11 Financial Mistakes – Part 2

By Trishan Arul    October 28, 2009

This is Part 2 of my post on Top 11 Mistakes that Ruin Entrepreneurs. Part 1 covered the first five items. “Ruin” may be overly dramatic but even businesses with solid underlying fundamentals can be ruined if you make enough of these mistakes.

6. Creating the wrong business structure – One of the first things you should do is to determine what business structure you need. Common choices are: sole proprietorship, partnership, LLC, and Corporation (both S-corp and C-corp). Take into consideration compliance work, cost, legal liability, employee issues, and taxation. There is no right form of business for every startup. In most cases you can switch forms down the road but the hassle and costs can be significant. I’ve spoken with many entrepreneurs who have spent thousands of scarce dollars to form a corporation which they didn’t need. This is a huge topic which I will address in the future but some resources can be found at my colleague Richard Greenberg’s Seedport website – he does that stuff for a living so if you want help, I recommend him!

7. Having employees without realizing it – Despite what some people say, there is no black & white line between being an employee and a contractor. The IRS provides some general information and even has Publication 1779 devoted to the topic. In general, the more control the business exerts over the work and finances of the person, the more likely they are to be classified as an employee. Penalties for incorrectly classifying an employee as a contractor are severe: the employer has to pay all of the payroll taxes (employer & employee portions), all of the income taxes that should have been withheld, and penalties. That can add up to 50% or more of what you paid the person. While classifying someone as a contractor may seem easy, it could cost you dearly down the road. Payroll is a huge headache which most people try to avoid but there are many inexpensive payroll solutions which can make it painless. So, no more excuses not to do it right.

8. Not opening business accounts – This ties in with #5 in Part 1 about Mixing Personal & Business Funds. At a minimum, you should have a separate bank account and credit card for your business. Most likely, you will have to personally guarantee the credit card but that shouldn’t prevent you from opening the account. Not only does it help you to separate business from personal transactions, it also allows your business to build a credit history. That will be important as you try to open accounts with various vendors for office supplies, cell phone service, computers, etc. Whenever you have the option, open an account under the name of the business so that when you need credit it will be available.

9. Funding the business with credit cards – Even after Congress acted to ban the most blatant abuses of the credit card industry, they are still a double edged sword. Credit cards are useful and often necessary to make many regular purchases, especially online but they also offer very expensive credit which is all too easy to abuse. If someone offer to lend you money at 20% interest, you’d probably consider that loan shark rates and immediately turn them down. Yet many small business owners pay more than that to their credit card companies without even thinking about it. Usually it starts out with small balances carried over so that you can meet payroll or conserve cash. But very quickly people end up reaching their limit, unable to pay off the balance, rolling it over month after month, and transferring balances to other cards. And when you depend on the credit card, it can really hurt if it gets cut off as many entrepreneurs have recently discovered.

10. Accounting without a shoebox – Handling your business finances with a shoebox isn’t recommended either! But many entrepreneurs don’t even bother to collect receipts, bills, statements, etc. in one place. They just ignore the accounting and money side of the business because its a hassle and there are so many other things to get done. Plus most people don’t like accounting so they avoid it as much as possible. Aside from never really knowing where your business stands financially, you will eventually have to figure it out. And when you finally try, it will be the nightmare you were dreading – we routinely spend months with new clients just trying to sort out their historical finances. If you’re separating your finances (Item #5) and keeping separate accounts (Item #8), then accounting doesn’t have to be difficult. Sign up for some of the free online services to make your life easier. Some websites that I recommend are Outright (which is designed with businesses in mind and can even sort expenditures by tax line) and Mint (which is geared to individuals but the importing and classifying features are great).  And if your business is large enough, then consider hiring a professional to handle the accounting – a good accountant will not only keep your books in order but they will become a financial partner and trusted advisor helping with many other business matters.

