Mediocrity is the result of fear

Michael Eisner, the former CEO of Disney talks about failure as part of success. The part that sticks out, is his comment about what fear can result in, which is mediocrity. Most large companies are intolerant of failure, but failure can sometimes result in spectaculer success.

The Innovators Dillema

Clayton Christensen is a Harvard Business School professor who is considered an expert in Strategy and Innovation. Some of his teachings are a must for entrepeneurs, as he makes you think of your product in different ways. Not only does he have a a PHD from Harvard, but was a Rhodes Scholar as well, and is an entrepeneur in his own right, starting two companies. One thing that really sticks out in this short video, is this idea of a consumer, hiring your product to do a job. What job is your product supposed to do?



For a longer MP3 of a talk he has given, I suggest, Capturing the Upside that he gave at the open source business conference. It can be found here:

http://itc.conversationsnetwork.org/shows/detail135.html

Michael Jordon Commercial

Fear of failure. It is the biggest impediment to an entrepeneur. Whether he/she is starting out, designing a new product, or even figuring out if they want to be an entrepeneur. Learning from failure is how we are able to be successful...



Fear of failure drove Michael Jordon. Can anyone doubt his success?

Merchant Services - Holy Cats!

I stopped at the bank today and at least I got an assistant manager. He was a little more knowledgeable then a traditional personal banker but not by a huge amount. One thing I did check out was their merchant services and holy cow its not cheap to start.

Set up: $95
Monthly: $11.95 a month
Transaction Fee: 2.12% + 20 cents

I hate set up fees. What a kick in the teeth to your customers. Hi, we not only want your business but we are even gonna charge you for the pleasure of doing business with us. Normally this would not be so bad but it does not include the Gateway.

The merchant is who actually processes the money. A Gateway is who provides the application to actually accept payments online. Think of your bank as the merchant, and that little terminal you slide your card through as the gateway.

The Gateway everyone seems to use is authorize.net. Their costs look like this:

Set up: $150
Monthly: $19.95
Per Transaction: 30 cents

So if I use a merchant processor, plus a gateway, I am looking at a set up of $245, a monthly fee of $31.90, plus transactions of 2.12% plus 5o cents. Holy cow this just doesn't seem cheap.

The other options I am looking at include:

Yahoo Merchant Solution

Yahoo hosts the site and acts as the gateway. All you need is a merchant account.

Set Up: $0
Monthly: $39.95 ($25.97 for first 3 promotional)
Per Transaction: 1.5%

So with a merchant account I am looking at $95 to set up, $51.90 a month and a transaction fee of 3.62% plus 20 cents. At first glance it seems high, that does include hosting with 99% uptime. Less I have to worry about and it allows you to take paypal as well I believe.

Webstore by Amazon

Amazon hosts the site and takes the payment for you. No merchant account needed and no gateway needed.

Set up: $0
Monthly: $59.99
Per transaction: 7%

What I like about this, no merchant account needed. It includes hosting and processing of the payment. Also you can interface it with Amazon's fullfillment system too.

Shopify

I found this one too and depending on the number of transactions and monthly fee I thought it would be competative with Yahoo. Unfortunately I think you need a gateway here as well. I will display just the cheapest option.

Set up: $0
Per Month: $24
Per Transaction: 2%

So with merchant services we are looking at a $290 set up fee, $55.90 a month and 4.12% + 40 cents per transaction. They also host the site for you but it seems a tad pricey.

PayPal

Paypal is appealing in many respects. I do worry about the hold on accounts that they are notorious for but they are also competitively priced, and act as the gateway too.

Set up: $0
Per Month: $30
Per transaction: 2.9% plus 30 cents (as volume goes up, price goes down)

Of course if I wanted buyers to go to a PayPal hosted website I could avoid the$30 fee but I just think it looks more professional if it is done on your own site. If you have a merchant account you can use their gateway which seems to price about the same but does allow you to offer paypal.

