Joe Abraham

Small Business – Time to get out of debt

// March 17th, 2010 // View Comments // Small business

Moody’s Investor Service just send out another warning shot suggesting that the US could lose it’s AAA credit rating.

Some of us look at that and get alarmed.
Some of us will tie it to political agendas.
Yet others could care less.

But as business owners who depend on the financial systems in the marketplace, we do need to care. At the least, we need to war game the scenarios and prepare.

What if Moody’s finally decides to change the US credit rating? (the US has spent more than it made in 16 of the last 20 years – how long would you keep a company’s AAA rating with those statistics?)

Well, then it will cost the government more to borrow money.
That will trickle down to higher rates for everyone in the world.

Accessing cheap money will be harder…
Carrying debt will become more expensive. (That means higher cost of goods and operating expenses without any new revenues to offset it).

Whether you believe that is going to happen – or whether you believe we are invincible is besides the point.

The point I want to make to small business owners is this.

Why not plan for the best and prepare for the worst?

If you are carrying a significant amount of personal or corporate debt, now is the time to get rid of most (if not all) of it.

Here are two key ways to do it.
1) Pay it off – I know that sounds really elementary – but sometimes it is as simple as that. Sit down with your financial team and put a plan together to reduce your debt service by 50%-100%.

2) Sell it off – Many savvy entrepreneurs are exchanging debt for equity in this marketplace. After all, investors don’t have a lot of places to park their money today. Why not in your business? You can go from being debt ridden to debt free in no time at all. Then, if the worst case happens and interest rates skyrocket, your business won’t be as adversely affected.

I say “as adversely” because any increase in the cost of money will impact us – even if it is indirectly through higher costs of doing business. But who will be better positioned to make it through a time like that?

Option A: Your competitor who ignores this advice and has to deal with the double-whammy of higher costs and expenses.
Option B: YOU! who are debt free and able to absorb higher costs because you have lower expenses.

I just don’t want your business to be the one that had to slow down (or shut down) because the captain (you) didn’t anticipate and prepare ahead of time.

To VC or Not VC…That is the Question

// January 11th, 2010 // View Comments // Small business

Another big question that comes up from young entrepreneurs is the viability of VC funding for their business.

Many entrepreneurs will go right from idea to “I-have-to-write-a-business-plan-and-get-vc-funding” mode.

The fact is, that’s not how it works. Here are a simple set of points on VC funding. Read through them and decide if this is indeed the path for you to pursue.

Do some homework on the last 50 deals funded by VCs. If your company is…

1. In the high growth segments that VCs are actively investing in
2. Doing $5 million to $20 million in revenues
3. Poised for high-double to triple-digit growth
4. Staffed with a management team that has minimum MBA level education
5. Led by a CEO who has a proven track record in starting-building-selling a company in this space
6. Armed with strong market protections through patents and/or proprietary technology with significant barriers to entry.

Then you may be perfectly poised to talk to a VC.

If you do not have at least 4 of the 6 qualifications above, you’ll be wasting your time. [Like anything else, there are exceptions to every rule, but the less items you can check off on the list above, the worse your odds and the higher your risk of wasting time]

VC’s make great partners for book-smart entrepreneurs (MBA, PhD level) because VC’s are highly sophisticated and educated individuals themselves.

VC’s don’t do well with street-smart (bachelor’s degree or less) entrepreneurs. The 2 groups speak totally different languages. It ends up being a very frustrating journey for both parties.

If you are seeking startup or working capital and don’t fit the bill as stated above, then take advice from Lori Hoberman Chair, Corporate and Securities Group at Fish & Richardson P.C. [this is an excerpt from an article by Steve Viuker on Amex OPEN Forum. Click here for the full article]

“However, the average start-up is much too early for a venture fund,” explained Hoberman. “I tell my clients, ‘If you can sleep borrowing money from friends and family, do it.’ As for angel investors, you need to find that certain individual who likes the industry you’re in. But again, family and friends is one of the better ways to get started.”

3. If technology is involved, the firm might consider spending money on a patent application. That can cost $10,000 to $12,000.

So there ya go. Lori and I are on the same page.

Questions or comments? Post em below and I’ll respond.

Now THIS is free enterprise at it’s best

// December 3rd, 2009 // View Comments // Small business, Small government

What do entrepreneurs and small business owners do when banks forget what they are in business to do?

We get creative and survive.

This should be a lesson to policy makers in DC. Bailouts and government funded programs were not necessary for this entrepreneur. He just needed the freedom to be creative and make free enterprise work for his benefit (and the benefit of his employees and customers)!!

Three cheers to this entrepreneur.

Starting a Business-Step 1

// January 16th, 2009 // View Comments // business startup

Every business typically starts on a paper napkin (or scratch pad, or legal pad, or white board…). The point is, that there’s a magical moment in time when the light bulb goes off for the first time in an entrepreneur’s mind and they reach for pen and paper to jot it down.

I’ve sat at countless restaurant tables with guys and gals after they’ve sold their multi-million dollar enterprise and it’s always interesting to see them reminisce right back to the first day it all began…

The day they first conjured up their company on a piece of paper!

It’s an exciting time that you too will remember for the rest of your business journey.

Believe it or not, this is a very important stage in the startup of your business because it’s typically your first opportunity to make mistakes!

Yup! You can make a LOT of mistakes at the paper napkin stage…

See, the paper napkin stage is where you end up making mission critical decisions like “who, what, when, how and why”.

Here are the questions you need to answer in this step:

Who…is my customer, is my partner, will be on my team?
What…is my product, is my unique selling proposition?
When…do we open the doors, will I know I need help, will I sell this company?
How…will I earn a profit, am I going to structure the operations, will I spend my time?
Why…am I doing this?

Let me tell you from personal experience (both good and bad) as well as the experience of having built companies with and for a lot of entrepreneurs…

You can do your business a lot of good…and a LOT of harm during this step.

The best advice I can give you if you are at this stage in your venture is to NOT “go it alone”.

Shamelessly avoid any ego trip you may be on, and ask for some help. (It’s a good habit to start early in your business).

Find 3-4 seasoned entrepreneurs (you probably have some within your network of friends and family).

Talk them through your paper napkin. (Important tip: Buy lunch. It’s the cheapest way to get a bunch of “free consulting”)

They’ll probably ask you a ton of questions that you won’t have answers to…

They’ll probably make you feel like you are totally unprepared…

You may even feel like a schmoe for those 45 minutes…

But guess what?

You’ll walk away with insight and wisdom that will save you a ton of money, headaches and heartache in the future.

So like I said earlier, avoid the ego trip (or perfectionist mentality that says “once I have a business plan, then I’ll talk to them”)…

Pick up the phone or fire up your pda and ask for the help now…before it’s too late.

If you don’t have 3-4 seasoned entrepreneurs in your network who you feel comfortable doing your napkin presentation to, then call my staff and they’ll be glad to kick the tires with you. Tell them you read about this on my blog and the entire session is on me with no cost or further obligation.

The paper napkin is the first critical step in your business startup. Do it right, and you’ll enter the next step with confidence, excitement and a healthy anticipation for the good things to come.

Skip this step and you’ll end up with partners you didn’t want, a business idea that doesn’t hold water and possibly a very skewed picture of the potential of the business. (Trust me, you don’t want ANY of those things!!)