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.

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:

• Is It Time to Buy a Franchise? from BusinessWeek
• The FTC's Consumer Guide to Buying a Franchise
• BusinessWeek's slideshow What It Costs to 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.

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.

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:

• Interview with Business Week
• Shane's 10 tips to improve your odds of success
• Entrepreneurship Quiz from Yale Press

Real Estate Questions?

Then look here. A lot of people already know about this site, and they're rolling their eyes wondering why this qualifies as news. To those people, I point to the tagline of this blog that says I can also discuss "issues." So there.

Behind the Mortgage is a blog written by Twin Cities mortgage banker Alex Stenback. He puts a lot of effort into it, and it's absolutely brilliant. I've been turning to it a lot when a Wall Street Journal article about the mortgage mess leaves me with questions. It's also got lots of interesting little tidbits about the Twin Cities real estate market. My personal favorite is reading about the condo market crashing - come on folks, $1 million for a big apartment? Seriously? (And I say this with my fingers crossed behind my back, because I could be talked into buying one as a second home when I'm making buckets of money post-b-school. Ha!)

Enough joking... If you have questions about what lenders are doing and why, what a sub-prime mortgage is, why you should care about people who paid only interest on their mortgage and went to the Caribbean instead of paying down principal like any smart person should (oops, I said no jokes), this blog is great. If you wonder about a development near you, chances are that Alex has written about it. If you're thinking of buying, selling, looking, or going to the Parade of Homes, check out his blog. You'll get sucked in.

The Value of a MBA

It is official – I will be heading back to school in the fall. (Clients, lest you start anxiously looking for another attorney, don’t worry – my practice will continue on a part-time basis, and you’ll still get the same workaholic, round-the-clock service that you’re currently getting!)

As part of my research and networking, I have been talking to MBAs, JDs, and JD/MBAs. I have had fantastic conversations about the law and business, and the occasionally strained marriage between the two. One conclusion I have come to is that lawyers rarely value a MBA.

The JD/MBAs I have talked to discovered that they receive little or no recognition by their firms for the additional degree, even though it has mattered to their clients. The MBA degree may help them give better advice to and better serve their clients. It may even bring clients to the firm who would otherwise go elsewhere. But there is no remuneration in the attorneys’ paychecks.

That really puzzles me.

There are generally two attitudes in attorneys: those in a “profession” and those in a business. Obviously there are elements of both – we have ethical rules that a non-lawyer business does not have, and yet we all work for a paycheck/client’s check. And I accept that many are very wedded to the idea of the esteemed profession, and these attorneys will always frown on the “business” attorneys. But I see many attorneys look down on a MBA who are otherwise talking about profits and developing marketing plans.

I have chosen to earn a MBA because I think it will help me better serve my clients. I also thought it might make me more marketable to law firms. And now I’m finding that the first goal will definitely be met, but the latter is unlikely.

I don’t get it. It seems so irrational. If you can shed some light on this, please e-mail me and share your perspective. It's really starting to bug me...

Are US Companies Responsible for South Africa's Apartheid?

This is somewhat relevant for business leaders and lawyers, but it's also just really interesting...

There is a case called American Isuzu Motors Inc. et al. v. Lungisile Ntsebeza which may make its way to the Supreme Court (i.e., the DoJ has asked the Court to hear the case, and a decision whether to review the case should be made in April).

The case is actually a collection of three cases in which US companies have been sued for up to $400 billion for their role in allegedly promoting South Africa's Apartheid. The defendant companies include Ford Motor Co., General Motors, IBM, Hewlett-Packard, Citigroup, Bank of America, Exxon Mobil, and General Electric.

If your reaction is anything like mine, you may be wondering what these companies did to cause human rights abuses in Africa, and why on earth we haven't heard about their roles until now. (Hello, reporters?) The pictures in my head included bribes to corrupt officials, discrimination in their operations in South Africa, and other unseemly acts that I wouldn't even want to speculate about. Ah, but it's not that simple...

IBM, in its role to perpetrating the horrors of Apartheid, is alleged to have sold computers to South Africa that the government used to categorize its citizens by race. Ford and General Motors made armored vehicles which were purchased by the South African government. Banks provided funding to the government that allowed it to expand its police state.

Huh?

