Tài liệu Business Startup survival kft ppt

Copyright 2001
Simply Media, Inc.
Lincoln, MA 01773-0481
www.simplymedia.com
Deaver Brown, Author
Brown co-founded the Umbroller stroller company, American Power
(APCC), and Simply Media. He published The Entrepreneurs Guide
with Macmillan in hardcover and Ballantine in mass market paperback.
He published a business series of CD-ROM’s with Macmillan and
another series with Simply Media. Brown graduated from Harvard
College and Harvard Business School. He has published numerous
articles in trade journals and business magazines.
Business Startup
Checklist
Keep copies of your paperwork in a
home safe and a backup set offsite.
Copy of Your Incorporation
Papers.
Copy of Your SS-4 (Fed ID#).
Copy of your Annual Payroll
Summary.
Copies of Your Bank Statements.
Backup diskette of your financial
program.
2
Business Startup Survival Kit
www.simplymedia.com
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3
Legal Survival Kit
About the Survival Kit Series

Our Survival Kits are designed to be quick, concise, and much
easier to read than most reference books. As in true wilderness
survival kits, the key to success is limiting your materials to the
least amount necessary. This provides users with fast, light, yet
complete packs, and ensures easy travel without excess baggage.
At Simply Media our hardest task is eliminating materials that
are not absolutely necessary for traversing the subject’s territory.
We take the time to make each of our Survival Kits as short and
concise as possible so you can learn the most important facts
with a fast cover-to-cover read.
About the Business Startup Survival Kit

The Business Startup Survival Kit pares down the huge amount of
business startup information available, and provides you with the
essentials to start and run your business.
In the Survival Kit spirit of “less is more,” the contents are con-
cise and divided into small individual categories for faster read-
ing and better comprehension.
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4
Entrepreneurship as a career
choice is it for You?
Business startups appeal to their founders for
three reasons:
Freedom – Freedom is the right to choose. In
your own business you get the right to choose
who you deal with and reap the rewards of your
work.
Job Security – You get to keep your job
unless you go out of business. You have no fear

of downsizing, irrational bosses, or the elimina-
tion of your entire job function.
Wealth – You have the possibility of creating
substantial wealth for yourself and your family.
If the business works, you can usually receive a
long term stream of earnings and cashflow.
Most business startups begin because the
founder wants to make something happen and
earn a living for his or her family. Even the great
companies such as McDonald’s, Microsoft, and
Walmart usually started as very small firms and
remained that way for a number of years. Most
of the founders of these companies had little
idea about how big their firms could become
some day. They succeeded by sticking to their
knitting, getting stuff done, and making sure
their little companies were built on a solid foun-
dation.
The exceptions to these rules were heavily fund-
ed venture capital startups such as Compaq and
Staples that were, in fact, big company organiza-
tions from their first day in business. This book
does not focus on these kinds of companies that
are big companies from their birth.
Why Avoid Business Startups.
Most people avoid business startups for three
reasons:
Business Startup Survival Kit
Getting Started
Chapter one

Video 1: Getting Started
in Your Own Business
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Economic Risk – 3 out of 5 startups go out
of business in less than five years. Often the
owner winds up with personal liabilities associ-
ated with these failures.
Career Risk People with good career
prospects can have their reputations tarnished by
a small company failure. Even if the firm is
moderately successful, their opportunities to
rejoin the large company world later are limited.
Temperament Many people do not have
the temperament to withstand the uncertainties,
ambiguities, and problems associated with busi-
ness startups and small companies in general.
When deciding about starting and running a
new enterprise, remember that it is far easier
begun than ended. Once you start most people
wind up involved in small businesses for the rest
of their work careers. This is due both to their
choice and large companies distrust of former
entrepreneurs as potential employees.
Therefore, keeping your current day job is the
best career choice for most people. Think long
and hard before making a jump to entrepre-
neurial life.
The Entrepreneurial Profile
Successful entrepreneurs tend to have nine per-

sonal characteristics. As Peter Drucker has said,
a good executive can become an effective entre-
preneur. But, would that individual live the very
different life of an entrepreneur happily and suc-
cessfully? Usually not.
Executives must manage a large sprawling estab-
lished organization. This requires a cool, mea-
sured, analytical style and approach. The entre-
preneur must build an organization where none
existed before. They have to drag their less than
perfect company along until it beings to function
as a self-sufficient enterprise. The tempera-
ments required to do these different tasks vary
widely.
The following are the nine characteristics exhib-
ited by successful entrepreneurs. If you have
them, fine; if not, consider keeping the day job!
Enthusiasm & Endurance Enthusiasm
and endurance are suspect in the corporate
world. The effective executive is supposed to be
measured in approach and focus a substantial
amount of their energies outside of the business
in community and leisure activities. The entre-
preneur must plunge forward with often self-
deluded optimism to urge his or her team for-
ward again and again, often against formidable
odds.
An individual must have a thick skin to endure
the constant barrage of problems and criticisms.
Few things are as good as they should be in a

