondary, 51, 52 systematic, 32–33

worksheet on, 64–66 Research and development, 341–342 Reseller’s licenses, 392 Reserve, 144 Resources, 464–480 Canadian, 466 credit and other information on specific companies, 471 entrepreneurs, 473–475 funding, 475–478 general business and industry resources offline, 469–470 online, 467–469 global business, 478–480 human resources/personnel issues, 471 international, 467 manufacturing, 472 marketing, 472 online U.S. government, 464– 466 social responsibility, 472–473 Respect, 298 Resumes, reviewing, 320 Retail, 334 Retailers, 268, 270 Retained earnings, 145 Retirement contributions, 315 Return on investment (ROI), 161, 183–186, 199 defined, 145, 171 Revenue defined, 145 raising money through, 191–192 RewardMe, 242 Rewards, 299 free, after multiple purchases, 251 programs for, in customer retention, 207 Rexall Drug, 114 RhondaWorks, 94 Risks, 133 assessment of, in business plan, 77 balancing opportunities and, 136–137 capitalization, 136 competitive, 136 defined, 3 execution, 136 facing, 12–13 global, 136

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495

inde x

market, 136 product, 136 technology, 136 types of, 133, 136 worksheet on balancing opportunities and, 137 Ritz-Carlton Hotel Company, 70–71 Rogers, Everett, 107

S

Safeway, 115 Salary, 313 giving increases in, 326 negotiating on, 324 plus commission, 264 straight, 263 Sales, 458 bids and proposals in, 275–276 closing the, 283 defined, 261 in globalization, 432, 434 goals and productivity levels in, 275 gross, 144 importance of, 260–261 lead generation in, 279 limiting choices, 281 making, 278–283 versus marketing, 199–200 methods of, 39–40 operations and procedures in, 271–276 reinforcing purchasing decision in, 283 talking about price in, 281–282 terminology for, 261 worksheet for global, 434 worksheet on procedures and operations, 279 Sales channels, 128, 263, 264–265 conflict in, 267 defined, 261 for service businesses, 268, 270–281 types of, 267–268 Sales contacts, methods of, 276, 278 Sales cycle, 275 defined, 261 Sales force compensation and training for, 263–264 inside, 262 outside, 262–263

ERA_Ch21_Index.indd 495

outsourced, 263 worksheet on building, 266 Salesforce.com, 372 Salesforce CRM, 34 Sales growth, 448 Sales pipeline, 275 defined, 261 Sales pitch, 282 Sales representatives, 263, 427 Sales staff, 261–264 Sales strategy in business plan, 77 Sales Tax Clearinghouse (STC), 397 Sales taxes, 397 Samples, studies using large, 67 Sampling, 58, 60, 253 in attracting first-time customers, 204 Sam’s Club, 116 Saverin, Eduardo, 398, 399 Scalability, 362, 365 defined, 357 S corporation, 378–379 Search engine marketing (SEM), 237–238, 432 defined, 229 Search engine optimization (SEO), 235, 237 defined, 229 Seasonal employees, 308 Secondary customers, 102 Secondary research, 52 defined, 51 versus primary research, 52 Securities and Exchange Commission, 61 Security, 367–368 Security policies, 368 Seed companies, 174 defined, 171 Self-appraisal questions, 321 Self-employed individuals, workday of, 13 Self-employment, 16, 18 Servers, 364 defined, 357 Service, 302, 303 as factor in successful business concept, 28 Service-as-a-Service, 364 Service-based niche, 131 Service businesses, channels for, 268, 270–281 Service level agreement (SLA), 362

