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					Turning Ideas Into Businesses

          George Johnson
 Extranet for Security Professionals
  Secure Extranet Portal Services
                     Two Funerals

 Government contracting business
      One giant ego at the helm
      No operating agreement as recourse for other members
 Software for the education market
      Lack of understanding of market
      Confidence that technology would sell itself
      Smaller, but central ego figure
      No operating agreement as recourse for other members
      Undercapitalized
      Poor “sales pitch”
                … and a Wedding

 Internet based company
     Products fits a defined need
     Competition is forming
     Product is already in wide use by a solid
      reference community
     Strong cohesion of founders
       Solid operating agreement
       No ego conflicts – we all have a job to do
              Intellectual Property

 The IP is the foundation/discriminator for your
 Make sure it is locked up and protected
      Copyright
      Trademark
      Patent
 Get a lawyer to confirm it
 Get documents signed from all parties involved in
  development to transfer ownership
 Get all employees to sign IP and NDA agreements
           Understand Your Business

 The business plan
      The guide
          Start by creating a high level document that acts as a guide for
           your business, don’t sweat the details, but agree on your
             What need does it fit
             Who will buy it
             What will they pay for it
      The bible
          Get quantitative
      The “GIGO”
          Get real – good sources of real data, not your best guess
            Is There a “There” There

 Do you have something there
      Run cash flow projections
      Use real figures and don’t forget to pay yourself
      Don’t cut corners on cost projections – overestimate
      Your numbers are only for planning, not predictive at
       this stage, so don’t get depressed or excited yet
 Get outside help
      Time for a reality check
                     Create A Business

 Who are the principals
      Make sure you clearly identify the founders
      Create an operating agreement (pre nuptial agreement) –
       everything is negotiable
 Decide on a type of business
      LLP
          Doctors, Lawyers, etc…
      LLC
          Very similar to Incorporation, but profits and losses flow to
           partners at the end of the year
          Has same personal safety umbrella as an INC
          More flexible on the structure and operation of the business
             Create A Business (cont)

 Decide on a type of business – everything is
  negotiable (cont)
      Incorporation (sub s, C Corp, etc…)
          You get double taxed, but some VC’s like this structure better
           because share transactions are easier
          Sub S allows you to write losses off on personal taxes
          Restrictions on converting Sub s to C
          More rigid – based on corporate law
 Conflict resolution strategy – goes into operating
      Make sure you have a way to settle disputes
          Create A Business (cont)

 Who will lead
     Don’t let ego kill your venture
     If you can’t all agree, then you don’t have the
      right team
 Do you have a diverse skill set
 Do you have people with experience
 Do you have people with contacts
    Align Business and Technical

 Ensure that your technical staff is in
  alignment with the business staff
 Hold regular meetings to discuss the
  direction of the technical development to
  ensure alignment
 Technical must listen to marketing to ensure
  that customers needs are incorporated in

 Some money is greener than other money
     Not all venture capitalists are equal
     Some will assemble a management team for you
      that will help ensure success
     Some will help you to penetrate your market
      much quicker
     Some will gut your company and leave you with
      pennies on the ultimate dollar
                      Money (cont)

 Interview VC’s
     Although it is hard to get in their door, pursue
      several and make them compete for your idea
     Ask them what they bring to the table
     How will they fund you
         Most will agree on an amount of money, then provide
          that in increments as you meet deadlines, this can be
                        Money (cont)

 What do VC’s want from you
     Most will want you to have a significant stake in the
      business or they won’t play
         Mortgage to the eyeballs
         Personal loans with the bank
         Etc…
 How much of the company should they get?
     You only get what you negotiate
     Some parts of the country have friendlier terms than
     Ultimately depends on where you are in the growth cycle

 Understanding the market is not enough
 Market penetration is critical
     You must have a vehicle to get your product into
      the market
       Distribution strategy
       Consulting partners

       Access to decision makers
                     Will It Sell

 The elevator explanation
     People have a short attention span
 The sales explanation
     People buy what they understand
     Explain your new idea/product in terms of
      something people already know with some new
      features or capabilities

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