business startup, from facilities, to products or
services, to people, and cashflow. Through all of
this the entrepreneur needs enthusiasm and
endurance to prevail personally and corporately.
Conclusiveness Entrepreneurs must be
able to conclude and move on without looking
backwards. This is not the same as decisiveness.
Business Startup Survival Kit
Business Startups
1996-2001
1996 ‘97 ‘98 ‘99 ‘00 ‘01
Chart in millions. Business startups
are expected to keep growing rapidly.
Incorporated & unincorporated businesses
4.00
3.00
2.50
2.00
1.50
1.00
.50
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One does not need to come out strongly one way
or the other for the simple reason that in the
fluid business startup environment the very same
decisions must often be revisited several times
based on new information and circumstances.
One needs to be able to conclude and move on
without recriminations about this, that, and the

other thing.
To wait or linger in decision making is to court
disaster in a business startup whereas in large
corporations it is viewed as cool, measured, and
appropriate to wait and gather more and more
data before concluding. In business startups,
deals have to be struck quickly.
People need to be hired; facilities secured; prod-
ucts sold and shipped; and the cycle repeats itself
until the company emerges as a going concern or
disappears. If the leader is not conclusive, the
company loses its fluidity, stuff gets backed up,
and the company chokes to death.
Leadership & Independence Entrepre-
neurs must lead from in front. This involves get-
ting in front of tough problems as well as cheer-
leading the troops on to better results.
Eccentricity is often present. It usually works
out as long as leadership skills are present. Most
successful entrepreneurs have a low need for
support and are loners by nature. They tend to
work well independently without the comforts
of large organizations or family support systems.
Product Pride Entrepreneurs have to care
passionately about making their products or ser-
vices good. They can not always start from this
position. It usually takes time, especially when
doing anything new for the first time. But the
goal must be the perfect hamburger for Dave
Thomas of Wendy’s, the right PC for Michael

Dell, or a great retail store for Sam Walton.
Marketing Skills Effective entrepreneurs
are always trying to figure out what works, what
sells, and changing stuff frequently to make this
happen. Thomas, Dell, and Walton spent years
tinkering with their products and services to
perfect them. It is a never ending process for
successful entrepreneurs.
Nerve & Shrewdness You need nerve to
navigate through the pitfalls of business startups.
This is not about being brassy or pushy. It is
about sticking it out, having guts, and working
your way through sticky problems.
Shrewdness is an important skill since business
startups need to make things happen with less:
less money, lesser people, and less cash.
How Do You Measure Up?
Without a strong dose of these nine qualities
your venture will flounder like a wounded duck
as you try to manage your business startup. Test
yourself against this nine point grid. Check out
your findings with a few friends. Your friends
can often give you a quick read about where you
stand on this stuff.
If you identify one or two shortcomings, get a
partner or strong senior manager who possesses
Did You Know?
Of all the companies in
the Dow Jones Industrial
average in 1900, only one

is still in business:
General Electric.
Business Startup Survival Kit
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7
the missing characteristics. The original CEO
at American Power recognized his marketing
shortcomings and hired me to fill this gap. Do
the same yourself. However, if you have several
shortcomings, save yourself the trouble and keep
the day job.
Small Companies as a Career
Choice
Why Work in a Small Company?
Far more people work in small companies than
large ones. Similarly, far more people work in
small companies than have an ownership posi-
tion in one. Small companies have been the
engine for growth in the US economy for over
20 years. Fortune 500 companies are steadily
cutting back on their absolute employment
numbers even as their sales grow. Large compa-
nies are focusing on leveraging their assets,
reducing their employment, and cutting back on
their dependence on employees as they out-
source more and more of their own work.
As a result, working in small companies is usual-
ly a safer career route than the old fashioned
approach of working for a corporate giant, rely-
ing on their benefits and stability, counting on