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11. Not paying your taxes - I had a tax professor in university who used to say that you always have to pay your business partner… the government! Unfortunately, its true. This may seem simple but there are many layers of taxes that need to be paid: local property taxes, local payroll taxes, withholding taxes, FICA, income tax, etc. Its not uncommon to find businesses operating on a shoestring who decide not to pay some or all of them. This can lead to significant penalties down the road. One popular misconception is that you only have to pay income tax when you file your tax return. In reality, everyone has to pay income taxes throughout the year – employees get taxes withheld from paychecks but businesses need to make quarterly estimated tax payments. If you fail to pay the lesser of 90% of the taxes due or 100% of the prior year taxes by December 31, then you can be assessed penalties. And if you handle your own payroll, not remitting payroll taxes (employee withholding) is a serious crime with penalties to the INDIVIDUALS responsible (yes, even if it was a corporation) of up to 100%. Like credit cards, many businesses fall behind and think they will make it up later. If your business can’t afford to pay its taxes when due, you need to take drastic action now.

I’ve seen these mistakes made countless times by generally smart individuals. Avoiding these mistakes won’t necessarily make you successful but it will create a solid financial foundation for your business. Now, if you do end up making any of these mistakes, just don’t tell people you read our blog!

11 Financial Mistakes that Ruin Entrepreneurs!

By Trishan Arul    October 21, 2009

Image by Observe The Banana via Flickr

This post started out as a Top 5 list, but quickly grew from there as I thought about my experiences over the years. It wasn’t very hard to find 10 mistakes but since everyone does Top 10 lists, I decided to up the ante with 11! That’s 10% more useful, right? This is part of 1 of 2, the remainder will be in my next post. The list is intended to help first time entrepreneurs ensure that their business is on sound financial footing – its in the order that a typical entrepreneur would encounter each problem. If you’ve already made a mistake or two, I’d recommend fixing the problem before it becomes a real issue for your business.

1. 

   Image by Jon Newman via Flickr

   Computing financial viability – Most people don’t even know what this means but its not as complex as it sounds. You need to figure out if your nascent idea can be turned into a viable business. How much will customers pay (Revenue/Customer)? How many will you have (Qty) based on the market size? What do you need to run your business – product manufacturing cost or purchase price, servers, bandwidth, people, advertising, shipping, etc (Cost)? Is (Revenue/Customer * Quantity) – Cost > 0 ? If not, the idea is not financially viable and needs to be reworked. This is a simple “back of the envelope” calculation that everyone should do at the very beginning.

2. Not making a business plan – You may have heard the saying “those who fail to plan, plan to fail”… its true. I’m not saying you need to spend three months creating a 102 page business plan document with footnotes, appendices, and pie charts – though I am a fan of colored graphics . What you should do is think through all the basics – Customer Problem, Target Market, Product/Service Solution, Delivery Method, Employees, etc. On the financial side, that means creating a projection and budget for a few years (typically 3-5) with at least the first year in detail by month. This budget will be valuable to determine if you have enough money to survive, what big costs need to be paid, where you may be able to save money, how much investment you need, and so forth. Without a budget and plan, you’re just hoping that things work out.
3. Being overly optimistic with your budget – For financial matters, its usually better to take the conservative “glass half empty” approach. No one minds being surprised with extra money, but suddenly finding out you don’t have enough money is a bad thing. Assume it will take longer to make each sale, assume customers won’t pay right away, assume vendors will demand payment up front, if you’re doing development assume it will take 50% longer and cost twice as much… you get the idea.  Unexpected things always crop up, planning on everything going perfectly is the same as expecting to receive boxes filled with money – it won’t happen. And when reality is worse than your plan, you may find yourself out of money and time to complete the product, meet payroll, or other critical business needs.
4. Ignoring personal expenses – Most entrepreneurs have to save money and can do so very creatively. But you can’t live rent free holed up in your parents’ basement dining on Kraft Macaroni & Cheese and PBR while working 18 hours a day. Plan to spend a reasonable amount on your living expenses, including going out once in a while. Starting a business is stressful enough without turning yourself into a hermit. After making a business budget, make a personal budget to ensure that you have adequate money for both.
5. 

   Image by marsi via Flickr

   Mixing your personal & business funds – Keep your business money separate from your personal money and keep good records! The pain of sorting it out after the fact will make you wonder why you didn’t take the extra few seconds each time to do it right. You WILL need to sort it out for tax purposes, financial reporting, bringing on other investors, and budgeting purposes.  Its also easy to do, open a separate bank account, use one credit card just for business expenses (even if its in your name), minimize cash transactions, and always ask for a receipt. Its not easier to mix everything up and sort it out later since you’re creating a bigger headache down the road.

Next week I’ll finish the list but you can start fixing, or avoiding, these mistakes right now.

