Are you guys a scam?

How much are you willing to risk to make your company a success?

Investors call it “skin in the game”, others call it gambling, I call it rite of passage. Risk is an inevitable part of entrepreneurship. You risk your money, time and ego whenever you sign your name as founder. You needn’t risk unnecessarily, but at some point or another, you’ll need to step out and take a leap of faith that your ideas, assumptions, abilities and team are enough to pull you through.

Every opportunity is accompanied by a certain amount of risk. Investing money into a marketing campaign means you might lose it all. Hiring a new employee means you might hire a lemon. Making a sales call means you might get told no.

But what if you never took any of those risks? . . . Could you even stay in business?

So risk it. Step out. Risk getting laughed at. Risk losing money. Risk that prospect rejecting your offer. No matter what happens, you’ll be glad you did.

Trivia question for you.  Is the car on the left a Honda, Toyota, Subaru, Suzuki, Chevy, Ford or VW?  Answer, it’s none of those, it’s a Scion.  Don’t feel bad if you didn’t get the right answer either, like you, almost every new car looks the same to me too.

This weekend I had the opportunity to attend the 2009 Utah International Auto Expo and boy was I disappointed.  With the exception of the hood ornament, just about every car looked like the other. Seriously, how many shades of silver can an industry turn out?

When the Detroit automakers went to congress with their hat in hand, I for one was not surprised.  Did you know that the Big 3 average less than $2,000 profit per vehicle?  That represents less than a 5% margin and I don’t know a lot of companies that can operate long-term on those kinds of margins.  Bloated overhead, a history of producing inferior products and (for me) a lack of imagination are obvious warning signs that the Big 3 have been running over and over for the last 25 years.  Is all lost for Detroit?  I don’t think so, but a return to earlier roots would certainly be appropriate.

The best part of this years car show was the “classic car corral.”  Mustangs, Corvettes, GTO’s and other trophies from Detroit’s glory years were on display.  Looking at these “classics” I found myself wondering what happened to those innovative car designers and what their thoughts would be on the this years Ford Fiesta? How these brilliant minds became replaced by todays cookie cutter designers is a mystery to me that I doubt I will ever understand.

The problem with Detroit and other established businesses is that you can’t fool the public for long.  New Flash: When you belong to a company that prides itself on mediocrity, it shows!  It shows in the design, the packaging and the imagination (or lack thereof.)  We “know” when you don’t care. Don’t believe me?  Take a seat at your local DMV for a heaping bowl of stale mediocrity. Yeah, the DMV really has your best intentions at heart…Now serving number two-four-nine at station twelve…”

The best of the best are always looking for ways to define and then re-design themselves.  Nike, Apple, Coke and McDonalds spend millions of dollars each year refining, designing and expanding their brand.  If you don’t have millions of dollars to spend, try spending just a few minutes of time imagining the possibilities and then make it happen.  At Funding Universe we challenge you to dream, to scheme and to use your imagination to grow and innovate.  For those of you who find that task too daunting, may I suggest taking a test ride in a 2009 Chevy Cobalt. For guys like you, it comes in 17 shades of silver.

Joel Nielsen is a Venture Consultant at Funding Universe.  He can be reached at jnielsen@fundinguniverse.com

To be successful you MUST share the misery!  Yes, you heard it here folks we strongly believe in handing your problems off to everyone else.  Isn’t this the kind of advice that you have been waiting to hear?  Well it’s kinda true actually.

If you have ever worked as a small business owner you are very familiar with the fact that work never starts at 8 and ends at 5.  Owning a small business is a 24 hour comittment which means that we NEVER stop thinking about it.  Over time, this constant focus on profitability and success can take an ugly toll.

The other trait that many small business owners have is a reluctance to lean on outside help.  Afterall, your business becomes like a member of your family and who in their right mind would leave their own baby with a complete stranger?!?  Unfortunately, this kind of thinking is flawed and can lead to burnout, frustration and office rage (for example, it’s a really bad idea to whack your computer monitor. See here for more on that!)

As a Type A personality myself, I often had a “go it alone” mentality that served me well, until graduate school.  It was in my MBA program that I finally had to come to grips with the fact that there weren’t enough hours in the day to micromanage every one and every thing.  It was a hard habit to break but in the end I learned that there are a lot of  talented people who can produce phenominal results if you trust them and more importantly empower them to do it “their” way.

Brock Blake, the CEO of Funding Universe learned this lesson at a much earlier age than I did.  Early this month he sat everyone down and challenged us to elimate costs and improve profitability.  In a matter of hours thousands of dollars were eliminated from our overhead.  New ideas and strategies were put into place and a feeling of ownership was felt up and down the hallways of our office.  Funding Universe is “my” company. No good idea is ever turned down and often, good ideas are tweaked into GREAT ideas.