First Data

While First Data has solutions, I can't speak to their pricing right now.

Best Option

I had a gut feel what would be the best way to go but to be sure I ran the numbers based on what I think my product will cost. To be candid, I was frankly suprised at the results.

If you take out the upfront costs (since they are sunk), hosting yourself is always cheaper with a traditional merchant account. Of course there is more work and development costs upfront too. I thought PayPal would be cheaper but it is not. Now if you amortize those costs over 12 months, PayPal looks cheaper but over several years, PayPal does not come out ahead. This frankly suprised me.

If you want to go with a hosted solution, Yahoo seems to be the way to go, up through, in my case, around 300-400 transactions a month. After that, it is cheaper to go the Shopify route. I knew Amazon would be a little more expensive but was frankly suprised at how much more expensive. On low volume sites they are competative but at a certain point your costs almost double.

To be candid, I was leaning towards Amazon given the easy check out and good fraud protection but after seeing the numbers I am leaning towards the Yahoo route. While it would be cheaper to host it myself, I worry about my technical aptitude. Now if you have multiple sites you want to host, the numbers would need to be rerun as Amazon lets you host an unlimited number of sites with your hosting account. Since I am just running one, it is not competative for me.

I created an excel sheet comparing merchant costs if anyone wants to share. Just leave a message and I will send it along. Not very sophisticated but then again, I am not an excel guru. What have your experiences been?

The Last Lecture

“Experience is what you get when you don’t get what you wanted.”

This quote is from Randy Pausch, a professor at Carnegie Mellon who passed away in 2008 from liver cancer. He is well known for his lecture, Last Lecture: Achieving your Childhood Dreams. Randy is the consummate teacher. As someone who at the time of the lecture, had 6 months to live, shared his experiences, dreams and accomplishments.

To often, our lack of knowledge keeps us from starting something we know nothing about. That is what I am trying to do, share my successes and my failures so that we can learn from it. In some respects I wish I had a high powered VC to walk me through starting a business. In other respects, how would I ever learn if I didn’t do it myself.

Even if I never do this again, the depth of experience gives you insights no one else has. It helps us know the right questions to ask, whether in a normal 9-5 job, or if we outsource our next business. If you ever have anything to share, please feel free to post a comment, as I think everyone can learn from those comments.

Advice to banks searching for business customers

Some of you may know, my "professional" career consists of corporate treasury and corporate risk management. What this means, in simple terms, I manage the insurance programs and banking programs for large fortune 500 companies. I know about cash flow forecasting and position, positive pay and lockboxes, foreign exchange and investments, and having knowledgeable bankers and subject matter experts at my beck and call. I am used to being taken to lunch and dinner to maintain the relationship.

I am also used to quality customer service on the personal level. I maintain enough balances in my non-interest bearing checking account, never over draft and have a bank credit card to make me a profitable banking customer.

If I go to a banking center one more time looking for a small banking specialist, and they put me with a personal banker I am gonna blow up. The needs of a small business owner and a personal account are completely different. Don't tell me you can get a merchant specialist on the phone, I know how to pick up the phone. Don't try and figure out what I need for banking when you do not specialize in it.

Very simple, if you have a roving small business banker, let the person know it. Set up an appointment. Direct them to a branch that does. I want to sit down with this person. I want him to listen to my cash flows and explain the best options for me. Guess what, if you are able to do that, the small business owner won't leave you to chase the best deal down the street. In fact, if they are quite happy with you, they will actually move their personal business to your bank.

I know one serial entrepeneur who sets up his bank accounts with Union Bank of California for one reason. When he was a small business person, Union Bank was the only one who sat down, listened, and helped him set up his bank accounts. Guess where his personal accounts are too?

I know that Wells Fargo has gotten quite good at courting small business but they do not have presence in Illinois outside of their mortgage operation. I am talking with Bank of America this week to see what they can offer.