Yes, the plaintiffs' argument is akin to suing Apple for child pornography, because someone used a Mac to upload such offensive material to the internet. The plaintiffs believe that these companies knew their products were being used in the commission of a crime. But extending my Apple analogy, that could be said of almost any object that has been used in the commission of a crime. Auto manufacturers would be the most obvious target, because many crimes wouldn't happen if there wasn't a getaway car available. How about Cuisinart? They make knife sets, and I watch enough CourtTV to know that that's a pretty common weapon. I don't think I have to tell you that the gun manufacturers would be put out of business. We all know the roles that these objects have had in crimes in the past, so surely the companies who make them were put on notice that their products could be used again to perpetrate crime.

Aside from offending the sensibilities of anyone who supports capitalism or a free market, this case will set a very oppressive precedent. We know that China is one of the most expansive new markets for US companies. And we know China's human rights record.

At issue is whether the case should be heard at all. The court of appeals has already decided that the suit can continue, and now the government is trying to nip it in the bud at the highest court. This is the link to the District Court decision dismissing the case (which is a good place to start to see the background and law involved), and this is the link to the Second Circuit Court of Appeals decision overturning the lower court.

The law involved is the Alien Tort Claims Act, which is an 18th century statute designed to give access to US courts to victims of piracy and other illegal acts that actually occur outside the US. (You can read more about the ATCA here in an article that also offers suggestions about how companies with overseas operations can avoid ATCA lawsuits.) Here are some other places to find out more about the ATCA:

• The Alien Tort Act on Wikipedia
• Global Policy Forum - this site is a clearinghouse for articles on the web featuring the ATCA, including other recent cases in which it was used or interpreted.
• "Uncertain justice: liability of multinationals under the Alien Tort Claims Act" - a law review article written in 2002 (disclaimer: law review articles are not always intelligible to non-lawyers, attempt to read at your own risk).
• "Defend the Tort Claims Act" - resources from Amnesty International.

The Alien Tort Claims Act begins in 28 USC § 1350, which grants jurisdiction to federal courts over tort claims brought by a plaintiff outside the US based on a violation of a treaty or the "law of nations." The problem is that the plaintiffs do not allege that the defendants actually violated a treaty or international law. Their argument is essentially that the defendants should be held liable for all of the human rights abuses in South Africa because they aided and abetted in the government's activities.

Thus, this case has similarities to the scheme liability of the Stoneridge case that I have written about in this blog. This case will also prompt discussion of how the US manages its relations to countries who engage in human rights abuses. It would be unwise to continue to allow trade if it opens US companies to substantial litigation by the citizens of those countries.

To be clear, I do no advocate human rights abuses in any way. I was the president of Amnesty International in high school, I'm thrilled that Steven Spielberg quit his role in the Beijing Olympics, and I got giddy when I heard about Fidel Castro stepping down because I think human beings yearn to be free and I'm excited for all the freedoms that the Cuban people will (hopefully) soon experience. However, I do advocate common sense.

Common sense tells me that the people who are responsible for Apartheid in South Africa can mostly be found in South Africa, and that a multi-national corporation who sells a product probably does not intend for that product to be used in torture, murder, and the suppression of human rights. I believe that the people responsible should be brought to justice, but that justice does not include a $400 billion lawsuit against companies whose only "illegal" actions consisted of free trade.

Sorry, I'll get off my soapbox. Stay tuned, this should be interesting.

Marketing 101: Know Your Consumer

BW Online's article "Market Research on the Cheap" gives some great tips for beginning marketing. A lot of entrepreneurs simply assume that there is a market for their product, without spending any time really thinking about how to reach that market. But when some do think about marketing, they rarely have a lot of resources to devote to market research. Hence this article. This is a great foundation for developing a market research plan to better understand your consumers. And for those who haven't put a lot of thought into market research - I hope this convinces you to give it a try!

Working on your business plan?

If so, check out this page from BW Online. You'll find numerous articles on a variety of topics - for those looking for advice on getting started, for those targeting investors, and for those who need to improve their plan. Here's a summary of what you'll find:

"Begin with the End in Mind" talks about whether an entrepreneur needs a business plan in the first place. "Before You Write a Business Plan" goes back to some very important basics: testing your ideas and creating your business model.

"The Right Business Plan for the Job" discusses the various forms a business plan can take - from executive summary to the very complete operational business plan. "The Best Business Plan Tools" suggests books, websites, and other tools that are essential for writing a good business plan. "The 10 Biggest Business Plan Mistakes" lists ten areas where entrepreneurs could improve their business plan. "Impress Potential Investors in 12 Steps" suggests twelve tips to deliver an effective presentation to investors.

There's a lot of solid advice here. Enjoy!

