Entrepreneur solutions 25 small business challenges

GETTING STARTED 4 Challenge 2: Finding the Time to Write a Business Plan 6 Challenge 3: Sharpening Your Elevator Pitch —And Your Business Plan 7 Challenge 4: Choosing Between an Inc

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Top 25 Small-Business Challenges

GETTING STARTED 4

Challenge 2: Finding the Time to Write a Business Plan 6

Challenge 3: Sharpening Your Elevator Pitch —And Your Business Plan 7

Challenge 4: Choosing Between an Incubator and an Accelerator 8

Challenge 5: Quitting Work for the Day When You’re the Boss 9

Challenge 6: Marketing a Product or Service That’s Ahead of its Time 11

Challenge 9: Calculating the Value of Media Placements 14

Challenge 12: Using Debt Financing to Build a Business 18

Challenge 14: Deciding When to Start and Stop Fundraising 20

CONTENTS

MANAGEMENT 21

Challenge 18: Building a Product as You Build an Organization 25

Challenge 19: Choosing to Hire Employees or Contractors 27

Challenge 20: Competing for Top Talent Without Paying Top Dollar 28

Challenge 22: Building an Organization That People Are Excited to Join 30

Challenge 23: Weighing the Telecommuting/Team Building Tradeoffs 31

Challenge 24: Raising Prices Without Alienating Clients 33

Challenge 25: Sizing Up What to Invest in Client Face-Time 34

GETTING STARTED | 4

GETTING

STARTED

Challenge 1: Deciding When to Ditch the Steady Job

Challenge 2: Finding the Time to Write a Business Plan

Challenge 3: Sharpening Your Elevator Pitch —And Your Business Plan

Challenge 4: Choosing Between an Incubator and an Accelerator

Challenge 5: Quitting Work for the Day When You’re the Boss

GETTING STARTED | 5

To some extent, leaving a steady job (and steady

paychecks) for the life of an entrepreneur is a leap of

faith Though you intend to make your startup succeed,

nothing is certain

Like any leap of faith, the process takes patience,

confidence and a positive attitude It also requires a good

idea of how you plan to manage expenses and support

yourself (or your family) until the new gig takes off

That last question often proves to be the hardest to

ask and answer If you’ve got money in the bank or a

spouse who’s still working, you probably are covered If

you recently won a jackpot in Vegas, you probably are

good If none of these scenarios is real for you, you need

a bulletproof strategy for leveraging debt and investor

money long enough to sustain the company and your own

personal finances, too We’re not going to lie: This process

can be hairy at times It also can be rife with uncertainty

Travis Ness, co-founder of Renton, Wash.-based design

agency Crossroads Creative, suggests that every foray

into entrepreneurship should be prefaced with some

serious self-reflection in which business leaders ask

themselves exactly what they’re comfortable handling on

the road to independence

“You need to weigh whether the freedom of successfully working for yourself outweighs the short-term instability

or anxiety [you might have],” he says

The flipside of these question marks is, of course, the possibility of a smash hit Yes, your current job may be steady, cushy and familiar But when your startup succeeds, when you’re the one at the helm of a multimillion-dollar business, it isn’t going to matter where you were before the current project All that will matter is what you have accomplished

GETTING STARTED | 6

We’ve all heard legends about entrepreneurs writing the

crux of their business plans on cocktail napkins at local

watering holes (See Related: Five Businesses Born at a

Bar) While the backdrops and the implements may differ

in real life, the spontaneity usually doesn’t

Once you have that critical idea, however, business plans

take lots of time and painstaking effort

Some entrepreneurs have tackled the process solo That

was the case for Amy Norman and Stella Ma, co-founders

of Little Passports, an educational products company

based in San Francisco The duo wrote the bulk of their

plan while working for other companies, according to

Norman So they churned out most of the document on

laptop computers at their respective kitchen tables, on

weekends and after everyone in their families had gone

to sleep

“You find time to write it whenever you can,” says Norman,

looking back “Whatever it takes.”

Other entrepreneurs, such as Jeff Platt, CEO and

co-founder of the Sky Zone indoor entertainment venues,

have brought in help

When Platt and his father, his co-founder, realized that

their business plan needed to incorporate a hefty amount

of market research, the duo hired a consultant to scour

the Internet, record pertinent information about similar sports businesses, and imbue the document with context

“His involvement was bringing the industry expertise,” says Platt, whose company has 30 locations nationwide and is based in Los Angeles “We knew that if we wanted

to do this [plan] the right way, we wouldn’t have time to tackle that ourselves.”