defined, 357 Service mark, 386 defined, 377 registration of, 386 Services, 340–341 changes in, in improving financial projections, 160 differentiating your, 27 pricing, 221–222 subscriptions versus per-use fees for, 207 7-Eleven, 114, 211 Shared ownership model, 39–40 defined, 27 Shelf life, 231 Shipping, 339 Short-term loans, 80 Short-term notes payable, 145 Sick leaves, 315 Sierra Club, 421 Siginaw, Paul, 460–461 Signs, 253 Situation-based questions, 321 Sky Factory, 302–303 Slave labor, 438–439 Small Business Administration (SBA), 3, 7 loan programs of, 176 Small Business Development Centers (SBDCs), 244 Small businesses, 18. See also Business(es) statistics on, 7 Small Business Investment Companies (SBICs), 176 Smartphones, 359 Smith, Fred, 10, 28 Social entrepreneurs as change agents, 414 Social entrepreneurship, 410–411 defined, 403 nonprofit agencies and, 411 versus social responsibility, 402–403 Social issues for social ventures, 415–418 Socially responsible certifications, 406 Social media marketing, 238–239 choosing strategy, 239–242 daily deals in, 240–241 global, 432 tactics in, 239 use of sites, 239

6/18/12 9:58 AM


496

ENTREPRENEURSHIP

A REAL-WORLD APPROACH

Social responsibility, 299, 404–406 in business plan, 78 community service and, 405 defined, 403 globalization and, 438–439 positive corporate image and, 405 recruitment and, 406 resources on, 472–473 satisfied employees and, 406 versus social entrepreneurship, 402–403 team work and, 406 of vendors, 336 visibility and, 405 worksheet on building, 412–413 writing into business plan, 410 Social Security, 368, 395 Social technology ventures, 416 Social ventures. See also Social entrepreneurship entrepreneurial approaches for, 414 social issues for, 415–418 Societal impact as customer perception factor, 126 Sociological changes, 8 Software, 359 on-premise, 361, 364–365, 366 subscription-based, 35 Software as a Service (SaaS), 364 defined, 357 Sole proprietorship, 378–379 Sony, 128 Sources and use of funds, 75, 79–80 worksheet on, 81 Sources of materials and services, 336 Specialists, 294–295 types of, 294 Specialized Small Business Investment Companies (SSBICs), 176 Special services, 251 Specific Media, 139 Spiffs, 264 Sponsorships, 40 Square, 242 Staffing in managing growth, 456 Stakeholders, 403 Standard billing, 164 Standards, setting, 296 Stanley, Thomas, 12 Starbucks, 29 Start-up companies, 4–5 defined, 3

ERA_Ch21_Index.indd 496

equity financing for, 173 focus of, on competition, 119 founders in, 290 high-growth, 19 lean, 361 use of cloud-based software by, 365 Start-up costs, 79, 192–193 reducing, 340 worksheet on, 193 State certifications, 392 State ID numbers, 392 State licenses, 392 Steady provider, 448 Stock options, 314 Straight commission, 263 Straight salary, 263 Strategic partners as source of financing, 179 Strategic partnerships, 450, 452 as internal operational advantage, 127 types of, 452 Strategic position, 118 advertising and, 127 branding and, 129 in business plan, 77 creating clear, 76 customer perception factors and, 126–127 defined, 119, 126 defining your niche and, 130 finding your niche and, 129–130 first-mover advantage and, 128–129 internal operational advantages as, 127 kinds of, 126–132 proprietary products, technology, abilities or relationships and, 128 sales channels and, 128 Strategy in managing growth, 457 Strength and weaknesses questions, 321 Studies conducted by universities, 67 using large samples, 67 Style as customer perception factor, 126 Subscription-based software, 35 Subscription service, 40 Subscriptions versus per-use fees, 207

Success chance of, 15 conveying, in language, 86 measuring, 160–163 people in determining, 288 Successful Business Plan: Secrets & Strategies, 80, 94, 95 SuperCuts, 28 Superstores, 270 Suppliers chart for comparing, 344 finding, 342–343 Supplies global, 436 worksheet for determining needs, 345 Supply chain management, 342–346 defined, 333 Surveys, 58 Sustainability, 439 as component of triple bottom line, 408, 409 defined, 403 as social issue, 415 Sustainable Business Institute’s Seal of Sustainability, 421 Sutton, Willie, 175 Swinmurn, Nick, 352–353 Switching cost, 123 defined, 119 SWOT analysis, 136–137 Symbols copyright, 385 financial, 143 trademark, 387 Systematic research as source of inspiration, 32–33 Systems in managing growth, 457

T

Taco Bell, 440, 441 Taglines, 209, 214–215 defined, 199 great, 215 need for, 215 Target, 33 Target countries, determining, 428–429 Target customers, determining, 429 Target market, 98, 99 in business plan, 77 changing, in improving financial projections, 160

6/18/12 9:58 AM


497

inde x

defined, 99, 104–105 government websites for research on, 111 size and trends of, 107–110 visualizing, 100 worksheet on characteristics of, 109 worksheet on types of information on, 59 Tariffs, 428 defined, 425 Taste tests, 58, 60 Taxes, 161, 393, 395–396 of companies, 377 evasion of, and cash payments, 315–316 income, 395–396 payroll, 393, 395 sales, 397 unemployment, 395 Team evaluating management, 290 members of, 288, 289–295 workshop for identifying members of, 93 Teamwork in developing a business plan, 91–92 as factor in successful business concept, 30 social responsibility and, 406 Teaser rates in attracting first-time customers, 204 Technological changes, 8 Technology, 355–374 application of, in non-technology industries and markets, 34 as backbone of business, 356–357 benefits of, 358 business functions and, 358 choosing the right, 359–364 criteria for judging products, 361–362 establishing sensible policies, 368 globalization and development of, 436–437 proprietary, 128 for technology companies, 370–371 worksheet identifying needs of, 360 worksheet on developing policies, 369

ERA_Ch21_Index.indd 497

Technology infrastructure, 6 Technology plans, 41 in business plan, 78 Technology risk, 136 Technology specialists, 294 Telephone calls do not call list and, 280 as sales contact, 278 Telephone sales in-bound, 262 out-bound, 262 Telesales service, 263 Television advertising on, 232–233 public, 232 Temporary employees, 308 Term loan, 175 Term sheet, 184, 186, 195 defined, 171 Territory reps, 262 Thiel, Peter, 398 ThomasNet, 342 Three Ps, 403 Tiffany & Company, 215 Timberlake, Justin, 139 Time, saving, 357 Time expenditures, estimating, 455 Time off, 311 Tips, 314 TiVo, 214 Tom’s Shoes, 418 Tone in job interviews, 321 Total amount, 79 Toyota, 113 Trade associations in finding suppliers, 342 websites of, 244 Tradekey B2B directory, 342 Trademarks, 386 defined, 377 doing search for, 387 registration of, 386 symbols for, 387 Trader Joe’s, 33, 114–115 Trade secrets, 385, 387, 399 defined, 377 Trade shows, 244–245 uses of, 243 worksheet for, 246 Trade Shows Worldwide: An International Directory of Events, Facilities, and Suppliers, 245

Traditional jobs, turning into entrepreneurial ventures, 34 Training and education, 298 as employee benefit, 316 Training time, 311 Transit advertising, 253 Transparency, 302, 303 Triple bottom line, 406–410 defined, 403 people as component of, 407–408 planet as component of, 408–409 profit as component of, 409–410 Tupperware, 29 Twentieth Century Fox Film Studios, 211 Twitter, 22, 238, 242, 256 Two Degrees, 418

U

UAL Corporation, 61 Underserved market as factor in successful business concept, 27–28 Unemployment taxes, 395 Unilever, 224–225 Unique selling proposition, 216 defined, 199 United Airlines, 61 United Nations Development Programme, 417 United Nations Food and Agriculture Organization, 417 U.S. Economic Census, 111 United States, online resources on, 464–466 Universities, studies conducted by, 67 Upfront deposits, 165 Upgrades, 251 Up-selling, 281 Urgent care, model of, 442 User base, installed, 123 Utility patents, 385

V

Vacation as employee benefit, 315 Valuation, 186 defined, 171 Values in brand identity, 209 business, 20 of business, 77 of company, 30–31 old, 4 Vanech, Dean, 167

