The Best Revenge: Make More Money
Filed Under: Founder's Forum
Tags: Entrepreneurs, Government, Money, Taxes
American entrepreneurs really are a whole different breed. They don’t expect anyone to give them a break or a pat on the butt. They get their satisfaction from scoring, not praise. They take pride in doing something better than mankind ever did it before, not just their competitors. They pay their taxes to the local, state and federal governments without resentment, and then they pay for useless but mandatory insurance of all different varieties, interest on borrowed capital necessary to grow and merchant charges for credit card sales that scoop off a clean 2 – 4 percent right from the point of sale. For the credit card companies this is like a private tax that they get first, at the time of the sale, before anyone else gets a chance to cannibalize the entrepreneur’s “gross sales”.
Question: How many congressional Representatives and Senators can you buy with 2% of America’s retail gross sales? Answer: Just about all of them. Credit card companies ARE the BANKS. If you think banks make money lending money you are falling for the image of them THEY want you to have. Banks lend money, sure they do but it’s the credit card income that keeps them floating in a sea of money coming in everyday – NOT the interest they earn off your line of credit or your mortgage. They can shut down those sources of income instantly and still make gigantic profits. It USED to be that banks made money serving your capital needs, but times have changed.
So when the banks caved in to the federal government and made real estate loans that went sour because they never should have been approved in the first place, they didn’t need to go begging to Congress for a handout, because they’d already bought the Congressional Representatives and Senators they needed to patch things up with special legislation for them and billions of dollars of quick money to solve the problem. That’s how the biggest bailout in the history of man happened, which became a stimulus package so gargantuan that it staggered everyone in the world who read about it, and numbed even those Americans who repeated the words, “785 Billion” as though it was just another big number. But the money’s gone now, with no apparent impact on the economy as seen by the American entrepreneur, the progenitor of global prosperity.
American entrepreneurs brush it off, but now with a great deal of resentment. What will their strategy be for 2010 and beyond assuming the federal government aims to feed off them and piles on the fees and taxes and increased costs of staying in business? Will they organize politically? Will they re-organize their companies to be more efficient? Will they sharpen their focus on ROI? Or all of the above? I believe they’ll figure out how to make more money, pour themselves a scotch at 5 p.m. as usual and reinvent the world economy again.
Happy New Year! 2010
Filed Under: Essays, Founder's Forum
Tags: Entrepreneurs, Startup
If you’re just starting a business now, or thinking of it, your timing couldn’t be better. Starting a small LLC during an economic slump greatly increases your chances of success in so many ways. If you already run a successful small business, 2010 will challenge your ability to adapt.
For a start-up, you succeed or you die. That’s a strong incentive. During boom times you can always go back to your old profession or find another job even better than the last one. Any business – fundamentally — is only successful if the “money in” is greater than the “money out”. The more “money in” compared to the “money out” is the primary measurement in business success. That may seem simple, but it can become foggy in boom times when “early losses” can be tolerated for future success. If you keep it simple and work out of your home, how much do you really need to successfully take care of the “overhead” including the home and family expenses?
Actually, the list of advantages to starting a private little LLC now could go on and on. The internet advantage, the small computer advantage, the smart phone advantage, the low overhead advantage, the overnight shipping advantage, the changing climate advantage… the list goes on and on. It all boils down to this: because you can take advantage of being small, you have the advantage over businesses that have been successful and are established for a decade or more.
In contrast, successful small business owners that have been through the tough times in the beginning and then experienced growth and expansion due to increased demand and excellent performance in their field are vulnerable right now — perhaps more vulnerable than any period in the past 80 years.
Established small businesses have acquired increased administrative costs, increased government fees and expenses, increased energy costs, increased medical insurance costs, increased payroll costs, increased rent costs, increased insurance costs etc. etc. etc. The bottom line is, the bottom line isn’t what it used to be, and all indications are that this trend will continue. When the “money-in” becomes LESS than the “money-out” the small business has a problem.