Banking Services Defined

When you start a small business, it is important to set up a separate bank account to separate your personal and business funds as much as possible. In fact if you have established a LLC or corporation of some type, you will need to establish a bank account for that entity. If not you could very well lose the benefits of the liability protection.

Business and personal banking services are quite different in pricing and capabilities and needs. We are all familiar with personal banking services, but what distinguished business banking services from personal?
Personal

Most of us have personal bank accounts, normally in multiple forms. We have our checking accounts that we pay our bills with, savings accounts, CD’s and normally a credit and debit card. The fees associated for maintaining those bank accounts are normally non-existent or waived for direct deposit or minimum balances.

Corporate

Corporate banking is what I dealt with at several companies. Corporate banking is actually what makes banking in the USA, so much better than just about any other countries banking system. Connectivity and infrastructure that personal accounts use were originally built for corporate transactions.
The thing to distinguish the two is charges. There is nothing free in corporate banking. I joke that just thinking about your account, the bank charges you. But of course the number of services you receive is much more extensive.

Small Business Banking

Small business banking is normally a combination of the two. It has many of the features of a corporate account, such as multiple names associated with it, but normally do not charge you if you stay under particular transaction numbers or maintain particular deposits.

What do I need right now?

I just need a simple bank account to collect payments, make a few purchases and file tax information. I do not need, at this time, positive pay given the small amount of checks I would write. I don’t need lockbox services yet. Would be great if I did. I do need some type of merchant account, whether through a bank or PayPal. I would like a debit card with reward points if possible. I think given the small amount of transactions, the costs should be minimal for an initial account.

I am going to see a couple banks this week and figure out what they can offer me if anything. I will let you know how it goes.

Costs to date

As we all worry about the cost of starting a business I thought I would give you a quick update on my costs so far to my business. This does not include gas and mileage, phone charges and other incidentals but outright costs that went on the credit card and that I have kept receipts for. This includes entity set up, website and prototype build.

As of right now, my total out of pocket has been $1,059.52. $667 of that had to do with entity set up and filing fees. The rest has been fairly inexpensive including domain names and hosting and a "business" mail box for 210 that lasts for 15 months.

If you really wanted to do it on a bootstrap, home address, sole proprieter, then in reality you are looking at so far no more then $500. Don't let cost stop you from doing what you need!

Out getting documents signed

As you read this I will be on the train heading into the city to get some business completed. I have to get signatures on the LLC from my 2% partner. Unless she flakes on me, I will spend a few hours trying to get a friend to help me with a logo and some type of catch phrase if possible. The nice thing is I have my wireless broadband card so I can use the internet on the train but its not always the easiest to concentrate on creating comments on here. I also have to spend some time reviewing the documents again so I can explain them to my partner. After that I head back that night and back to routine.

Kick out the Ladder

This is another video from the folks at Honda. While not a direct correlation, it fits the entrepeneur well. The premise being, remove the safety net, as that is when the engineers succeed. Entrepeneurs most time work without that safety net. Honda at least has, I would imagine, several hundred million in the bank to back up that lack of safety net. What we do as successful entrepeneurs many times, is create a product, or a better product then what others can get already. We are the what drive this country. Remember, all large companies started out as a single person at one point...



Enjoy.

Designing on a Bootstrap

Remember how I said starting a business does not have to be an expensive proposition? One of the ideas I had was to look for college students that can do freelance work for you. Not only are you helping establish someone with portfolio materials, their overhead is much less than a large organization, mainly because their office consists of their dorm room. It seems that college students think the same way as their is a great article here about preparing to be a freelancer in college.

http://www.freelanceswitch.com/freelancing-essentials/5-tips-for-college-freelancers/

Documents arrived

I got my documents from MyLLC today in the mail. I have to get the member to sign which I am doing next week and fill out some paperwork that needs a wet signature. So there is a one time $125 fee for listing the members. There is also $100 dollar for out of state business licence.