Again, this leadership style comes with a severe warning.  If you give power to your employees to solve problems, you must do it with the full faith and confidence that they will come through for you.  If you give power and then pull it out from underneath them you will damage credibility forever.  Trust but verify, guide but empower.  If you view each of your employees as problem solvers versus problem causers you will find small business ownership a constant delight!

Joel Nielsen is the Director of Debt Services for Funding Universe.  He can be reached at jnielsen@fundinguniverse.com

Every year, millions of people buy a lottery ticket in California. Millions believe that maybe, just maybe, they’ll get the winning ticket. In other words, millions of chumps spend about $10 for a <1% chance of winning money that most winners squander within a few years of winning.

Sometimes, one very lucky guy or gal is right. Millions are dead wrong. But every one of those lotto players are convinced to at least the amount of about $10 that they’re the exception. Likewise in business, some people say, “I don’t need a business plan.” Others, “I’m not the sales type.” Baloney!

There’s a dangerous habit of thinking that gets people in trouble. I call it “exceptional thinking”.

Exceptional thinking is when you think you are the exception to the rule. When you think that you’re different than every other person who has walked on the face of this earth. Sometimes it comes out as a pessimistic thought (e.g., “I could never do what they do.”), and sometimes as an overly optimistic thought (e.g., “I don’t need to eat lots of fruits and vegetables to stay healthy.”). Either way, it’s bad.

Have you seen those posters with a breath-taking photo of a mountain or a great sports feat bordered in black and inscribed with an inspirational quote? There’s a company called Despair, Inc. that makes posters after those style of motivational posters minus the motivational part. My co-worker dedicated a poster to me that sums up what I’m saying perfectly. Click here to view it.

Yes, we are all born with unique talents and strengths. And, yes, we should focus on our strengths, but that doesn’t mean that we can dictate which side of a statistic we’ll fall on or that common human foibles don’t exist in us. The good news is that also means there’s rare occasion when someone succeeds beyond any level we could reach. Basically what I’m saying is we all play by the exact same rules.

Tiger Woods Isn’t Deity

If I’m writing an article relating to success, I have to include the obligatory Tiger Woods reference. Tiger Woods wasn’t born with a golf club in his hand. He may have started at a young age or have natural talent or be the ideal height or wear special underwear, but whatever the advantage, it wasn’t gifted to just Tiger Woods.

We may not all have equal opportunities, but anyone able to read this blog post has opportunities, and I would aver, enough opportunities to be a really successful entrepreneur.

No one is so special they can’t copy what worked for someone else and get the same result. You can be salesy enough to sell your product. You can take your company public. Just do what other successful people did.

The hopeful truth in that last paragraph leads me to my next, more discouraging point.

The Corollary: You’re Really Not That Unique

People often tell me how they work better by procrastinating and then scrambling right before a deadline. I also hear how some people forget things they write down so they don’t write them down to remember them or how the less they read, the wiser they are. Sure, you have unique strengths, but come on . . .

In our business, the most common is the guy who won’t listen to our business advice but wants us to connect him with our investors anyway, no matter how unprepared he might be. He has the next “multi-zillion dollar idea”, but his business plan consists of a hand-written diagram on a stained piece of paper. We have a business plan review process in place and we provide consulting services to entrepreneurs in his position, but he insists he knows better than we do. It’s tempting to believe him and give him a chance, but every time we have, it’s led to embarrassment on our side and theirs.

It seems that the one thing everybody who’s “different” has in common is an unwillingness to accept the need for change. Instead of acknowledging their deficiency, they insist it’s a special, unalterable endowment. I guess that’s a more comfortable perspective. You can recognize people with this attitude by their mantra: “But I’m different!” If you notice yourself saying that, slap yourself on the spot.

There’s Hope

Luckily, because we’re all uniquely similar, there’s a common principle to success. It’s called humility. It’s so refreshing to talk to an entrepreneur who’s not discouraged by the daunting journey to fundability and yet not over-confident in their ability to shortcut it. If you are humble enough to accept that you might need some help and willing to give it all you’ve got, we can help you. If not, here’s my guess at the lottery. I’m sure it’s as good as any: 4 8 2 9 2 3

It’s 2009! A new year means New Year’s resolutions. People are settling down from the rush of the holidays and starting to think about how to make this year better than any year before. For some that means a smaller waistline, for others it means taking the entrepreneurial plunge; jumping off the corporate ship and braving the waters of capitalism.

We love this time of year because we service the surge of the latter. January brings throngs of people freshly committed to starting their own businesses and racing to find capital. We love the excitement and are glad to see so many dreamy-eyed business people setting out to change the world. We’d also like to offer some advice to eager entrepreneurs on how to avoid becoming one of the SBA’s 98% statistic who fail within the first two years.