Even with the additional help, Platt says the plan ultimately took about 1,500 hours to complete

GETTING STARTED | 7

Think of an elevator pitch as your executive summary

It’s the quick-and-dirty version of exactly what you want

potential investors (and maybe even customers) to know

about the business you’re trying to build

With this in mind, it’s critically important to draw upon

components of the elevator pitch to inform and round out

a formal business plan

Chris O’Leary wrote the book Elevator Pitch Essentials

(The Limb Press, 2008) He says a well-honed elevator

pitch should provide a business plan with a one-sentence

summary of what the business does, followed by

statements that explain

» What the business does differently

» How it adds value for customers

» How it will make money

» How it can scale over time

“The point of an elevator pitch is to get conversations

started about your company,” says O’Leary, who is in St

Louis “While the elevator pitch provides quick hits on a

number of topics, the business plan should be designed

to go more in-depth.”

Credibility is another key part of an elevator pitch that

belongs in a business plan

O’Leary thinks most entrepreneurs spend so much time harping on the business itself that they ignore the need to explain and enumerate their qualifications to make that business come to life

“At some point along the way, you need to answer the whole question of ‘Why you?’ ” he notes “You need to give people a very obvious reason to trust that you are the right person to run this business over time.”

To this end, O’Leary adds that developing a solid elevator pitch usually prompts entrepreneurs to start thinking about sales and marketing campaigns

SOLUTION:

Try out the above exercise in brevity It can not only lead to

a sharper and more credible business plan, but also pave the way for overall business success

CHALLENGE 3:

Sharpening Your Elevator

Pitch—And Your Business Plan

GETTING STARTED | 8

Both incubator and accelerator models are designed to

help entrepreneurs bring ideas to market But depending

on what kind of help you want—and at what stage your

company sits currently—one choice may make more

sense for you

As the name suggests, incubators are more nurturing

environments, complete with advice from industry

experts, structured introductions to potential funders

and longer-term trajectories for idea development

Accelerators, on the other hand, offer quick pushes to

help companies get over final hurdles and deliver their

products to market

Some popular accelerators include Y Combinator and

TechStars Some popular incubators include Idealab and

YouWeb

“Accelerators are set up to bring companies to market,

while incubators offer entrepreneurs more room to fail,”

explains Peter Relan, CEO and co-founder of YouWeb,

which has California incubation locations “We make

investments in entrepreneurs,[accelerators] make

investments in business plans.” (See Related Article:

Meet the Entrepreneurs Behind the Booming Business of

Games.)

Another difference between the two is that incubators

generally offer more resources

Patrick McCarthy experienced this first-hand when he

co-founded ATRP Solutions, a specialty polymer company

based in Pittsburgh McCarthy and his colleagues took the

company through the Mellon Institute, an incubator tied

to Carnegie Mellon University Perks included unlimited use of critical instrumentation that ultimately saved the firm about $500,000

“To build a high-tech company, you have to be able to analyze and characterize your chemicals,” McCarthy explains “We could have invested the money on our own, but as part of the incubator we were able to use the school’s stuff and save our money for other things.”

In exchange for all of this help, incubators and accelerators alike usually require entrepreneurs to fork over a certain amount of equity (In the case of ATRP, the university’s Technology Transfer Office holds a stake in the firm.)

Some might think these additional fees are exorbitant Others say they are small prices to pay for a chance to hit

CHALLENGE 4:

Choosing Between an

Incubator and an Accelerator

GETTING STARTED | 9

It’s dangerously easy for entrepreneurs to view their

jobs as never-ending So much to do! So little time! With

seemingly infinite demands, you might be tempted to

work on your startup nonstop

And while this strategy usually works for the first 72

hours, it almost always leads to burnout pretty quickly

after that

Naturally, the key to managing your startup and your life is

finding out how the two fit together

“You need to put up boundaries,” says Cali Yost, CEO

and founder of Work+Life Fit, a Madison, N.J.-based

leadership-consulting firm “Take deliberate action in the

areas that sustain your health, personal relationships,

career networks, job skills and life maintenance, or they

won’t happen.”

In describing the ultimate goal, Yost is careful not to use

the word “balance,” because she says, “A 50-50 split

between work and life is never going to happen.” Instead,

she notes, entrepreneurs must realize that the interplay

between work and life is a constant ebb and flow

Jigar Mehta, director of operations at Matter, a fledgling

media accelerator based in San Francisco, experienced

this first-hand in 2012

When Mehta joined the company, it was in major

bootstrap mode, and most of the executives logged

interminable days Mehta says the work was invigorating But after a while, he started to see it have an impact his relationships with friends and family

“Sooner or later, I realized something was missing,”

he remembers

Applying structure to his days reversed this trend

Currently, Mehta splits his days at lunch He handles all phone calls before the break, and all meetings after

Another strategy, as simple as it might seem, is making lists No matter how diligent you are, working until you’ve crossed off five items from your list is a great way to quantify your efforts It’s also a good method to get stuff done

SOLUTION:

As exciting as it is to start a company, adopt some rules for yourself to prevent it from consuming your entire life Figure out what works best for you