I need to change some small materials in the operating agreement that will essentially give me tighter control. The one thing that bugs me is they tell me its a sample operating agreement. I thought the purpose of hiring someone is to have someone create a document that complies with the state laws.

edit: MyLLC is changing the cover page on the operating agreement since it is a usable and robust operating agreement.

I also have to set up a business banking account next week and capitalize the business. I will probably start with $1,000 dollars and if I have to input more I will. I might try and create loans to the business till it is up and running. I haven't decided yet. MyLLC has done quite well so far and will keep you informed.

If you need to set up an LLC here is a link. Yes I get a referral fee but I am trying to be as honest with my experience as possible.

http://www.MyLLC.com/default.aspx?referredbyaccountid=52909

LLC Update

I got a call from MyLLC and they have notified me that they got the paper work back from the Secretary of State and are fedexing the paperwork to me. I also received my EIN already. Great great great work so far. Super fast!

http://www.MyLLC.com/default.aspx?referredbyaccountid=52909

If you want to set up an entity with them you can click above.

Company Logo

As I move along with my business idea, I started thinking of a company logo and/or trademark. Back in high school I used to be creative and artsy but when I look back I had a passionate art teacher that would nudge me in the right direction. Now a ton of art is done on computers and I have zero experience in designing logos.

I have looked around and there are services that will design the logo for you. They have different price points with the cheapest being a single design with three variants of the design for something like 300 dollars. Two designs with 3 variants each (6 logos) is, as you probably guessed, 600 dollars.

I think these companies would probably be great when you have an idea of what you want your logo to be like. Where these fall through is when you have no idea. I have no clue what to have for a company logo. The product is sound, but its not one that lends itself easily to a logo.

How do you do it on a shoestring then? You have local colleges that have design students? They are all looking to build out their portfolios for job interviews. You might be able to get it done for free, or for significantly less then a "professional". My friend is in design school. I told her I rather pay her to do it but she won't take cash, so I will take her to dinner then.

The great thing about it, is you have a young, ambitious person looking to fill out their portfolio. You can get them excited about your product and they invest their emotion into it as well.

"Give me guys that are poor, smart, hungry - and no feelings." Gordon Gekko, Wall Street

Importance of a website

The blog freelance switch has a great article on the importance of having a website and the five steps to go through. What it really made me do is think about how important having a website is regardless of your business.

Article here:

http://www.freelanceswitch.com/finding/how-to-make-the-web-work-for-your-business-in-5-steps/

Even if you do not sell a product online, like if you are a retail store or consultant, having a website gives you a legitimacy regardless of how big or small your business is. The best example I have is even restaurants, that do not sell online, have websites to look at their menus or what the inside looks like. How many times has a friend told you about a place, you go to look it up online, don't find a website and forget about it?

He created a website for his friend and while he tries to be modest, in reality he did a very good page for his friend. Looks like he used wordpress which is what I have started using as well on other sites. A simple non ecommerce website can be created quite easy. If you have all your logos, what you want to talk about it, I bet you could go to the local college and have them do it for you.

The only difficulty is, how do you find a good website designer for ecommerce sites?

Advice of a billionaire

Whether or not you believe what I write as motivation, we all look for motivation from our "successful" peers. I just read a blog posting by Mark Cuban, the owner of the Mavericks, who sold his business, Broadcast.com to Yahoo. If anyone can be considered a success, its Mark. I am not saying I like everything he says, but many times he has a sense of wisdom in business.

http://blogmaverick.com/2009/06/09/success-motivation-2009/

For those of you who read from frugality websites, to those that read from entrepreneurial websites, this read validates my thoughts, about now being the time to try something different. Take a chance, think differently, succeed!

Failure: The Secret to Success

Honda has put out an absolutely fabulous video, explaining the upside of failure. Fear of failure is what often holds many of us back from starting our business. What if I fail, what can happen? Failure in itself can be good sometimes. We learn from everything we do. We become smarter, better and faster. Most people look at a company like Honda, a company that is known for high quality products that sell well and think they have never failed. They have, multiple times, and spectacularly. It is ok to fail, just make sure you learn from the failure.