The government term for a small business in this situation is “Too Small To Save”. Doesn’t that make you feel special? Seven hundred and eighty five BILLION dollars for failing bankers and insurance companies to give multimillion dollar bonuses to themselves and nothing for small companies hit hardest by the fraud the government and the bankers perpetrated upon them and the whole global economy.
All last year, our congress dished out billions to a few big companies and became fixated on taking over our health care industry, even while they run V.A. hospitals so badly already. Only one thing is certain about the new health care plan, it will cost small businesses more and it will introduce new taxes that will become part of our increasing costs of providing our goods and services to our customers.
Almost as bad as what Congress DID last year is what they DIDN’T DO. Congress ignored working on a new tax law. This is important because many current tax incentives for small businesses expired on December 31, 2009. At the last minute they threw some extensions into the Health Care bill, but the House and the Senate couldn’t agree upon it so, officially, many incentives that have kept American small businesses competitive in a global marketplace and growing for the past three decades expired December 31, 2009.
Currently, successful companies that want to stay successful will be the ones proactively raising their prices, producing less more profitably, investing in energy efficiency, doing more with fewer people and testing new products and services that afford them a higher margin.
In either situation, start-up or established company, small businesses are the backbone of the American economy and the American economy fuels the world economy. When it comes to ending the recession and returning to prosperity everyone’s counting on you!
YouTube is an LLC and Google is a General Corporation. Do You Know Why?
Filed Under: Delaware, Founder's Forum, General Corporation, INC Knowledge, Limited Liability Company, Q&A
Tags: Delaware, Entrepreneur, Google, Limited Liability Company, Shares, Stock, YouTube
Both, of course chose Delaware as their corporate home, even though they are headquartered elsewhere. But why did they choose different entity types? The difference between an LLC and a corporation is clearly defined by this one example that the new generation of entrepreneurs will fully take advantage of.
This is not a question of “Which is right?” This is a matter of strategy. YouTube actually started as a corporation filing their Certificate of Incorporation with the Delaware Division of Corporations on October 3, 2005. On November 8, 2006, just 13 months and five days later, they merged their corporation into an LLC, which is one of the key advantages of a Delaware company: they can change from one form of entity to another whenever they want. Google, as you know is listed on NASDAQ. As of year-end 2008 it had 314,000,000 shares outstanding and a valuation of $93.6 billion. Even though 60% of that is owned by institutions, there are millions of individual shareholders in Google.
YouTube, LLC, on the other hand, is owned by a few members. Nobody, but the insiders, know how few, and nobody, but the insiders, knows who the owners are. More than that, nobody but the owners know what the company finances are because no public disclosure is required. That’s the benefit of a Delaware LLC. Your members and their ownership percentages, and your financial valuation are a private matter that only the company insiders know. There is no public registration, no public disclosure and no federal requirement of any type that would require the owners of a Delaware LLC to reveal who they are on the public record.
Google chose to be a Delaware Corporation so they could go public and raise money, which they did on August 16, 2004. Once they did this, they quickly became one of the richest company’s in history. Their rise to power created tens of thousands of millionaires and a lot of billionaires. The company has current cash reserves of $50 billion. With that stash of cash, the whole world wondered what they would do with it.
YouTube originally planned on following the Google, Inc. model, but they soon met the real Google guys, and others and found that cash was available to them without going public. If you have all the money in the world offered to you by capable investors, why disclose who owns you? Why disclose your governance structure, why disclose your finances? Why be regulated by the Stock Exchange and the S.E.C.? Hey, if you’ve got the investors without going to the public markets, you’re much better off to keep it simple. That was the YouTube approach beginning on November 8, 2006, and that’s what makes them valuable to their owners…..whoever they may be.
So, as the next successful entrepreneur, which would you choose? A Delaware Inc. or a Delaware LLC?
