Posted January 26th, 2010 by admin
Venture Hacks has a good article on how to pick a co-founder. As you may see in another post, the best co-founder in my opinion is nobody. But if you do absolutely need a co-founder, go check out the entry, a few tips from which I’ve included here:
Three co-founders is too many
Think of Wozniak & Jobs, Gates and Allen, Page and Brin. Quick, now think of a trio…..See?
One person builds, one person sells
Don’t step on each other’s toes. And if you both do the same thing, do you need each other?
Don’t use the wrong shorthand to judge your tech or business partner
Titles or degrees don’t mean diddly in the start-up world. Have another tech person (or people) evaluate the coder, and likewise have some razor sharp business folks assess the business person.
Don’t settle
Sure, the process of finding your co-founder will be over, but you’ll regret it more with each passing day.
And perhaps their best tip:
Don’t hesitate to get someone who’s already committed to work on something else part time
Once yours takes off, they’ll drop the other one.
Article: http://venturehacks.com/articles/pick-cofounder
Posted November 19th, 2009 by admin
There’s a Calvin and Hobbes cartoon in which Calvin asks Susie if she’ll give him a nickel for eating a worm. When she quickly says yes, Calvin realizes that he could have gotten more, and asks for a dime. Susie says no. Calvin complains “Man, you’d think that a guy eating a worm could get a dime.” Unmoved, Susie replies “I got news for you. Guys eating worms aren’t the ones calling the shots.” (Apologies if I don’t have the quotes exactly right.)
How true it is.
It’s easy as someone starting the hottest new company to get carried away, and think that this opportunity is unlike than any other opportunity out there. Hey, this is the best process in the world to make flawless synthetic diamonds / teach people Mandarin Chinese in three weeks / increase fuel efficiency 50% – how could any investor pass it up?
Easy.
Really easy.
Easy peasy lemon squeezy.
Investors aren’t investing to make diamonds or teach people Mandarin. They’re investing to make money. Even if you have something really cool, there’s no guarantee you’ll actually make money, day in day out, from it. And then even if you do make money, how and when will the investors get their money out?
It’s a bit like that joke about the two campers in a tent. They have their shoes off, and they suddenly see a bear running right at them. One guy starts running, but looks back and sees his buddy lacing up his shoes. “What are you doing,” he asks. “You can’t outrun a bear!” His friend smiles, and replies “I don’t have to outrun the beat. I just have to outrun you.”
Investors don’t have to do better than your technology, they just have to do better than your return on investment, and there are lots of worm eaters out there.
Posted October 22nd, 2009 by admin
Let’s take a quick quiz on copyrights.
Question 1
You write a rhyming recipe book, indicate your copyright with ©, and register it with the Copyright Office. Someone then clearly takes one of your recipes and puts them in their own recipe book.
Has your copyright been infringed?
Answer
No. Copyrights, and patents and trademarks, for that matter, don’t protect ideas. In fact, there’s not a law in the country that protects ideas, only discoveries, techniques, and in the case of copyrights, artistic expressions. Your Avocado Meringue recipe has no legal protection as an idea. Assuming that the person who took your ideas didn’t also put them in a rhyming book, the format is now different, so they have not copied your expression. You have no case. It would be a different matter if they copied a whole collection or also copied your explanatory notes.
Question 2
You write a poem, and tuck it away. You don’t put © on it, and you don’t register it, you don’t even need to publish it. A year later, somehow your exact poem is published in a poetry book under someone else’s name.
Has your copyright been infringed?
Answer
Yes. Copyright protection exists the moment the moment you write your poem, song, story, etc. You don’t need to register it, you don’t need to put ©, you don’t need to do anything. So sending it to yourself in a sealed envelope (aka “Poor Man’s Copyright”) also doesn’t do much good.
The bottom line is that you’re covered for your artistic expression the very second you create something, and you don’t have to do anything at all. Copyrights registered after 1978 last for the author’s lifetime plus seventy years. Not bad for something that’s free, immediate, and for which you don’t have to do anything.