I am inspired.

Explanation of state filings

I realized I was talking about a lot of things that I wasn’t sure if my readers understood. Let me walk through some of the filings and the explanation of why I filed what I filed:

LLC

A Limited Liability Company provides shelters your personal assets from those owned or controlled by the business. It also offers some anonymity when you are doing business online. I chose Nevada for its strong privacy, no state income tax and fairly pro-business environment. Besides, my next trip to Vegas, maybe I can write off. In addition I am not running a store front but a virtual business so filing one in my home domicile was not required.

Other structures include the typical Corporation, a Sub-Chapter S corporation, Partnerships and sole proprietors. You will have to do the research yourself on the various reasons you might want one but given that mine is a single product, low overhead that I feel I can run myself, and would never need funding, I think the LLC is a good fit for me.

Registered Agent

A registered agent is a company that will take any type of legal service on your behalf. This included any type of lawsuits or subpoenas, as well as documents from the state, such as filing and tax documents. They also remind you of compliance issues and filing dates. It is important to note, if you do not live in the state you are filing in, you will need a registered agent anyway.

EIN/TIN

This is an employer identification number or also known as a tax identification number. It is like a social security number for your company. You need it to open bank accounts, registered with the local taxing authorities, and if you hire employees to pay excise and employment taxes. Even if I didn’t have an LLC, and was a sole proprietor, I would still get once just to keep my SSN off a bunch of public documents.

DBA

Doing Business As. This is a document you file with the state to identify the name of your business. It is also called a fictitious business name in some states. A DBA has several purposes. Once, it allows you to have multiple businesses under one corporate structure:

· Entity: ABC LLC
· DBA: DEF Sales
· DBA: XYZ Services

It also allows you to receive payment into a single bank account under multiple names. Your bank will most likely require it to open a business banking account. It even allows you to make letter head and business cards.

Operating Agreement

This is filed with your LLC to explain how the company will work. I have not received mine yet but will most likely make a few minor changes if I do not like the indemnification provisions. The operating agreement could even include things like ownership changes, splitting of profits and even little things like, year end.

Certificate of good standing

I know little about these. I just know I didn’t need one. Certain states require it but since mine didn’t. If you have a store front and an LLC in your state, just make sure you don’t need one.
Unfiled

There are more documents I need to file, I am just not sure yet. Some of these will be sales tax documents with the states I will accept sales tax in. Others will be a listing of the members and any tax documents I need to think of. I will update you as I figure out which ones they are.

Disclaimer

I am not a lawyer by any means. I am just a small business person sharing my experience. Part of the reason I used the service was, not only for speed, but to make sure things are filed correctly. My whole filing including all the items I listed above was less than 400 dollars, all in. This included the filings as well as state fees and even shipping (pure profit by the way). Don’t let fear of the unknown hold you back.

Procrastination takes its toll - mentally

I have written a couple times this week about getting the LLC application filled out and on its way. I had been putting it off, putting it off, until finally I said, I just have to get it done. While it is a small thing, I can't believe how relieved I feel to have that done. I kept thinking and thinking and trying to understand every last nuance of setting one up.

What state?
Single or multi-member
DBA?
What information do I need?
Cost?

In the end it was the easiest thing I ever had to do. I called a service (myllc.com) and they walked me through it. The cost was negligable, they do all the filing, and I didn't even need a majority of the information I thought I would.

http://www.MyLLC.com/default.aspx?referredbyaccountid=52909


I look back now and see the toll the procrastination was taking on me. I was grumpy, snapping at my family, and I felt like a weight had been lifted off my shoulders.

While I am not saying to rush into anything, but by holding back to much, you put an emotional strain on yourself. Procrastination can be healthy when it is used to collect more information, but unhealthy when it wrecks us emotionally.