Check Your Motives

Why do you want to be in business for yourself? Your answer to that question will help you know on the outset how likely you are to succeed. Starting a business isn’t easy. Sure, it carries the potential of doing what you love but it also carries a lot of risk and can mean doing a lot of things you hate.

Say you’re a graphic designer, for example, and you want to design logos for a living, it might seem logical to start your own logo design business. You register a domain, print some pretty business cards and . . . now what? After about a month of learning about marketing and sales, you land your first client. Six months go by and you’ve got several clients, accounts receivable, several marketing channels to manage and a bunch of other administrative functions you wish you never spent time on.

Or, maybe you’re an inventor/programmer and you just invented a new search algorithm that’ll put Google out of business. You register an LLC with the state and start driving traffic to the Linux box in your basement over your residential DSL line. Everything goes great until your webserver crashes from too many concurrent users and Google’s lawyers send you a letter for your overlooked patent infringement.

OK, maybe the examples are extreme (particularly the latter), but the point is that owning your own business isn’t just about doing the one thing you love. Entrepreneurship involves turning what you love into a duplicable process, and if that doesn’t sound appealing to you, you may be better off working for someone else. But don’t get discouraged, if you’re doing what you love there’s nothing wrong with doing it under someone else’s umbrella.

Expect Lots of Sacrifice

What your mom told you a long time ago is still true: nothing worthwhile is ever free. You definitely can have a successful business. You definitely cannot have a successful business without sacrificing a lot of time, money and energy.

Face the fact upfront that starting a business is hard work. If you have a family, you might need to start scheduling time with them a week in advance. If you have other commitments, scale them back. There are exceptions, but realize at some point you’re going to be asked to give up something you don’t want to in order for your business to thrive.

Embrace Setbacks

Failure is a natural part of the cycle. You’re going to make mistakes, lots of mistakes. You’ll make large, costly mistakes. You’re going to embarrass yourself publicly on more than one occassion. Bad things will happen that will be out of your control. It’s all OK! Learn to love the setbacks.

If you ask ten people if they agree that failure is a good thing, ten people will tell you, “Yeah, ’cause you can learn from it.” Well, if it’s good, then the more often the better, right? Well if you count how often those ten people have failed, you’ll see that some of them aren’t drinking their own tonic.

As long as you’re not making the same mistakes over and over again, failure is a precursor to success. Whether you caused the problem or it was out of your control, there’s always something to learn from every failure so it shouldn’t be avoided, it should be embraced.

Every time something bad happens, you’ll learn a little more. After years and years of failure, people will call you wise and you’ll realize how all the setbacks were worth it.

There you have it, candid advice to keep you afloat. If we haven’t dissuaded you from your goal to be a business owner in 2009, good, ’cause we’re cheering for your success. Here’s to a prosperous 2009. Go to it, newly anointed entrepreneur. The free market is waiting for you! And if you want some help with getting the money to get going, give us a call.

On my way to work this morning, the AM radio talk show I was listening too was bemoaning the news that another local company was “releasing” 500 workers from its ranks.  At first the news was upsetting because I feel bad for anyone who loses their job, particularly around this time of the year.  It was also a double shot of reality as I found out yesterday that one of the local flower shops in my neighborhood was going out of business after many years of service.  For the first time, I am seeing the very real effects of a down turn economy.  You may have a brain seizure when I tell you that this is going to be a good thing… in the long run.

I was a high school senior the year Yellowstone National Park caught fire in 1988.  I remember returning a few years later to see for myself the absolute destruction that this fire wrecked on that beautiful park.  I truly believed that in my lifetime, Yellowstone would never be the same. As it turns out, I was both right and wrong.

It’s been 20 years since those fire raged in 1988 and even today the scars are painfully visible.  Amazingly, it has rebounded better than I ever thought possible.  It has been well documented that even though the tremendous heat from those fires consumed anything and everything in its path, it also forced the pine cones to loosen their grip on seeds tucked neatly inside and in essence re-fertilized the soil again.  Wildfires are Mother Natures way of cleaning house.

Depressions, recessions and down turn economies are also wildfires in a sense.  They cause a lot of destruction.  Businesses are forced to evaluate, cut back and streamline.  Profitability values are assigned to products, services and painfully, employees.  Despite this, I strongly believe that these painful choices are a good thing in the long run, even a GREAT thing  Follow my logic here.

It has been well documented that more millionaires were created from the smoldering ashes of the Great Depression than almost any other time in American history.  Like the wildfires of Yellowstone, it’s a painful, somewhat expected and amazing phenomenon.  When you take an average American worker, pull the rug out from underneath them and then hold their feet to the fire, something magical happens.  Inevitably many will choose to take fate into their own hands and become entrepreneurs. 