Fair Use
“Fair Use” is an interesting copyright concept. As a kind of exception to copyright, others have the legally defensible position of using parts of your copyright, with these factors considered:
1. The purpose and character of the use, including whether such use is of commercial nature or is for nonprofit educational purposes
2. The nature of the copyrighted work
3. The amount and substantiality of the portion used in relation to the copyrighted work as a whole
4. The effect of the use upon the potential market for, or value of, the copyrighted work
Thus if you’re using a small part of a copyright for an educational or parody usage, and you haven’t damaged the financial standing of the original copyright, you should be ok.
Here’s an amazing example of fair use. It’s a compilation taken from various animated Disney movies of the characters themselves voicing a script about fair use. Disney was a great choice because of their notoriously extraordinarily aggressive prosecution of intellectual property infringement,and their role in actually changing the copyright law to keep Mickey Mouse out of the public domain.
www.youtube.com/watch?v=CJn_jC4FNDo
Summing Up
Registering your copyright (www.copyright.gov) is still a good idea, though, as you can claim statutory damages and legal fees in a lawsuit. Of course you also have clear evidence of your creation and the date. The best news about registering copyrights is that it’s easy and only costs $35.
So go ahead and slap © on anything you want, and register the really important stuff.
Posted October 7th, 2009 by admin
A trademark is one of the most important things any company can own, and yet many people with new businesses know next to nothing about them.
Here’s what I’ve learned for my part, some of it painfully, but thankfully not fatally.
Trademarks are for phrases, names, and logos. The most important thing to trademark is usually your company name. If you haven’t already, do it immediately, it only costs a few hundred dollars to do it yourself. You can check to see if there are likely conflicts by searching the Patent and Trademark Office’s website at: www.uspto.gov. An an entrepreneur, this is a site you’re going to get to know quite well over time, believe me.
File the trademark for your company name alone. If you have a great logo, you can file for that too – but if you wind up changing your logo, then it’s no good anymore, which is why I always file for the name itself without a particular logo.
Also file of course on your tag line if it’s good and important, and major product names that you have. Several hundred dollars now can save you millions or bankruptcy later.
I like to do trademark filings myself and save on the legal fees, but I’ve been at this for a while.
TM vs. ®
Most people don’t know exactly what TM and ® signify. TM simply means that you claim rights in the mark. You don’t have to file with the Trademark Office to use TM. If and when your mark is officially registered with the Trademark Office, you can then use the federal registration symbol – ®. There’s no reason to not start using TM immediately without having filed anything or researched availability. Many people think TM means you have the mark, so it makes you look good to them, and to those who do know the difference, it still looks like you know what you’re doing.
Here’s the Trademark Office’s FAQ:
www.uspto.gov/web/offices/tac/tmfaq.htm
My Close Call with EZ Numbers
I got the EZNumbers.com domain name back in 2005, and didn’t file for the trademark since I didn’t think anyone else would. Last year I finally got around to it. My application was rejected in an “Office Action.” Ouch! The examiner cited the likelihood of confusion with another mark “Easy Number,” which had been filed after I got my domain name. Doh!
At this point, I had three choices:
1. Appeal the rejection.
2. Abandon the trademark and continue selling without it.
3. Change the name and try again with a new filing.
Changing the name would mean coming up with a new name, domain name, logo, new artwork in the application, etc. etc. I’d also lose the brand awareness I’d built up, and then for Google I’d lose the four years of history. Because Google relies in part on how old your site is, the newer the site the less likely you are to be found by someone doing a search related to your site. Plus I’m just too ornery to change the name, so this option was out.
I could forget the trademark and just keep using the name EZ Numbers, and hope nobody came after me. But what if a couple years from now, I got a letter from some lawyer stating that I had willfully infringed on their client’s trademark? I couldn’t plead ignorance since I’d filed and been rejected. This could easily drive me out of business.
I figured I had no choice but to appeal the rejection. I found a great consultant, who although not a lawyer, knows trademarks in and out. He had his own horror story from which he learned everything you could possibly know about trademarks. I hired him, and over a couple of months (you have six months to appeal) we worked together on the response.