Keep it private

By Guest    September 2, 2009

Did you know that every time you install a Facebook application, you give that application developer ALL of your personal profile information and access to your friends information? That developer could be anyone from a reputable company to a teenager in a foreign country. Did you want to provide all that personal information? Well, you did. And so did I and almost every other Facebook user. Most of us simply click on a pop-up box without reading or understanding all the legal fine print.

Internet companies are by default operating around the world and need to comply with the laws in countries where their users reside. Guest contributor, Nicholas Cheung explains the Facebook incident which also highlights considerations for designing your company’s privacy policies.

Global Privacy Implications for Facebook

Last month, the Office of the Privacy Commissioner of Canada (OPC) issued a report on Facebook after months of investigation into the privacy practices of the popular social networking tool.  In the report, the OPC found that third party applications had unfettered access to personal information that they didn’t need, kept personal information long after accounts had been deactivated and did not make it easy for users to delete their accounts.  Last week, Facebook relented and agreed to make the requested improvements to its privacy practices.

The benefits of these changes are significant as Facebook will make the changes applicable to all users worldwide, not just in Canada. Quite the achievement for the OPC since Canadian users only account for about 12 million of the 250 million users across the globe.

There are over a million developers for the third party applications (such as quizzes and games) in Facebook.  Not only were these developers obtaining access to personal information above and beyond what they needed for their applications, it was virtually impossible for Facebook to protect this data once it was obtained.  Under changes that will take about a year to develop, Facebook will allow users more control over the data being accessed by these third party developers.

Canada is fortunate to have strong privacy laws which apply from coast to coast.  Our federal privacy sector law, the Personal Information Privacy and Electronic Documents Act (PIPEDA), applies to all private sector organizations across the country unless a substantially similar law exists in that province.  Our federal privacy commissioner is an officer of Parliament (similar to the U.S. Congress) and independent of the government of the day.  She enforces our privacy laws and acts as a privacy advocate.

Unfortunately, the U.S. does not have a federal private sector privacy law or a federal privacy commissioner and it may be time to renew the debate over the merits of having either.  The instances of identity theft occur so frequently that it is almost a fact of life.  However for those that are affected, it can take years to rebuild their reputation or have devastating financial consequences.  Just ask Ben Bernanke, the chairman of the U.S. Federal Reserve Bank whose wife lost her purse that contained her checkbook and social security number at a Starbucks.  If it can happen to him, it could surely happen to you.

Sometimes it is possible to change the world in a small way.  Well, at least one emoticon at a time maybe.

Guest contributor Nicholas Cheung is the contributing author of The Canadian Privacy and Data Security Toolkit for Small and Medium Enterprises which is available for purchase at Knotia..

Where’s the Money?

By Trishan Arul    August 27, 2009

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Among the many things needed to start a business, the one most often cited as a roadblock is money. Especially for young people who have the energy, passion, ideas, and other key ingredients to become entrepreneurs, money is scarce. Some businesses, notably personal services such as consulting, require very little money to start but others such as a retail store require significant upfront investment before any money comes in the door. Below I’ll discuss various common funding options for entrepreneurs.

Personal Funds: This is the most common source of startup funds for businesses. Many people who have worked for years have significant retirement and regular savings. I don’t recommend tapping your retirement funds to start a business no matter how good you think the idea is – you’ll not only pay penalties in most scenarios but you’re jeopardizing your future financial security. If you’ve planned to become an entrepreneur for some time, then you can live frugally and save money for a few years to fund your dream. While it may seem like a long time to wait, you can use the time wisely by planning, researching, and laying the groundwork to make your business a success in the long run.

Image by The Library of Congress via Flickr

Friends & Family: More than just a cell phone plan feature, this is the second most common source of funds for new businesses. You can draw from a larger pool of people who can each can invest less money to reach your overall funding target. People with self directed IRA’s can even tap into some of those funds to invest in your business. The good thing is that these people are investing primarily in you & your idea. The bad thing is that they are then relying on you to execute well, work hard, and make the business a success. Be aware that there is a non-monetary cost to taking this type of investment – the dynamic of your friendship could change and many relationships have been ruined because of money. If you go this route, ensure you set expectations properly, that no one is investing money they can’t afford to lose, and that you comply with any relevant securities laws (consult an attorney).