Advice for the Board

BW Online's Armchair MBA has two interesting articles about boards. First, in "The Problem with Boards," the author discusses various ways that boards can go wrong. This article is essential for board members or those who advise and work with them. The article points out ways in which boards have improved since the Enron era, offers suggestions to keep boards operating smoothly (one great tip: come to meetings prepared so directors don't need to waste valuable time on reading material), suggests director skills and traits that can make a board more effective, and discusses the proper role of CEOs.

Second, the topic of "Getting a New Director Up to Speed" is pretty self-explanatory, even if the advice isn't. Many people assume that because a person is smart enough to be on a board, that person doesn't need any training. The problem is, new directors often get pushed off on the general counsel or secretary to learn various details about the company, but this "training" teaches them nothing about the dynamics of the board. Instead, a dialogue with the board's leader is the best way for a new director to become integrated.

Great Management Tips

BW Online (yes, they have become my favorite source) has a slideshow called "10 Tips for Engaging Employees." It is obviously important to motivate your team to produce on time and on budget, but these tips are simple things you can do to keep morale high. And as we all know, high morale will improve productivity!

Here are some of my favorites, and why you should do them: (1) Ask your employees for suggestions and help - it shows that you value your employees' ideas, and lets them feel some ownership in decision-making. (2) Act quickly in response to employees' concerns - this will demonstrate that you take them and their concerns seriously. (3) Say thanks for the little things they do outside of their job description, for excelling at a particular task, or for being consistently reliable - I'm sure I don't need to tell you why this works!

The Hidden World of Venture Capital

Okay, so it's probably not that exotic. But for inventors and entrepreneurs who are looking for funding, venture capital can indeed seem foreign. TheFunded.com is a website that allows entrepreneurs and others rate their experiences with venture capitalists. Registration on the website is free for entrepreneurs. You can read more about the site and its founder on BWOnline here.

The site looks a bit like a blog. Registered users can post "reviews" of their contacts with VC firms, and then others can check "Agree" or "Disagree" to show whether they had similar experiences. If you are looking for funding - and especially if you are new to venture capital - this is a great place to start. The VC firms are investigating you, and it's a good idea for you to investigate them.

Bookkeeping 101

I have had the opportunity to advise several entrepreneurs who are fairly new to business, and they were new to bookkeeping as well. Basic bookkeeping goes beyond purchasing Quickbooks, but many lawyers feel uncomfortable advising their clients on how to get started. This podcast on BW Online, called "Bookkeeping Basics", is a great solution.

Work-Life Balance

BW Online's Entrepreneur Journal has an article called "Custom-building a Life." Inside, restauranteur Jeff Weinstein talks about his struggles to find balance between his successful business and his family. He tried to make his work and family responsibilities fit neatly into a schedule, but as small business owners know, that is not always possible. After all, problems can arise outside of 9-to-5, and often you are the one who needs to solve them.

While I am certainly no poster child for good boundaries, I'd like to offer the following suggestions. First, of course, is to know when to delegate, and then do it. Entrepreneurs are so comfortable relying on themselves that they often mistakenly believe that they need to do everything personally. Instead, they need to recognize which tasks (most small tasks and some large ones) can be delegated to an employee or business partner. The measure is not whether someone else can do it exactly as you would, but whether they can do it competently. If they can, then stand back and let them do it. You may be surprised at their competency and innovation. The best part is, you won't be spending your Valentines Day dinner dealing with work problems.

A second, and related, suggestion is to recognize when something is an emergency. Part of this is learning to stick to a schedule. If you tell yourself that you leave work behind at 5:00 (or whenever you set your work hours), then that does not mean that you cannot handle emergencies as they arise. But it does mean that you should only be dealing with emergencies after 5:00. This is by far my biggest work-life balance issue, so I understand that your brain will not shut down at 5:00. But there are ways that you can minimize how much your work cuts into your personal time. If you get a brilliant idea during "CSI," then jot it down in a notebook. And leave it at that. You can spend time developing your brilliant idea tomorrow at work.

If your problem is that your work invades your personal time because you simply don't have enough time during the workday, then you need to deal with that issue. Perhaps you need to delegate (see above). Or perhaps you need to work on managing time better (that topic is way too big for this little blog post). If you can't delegate because you have no one to delegate to, then find help - whether it's relying on professionals to assist, or hiring a new employee.

I'm sure you can think of many reasons why you can't utilize this advice, and that's okay. But it's your life that your work is invading, and only you can put a value on that. And maybe that's where you need to begin.