I felt pretty good when I submitted the response. I submitted the appeal on a Tuesday, and on Wednesday morning the examiner called to say that if I’d accept a slight change in the description of the mark, one I had proposed in my appeal hoping that she would ok it. I was ecstatic! She had previously mentioned to me “multiple grounds for refusal” so I was surprised to get it overturned overnight.
I wasn’t out of the woods just yet, though. My trademark was now “Approved for Publication.” This meant that three weeks from now, the potential mark would be published for opposition in the Official Gazette. Then anyone who felt that the mark would infringe on an existing one would have thirty days to either oppose it or ask for an extension of time to oppose it.
If someone does oppose your mark, it’s basically a federal law suit in which you are the defendant, and this is the big leagues. You’re in it for tens of thousands of dollars at the very least, and easily millions.
Oppositions aren’t all that rare, so every day during the thirty day opposition window I checked my mail and uspto.gov to see if I had been opposed. Thankfully I wasn’t, and now EZ Numbers has ® following it. However, trademarks aren’t forever. Just like anyone can sue anyone anytime, your registered mark can still be challenged, but you’re far better off having it registered.
Trademarks are much easier and cheaper than patents to file yourself, so don’t put it off.
Posted September 20th, 2009 by admin
There are many good articles about patents, so I just want to address what I think is the biggest misconception I’ve heard from entrepreneurs. It is:
Once I get a patent, nobody else can sell my product.
Would that the world were so simple. A lot of entrepreneurs have unrealistic expectations surrounding patents.
One fine day I was looking through a catalog that had my patented product featured on page 12. On page 18 there was an identical knock-off of my product that was selling for half the price. How could they do it? I had a patent for Pete’s sake.
The company that had knocked off my product was called, let’s say “Rat Bastards.” I called them and asked what they were doing. They replied that they had engineered their product to have one difference with our patent application specs. We said that we didn’t think it was a sufficient difference, and that we would likely sue them. We also said that we’d tell the catalogs that they had infringed on our patent, and that the catalogs should stop selling the knock-off due to potential legal concerns. At that point Company X told us that they would sue us for making false accusations!
We consulted with several intellectual property attorneys. Even though they were “contingency based,” they all wanted significant deposits. The bottom line was that Rat Bastards had cleverly engineered around a design issue. We’d likely eventually prevail in court, but like most things, it wasn’t about right and wrong, it was about what made sense.
And that wouldn’t have been the end of the legal costs. There isn’t a magic Patent Fairy who magically stops all infringing products when they arrive in port. First you have to know when they’re arriving, and then be present to have a hearing in that jurisdiction to stop them from being imported.
Then of course we had to consider the ramifications of a lawsuit that we’d bring against another company in a major catalog, with whom it was critical for us to maintain a good relationship.
After considering all the costs, hassles, and potential damage to our distributor relationships, we decided not to sue. Instead, we went back to the catalog, and told them that since we had just reduced our costs, we could pass along a lower price, and asked if they’d help us out, since we were the original. They agreed to drop the other product.
In the end, it didn’t matter that we had a patent. Indeed, we learned that Rat Bastards’ strategy was to find cool products, research the patents, then take advantage of any design modifications that companies had done in the two years since they filed for the patent, and then design their own knock-off to exploit the difference! So in our case, having a patent granted actually created a competitor.
Does having a patent help? Most of the time, absolutely. And being able to tout “patent pending” in your marketing materials always helps. But simply getting the patent doesn’t mean your new address is Easy Street.
Posted July 30th, 2009 by admin
You have a hot shot attorney. The kind that can get the major players in your industry on the phone. He/she knows the basic terms of the most recent industry deals, and is a fearless negotiator. Folks aren’t happy to get letters from them on the fancy letterhead with all the partner names. So when the time comes for you to make a deal, you should let sick your big gun on it, right?
Not for my money.
Don’t get me wrong, this article is not about lawyer bashing.
But there’s a time and place for lawyering, and negotiating ain’t it. Lawyers, as smart as they usually are, aren’t business people. That’s what negotiations are about. Business.
You should determine the terms you want / will accept, as well as the tone that should be used throughout the negotiations. It’s fine to hand things over to your attorney once you’ve decided what needs to be done, but letting them run that show usually isn’t a good idea.