If you’re just starting your business now, in 2009, where do you raise money?
Filed Under: Capital, Founder's Forum, Q&A
Tags: Capital, Investor
Banks aren’t lending, venture capital firms are now effectively hedge funds, and American angels are about to be slammed by the crashing market and expected tax increases on capital gains, the source of angel investment power.
Money has never been easy to raise when you’re selling a dream… presented confidently as a vision — for the first time. If it were easy everyone would be doing it. The key to understanding and surviving this process is to realize that, “It isn’t SUPPOSED to be EASY!”
The lessons learned from REJECTION reveal the logic that eventually leads to long term SUCCESS. Others have described this as “having to learn to crawl before you can learn to walk”, but it’s not that elementary. It’s a simple reduction process, which allows only the most clever and detail-oriented to survive. The innovative, the committed, the determined and the clever each find that they must, in fact, be ALL of the foregoing to survive. Any single qualification would not be enough. The term “competition” provides inspiration as well as deep seeded fear. One learns that they must deliver competitively and that with every presentation excellence is expected.
In order to get money from an investor, you MUST ask them for the money and you need a presentation to ask an investor for money. The first presentation you give will be your last if you fail to impress. You must answer the usual investor questions up front, but primarily you should set your “vision” in the mind of the investor. Where are you going? Is the first question the investor wants to know after he understands what it is you want to do and how you plan to get it done.
Once you’re successful, you can reminisce with joy about the lucky breaks you got that lead to your success, and minimize the effort it took you to become successful — others will love you for it. But to BECOME successful, you need to work at it like the best professional athletes work out. Work is taken for granted. Amazing feats are taken for granted. Scoring continually is taken for granted. Even winning is taken for granted. The only effort that counts is EXTRA effort. If you can LOVE that, you’ll be successful during these tough times.
Einstein Failed at Business
Filed Under: Founder's Forum
Tags: Entrepreneurs, Risk, Vision
Einstein, as brilliant as he was, wouldn’t have been able to start a business or even manage a business successfully.
He proved that to his disappointed father, an entrepreneur who built two successful businesses and wanted his son to follow in his footsteps. Einstein tried, and was miserable at it. He ended up packing his things and leaving in frustration. Yet Einstein had a lot in common with today’s new breed of entrepreneur. He envisioned the experiments to prove the world’s greatest scientific theories, as entrepreneurs today envision businesses never before imagined, or possible, in the history of mercantilism.
There are lots of examples of today’s entrepreneurs envisioning businesses that never existed before, like eBay, Google, and many others. Even Microsoft, when it first started, was a one-of-a-kind business. Bill Gates, Pierre Omidyas (founder of eBay), and Larry Page & Sergey Brin (Founders of Google) are well-known modern day Einstein’s who can create as well as envision. Two of today’s relatively unknown entrepreneurial Einsteins, Evan Williams (co-founder of Twitter) and Woody Norris (inventor) are best understood by viewing their talks on www.TED.com.
Einstein trusted his vision. He relentlessly pursued his vision and in doing so, he actually fulfilled his vision. On the gut level, this describes today’s new entrepreneur who is primarily a dedicated visionary. In this global marketplace, the entrepreneurial boom has just begun. More new businesses are going to be created in the next 20 years than ever before in the whole history of civilized man. More creative people will take the path of pursuing their dream by forming a company – and more of you will succeed.
The opportunity to form a company and create a business that uniquely sustains your lifestyle, allows you to be creative and helps your customers, all at the same time, is now available to you and a million others. ALL of you can be successful beyond your wildest dreams. To attain success you must have a vision, be dedicated to your vision and take the RISK of actually doing it. Many of you have already taken the plunge and many of you are just now considering it. At Harvard, we form more than 5,000 companies per year for people like you, and we’ve been doing it for 28 years. Communication among us, the entrepreneurs, is what this blog is all about.
Illustration by Josh Lowe