CHALLENGE 5:

Quitting Work for the Day

When You’re the Boss

BRANDING/MARKETING | 10

BRANDING/

MARKETING

Challenge 6: Marketing a Product or Service That’s Ahead of its Time

Challenge 7: Making Social Media Tactical

Challenge 8: Deciding Whether to Embrace Mobile

Challenge 9: Calculating the Value of Media Placements

BRANDING/MARKETING | 11

Entrepreneurs find this one of the most difficult

challenges in the current economic environment

The first step in this process is to convince yourself

It’s important to find small, achievable steps you

can take to prove the concept then run with them

to build momentum as you sharpen the idea, says

Matt Mickiewicz, founder of DeveloperAuction.com, a

developer-recruiting web service based in San Francisco

“Trying to jump all the way to the final product is like

trying to build the Golden Gate Bridge from one end while

running across it,” he says “Instead, start with a pier, then

build some pontoons out from the edges, then cobble

together some wooden bridges across parts of the river.”

The next step is to gather proof of concept

According to Mickiewicz, this step involves collecting

real-world data from real-real-world users about the product (or

scaled-down versions of the product) What works? What

doesn’t work? What features reign supreme? Getting

answers to these questions will help demonstrate that the

idea has merit

The third step in persuading others your idea is viable is to

remain flexible Be willing to tweak product specifications

per feedback from focus-group users, or to rethink sales

and distribution models based upon changes in the

marketplace

It also means being open-minded to failure and

recognizing that sometimes even the best ideas may

not work

Finally, there’s the art of timing

If an idea truly is “ahead of its time,” then, by definition, it’s not “viable” yet What’s more, current technology and penetration have to be in line with how your product or service is going to be used

“Imagine trying to launch YouTube when everyone was still

on dial-up,” Mickiewicz says Sometimes a little context goes a long way

SOLUTION:

When it comes to convincing others about your idea, consider approaching it as a four-step process: Convince yourself Gather proof it works Stay flexible about the idea And think about the timing

CHALLENGE 6:

Marketing a Product or

Service That’s Ahead of its Time

BRANDING/MARKETING | 12

Experts and entrepreneurs alike will tell you that social

media is all about the “conversation.” That means the key

to leveraging Facebook, Twitter and Instagram to your

advantage is controlling what people—customers, usually

—are saying about you in virtual-but-public forums

Content must be at the center of this effort, according

to John Andrews, CEO and co-founder of Collective Bias,

a Bentonville, Ark.-based social shopper marketing

company

Andrews has found that companies can use keywords to

“game” search engines into ranking certain pages higher

than others Experts call the practice “organic” search

engine optimization (SEO)

“If you’re producing more content than anybody else, it’s

pretty straightforward: You’ll dominate the conversation

every time,” Andrews says

Promotions are another great way to make social media

tactical (As we learned in our “Secret Sauce” exercise in

2011 See Related Articles: The Secret Sauce Project, The

Social Media Challenge: The Results) Here, the caveat is

simple: You’ve to have a plan for what you’re going to do

with all the people you gain from running a promotion

Andrews says that because promotions in the world of

social media get instantaneous traction, it’s a good idea

to run two or three back-to-back to see which works best Social media involves “constant switch testing.”

When it comes to leveraging social media into a weapon against competitors, the third and final key is to simply stay flexible If one particular campaign isn’t achieving the desired number of followers or buzz, cut it off and try something new

Media such as Facebook, Twitter and Instagram give businesses the opportunity to interact with customers in real time; how businesses choose to wield that power is entirely up to them

BRANDING/MARKETING | 13

CTIA-The Wireless Association reports there are more

than 320 million mobile-phone subscribers in the U.S

alone So just about every business on earth needs to

master and incorporate mobile technology if it is to

succeed

“Business development is about finding ways to help

people find ways to spend time with your product

or service,” says Greg Duffy, CEO and co-founder of

Dropcam, a San Francisco-based company that makes

Wi-Fi video monitoring cameras “If people can’t spend

time with your product or service on their phones, you’re

missing out.”

In the olden days—you know, the 1990s—the assumption

was that companies had two opportunities to get

customers to spend time with their products: at work

or at home Duffy thinks that mobile technologies have

changed the equation because they facilitate interactions

any time

And in the world of mobile technology, quality trumps

quantity—every time

Regardless of whether mobile technology companies

specialize in software (read: apps) or hardware,

businesses that excel in the field usually experience

overwhelmingly positive word-of-mouth chatter, while those that handle mobile poorly usually suffer from negative buzz

This, adds Duffy, is reason enough to embrace mobile the right way

“People expect certain levels of service,” he notes “It’s not just about doing it, but instead about doing it right.”