retirement with a nice dinner, gold watch, and
substantial pension. These days smaller compa-
nies provide much steadier and more reliable
employment opportunities as long as they stay in
business!
Small company people point to five reasons why
they like to work in this kind of environment:
Social. A smaller group that tends to band
together and help each other as well as being
more responsive to individual needs. Less
impersonal. More personally involved. A major
source of socialization on and off the job.
Stability. No one gets laid off unless the com-
pany suffers severe problems. Tendency to pull
together and protect employees in tough times.
Personal Freedom. Not as much personal free-
dom as a founder gets. But a lot more than
available in a large corporation.
Less Politics. As long as you do your job, there
is less political pressure or need to ally with the
right power structures within the firm.
Personal Recognition. People know what you
do and don’t do well. You are missed if absent.
Why Not Work in a Small Company?
The following are considered the three major
risks of working in a small company:
More Work. You simply must work harder since
simple things need to get done and there are
fewer places to hide than in a big company.
More Performance Pressure. More real work

must be done per employee. Fewer supervisors
and more doers. Fewer meetings and confer-
ences to “get through” the day.
Less Pay. Pay levels are usually lower than in
large companies. This is especially true for the
actual hours worked. Fewer pay increases are
given just for time and grade.
Business Startup Survival Kit
Y
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We stayed up with our
competition during the
week. We beat ‘em
working weekends.
”
Curt Carlson, Radisson Hotels
“
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Small Company Employee Profile
Effective small company people must be good at
what they do. There is simply no place to hide.
Many people prefer to work in the quieter less
political environment of the small company.

However, they must pass a more demanding
skills test since simply possessing the political
skills that can get you by in a large company
won’t work here.
Get Stuff Done.
Tip: This is the over-
arching requirement for a successful small
company career. Small companies are for
you if you can get stuff done. If not, find a
big organization to work in.
Independent & Low Maintenance. Don’t need
a lot of direction or supervision. Most people
think this is true of themselves. It is not. Low
maintenance means not needing a lot of social
chit chat, support, and help to get work done.
Quiet & Not Quarrelsome. Small offices and
facilities do not have enough space for disruptive
or argumentative people who always have
“something going on.” Large companies often
thrive on these characters. Small ones don’t.
Nerve & Shrewdness. Small company people
need to get lots of things done which often takes
shortcuts and ingenuity. A certain amount of
nerve helps people blast through walls and
shrewdness assists in getting what the company
needs done by outsiders.
How Do You Measure Up?
If you fit this profile, small companies will wel-
come you with open arms. Sell them on the fact
you have these exact characteristics. Very few

people have ever told me in an interview, “I can
get stuff done, am independent, not quarrel-
some, and have the shrewdness not to get bam-
boozled.” This is what your new small company
boss is looking for.
Perhaps more importantly, if this profile fits you,
you will enjoy working in small companies. This
will further enhance and support your self-
esteem and your work product.
Without a strong dose of these qualities, small
company work will be unsatisfying for you. Test
yourself for these qualities. Get a second opin-
ion from your friends and associates.
If your skills do not match up, don’t force a fit.
As the founder of the Fairmont Hotels said, “My
best decisions are the ones I passed on.”
Knowing what you can not do is often more
important than knowing what you can do.
Market Selection
The first step in a business startup is choosing a
suitable market. Avoiding the wrong market is
far more important than selecting the right one.
One unforeseen rock can sink your fragile start-
up. This need for caution is one reason why so
many successful entrepreneurs are bedrock con-
servatives and not real risk takers. They may
have missed innumerable chances to be even
more successful, but they pride themselves on
having avoided high risk projects that could have
killed their firms.

This cautious tendency is especially helpful in
selecting a suitable market for your firm to enter.
As Howard Stevenson has said, the market must
have a cashflow positive curve almost immedi-
ately unless your firm is underwritten by a ven-
ture capitalist. The market also must be large
enough to be worthwhile entering but not too
Business Startup Survival Kit
Venture Professional investment firms that specialize in investing
Capitalist in early stage companies. Minimum investments generally
exceed $1 million to $2 million.
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large or it will attract predatory competition.
Appropriate Markets For You
Appropriate markets have five general charac-
teristics:
Small (but not to small) markets. Big markets
are for big companies and small ones for small
companies. Walmart and many other retailers
got around this problem in their early days by
starting in small retail market trading areas.
Microsoft, Compaq, and Dell got around it by
starting when all PC based software and hard-
ware companies were small other than IBM.
These companies grew up with their markets.
Not Capital Intensive. Capital intensive mar-
kets are the domain of large companies. Only
they have the financial resources to compete
effectively here. Your market selection should