LLC Update

Moving right along. Not an hour after my order, I received the filled out form for my approval to go to the Secretary of State. They did a search to make sure the name was available, which it looks like it was, got the signature from the registered agent acting on my behalf and said it would be approved with in a week to ten days. There was one mistake on the application which most likely was my fault when I filled the data in on the online form. So far quite pleased with myllc. If you need to set up yours, go ahead and click below:

http://www.MyLLC.com/default.aspx?referredbyaccountid=52909

Many of you might ask why I need a registered agent. Several reasons, because my business will be virtual, I set it up outside my home state so I need someone to take any type of service. Second, even if it was in my home state, I like the privacy of not having my address listed, and I like knowing there is someone to take service between 9 and 5 as required by law.

Ordered my LLC

Finally, after dragging my feet, I got the process started for creating my legal entity. I went with a Nevada based LLC. Since it will be a virtual business, i.e. no store front, I decided on Nevada which had strong privacy and no tax liability outside of sales tax. I looked at a lot of different services including legal zoom, incorporatefast.com, intuit and myllc. I chose MyLLC and I can not be happier so far. The woman who started the company also wrote LLC for Dummies, so there is at least some literature pointing towards expertise.

I got onto their live chat and was lucky to connect with Nicole who is their operations manager. She walked me through the entire process, what I needed, what I didn't need and to make it even better, gave me a coupon code at the end that essentially waved the filing fee.

As the process continues I will keep you updated and let you know any snafus. If it does as well as it has so far I will be quite pleased. If any of you need to start an LLC, here is a link:

http://www.MyLLC.com/default.aspx?referredbyaccountid=52909

One day closer!!

Business Slush Fund

Do you have your business slush fund? This is cash set aside to take advantage of opportunities that come up from time to time. If you had your slush fund you could have bought GE at $8 a share just a few months ago. You could have bought Intel in 2003 at 10 dollars a share. I remember every engineer I knew at Intel was buying stock with all their money when it hit 10 bucks a share in 2003. They knew what was coming down the pipeline.

This slush fund allows you to start those small businesses when they present themselves. Need to set up that LLC? You have the cash! Minimum lot size was a lot higher then expected? You have it in the bank to not miss the opportunity.

Call it a slush fund, a contingency fund, or just all around savings, you should always have cash sitting around to take advantage of those opportunities. Have you ever heard the saying, being at the right place at the right time? Doesn't matter if you are at the right place at the right time if you don't have the resources available.

Website

I purchased the domain name that I wanted the other day. It was quite easy. I purchased through godaddy.com and actually purchased a couple other domains to play around with. I also bought a general hosting through hostgator. I understand now how programmers can get caught up in programming. I have been playing around with wordpress and trying to figure out how to change the HTML without messing things up to much. So far I have been fairly impressed with what little I have been able to do.

I am thinking about whether I should try and pick up the .ca and other associated domains incase I want to sell to other countries. Right now I am focusing on the US at the moment. What do you think?

Target Market

Seth Godin had an interesting write up on defining your market and growing your customer base. The article talks about deeper versus wider. One thing I wish he would have addressed though, is when do you go deeper, and when do you go wider. Sometimes its not possible to go wider. Your product is a niche one, so you go deeper in those cases.

Under what circumstances would going deeper actually hurt you? If you have a broad base of customers, going deeper will only alienate a good portion of your established customer base. In this case, wouldn't it make sense to go wider?

I don't profess to get into the whole economics game but it makes me think back to elasticity of demand for your product. Wouldn't a deeper client base entail more inelastic demand, and hence a higher priced product? Of course that higher price should theoretically be offset with a lower cost of supply from being in a niche business.

My point is to be careful before you decide between deeper versus wider. In the race for more customers and more profit you do not want to kill the goose that lays the golden eggs.

The Article is here: http://tiny.cc/Q5Eq6