I predict that some of the greatest inventions, products and services that we will see in the next five years will be born out of this current economic down turn.  We are seeing many of them at Funding Universe right now and many of them will tell you that it took this boot to the shorts to find the courage necessary to TRY.  If you happen to be an unfortunate casualty of the current economic crisis, I am truly sorry AND excited for your circumstance.  I challenge you to seriously take a moment to ponder your situation and do some soul searching to see if there is an entrepreneurial spirit in you.   Is this your time?  If it is, feel free to contact Funding Universe to see what we can do to make your dreams a reality!  Friends, this is a GREAT time to be alive!

Joel Nielsen is a Venture Consultant at Funding Universe.  His email is jnielsen@fundinguniverse.com

I know your wondering where this is going, don’t worry that is as crude as it gets.  What I really want to discuss is valuation, who decides and how you decide the post-investment ownership of your company.   Note, that this is a discussion of the reality with my personal opinion regarding the ideal.

In the down market or today Valuation has become of particular interest to both the entrepreneru and the investor.  The facts are these;

1. Down markets give investors stronger leverage in the valuation category because cash is king and credit is hard to come by. so expect investors to negotiate a little harder for lower valuation in order to capture a bigger piece of cheese.

2.  This necessitates a little more negotiating on your part.  Make sure you can clearly show the value of your company, look at everything that could create potential value and make a good argument for it.  Remember although you want to be a good negotiator, don’t let it be a deal killer.

3.  Don’t worry too much about equity portions, worry more about being selective with who you choose to partner with.  If you can get smart and freindly money, then it wont matter if they have 49% equity.  On the ohter hand if you get dumb and controlling money the 10% they take will be a burden you will hate to bare. So focus on partnering with the right people that have similar goals for your company, in the end you both will be happy regardless of what you give up to begin with.  One caveat here.  Smart investors don’t want controlling interest.

4.  Be smart about who you choose as legal council for the transaction.  don’t get firm that wants to control the deal, rather find someone who can give you good council and then move forward with whatever decision you make.  A lot of bad deals are written by lawyers that think there way is the only way.

In summary don’t make too big a deal about who cut the cheese, just make sure the relationship is founded in mutual goals so that when you do smell something displeasing you can work together to air things out.

This morning started with a great visit to a local Angel Group’s monthly meeting.  I always enjoy seeing companies pitch to investors and am especially intent on observing nuance, which tells so much about what the investors are looking for.  I would like to share some of those observations today that may help entrepreneurs gain a more intricate insight into preparation for a fundraising pitch.

Observations:

1.  Without fail the first question after every pitch was calculated to determine the details of the offering. i.e. pre-money valuation, percentage of ownership offered, preferred or common stock, liquidation preferences etc.  I will let you draw your own conclusions but I think this means it is important to the investors.

2.  The company that received the most interest did so in large measure because of the dynamic character of the CEO.  Though the business model, market, financials, deal, traction etc. was all in order, it was the leader that created the buzz.  I heard private discussions such as “I like this guy” and “This kid knows his stuff.”  Oddly enough, the CEO of this company was the youngest of the five presenting.  

3.  One particular turn-off to the investors was either the total absence of the CEO, which happened in one case, or when the CEO deferred to a present or not-present CFO for answers on valuations, deal terms, or financial projections.  In short, the CEO must be present and he should be able to answer all the important questions.

I will leave you to draw the conclusions hear. I think it sufficient to say that it is difficult to understand everything an investor is looking for unless you can get the input of someone who sees it all the time. (shameless plug)

FundingUniverse wants to help you improve your business proposition to an investor. The best way for us to do this is to actually play the role of the fund analyst.  The only real difference is we will actually provide you with constructive feedback, advice and consulting on how to make your proposition effective and attractive, rather than throwing it in the trash and never even replying to your email or phone call.

So here are a few things to understand about an investor and therefore what to expect as a client.

1.  Investors won’t read your 25+ page business plan and neither will we.  Rather we will help you carve it down to a direct and compelling document that is simple to understand and easy to digest quickly.

2.  Investors want to see your executive summary first, if you cannot convince them you are worthwhile from the Exec. Summ. then your business plan will probably just bore them. We will help you condense your plan down to the most critical material then it will be a simple process to add to it and make a good business plan.  This is much easier than reading your doctoral thesis and trying to find a few nuggets.

3.  It is best to get refered to an investor instead of spaming the transum with your B-plan.  We will help you understand the strategic and proper way to contact an investor.  Believe it or not you are probably only 2 and maybe even 1 relationship away from a funding source if you just took the time and worked strategically to tap your network.

4.  Investors are not evil but, they are in business to make money.  if you do not understand the details of deal structure, the terms of the deal and equity finance generally, you stand the risk of getting the raw end of the deal or loosing the opportunity to negotiate a better deal for you.

So, before you go looking for Venture or Angel funding, let us play the part of the fund analyst so you don’t have to face a barrage of rejection with little (or more likely) no feedback or response.