permit at least a 10 to 1 ratio for sales to equity
($1 million sales can be supported by $100,000
of equity). Many services and consulting com-
panies fit this requirement. Some consumer
product companies do if they can outsource
most of their production and fulfillment.
A Market You Understand. Above all you must
hit the ground running in your business startup.
Successful entrepreneurs usually had a long
standing knowledge of their general markets
before launching their first company. Bill Gates
had been working with computers for 10 years
before launching Microsoft; Michael Dell had
been selling stuff directly to consumers for 3
years prior to starting Dell. Sam Walton had
been a successful independent retailer for 20
years prior to launching his Walmart concept.
Substantial Customers dominate the market.
Although you may be small, you need customers
that are large so you can finance your business
off of their financial strength. Cash paying cus-
tomers can be considered “substantial” for these
purposes.
Long Product Lifecycles. Fashion forward
businesses get a lot of attention because the
media loves huge successes followed by big
crashes! Most of these companies are on the ash
heap after a few years because short lifecycle
products are so treacherous to build a business
upon.

Long product lifecycle products and services
generally appeal to a large segment of the con-
sumer or business community. They tend to be
low to moderate priced. Examples are value
priced retailers and restaurants, moderately
priced consulting and services firms, and moder-
ately priced outsource firms.
Check Your Concept Out Against this Market
Profile. Be sure your market selection meets this
criteria. If not, you should recognize that you
are betting against long odds by deciding to go
forward any way. The number one reason for
business startup failure is a lack of sufficient sales
to support the enterprise. This sales problem
often arises through the choice of an inappropri-
ate market.
Market Opportunities & Avoiding
Danger
Tip: Most opportunities are found in
small stable markets with substantial
upside. If the upside is too great too soon,
you can find yourself with a ton of tough
competition such as Netscape got from
Business Startup Survival Kit
Video 2: Market
Selection
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Microsoft and Amazon.com received from
Barnes & Noble. Some of these upstarts make

it. Most lose a ton of red ink along the way and
wind up being bought, as Netscape was, or liqui-
dated as many PC companies were that entered
after the market was growing quickly.
It is a risky matter to challenge for leadership in
a large market unless you have a ton of venture
capital behind you. Compaq did this and sur-
vived. Netscape had a ton of VC money behind
it and still wound up selling out.
Most markets have opportunities within them
for those experienced enough to mine them.
You need to select one market and one suitable
product or service to launch a business upon.
Most business startups get into a market and
then change their initial products or services
quickly to conform to changing industry trends.
The trick most successful entrepreneurs think is
in the execution not the initial idea.
After screening your concept to be sure it fits in
an appropriate market, take your selection
process to the next level and be sure it is in one
of the following three attractive market niches.
Market Leaders are Complacent. Without the
Big 3 being complacent, the Japanese car com-
panies would never have established a beachhead
in the US and Canada. Similarly Walmart
found that big retailers in the 1960’s and 1970’s
were complacent and showed little interest
in small towns for their stores.
Tip:

Complacent market leaders provide
opportunities for entrepreneurs.
Twenty three industry competitors turned down
the patent for the Umbroller before my partner
and I launched the product that quickly became
the number one seller in the category. Warning:
This criterion clearly puts up warning signs
about entering hot market businesses such as
Internet enterprises where no one is complacent.
Primary Market less than $500 million Most
of the companies discussed earlier were in these
relatively small sized markets when they were
business startups. Microsoft and Dell started
when the PC business was in its infancy.
McDonald’s virtually started the fast food indus-
try. Walmart competed in small trading areas
until very recently.
This approach is supported by Peter Lynch of
Fidelity who is so positive about regional restau-
rant and retailer opportunities because they can
grow in smaller trading areas. If they prosper,
they can roll out nationally and internationally
to attain large size.
Therefore, you can compete with a large com-
petitor as long as it is in a small primary market.
The large competitor only becomes truly threat-
ening when you take them on in a large market
where they can bring all of their resources to
bear upon your enterprise.
This is a major risk to consumer product com-

panies since they compete primarily on a nation-
al basis. Therefore, they have little time to build
their businesses without competitive attack
unless they are in small markets as Umbroller
was in strollers and American Power was with
small UPS’s before PC’s became popular to run
business applications.
Business Startup Survival Kit
Y
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Control
the alternative and
you will prosper.
”
George Eastman, Founder of Kodak
“
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Remember that Microsoft began by writing
contract code. Then they wrote DOS for one
customer, IBM. Ten years after being founded,
they began to sell DOS to customers other than
IBM. Microsoft stayed small and focused for a
long time, a fact often overlooked in entrepre-

neurial lore!
Portable & Transferable. The greater your free-
dom to move the business and replant it some-
where else, the greater your chances for success
and good financial results. This is a marvelous
aspect about retail and restaurant chains. If a
chain picks a poor location or has employee
problems at one store, it can simply close it with-
out unduly harming the overall chain and in
fact help it by bailing out appropriately. Single
location companies do not have this competitive
advantage.
When we opened our second stroller plant, the
first one got back on the page of good perfor-
mance. Diversification in terms of portability
and transferability gives a business startup much
more flexibility to grow and prosper.
George Eastman, founder of Kodak, told young
business people, “Control the alternative and you
will always prosper.” One reason for the upsurge
in business startup activities is that new ventures
are much less subject these days to being pinned
down by governments, employees, unions, or a
concentration of customers or suppliers.
Summary. In analyzing markets to enter and
which to exclude, keep these ideas in mind. It is
far easier to enter a market or business than to
leave one. The first business startup choice of
selecting a market often determines what market
you will work in for the rest of your career.

When I entered the juvenile furniture market in
1970 with the Umbroller in 1970, I did not
leave it entirely for 22 more years!
I entered the semi-tech business with American
Power in 1982 and am still in that business 20
years later. It took a ten year transition period to
extricate myself fully from the juvenile business!
Choices made at the outset of your career which
may seem temporary at the time, just like mine
did to me, often have a longer term impact on
your career and life’s work than you ever expect-
ed.
Seven Sources of Innovative
Opportunity
Now that you have worked your way through
market choices, you should choose a product or
service in one of the seven sources of entrepre-
neurial opportunity defined by Peter Drucker.
The simplest ideas are at the top of the list and
the hardest at the bottom. If you want money,
take one at the top of the list; if you want a shot
at the brass ring it is at the end of the group.
The Unexpected. This is the magic cir-
cle of things that work unexpectedly well.
Interestingly managers are quick to fix things
that don’t work and give little attention to those
that do. Your challenge is to find products or
services that work unexpectedly well and
launch your startup in that area.
Macy’s, the #1 department store in New York in

the 1940’s, found that housewares sold unex-
pectedly well. They were concerned with this
success that put apparel in the shadows that they
worked hard to bring down housewares sales to
increase the percentage of their business coming
from apparel. All of this, according to the
Macy’s CEO at the time was intended to regu-
Business Startup Survival Kit
Video 3: First Steps to
Take
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costs. As Sam Walton said in Made in America,
“We beat K-Mart by 3 cents on each item we
sold due to our lower costs.” Since the dis-
counter business has thin profit margins, this
difference funded Walmart’s growth and con-
sumers appreciation for Walmart’s resulting
lower prices.
Change in Industry Structure
or Market Structure. These changes
happen quickly and often catch complacent
insiders off guard. Barnes & Noble and Borders
caught independent bookstores by surprise as
these chains grew quickly within a decade to
dominate the retail book business. Amazon.com
created its growth by riding on the back of the
Internet explosion and caught both Barnes &
Noble and Borders off guard. Both had to react
quickly just to catch up. This is always a major

opportunity area for outsiders since insiders tend
to be wedded to their supposedly expert view of
the world.
Demographics or Population
Changes. The aging of the baby boom is an
example. Financial self-help books like the
Survival Series are popular because the baby
boom is thinking about building businesses and
saving for retirement.
Changes in Perception, Mood,
and Ideas. Starbucks capitalized on this.
They rode the market trend shifting towards
lighter more flavorful non-alcoholic beverages
with a touch of old fashioned community feel-
ing. Snapple did this with ice tea and related
drinks.
New Knowledge. This is absolutely the
hardest to do yet the most exciting if achieved.
FEDEX, Apple, Thomas Edison, Henry Ford,
and Sam Walton did this. This is about doing
new things in a new and inventive way, with
extraordinary talent. In other words, to achieve
this, you have to do one impossible thing after
Business Startup Survival Kit
larize things.Bloomingdales’, the #7 department
store in New York at the time, saw the opportu-
nity, and rode it to become the leading depart-
ment store chain in the New York area and much
of the country. They just did “more” of what the
customer wanted rather than “fight” the cus-

tomer as Macy’s did.
The unexpected outside event is a similar simple
opportunity to follow up. The recent explosion
of the Internet is such an example. Consider
how you can apply your efforts to these unex-
pected kinds of opportunity areas that arise all
the time.
The Incongruity. This is the difference
between what is and what people in the market-
place think it ought to be. An example was the
Umbroller. Industry members discounted the
invention despite consumers liking it because
industry people believed that bulk not conve-
nience should be what consumers wanted.
As outsiders, Alex Goodwin and I were not bur-
dened down with the old ways of thinking and
jumped on the idea. So did the consumer. As a
result, we were off and running with full con-
sumer support from the outset and complete
industry disdain for our efforts. This gave us
time to build the business before our competi-
tors owned up to the incongruity being an
opportunity and not a problem.
Innovation Based On Process.
Walmart used its technology to beat K-Mart on
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another!
Summary
The most productive ideas are at the top of the

list and the most seductive at the bottom. One
reason older entrepreneurs do so much better
than younger ones is they have worked through
seductive ideas to the simple ones later in their
life that actually work.
Business Model
Now that you have selected a potential market or
two and examined the seven sources of opportu-
nity within that market, match up your choices
against the following set of criteria.
Since you are in fact investing in your own firm,
review the data as one of the great investors
would do so. Peter Lynch of Fidelity and
Warren Buffett of Berkshire Hathaway are two
such investors. They believe in being highly
selective and only investing in “wonderful” busi-
nesses. You should do the same in analyzing
which business opportunity you will select.
There are far too many mediocre businesses.
Your challenge is to find a wonderful one. The
essential aspects of a wonderful business are:
Franchise in its trading area.
Walmart had this in the small towns they com-
peted in. Small retailers can do this as can
locally oriented service companies.
Simple and understandable. The
ideal business does not take a genius to run.
Geniuses are hard to find and a scarce commod-
ity. This excludes most high tech companies.
Substantial free cash flow. Great

investments throw off lots of free cash. This is
the true measure of the value of a business.
Much of Dell’s strength related to its cashflow.
Virtually instant cash for its products; tight
inventories on the fulfillment side. Both things
allowed Dell to grow explosively on its own
without needing much outside debt or equity
financing.
After a business startup opportunity passes these
tests, as a Survivalist you should review your
competing business ideas against the following
ten point grid using a 1 to 10 scale:
Business Startup Survival Kit
Entrepreneur Someone who moves capital from less pro-
ductive to more productive opportunities.
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Business Startup Survival Kit
Highest Rating (10) Lowest (1)
No investment large investment
Simple complex
Few employees per dollar sales lots
Small facilities per dollar sales lots
No government involvement lots
90% gross margin low gross margin
Low breakeven high one
Established distribution none
Large customers lots of small ones
Long product lifecycles short ones
Umbr

oller APCC Simply Media
No investment (10) to large investment (1). 3 5 8
Simple (10) to complex (1). 3 5 10
Few employees per dollar sales (10) to lots (1). 2 4 9
Small facilities per dollar sales (10) to lots(1). 2 4 9
No government involvement (10) to lots (1). 8 10 10
90% gross margin (10) to low gross margin (1). 4 8 6
Low breakeven (10) to high one (1). 3 7 9
Established distribution (10) to none (1). 9 3 9
Large solid customers (10) to small ones (1). 9 9 9
Long product lifecycles (10) to short ones (1). 9
9 9
Totals: 52 64 91
These numbers clearly show that each business was successively better than the previous one. In
fact, this has been borne out in the marketplace. Now let us use the same criteria to evaluate some
famous entrepreneurial startups:
Micr
osoft Fedex Amazon.com
No investment (10) to large investment (1). 9 1 1
Simple (10) to complex (1). 5 3 1
Few employees per dollar sales (10) to lots (1). 6 4 9
Small facilities per dollar sales (10) to lots(1). 7 2 10
No government involvement (10) to lots (1). 5 7 10
90% gross margin (10) to low gross margin (1). 9 5 1
Low breakeven (10) to high one (1). 9 2 1
Established distribution (10) to none (1). 3 1 1
Large solid customers (10) to small ones (1). 5 3 1
Long product lifecycles (10) to short ones (1). 5
9 1
Totals: 63 37 36

Y
o
u
D
o
n
’t S
a
y
“
”
As an entrepreneur, you have to know when
to hold ‘em and when to fold ‘em, when to
freeze and when to run.
Deaver Brown, 1988, with thanks
to Kenny Rogers & Willie Nelson
www.simplymedia.com
15
A quick review of these numbers shows why
Microsoft made money coming out of the gate
and why it took so long for FEDEX to turn a
profit despite it offering a uniquely valuable ser-
vice. Early FEDEX investors were so diluted
due to heavy capital requirements to launch and
sustain the business that they never fully
recouped their investment. Amazon has won-
derful highs and tremendous lows in their rat-
ings by item; that is why the jury is still out
about whether they will ever really be a good
company, they have clearly been a speculative

stock.
Partners & Employees:
Beware the Company you
Keep
Tip: New companies fail more often due
to partnership problems than for any other
reason.
Conventional wisdom suggests your firm stands
a better chance of survival with partners than
without them. Edwin Roberts, the MIT profes-
sor of Entrepreneurship, did an extensive study
of this subject and determined this was true for
large venture capital backed companies. His
research did not cover over 98% of business
startup types.
Partners supposedly provide balance by offering
complementary skills to bolster other people’s
weaknesses. This approach works in an educa-
tional environment where interaction and edu-
cation are the principal objectives. However, in
a business startup, partnership issues usually
divert management energies from direct action
and submerges them in internal discussions,
bickerings, and conferences.
Since partners must be consulted on every
important issue, this inevitably slows down the
decision process. The time lost through this
counseling usually jeopardizes rather than
improves results. This is different than you con-
sulting with your staff and key outsiders to reach

appropriate conclusions. In those cases, you can
seek knowledge far and wide secure in that fact
you make the final decision. The elimination of
partners avoids the inevitable tendency of part-
ners to tamper with the evidence in order to get
people to ally with them.
As a result of these inherent problems with part-
nerships, successful ones seem to be either alter
ego relationships as I had with Alex Goodwin at
Umbroller or relationships which the differing
skills of the partners were so distinct that they
did not intrude on other’s territory as was true
at American Power. These situations are rela-
tively rare. So the odds are against a smoothly
functioning partnership in most business star-
tups. As a consequence, most experienced entre-
preneurs pursue new business opportunities
without partners.
If you can manage your business startup without
partners, do so. If not, read on carefully. No
trickier or more time consuming problem exists
than trying to select appropriate partners and
eliminating the wrong ones. New companies fail
more often due to partnership problems than
any other.
These failures occur so frequently because busi-
ness startup partners must decide jointly so
many different things on a daily basis, and often
under very trying circumstances indeed. Small
differences tend to accumulate and become

magnified as a consequence. These disputes, in
turn, can divide your organization into factions
and give employees a place to hide from having
their feet held to the fire to accomplish their
jobs.
These problems can take on all of the negative
associations of a family fight and create a ton of
unproductive emotional turmoil which can be
Business Startup Survival Kit
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16
far more disruptive than the worst marketplace,
production, or cashflow problems. This process
has paralyzed and destroyed many small compa-
nies over the years.
You should select partners with all of the dili-
gence you would have liked to choose your fam-
ily precisely because of the potential seriousness
of partnership problems. Much of the cause of
your potential selection failures will relate to
your innate optimism coupled with your inexpe-
rience in making these selections. The two
major causes of failure are partners inability to
grow with the business and their unrealistic
expectations.
Consider the challenge: at the inception of your
firm you must make this critical choice about
your long term corporate family. This decision is
so critical and potentially life threatening that
most experienced entrepreneurs simply go it

alone. It is entirely a different matter in large
VC backed companies because they put togeth-
er the core corporate team from Day One, or
require you to do so before they invest. This
happened to me at Umbroller and American
Power. It is a much different issue for the typi-
cal bootstrapping business startup without the
enormous funding to take on this kind of risk at
the outset. Ultimately your selection must be
subjective which in and of itself adds to the risk.
Tip: The five common partnership traps
are:
1. I owe it to them;
2. They worked hard in the beginning;
3. It is owed to me;
4. I worked hard in the beginning;
5. They introduced the company to this that or
the other thing.
These traps are summarized in two words: past
orientation. The hard work is ahead of the firm.
The company must retain the flexibility to rein-
vent itself continually in its growth period and
not be burdened down by unrealistic expecta-
tions of the owners.
Investing owners need to be incented based on
their future, not past, contributions to the com-
pany. Firms that do not exert this discipline
wind up with burdensome baggage that gets
heavier to carry every year. If you have these
problems, clean house immediately.