Lawyers are trained to have a very different mentality. They anticipate problems, consider contingencies, etc. All too often, they feel like they’re earning their keep by being the tough cop who tells the other party no. On the other hand, since they’re paid by the hour, some lawyers have been known to manufacture problems to actually draw out negotiations because that’s where they earn their money.
The best course is for you to decide what you want from an ongoing relationship and current negotiation. What I like to do is take the initiative and make a bullet point term sheet, as it helps steer the negotiations. Then have the other party draft the first pass at a contract, and save on your legal fees. Then have your lawyer review it.
I always have attorneys review contracts, but I don’t let them drive the bus.
If you do it this way, you’ll likely not only save the money, but often enough, the deal itself.
Posted July 27th, 2009 by admin
How many times have you seen (or written!) something like the following:
“Based on our revolutionary technology that offers five times the current industry standard performance at one tenth the average price, we predict that by Year 3, we will capture 20% of the $2 billion worldwide market.”
This is what I call the “If we only get 2% of China” fallacy. And it’s an obvious “tell” that your business plan assumptions are either naive or glossing over exactly how you’re going to get your customers.
Yes, if you have better technology at a better price – and have the ready access to distribution, you may well capture 20% or more of a given market. The point, though, is that this magic 20% is not just going to fall into your lap. You have to fight for each and every sale, and what’s more, the more of the market you capture, the harder your existing, and future competition, will fight to regain it. This is “top down” forecasting.
Far more effective are “bottom up” projections.
Describe how you’re going to get each sale, what your revenue is, and what your costs associated with each sale are. Then address issues of scaling – meaning as you ramp up to greater and greater volumes, will you have capacity issues of personnel, equipment, bandwidth, etc. That’s what a business model is.
Use overall market size to show how attractive your industry is, and what the potential ceiling for your revenues might be, then a granular business model analysis to show how you’ll get your customers.
Nobody really cares what percentage of the market you have, just how many profitable customers. So instead of focusing on a percentage of the market, focus instead on a percentage increases you’ll have in terms of sales, then convince investors that you’ll hit your targets. Start from the bottom and go up, and you’ll have a better chance of making your bottom line.
Posted July 13th, 2009 by admin
I’ve seen umpteen business plans / prospectuses / PPMS and the like where the Use of Proceeds earmarks a full competitive salary for the entrepreneur(s) and also repays them what they’ve put into the business so far. Ask the entrepreneur about this, and they’ll usually say something along the lines of “I’m taking so much risk already not working for a large company, I can’t afford to take a hair cut on my salary when I have a mortgage and kids.”
The world doesn’t care about your expenses – but investors do.
Unless you’ve already been so successful in the past that investors are beating a path to your door, you’re not doing investors a “favor” by “allowing” them to participate in your business. And if you do have investors clamoring to get in on your new opportunity, chances are that you’ve already made so much money that you don’t need investors, and choose to not have them to begin with.
Your new company is not you, and it doesn’t owe you more than the lesser of:
1. What you’re worth
2. What the company can afford
You don’t start a new company for security, you start it because you’re confident that before long your hunch will be proved right in the form of a rapidly growing list of happy customers.
If you don’t have your own skin in the game – what’s to stop you from stopping when the going gets tough? You can simply walk away at any time, no worse for the wear. And where’s your commitment? If you don’t believe so much in what you’re doing to go without salary, bloat up your credit cards, take out a second mortgage, drive a beater car, etc. etc. then why should anyone else?
The best signal you can send to investors, employees, and partners, is that you yourself are personally financially committed to your new business. You tell people that you’re committed, but they hear that all the time and tune it out. Show people that you’re truly committed – that you’ve burned your ship after landing on the island, that you’re the pig whose bacon shows commitment in the breakfast as opposed to the chicken whose eggs shows involvement – choose your metaphor, and you’re halfway home.
Posted June 17th, 2009 by admin
I’ve been involved in lots of start-ups, and seen many more over the years. From my successful and tragic experiences, I’ve decided that if I can do without three things in particular, I’m off to a good start.