All told, a good mobile strategy won’t come cheap

Some entrepreneurs say it’s hard to build a good user experience with design and programming for less than

$100,000 Ultimately, such investments should pay huge returns, especially if the mobile market continues to grow

BRANDING/MARKETING | 14

When applied tactically, media placements—

advertisements, advertorials and feature articles—can be

successful components of a startup’s marketing strategy

But it’s often difficult to quantify value and return on

investment of these efforts

One strategy is to survey customers on how they heard

about you If customers are willing to respond to brief

questions after conducting business, they might reveal

that they spotted your ad on their favorite website, or read

about your product or service in a magazine

Another strategy is to offer special promotions available

only in local media At the end of each promotion, you

should be able to get a sense of revenue driven through

each specific channel

“The first thing is to be as small as you can until you find

what works for you,” says Jim McCarthy, CEO of Goldstar,

a ticket service based in Altadena, Calif “The second thing

is to do everything you can to get results, even when it’s

difficult to find out what happens.“

Some entrepreneurs have opted to eschew paid

advertisements almost completely, instead focusing their

efforts on public relations

Take pie bake shop founder Chris Porter as an example

Porter thinks “advertising is a ripoff.” Instead, he found

that a handful of newspaper and magazine articles played a “critical” role in Seattle-based A la Mode Pies’s successful launch Without them, he notes, the four-year-old company likely would have stumbled disastrously out

of the gate

Overall, Porter warns that whichever media placements entrepreneurs decide to adopt, the process of gaining value from these efforts usually takes time

“It starts slowly,” he says, noting that a little patience goes a long way “Every placement gets you more visibility until you become established and [the collective coverage] legitimizes your business.”

SOLUTION:

Startups should consider more unique strategies when

it comes to media placements Survey customers to find out what’s working, perhaps stick to local, and maybe even avoid paid advertising

CHALLENGE 9:

Calculating the Value of Media Placements

MONEY MATTERS | 15

MONEY

MATTERS

Challenge 10: Securing a Line of Credit

Challenge 11: Working with Investors

Challenge 12: Using Debt Financing to Build a Business

Challenge 13: Making the Most of Crowdfunding

Challenge 14: Deciding When to Start and Stop Fundraising

MONEY MATTERS | 16

Different types of banks dole out different lines of

credit to different kinds of companies for a host of

different reasons

Among big banks, the name of the game is

minimizing risk

This means bankers generally shy away from early-stage

companies that haven’t yet tested ideas, and gravitate

more toward middle- and later-stage companies that

have been toiling for years to make a profit

Corey Ross, co-founder of BBC Easy, a Seattle-based

company that automates borrowing, says a bank will

usually consider lending to a company if it is at least three

years old

“If you have three years of losses but can present a clear

path to success and how you’re going to accomplish it,

that’s the kind of situation a big bank will take,” says Ross,

who also spent part of his career working inside a bank

“You need to demonstrate financial awareness.”

Among smaller banks, there’s more leeway for

interpretation

Ross notes that bankers at many smaller and community

banks will take the time to sit down with entrepreneurs

and try to flesh out specifics of their company’s financial story Some of the questions they might ask include:

» How did you get to where you are?

» What struggles did you have to overcome?

»What are you going to do with the money?

“Smaller banks might know the people you’re doing business with,” says Ross In rare cases, these banks may even volunteer to act as liaisons or provide other services

to help out

Whichever approach you take, note that all banks that dispense credit require extensive applications, as well as financial statements and tax returns for the duration of the company’s history Consider this due diligence It’s the least you can do for a little money to help get things rolling

SOLUTION:

No matter what, be prepared to demonstrate a business track record—as well as a persuasive case that the money you’re seeking will allow you to produce profits to pay the bank back

CHALLENGE 10:

Securing a Line of Credit

MONEY MATTERS | 17

Building a company with the help of investors can be a

double-edged sword

On one hand, a broad and diverse investment group

can act as a brain trust that can help you and your

co-founders navigate critical junctures (or even day-to-day

hurdles) Their passion, input and expertise can be just as

valuable as their money

On the other hand corralling investors can be a bit like

herding cats especially if the investors are frustrated

or aren’t clear about the company’s direction and want

answers, stat

With this in mind, perhaps communication is the best

secret to working with investment teams

“If your investors feel like you’re giving them information

on the progress of the business—the good progress and

the not-so-good progress—then they find themselves in

a position where they can help,” says Jeff Miller, CEO of

Wheelz, a San Francisco-based peer-to-peer car-sharing

company “Money is money Your relationships with these

people are the things that are going to translate into a

competitive advantage down the road.”

Still, there is such a thing as too much communicating Miller, whose company has worked with about 25 different investors over the years, says that when entrepreneurs look to investors for input on every move, problems usually arise

One definite no-no: kowtowing to investors who want status reports once or twice a month

“You have to make sure that the cart is not driving the horse,” Miller says “As CEO, it’s your responsibility to take inputs and decide which course of action is best for the business.”