Handling Product Recalls

This article on law.com discusses the need for good public relations in handling product recalls. The article is written for GCs, but the advice really applies to any company manager facing a recall. The author advises companies to have a plan in place in case of a recall, because the timeline is very short once a company learns of a problem. It is also useful to have a good product tracking system in place. These steps can assist a company, and its lawyers, in acting fast to respond to a concern, and can streamline a company's actions in those critical first days.

What It Means to Work Here

BW Online has an article from Harvard Business Online called "What It Means to Work Here." We all know that the greatest companies have the greatest employees. But the average small businessperson can't compete with Google's legendary offerings. This article recommends creating a "signature experience" - a distinctive practice that can make your company stand out. Does the future success of your business absolutely require that your employees be seated at their desks from 9:00 to 5:00? If not, why not build in a little flexibility? Can you offer telecommuting? Offering your employees a unique experience or benefit will help you to stand out, and will give you the chance to compete for talent with... well, maybe not Google, but you get the idea!

The Best and Worst Corporate Practices

BW Online has an article here featuring a slideshow with the 10 best and 10 worst corporate practices in 2008. Some of my favorites: employee-driven transfer policies, matching contributions, and subsidized public transportation for employees. Wondering how your corporate policies measure up? This article is a great checklist.

Stoneridge: The Finale

And we have a decision... As I suspected, and informally predicted, the Supreme Court has ruled in favor of the defendants, Scientific-Atlanta and Motorola, in the Stoneridge case. You can read the slip opinion here.

Business defendants in securities class action lawsuits have long felt that plaintiffs attorneys cast a wide net in naming defendants, hoping to find the deepest pockets in cases that seek joint and several liability. But wait - you say - surely a court won't hold businesses liable who didn't have anything to do with the securities fraud. Ah, but securities class action litigation is very expensive to defend, so most companies would prefer to settle rather than face those ridiculous costs. And if they're not named as defendants in the first place, then they can avoid paying large settlements when they did nothing wrong.

Makes sense, right? Except that the question of when one company can be held liable for securities fraud committed by another company does not have a simple answer. The Stoneridge case sought to clarify the category of liability for "aiders and abetters." But I better stop here, because I really just wanted to whet your appetite for the article I've been working on...

To read more about the decision, check out this article.

Tax time! (Almost)

Okay, I know we've got a ways to go until April 15th, as the -25 windchill reminded me this morning. But this is tax time because you are probably getting your records together for your accountant. In my experience, small business owners run the gamut in the complexity and totality of their record-keeping. From my perspective as a lawyer and tax preparer, the more the better. Write it all down and keep it for at least seven years. Better yet, write it all down, scan it, and keep it electronically forever. (And as a tax preparer, I ask that you put it in a spreadsheet. The shoebox full of receipts is so 1980s.) If you're not sure whether something would be deductible, keep the receipt and talk to your tax preparer. You never know what extra deductions your preparer can find, but I can't do much to help you if you didn't document it!

BW Online has their advice for small businesses, with Five Tax-Trimming Tips. The first is an important one - save your records. (See my note above about saving your data electronically.) If you're not sure what to save or for how long, be sure to ask your tax preparer. Second, make sure that you're using the best business entity for tax savings. Your attorney can discuss potential tax savings with you. Third, manipulate your income and expenses to cut your tax liability for 2007. Fourth, get your capital gains now - just in case the Democrats take the election. Finally, put more money in your retirement accounts to avoid paying tax on it now.

Venture Capital in 2008

The Wall Street Journal has run a few articles about how VC firms and other financiers may be clamping down a bit in 2008 (sub-prime crisis, fears of recession, etc.). If your company was counting on financing in 2008, you may want to check out this article by BusinessWeek online. BW interviewed a California VC firm, and they provide insight into the tech market, VC firms, and - most importantly - how you can catch the eyes of venture capitalists.

Time to Re-Write Your Company's Vision

BW Online has a great article called "The Napkin Test". The author believes that companies put too much effort into a wordy and quickly-forgotten mission statement. Instead, he suggests that companies focus on writing a powerful vision. The vision is different from the mission statement because it is concise and easy to remember. It should be 10 words or less, essentially short enough to write on the back of a napkin. (A little cocktail napkin, that is. If you can fit it on one of those huge linen napkins, then you're missing the point.)

When you're ready to sit down and write your vision, read this article first. Then you'll be ready to inspire your employees and customers!

Happy New Year!

Merry Christmas, Happy New Year! Yes, I took a break for the holidays, but now I'm back. Stay tuned for some new posts. I hope everyone has a wonderful 2008!