6/18/12 9:58 AM


498

ENTREPRENEURSHIP

A REAL-WORLD APPROACH

Variable costs, 161 defined, 143 Vendors social responsibility of, 336 as source of financing, 179 Vendor support, 362 Venture capitalists, 173–174, 181, 194, 291 control of, in growth of company, 174 defined, 171 key differences between angel investors and, 174 return on investment for, 183–184 Venture growth, 443–462 challenges of, 444 exit strategies in, 457–459 managing fast, 456–457 planning for, 452–456 reasons for, 446–447 strategies of, 448, 450 terminology in, 445 vision of, 447–448 Ventures, 3 defined, 3 Vertical integration, 29 Vertical Response, 241 Viral marketing, 238 defined, 229 Virtual location, 334–335 Visibility, social responsibility and, 405 Visions, 12, 41 business, 19–23 company, 20 defined, 3 size of, 16, 18 Vizcaino v. Microsoft, 329 Volunteering, 299

ERA_Ch21_Index.indd 498

W

Wage living, 425, 439 minimum, 263 Wait, Arthur, 94 Walmart, 33, 116, 121 Walters, Lauren, 418 Warehouse and storage, 334 Waste management as component of triple bottom line, 409 as social issue, 415 Water management as social issue, 416 Web, 123 Web 2.0 world, communication in, 436 Web page, 256 Websites, 234 contents of, 234 essentials for, 234–235 in global marketing, 430, 432 of trade associations, 244 worksheet for checklist, 236 Web-surfacing policies, 368 Webvan, 29 Wefunder, 178 Weinzweig, Ari, 460–461 White label, 452 defined, 445 Whole Foods, 33 Wholesalers, 268, 269, 270–271 defined, 261 Wholesale sales, 39 Williams, Michael, 167 Winfrey, Oprah, 11 Winklevoss, Cameron, 398 Winklevoss, Tyler, 398 Win-win situation, 285 Witherspoon, Bill, 302–303

Word-of-mouth in finding suppliers, 342 in marketing, 250–251 Wordtracker, 237 Work, asking competitors for, 205 Workers’ compensation insurance, 348–349 Work experience, as source of inspiration, 32 Working capital, 80 Working conditions, 438–439 Working hours, 311 rewarding hard, in retaining employees, 324 Workplace atmosphere of, 324 creating blame-free, 326 safety and health in, 312 Worksheets. See Build-Your-Business Worksheets Wozniak, Steve, 31 Wright, George, 256–257

Y

Yahoo!, 138, 235, 244 Yahoo! Local, 250 Yairi, Micah, 194–195 Yellow Pages, 122 Yelp.com, 239, 250 YouTube, 211, 238, 257, 258 Yum! brands, 440–441

Z

Zappos, 352–353 Zingerman’s Community of Businesses, 460–461 Zingerman’s Deli, 460–461 Zipcar, 46–47 Zuckerberg, Mark, 398–399

6/18/12 9:58 AM


Practical Approach, Yet Thorough Coverage of Fundamentals

Entrepreneurship: A Real-World Approach includes comprehensive coverage of what you need to know to start and run a successful business now: Up-to-date trends in entrepreneurship Feasibility analysis and opportunity identification Strategic positioning Financing and money management Business planning and business plan competitions Customers, marketing, sales, and distribution Social responsibility Globalization Growing the venture PlanningShop specializes in books for growing businesses and entrepreneurs. Ask your bookseller about our other titles, or visit PlanningShop.com.

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Sources of start-up cash Twenty-first century marketing techniques Worksheets to initiate the start-up process Sample agreements, proposals, and contracts Real-world cases show how real entrepreneurs overcome obstacles Critical thinking exercises recap each chapter’s core objectives

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Rhonda Abrams

Rhonda Abrams is recognized as one of America’s leading experts on helping entrepreneurs grow successful companies. Her weekly column in USA Today is the most widely circulated column on entrepreneurship in the United States. She is the author of more than 15 books, including the best-selling business plan guide in America, Successful Business Plan. She has started four companies and is currently the CEO of PlanningShop. Rhonda lives in the heart of Silicon Valley—Palo Alto, CA.

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A Real-World entrepreneurship Approach

For two decades, PlanningShop, the leading academic publisher for business planning and entrepreneurship, has provided both entrepreneurs and university students worldwide the expertise they need to succeed—in business, in class, and beyond.

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en•tre• • pre•neur A Real-World ship Approach

{

noun. The launching and execution of a new undertaking, typically a business, requiring vision, planning, and risk.

}

Hands-on Guide for Today’s Entrepreneur 6/28/12 8:51 AM

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