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Loans: The recent stimulus package includes incentives for small business lending and many people believe this is a ready source of capital for starting a new business. Programs through the Small Business Administration do help many small businesses however they are administered through traditional banks and geared towards operating businesses with a financial history. If you don’t think a bank would loan you money based on the 5 C’s (Character or Credit History, Capacity or Cash Flow, Collateral, Capitalization, Conditions), then the SBA guarantee won’t change that situation. If you plan to invest a significant amount of money in the business (20-50% of total capital required), will have assets that can serve as collateral, and can personally guarantee the loan then this is a viable source of additional funding.

Angel Investors: Angels are professional investors, often former entrepreneurs and other wealthy individuals who invest in new businesses. Many do it to help entrepreneurs get off the ground but they are also seeking a financial return. They will thoroughly vet you, your team, and business so you need to be prepared for that level of scrutiny.  Some want to get involved in the business (i.e. a Board seat) but most are happy to invest in the background and let the team run with the business. But in either case, having a professional investor WILL change what you have to do. You will have to manage the business more formally, produce timely & accurate financial statements, and regularly report to the investors. Unfortunately, angel investment has become harder to find in the current economic environment.

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Venture Capital: Being in Silicon Valley, this is the first thing everyone thinks of when raising money for a business. The truth is very few companies are appropriate for venture financing. Venture capitalists are looking for “home runs”, they don’t want to earn a 10% return, they shoot for a 10X or 100X or more return with each investment. They need a few stellar investments to compensate for all the investments that don’t make any money. VC’s  have large pools of capital which need to be invested and limited time/resources to invest that capital. A company that needs $1M and will never need any more money, isn’t as compelling as a company raising $20M which will eventually need $50M in funding before a liquidity event. That’s just how the business models of large funds work. As an entrepreneur, you will also give up a significant portion of your company (at least 20%) along with some control. Entrepreneur stories & complaints about dealing with VC’s are common and sometimes fodder for comic relief. That said, there are very good VC’s and this source of funding is quite valuable to many startups however unless you need a large amount of capital, VC’s are normally not the best funding option for a new business. If you do want to seek professional investment, reading Joe Beninato’s Raising Capital presentation is a great start.

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Bootstrapping: Bootstrapping entails raising funds through operating a business with paying customers. In my opinion, this is the best path of funding for businesses which can use this approach since it minimizes the upfront investment while providing additional business benefits. Software and services businesses are the best candidates for growth through bootstrapping. A good example is a software company that starts out doing consulting. The company generates revenue while it gains expertise in understanding the customer’s problems, tailoring a solution, and creating code that will eventually become a piece of software that can be sold on its own. This also increases the company’s chances of success since it has learned firsthand from people who would eventually become its customers.

Every aspect of starting a business is hard work but finding the right sources of funding is something that should be done upfront with a lot of careful thought. Every business is different so you should determine the best combination of funding that works for your business. And don’t be afraid to get creative by bartering, giving equity or a percentage of future revenue, or anything else you can think of – one local couple even used their wedding registry!

Addressing SaaS Concerns

By Guest    July 9, 2009

This is the second part of a two part post on using SaaS (Software-as-a-Service) applications within your business. In the first part, Guest Author Vikram Prashar looked at the benefits of using SaaS and why it has become so popular. In this post, he will provide information on the potential risks of using this software and ways to mitigate those risks.

How do you make sure YOU are comfortable?

Ultimately, the most important point is for the accounting department- generally the CFO & Controllers to be comfortable that their valuable data is held somewhere secure and that privacy is maintained.  Any organization regardless of size should have an in-house security policy in place that addresses access levels, access control, password policy, etc.  Without an enforceable agreed upon policy the business is vulnerable to internal employees.  This would hold true for manufacturing or engineering applications as well, but financial data tends to draw greater security concerns.  To take this to a level where the CFO will be more comfortable a comprehensive list of items must be addressed regarding SAAS:

• What access controls are in place? Who can make changes to various user groups within the application and are those changes logged?
• What change control processes are in place? When can the systems be brought down for scheduled maintenance or patches? Does it require client approval or is it determined by the service provider?
• Does the service provider conduct regular external 3rd party security audits on their systems? The service provider should have a penetration test conducted by an external firm such as eEYE or Qualys.  These reports should be made accessible to the clients for their systems upon request.
• What kinds of backup and recovery methods exist? Can the service provider ensure that backups are done in manner consistent with company policy? Furthermore, can they restore data deleted either accidently or maliciously?  This MUST be tested before going live.
• If the application connects to your internal user directory (Active Directory), how is the connection? Is it a point to point VPN? How does that affect your access away from the office? Many applications offer single sign on, but that requires access to your network.  It is not unreasonable to ask for security certifications from the provider’s network engineers- CCIE, CCISP, or similar.
• Does the service provider have a Statement on Accounting Standards (SAS-70) certifications? This helps validate that they have adequate operational controls in place.
• Does the service provider give agreeable Service Level Agreements on all their services? It is imperative that clients get a detailed SLA in writing from any service provider but particularly for a financial application.  What are the consequences for clients not being able to access their systems- refunds, credits, ability to exit the contract?
• Just because the application is provided by an external service, it doesn’t mean the organization can ignore all the application specific security issues. They must make sure they have controls and methods to ensure password policy, account lock-outs, detailed log files that record unauthorized access, etc. One item to ask them is whether passwords are sent over the internet encrypted or clear-text.  This will provide a strong indication as to the security focus of the Application Service Provider.  If you get a blank look from them when asking them this question, that would be a major red flag.
• If the application can be accessed via a web browser, who is responsible for updating the security certificate?  Lastly, ask them about the tools used in their application and whether they routinely plug holes for their Java or similar tools.
• The ASP should be willing to provide you with a tour of their data center upon request. It need not be the exact data center where your applications are stored but it will give you a general idea of their operations.

Summary

In conclusion, SAAS can be as secure as any in-house application.  It requires a similar level of due diligence as the security of your office network, in fact more.  If the aforementioned items are covered and the service provider will give references for any of their clients (you select which ones you want from the service provider’s website) you should be able to enjoy the many benefits of SAAS.  Understand that you will be required to maintain a relationship with your service provider to make sure they continue to meet your needs in a secure and auditable manner.  Enlist the services of an experienced IT consultant or ensure that someone from within the organization does a comprehensive check on these and other organizational specific security concerns.  All application providers will swear that they have a secure and reliable infrastructure, but it is ultimately your responsibility to ensure that a sound policy and service level agreement exist and that these can be enforced.

For further information, Vikram Prashar can be contacted at vprashar@prasharconsulting.com.

Is SaaS right for your business?

By Guest    July 2, 2009

SaaS stands for Software-as-a-Service. It is sometimes referred to by the terms “on demand” or “cloud computing” and is gaining in popularity with smaller business. Traditionally, desktop software was installed on a single computer for one person to use while enterprise software was installed on large servers with many users connecting to it via a client application (or increasingly through a browser).  SaaS vendors run their enterprise scale software in large data centers and allow individual companies and users to use the software remotely over the internet. This has become big business – Salesforce.com became the first company of this type to reach over $1B in annual revenue.

In this two part post, Guest Author Vikram Prashar will look into why you might use SaaS applications and how to mitigate the risks. Vik is an IT Consultant who has held VP roles at large organizations managing IT departments.

Why SAAS?

SAAS has steadily been emerging as a very popular method of operation for companies of all sizes.  For larger firms, they like the ease of implementation, ability to easily charge back costs to departments, and low overhead required for these applications.  Smaller firms have benefited from it in many ways too.  The biggest advantage is they get pricing normally offered to large corporations.  Additional benefits include:

• Increasing costs of running a data center
• Server consolidation
• Reduced capital investment
• Reduced energy usage
• Ability to use the latest technology and tools
• Business continuity advantages
• Reduced IT staffing needs
• Ability to run applications from any location

These are all good reasons why more and more companies are relying on SAAS for their ERP needs.  Applications are becoming more of a commodity that can be purchased on demand on a per user per month basis.  As the company grows licenses can be purchased or returned generally with little impact on software contracts.  From an end user point of view, there are really not a lot of differences between a SAAS vendor and an internal IT department.  Generally an application on a server located on the same local network will perform better than on the cloud, but for many applications the differences are not significant enough to outweigh the numerous benefits of hosted applications.

Basic Concerns:

Of course just because the software is essentially outsourced, it doesn’t mean we can ignore all the other components of application service.  Many of the same concerns that apply to in-house applications also apply to SAAS.  These include:

• Security
• Backups & Restores
• Application availability
• SLA’s for uptime and performance
• Application support- patches, software updates, etc.

In Part 2 Vik will give you suggestions on how to mitigate these risks. For further information, you can reach Vikram Prashar at vprashar@prasharconsulting.com.

Taxing your cell phone

By Trishan Arul    June 19, 2009

Few people realize that the IRS requires employers to allocate a portion of the cost of any employer provided cell phone to personal use and tax that as a benefit to employees. Everyone who doesn’t work for the government realizes how ridiculous this is – its bad enough that employees have to carry around a mobile device and be available 24/7 but to tax them for it is adding insult to injury. Plus most personal use has no additional cost to the employer due to carriers “free nights & weekends” pricing plans.

The IRS has raised public awareness of this issue by proposing simplified plans for determining how much to charge employees for their personal use. I applaud them for trying to simplify this calculation. Its disappointing that they don’t recognize that taxing personal use of a cell phone makes no sense and should be scrapped. You would be surprised to learn how few comments are normally received on such proposals (less than 100 is typical).  Just a few well considered responses can change the direction of regulations & legislation, which is why I have begun to submit comment letters to government agencies and elected officials on topics that affect me and my clients. Instead of just complaining, we can actually make positive changes with a bit of effort. My comment letter on this proposal is below. If the issue affects you, I’d encourage you to also submit a comment.

Having worked in both a Fortune 100 company which tried to implement the previous requirements and with small businesses, I can confidently state that the amount of work being imposed by the IRS is completely out of proportion with both the benefit and the spirit of the law. When these rules were enacted, cell phones were an executive perk. Today they are a necessity for almost every level of employee. Stand alone cell phones are no longer used in businesses – smart phones are the only type of device routinely issued to employees and this is for the primary purpose of receiving email communications while away from the office/computer. Cellular carriers tie all devices to a mobile number which then provides the additional benefit of voice calls. That benefit has turned into a burden due to the IRS regulations. Further, due to the plans most carriers offer with free weeknight & weekend minutes, there is normally no additional cost to the employer for the majority of personal use by an employee.

Employers should be able to deem personal use to be minimal under certain simple conditions:

1. The mobile device receives employer email or other non-voice communication
2. The employee is expected to regularly carry the device during non-business hours
3. There is minimal (<10%) or no additional cost to the employer for the typical employee’s personal use of the device (plans that offer free weeknights and weekends would meet this test automatically since that is when the majority of personal use occurs)

Please consider easing the burden on both employers and employees with a common sense approach to this issue.

Virtual Resources

By Trishan Arul    June 16, 2009

In the last post, I discussed how the decreasing price and increasing availability of a wide variety of services have enabled entrepreneurs to run a “virtual company” by outsourcing many of the functions that comprise departments at larger companies. This time, I’m providing a list of various services that can help you create your virtual business. This is by no means an exhaustive list and while I may use some providers, I’m not endorsing any company – I’m just providing some examples to give you a start. Feel free to add more suggestions in the comments.

People Resources:

• PartnerUp – search listings of opportunities or people looking for new opportunities
• Fairsoftware – Propose a software project, outline terms (revenue share), and find developers
• Werkadoo – Remote work environment pulling together people and companies
• Virtual Assistant – Company (one of many) that provides executive assistants to handle administrative tasks
• Finance & IT - Shameless plug for our firm! But that’s the last one. At least in this post…

Website & Email:

• Squarespace – Inexpensive website & blog hosting with simple to use tools
• Wordpress – Blog hosting & software to power your own blog or a simple CMS for an entire website
• Google Apps – cloud based email, calendar, intranet, or website with mobile sync

Production Hosting:

• Amazon Web Services – Scalable, pay as you go, remote computing infrastructure including virtual servers and storage.
• Rimu Hosting – Virtual servers running a variety of software platforms

Productivity Applications:

• Open Office -Full Office suite comparable to Microsoft Office with Linux, Mac OS, and Windows versions
• Google Docs – Online spreadsheet, word processing, and presentation programs
• Zoho – Suite of web applications geared towards collaboration

Payment Services:

• Google Checkout – Shopping cart application and credit card processing
• PayPal – Credit card processing and online “bank” accounts with website integration tools

Office Space:

• Regus – Executive suites and virtual offices (mailing address)
• Sandbox Suites – Shared office space
• Plug and Play Tech Center – Shared office spaces & startup resources

Logistics & Fulfillment:

• Fulfillment by Amazon – Complete inventory & shipping solution
• Rush Order – Order processing, payment, customer service, warehousing, and shipping

Hope this gives you a head start in creating your new virtual business or for taking your existing business virtual.

Go Virtual

By Trishan Arul    May 28, 2009

When I first entered the working world, having a business meant that your company had an office in a big building with furniture, a receptionist & other employees, a fax machine, a phone system, lots of filing cabinets, fancy stationery, you get the picture: a business = physical location. That was then.

In 2009, its possible to have a thriving and successful business without a substantive physical presence. We now have the technological tools that enable us to work from anywhere, but even more importantly, people are willing to accept a “virtual business” as a service provider, partner, or customer. With a good website and competent outsourcing partners, its very possible to have a one person company that has the capabilities and appearance of a much larger company. Even in traditional heavy manufacturing industries, new competitors like Fisker Automotive are moving towards a decentralized, virtual business model.

Should you run a virtual business? The answer will depend on the type of business, the talent that is needed, and a host of other factors. Some of the benefits of going virtual include:

• Lower overhead costs: offices, utilities, furniture, etc are all expensive. For most service businesses, facilities is the biggest expense after payroll so being able to minimize or eliminate it this expense a big boost to the bottom line or if you’re just starting out, it will reduce your startup expenses.
• Flexibility: without a physical office, your team is free to work from anywhere, to collaborate as & when needed. You are also not tied down to a physical location which could constrain your growth.
• Environmental: no commuting and no wasted office space (empty at night & weekends) are just the start of the reduction in your carbon footprint.
• Productivity: eliminating commuting time, unnecessary meetings, physical distractions at the office, and other wasted time could result in more time for productive work vs. just putting in face time at the office.
• People: eliminating physical constraints allows you to hire from a much broader pool of qualified individuals and many people will consider it a huge benefit to be able to work remotely on their own schedule.

There are of course downsides, the most common being:

• Perception: despite changing attitudes, some people still expect to do business with companies in tall downtown office buildings. One entrepreneur told me that his office address in San Francisco’s financial district helped him close a deal with a large East Coast company that wouldn’t have done business with a smaller startup. He was in executive office space but we won’t tell anyone that.
• People: Some people just work better and need to collaborate in a physical setting. Others need the discipline of a 9 to 5 office location to keep them productive. Some end up spending all their time (including nights and weekends) working while others spend all their time on personal chores, Facebook, and Twitter. Its critical to find the right people to make a virtual company successful.

I would say that the benefits for a typical service or Web 2.0 business still outweigh the drawbacks. Some tips to increase your chances of succeeding:

• Set expectations up front about working hours, deadlines, work load, etc.
• Be very selective when hiring people, you have to trust them to do their work unsupervised, to motivate themselves, and to be very technically literate.
• Have daily communication with your staff or outsourced service providers, between phone, email, and IM, there’s really no excuse not to check in regularly.
• Physically get together on a routine basis for meetings, happy hours, celebratory lunches, and so forth to create that human connection. We aren’t robots and most people do work better remotely when they have a face to put to a name.
• Invest in technology: from your website, to computers, to cellphones, to systems, make sure that you invest in the best tools to create a seamless work environment that offers the productivity of a traditional office.

If you decide to take the leap and create a virtual company or convert your current business into a virtual business model, drop us a line and let us know how it went!

Seminar for New Entrepreneurs

By Trishan Arul    May 11, 2009

Richard Greenberg of Seedport, Inc. and myself will be hosting a free seminar tomorrow evening for people considering starting their own business. We’ll cover the basics that you need to deal with and will have plenty of time for Q&A. This is an offshoot of our successful sessions at various LaidOffCamp events. If it goes well, we plan on doing these quarterly at various locations around the Bay Area. If you would like to attend or know someone else who would, please RSVP at the Event Webpage at:

http://event.pingg.com/StartupBasics

This first one will be in a conference room so there is a limited amount of space. If you’re interested in attending but can’t make it to this one, feel free to send us an email and we’ll invite you to a future event.