No Partners
If you’ve had a business partnership go south, you know just how bad it can get. Shouting matches, competition for clients, lawsuits, you name it, they all happen when a partnership blows up. It can be worse than a messy divorce, because unlike most divorces, it’s your income that unravels.
But even if you get along fine with your partner, and you trust them, they work hard, and they’re a credit to your business – even with all that, you can easily have an honest disagreement about where to take the company. That can be the most frustrating situation of all. Everything is perfect except for your goals.
No Investors
You’ll never have a better relationship with an investor than on the day they invest. After that, their primary thought is not on growing the business, but exiting the business. And unless they invest more money, they’re now a constant weight on your honor and company reputation. They can launch shareholder suits in bad times, and in good times, be a frequent distraction from your core business by making you create reports, hold meetings, etc. And that doesn’t count all the time it takes before they actually write you a check.
No Products
If you haven’t dealt yet with Chinese factories, cargo ships, customs inspections, distributors, retail returns, etc. and you’re about to – go in with your eyes open. Having done this, I know all too well many of the pitfalls that can happen at any stage. Maybe your factory announces in the middle of a production run that your cost has just doubled. Or you’ve missed your ship date and you’ll be late by three weeks. Perhaps in your arrival port you finally discover that your units are faulty. Or your big box store’s return rate is just high enough for them to send you back all your remaining units – in boxes marked for them. I’ve had these, and many other problems, happen to me. And there are plenty more.
What Does That Leave?
What kind of business has no partners, no financing, and no products? Service companies that you grow slowly. Websites. Software. Many others. If you can possibly avoid the biggest business nightmares which are caused by partners, investors, and products – you’ll never know just how fortunate you are.
What If I Need Partners, Investors, and/or Products?
Sometimes you can’t help it, because that’s just how your business is. Here are some ways to mitigate common problems:
Partners: Spell out clearly, and put down in legal agreements, the percentages of ownership, responsibilities, authority, work load, work hours, etc. Get impartial Board members. Have explicitly stated procedures upon dissolution, and death of one of the partners. Agree to what the company is about, and specifically, how you will allocate resources over the next year, so that on a daily basis, it’s not about one partner effectively changing the company, but simply about execution.
Investors: Set reasonable expectations for the company’s performance. Discuss how and when you plan to get the investor their money back, and what kind of return is expected. Most entrepreneurs have little idea how to repay investors. Have clear bylaws as to what rights investors have, and conduct regular Board meetings.
Products: If possible, go with a product that you can put 100 of on your kitchen table – small and light. Research patent prior art thoroughly. Have a back-up factory lined up in case your primary factory goes out of business or becomes impossible to work with.
Easier said than done, I know. But nobody said that buying that private island in the Pacific was going to be easy. Thousands of people succeed in new businesses every year with partners, investors, and products – sometimes they get lucky and things work out really well, other times they just have to work harder.
Posted May 22nd, 2009 by admin
In case you haven’t heard the phrase “done deal,” it’s used to mean that an agreement with someone, written or otherwise, is all but signed or shook on. (For now, let’s assume that “signed” also means agreed upon formally when there is no written agreement, as verbal agreements can be binding.) It implies that the agreement will in fact occur, and it’s now just a formality, there’s nothing to worry about whatsoever.
When people believe it to be the case, they’ll start acting like the contract is signed. They’ll start purchasing equipment, hiring employees, putting out press releases, making travel plans, buying houses, etc.
There’s only one problem – there is no such thing as a done deal. There are but two kinds of deals in this world:
1. Signed
2. Nothing
Far too many times have I seen deals that were “99.99%” locked up, with contracts agreed to and everyone on board still go haywire at the last minute because a company is bought out, someone resigns, someone else wants more money, an investor’s accountant changes the investor’s mind, the other bidder ponied up more money, some technology stopped working right, etc. etc. etc.
That’s why signing the contract isn’t the last little bit of formality, it’s the only thing that matters, because without it, nothing else counts. Don’t count on any deal until it’s signed. Even then lots of signed deals go south, so until you get the money, you just never know. The one thing I do know is that when someone tells me it’s a “done deal,” all it means is that they haven’t been burned – yet.
