Thursday, May 22, 2008

For Young Leaders...

I am about two months away from entering business school, and I've been reflecting on leadership a lot lately. Then I saw "Memo to a Young Leader" on BusinessWeek online. This article asks five key questions that can help you define your leadership style. (Sure it says it's for young leaders, but I think it's a great article for anyone wanting to improve their leadership skills!)

The article and questions focus on motivation, recruiting, teaching, and self-leadership. Read it and ponder.

Wednesday, March 26, 2008

Focus on Franchising

In a lean economy, many entrepreneurs think it is safer to buy a franchise than start a new business. There are advantages and disadvantages to both. Franchise fraud is a serious problem, and just because you purchase a business with an established brand does not mean that your business will succeed. On the other hand, we all know that brand means a lot, and being able to piggyback on a successful brand can ease some of the difficulty of starting a business.

Here are some articles and information to review before you buy a franchise:

Buying a franchise is one place you do not want to skimp on legal services. Be sure to work with an attorney who will review the franchise's documents and contract for you.

Thursday, March 20, 2008

The Initial Public Offering

Many entrepreneurs and small businesses dream of IPOs. (So do many corporate attorneys - ha!) But the actual process can be long and mind-numbing. And even a little mysterious, considering that many "experts" (lawyers, accountants, i-bankers) do the actual preparation work.

As always, BusinessWeek sweeps in with a great article introducing entrepreneurs, business owners, and your basic business nerds to the process. The IPO Adventure is a 4-part series designed to shed some light on the mythical and mysterious IPO.

Part I introduces the responsibilities and players. The timeline is usually chosen by the Board of Directors, but you should expect a 14- to 18-week process. The CEO and CFO will have their hands full with preparing the due diligence and prospectus, though the prospectus will also require a lot of work by the marketing department. The attorneys and accountants will ensure compliance with SEC regulations.

The author then discusses the vital role of the underwriter, and offers tips about how to choose an underwriter who will be supportive of your goals.

Next is the organizational meeting - in which all of the players meet to plan the process. The working group formed at the meeting will take care of the nuts and bolts (SEC filings and compliance), strategy (number of shares and for how much), and marketing the IPO.

Part II discusses what you, as the business owner or executive, need to do to prepare your company. The first step is to organize/reorganize your Board. The Board of Directors will be under scrutiny in an IPO, and you need to make sure that you have the strongest Board possible. This may mean getting rid of some members and/or recruiting new ones, and that can take some time.

Part of organizing your Board will require you to review your committee structure. You should have at least these three: audit, compensation, and nominating. The author outlines the operating rules that each committee should abide by, and the roles of each. The author also gives suggestions as to how to decide which Directors should serve on which committees.

Finally, the author suggests that you should reincorporate in Delaware prior to the IPO. The advantages stem from the fact that Delaware is the corporation capital of the US - its system of laws and courts are well-developed for corporate law, and it offers greater liability protection to Directors than most other states. (Attorney's note: Not all companies can incorporate in Delaware, and there are a new set of costs and laws that you will need to be aware of, so you will definitely need to discuss this step with your attorney!)

Parts III and IV are yet to come. This is a very well-written article full of interesting information and tips. I recommend that you read it if you're considering an IPO, interested in finance, or just plain curious about the process.

Thursday, March 13, 2008

Thinking of Selling Your Business?

This article is a great Q&A from BusinessWeek's Karen Klein. I was going to try to summarize it, but it's really succinct so I'm not sure I'd be doing it justice! So just go check it out. She gives suggestions on getting an appraisal, working with a broker, and structuring an asset sale for its tax advantages.

Entrepreneurship Myths

Scott Shane, professor of entrepreneurial studies at Case Western University, recently wrote a book called "The Illusions of Entrepreneurship: The costly myths that entrepreneurs, investors, and policy makers live by." He essentially argues that many resources spent on starting new businesses would be better spent on building existing businesses.

Some facts: The average new business will fail within 5 years. Even successful entrepreneurs will make 35% less over 10 years than if they were employed by an existing company. Only the top 10% of entrepreneurs make more money in their own business than they would have made working for others. The average business is capitalized with about $25,000, and almost all of that comes from the founder's savings.

On the one hand, I get his point. Many entrepreneurs see Larry Page and Sergey Brin (founders of Google) and get stars in their eyes. Sure, they admit that success like that is hard to come by, but they can still do it. It's part American dream, part easy money, and part ego. I don't mean to put them down - we all chase after these things to some degree.

Shane does admit that most entrepreneurs don't think they'll be the next Silicon Valley billionaires. In fact, most are starting modest service businesses and are sole proprieters. Half are starting home-based businesses. And the reality is that the self-employed do have greater job satisfaction.

So what do business lawyers and the business owners they represent learn from this? First of all, I certainly do not want to discourage people from "following their dreams." The reality is, most of the entrepreneurs I work with are starting their businesses in addition to working their "day jobs." Most are making good financial decisions and being conservative in their gambles. Many are young and do not have families that depend on them, and thus can be a little more daring in chasing their goals. Many also know their walking-away point - the point at which they have to admit defeat and stop investing resources in the business.

I think that these ideas are key. Shane believes that it's just fine for people to choose entrepreneurship because of its job satisfaction, as long as they don't delude themselves about their financial realities. His concern is many will convince themselves that they are succeeding financially in order to justify their own happiness.

When I help my clients get their businesses started, I talk to them about their goals and expectations. I try to encourage responsible financial decision making, and I've even begged a few to keep their day jobs, at least until they make their first million. I also encourage them to write a business plan and spend a lot of time planning - both for good times and bad times. Finally, they always need to know who depends on them, how much money they need to bring in to take care of their families, and what their back-up plan is if that amount does not come.

If you'd like to read more about Shane's book, here are some links: