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Steps to Starting a Small Business by wzw10454


Steps to Starting a Small Business document sample

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									Starting a New Business

  Unix Users Association of
     Southern California
        May 11, 2009
• Introduction
• General
   –   Why?
   –   Getting Started
   –   Legal Options
   –   Location Options
• Solo Consulting Practice
   – Legal Issues
   – Accounting and Taxes
   – Finding Clients
• Shooting for the Moon
   – Incubators
   – Resources
   – Investors
• Other Resources
 Introduction – What do I know?
• Consulted for about 10 years, 5 as a solo
• Employee of 5 different startups
  – Eventual IPO: TCSI, Meta-Software, GetThere
    (Internet Travel Network)
  – On the runway: LeisureLink
  – Failures: TRW spinout
• But don’t take my word for it – talk to as many
  people as you can
• Disclaimer: Use this free advice at your own risk!
    Getting Started – First Steps
• Formulate a plan and goals
    – Research as much as possible
    – Plan financials
•   Identify (preferably land) first customer
•   Choose a name and legal structure
•   Print business cards
•   Sell yourself (or at least your services)
•   Go to work
                         Legal Stuff
• If you used your previous employer’s resources or paid
  time to develop your idea, your employer owns the idea
• Legal Structure
    – Sole Proprietor
    – S Corporation
        • Not for those planning venture capital raising or IPOs
    – Limited Liability Company
    – C Corporation
•   Licenses, zoning ordinances, etc.
•   IRS Employer Identification Number
•   Liability Insurance
•   The Legal Guide for Starting & Running a Small
    Business – Nolo Press (
• Your garage/loft
  – Home office deduction
• Client sites
• Renting an office
• Incubators (less of an option for
• Track your financials
  – Know all your expenses for deductions
  – Create invoices for customers
  – Record keeping for the IRS
• Accounting software:
  – Excel or other spreadsheet
  – Quickbooks
  – Peachtree
  – Niche accounting for your specialty
• You are both employer and employee
  – Pay employer’s Social Security, SDI, etc.
• 1099 vs. W-2 (Contractor vs. Employee)
  – Affects and affected by your legal structure
  – IRS’ 10 Questions
  – 1099 Pros:
     • Generally more profitable
     • Tax deductions
  – W-2 Pros:
     • Less IRS paperwork,
     • Less likely to trigger an audit
     • Some clients insist you are ultimately paid by W-2
                 1099 Options
• True, direct outside consultant with 1099 filed
• Intermediary agencies (pass-throughs)
  – Pay you as a W-2 employee while maintaining a 1099
    relationship with your client and numerous other firms
  – Keep a percentage of their services
  – Varying level of services and benefits
     • Some even offer some benefits, but the second you are
       without a contract, you are unemployed
     • The more benefits, the bigger their cut
• Part-time employee on W-2
        Consulting Contracts
• Get it in Writing!!
  – Detail work and requirements as much as
  – Rate and Payments
  – Disclaimers, waivers, etc.
• Sources for examples
  – Canned consulting contracts
  – The web
  – Borrow an existing contract
             Finding Clients
• Network, Network, Network
• Old colleagues and friends
• If (when) you’re desperate, troll job boards
  – Do not plan to land your first customer this
• Agencies, head hunters, pass-throughs
  Changing gears to Launching a
          Tech Startup
• So…
  – you’ve got an idea…
  – And you’ve always wanted to own your own
  – And maybe you even dream of making it big…
• But, be prepared to…
  – Work really long hours,
  – Make the coffee, clean the office, buy pencils,
  – Lie awake at night worrying about deadlines, sales,
    employees, investors, legal stuff, and whether you are
    getting enough sleep
               The Business Plan
• Slides explaining your idea(s), but more importantly, explaining how
  you will make money with your idea(s)
    – What is your idea, and why will people pay for it?
    – What do you need to do to build or your product(s)?
        • How much money do you need for R&D?
    – Who are your customers, how many are there potentially, and how will
      you reach them?
        • How much money do you need for Sales and Marketing?
    – Who are your competitors and what are your roadblocks?
    – How much will you make per sale, per year?
• Tool to recruit employees and most especially, investors
    – How much investment will you need, and how will you spend it, and how
      long will it last?
• What is your “exit”?
• Many books and web sites on writing a business plan
• Typically not for consultants
• Share resources
  – Lobby, reception, copier, phone system, network,
    kitchen, conference rooms
• Close contact with fellow entrepreneurs
  – Camaraderie, mentoring
  – Share ideas, even partner with fellow tenants
  – Advice from others who have done exactly what you
    are doing
  – Referrals for lawyers, accountants, consultants, etc.
• Source of introductions to investors
               Incubator Facilities
• LA CDC Business Technology Center
   – Altadena
   – County run
   – Economically distressed zone
• Orange County Digital Media Center
   – Santa Ana
   – Rancho Santiago Community College affiliated
   – Digital music and video oriented
• Idealab
   –   Pasadena
   –   Private, for profit
   –   Overture, eToys, CitySearch, …
   –   Founded by Bill Gross (not the PIMCO Bill Gross)
   Entrepreneurial Resources
• Incubators
• Professional Organizations
  – OCTANe
  – Tech Coast Venture Network
  – Orange County Business Incubation Network
    (UCI affiliated, creates various incubators)
  – IEEE Orange County Entrepreneurs' Network
  – Others
• Executive Networks
            Angel Investors
• You, your relatives, friends, and mentors
• Wealthy individuals interested in investing
  in small companies
  – Usually opportunities too early or small for
  – Less capital than VCs
• Professional angel investors
  – Tech Coast Angels
  – Pasadena Angels
         Venture Capitalists
• Professional money managers
• Primary goal is their Return on Investment,
  not necessarily your success
  – Not even 1 in 10 investments succeeds
  – 10:1 or even 20:1 ROI prospects
  – Structure your pitch and business plan
• HIGHLY recommend “High Tech Startup”
  – John Nesheim
    Finding Angel Investors and
        Venture Capitalists
• Investors scout entrepreneurial groups
  – Incubators
  – Executive networks
  – Entrepreneur Organizations
• Friends and colleagues
• Fellow entrepreneurs and business
• Always have your elevator pitch ready
                   Making the Pitch
• Present your business plan – 30 minute presentation
    – Review it and practice it in advance
• The VC wants…
    –   A reasonable plan to make him 10:1 on his investment, or 25% annually
    –   Smart and passionate management
    –   Experienced management – people who have “seen the movie.”
    –   Barriers to competition – “the moat,” an “unfair” advantage
    –   Exit options
• 1 in 10 get to pitch, 1 in 10 who pitch get funds
• Pitch to as many VC as will listen
    – Don’t count on just one investor
    – You can negotiate among multiple deals
• Typically takes a year from start of process to close
                The Term Sheet
• The investors’ financial and legal terms, including:
   – How much money they will provide, on what schedule, for how
     much ownership of the firm
   – How many people will represent the investors on your Board of
   – What positions in your firm will be filled by the investors
• Typically has an expiration date
• Review with an attorney familiar with term sheets
• The money isn’t yours until you deposit the check!!
   – VC have been known to cancel signed deals
• Expect to own much, much less than 50%
   – Less than 4% at IPO is typical
      Other Funding Sources
• Banks generally want 5 years of
  successful financial history
  – Exception: Silicon Valley Bank
• Equipment leasing with payment in some
  stock in lieu of cash
  – Vencore, EMC?
• Your credit cards, savings, and mortgage
                Life in a Start-Up
• Draw a reasonable salary for yourself once you’re
• Expect tremendous personal reward as you realize your
  ideas and grow the firm
• Expect tremendous stress from running the business,
  from investors, from employees
• Your personal life will suffer
• Always seeking to reach/maintain hockey stick growth
• Beware “Founder’s Syndrome”
   – Investors will take some control
   – Professional managers generally do their specific jobs better
     than you
• Find a mentor
            The Finish Line
• Initial Public Offering (IPO)
  – Hire a CFO who has done it
  – Relatively tough regulatory climate in the US
• Acquisition by a industry conglomerate or

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