Tip: If you can not resolve a partnership
problem, you are often better off leaving
the company yourself. These issues don’t
get easier over time. Your first loss is your
best loss in these matters.
As Roger Fisher says in Getting to Yes, there is no
one correct approach to negotiations every time.
They must depend upon circumstances. When
these problems arose at Cross River I sold the
company; at American Power I left the firm; at
Simply Media I cleaned house. The one unac-
ceptable decision is not to act and be victimized
by these kinds of circumstances.
Partnership Evaluation
Four steps should be followed in evaluating your
partnership situation.
Ability to do useful work. Partners must be able
to do important useful work. Thus the first test
is the prospective partner should have important
skills to contribute to the success of the business.
These skills are generally limited to sales (Kroc
of McDonald’s and Walton of Walmart), prod-
uct or service development (Case of AOL and
Gates of Microsoft), or product concept and
fund raising (Smith of FEDEX and Thomas of
Wendy’s).
Four C’s. The second test is the bankers four
C’s: capacity, capital, character, and credit rat-
ing. Capacity relates to their ability to grow and
have the capacity to take on more responsibility

Business Startup Survival Kit
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17
and use their talents wisely. Capital relates to
what cash and equity they contribute to the firm
itself. Character will be important with regard
to them standing up to the difficult personal
challenges in any growing business. Credit rat-
ing suggests the reliability of the individual to
meet the company’s obligations based on their
ability to meet their own.
Partnership goals. Write them down. Compare
each set of goals to all the others. Most partners
aspire to retiring on the job. This is in direct
contradiction to what the company needs. If the
company works, as Microsoft did for example,
there is nothing wrong about a major partner
such as Paul Allen taking his stock, leaving the
company, and retiring. Many successful partner-
ship have seen this done after the work was
done.
Others may have goals that directly conflict with
those of other participants. These issues must be
worked out at the outset or will be cancerous to
the organization over the long term.
Choose the Boss. Co-bosses don’t work.
Someone must have the final call even if the
stock is evenly divided between several people.
This choice provides the inside and outside
world clear direction and corporate definition.

If you can not make this decision initially, don’t
select the partner or don’t join the business your-
self.
This is a decision that can not be postponed. In
discussions of leadership in famous business
startups, note that no Co-CEO’s are men-
tioned because it doesn’t work. There are “Mr.
Outsides” and “Mr. Insides.” That is a different
matter.
Summary. Now that you have concluded your
investigation and comparison, be tough on the
problem and easy on the people. If you can’t
work it out, or it seems tentative or risky, either
you or the prospective partner should not join
the firm. Period. As Drucker says, all results are
outside the business. Your business startup can
not devote its attentions to settling up inside
partnership issues as the company tries to grow
and become a successful going concern by seek-
ing outside strategic partners and customers.
Employees
Choose employees primarily based on
their fit with the small company profile
discussed earlier. Each person has to be
able to get stuff done quickly, be indepen-
dent, require little supervision, be quiet and not
quarrelsome, and have nerve and shrewdness.
This profile is often in direct conflict with the
kinds of people most entrepreneurs like and
admire. In fact, this emotional distancing can

help your business startup become more success-
ful because you and your employees maintain
your personal distances and don’t get too close or
personally involved.
At some stage all companies must develop a
calm emotional maturity. If not, the company
usually lurches towards disaster as Apple,
Cabletron, and People’s Airline all did. Apple
came back because Steve Jobs acted like a grown
up the second time. He maintained his com-
mitment to excellence, quality, and being differ-
ent; he dumped the quarrelsome erratic behav-
ior. Much of this change was just a matter of
age and experience; this is one reason so many
young entrepreneurs, and I certainly include
myself when young, have so much trouble lead-
ing companies from the front.
Business Startup Survival Kit
Growth Company Wall Street jargon for companies with
fast growing sales such as Amazon,
Dell, and Walmart.
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18
A simple point of information may help shed
more light on the matter. My best employees
have never had dinner at my house; several of my
worst have. Why? The best employees have a
life, stuff to do, don’t relate to you on a personal
basis, and don’t want to disrupt the relationship
by getting too close. The worst ones often want

to be like you, get personally involved with you,
become an entrepreneur themselves, and have
little interest in doing the actual work them-
selves. These people usually try to slide out of
sales or product/service development as fast as
they can into administrative or marketing work.
Robert Half describes the hiring dilemma best.
There are three parts involved in doing a job
well: technical skills, ability to do the job, and
the willingness to do the work agreed to in the
interview and job description. The first two are
relatively straightforward and easy to check out.
The last one is hard to determine because only
the prospective employee knows whether they
will do what they say or not.
Unlike Half, I believe you can not get around
this problem through interview techniques. You
can learn to do the interviewing job better as you
become more experienced, But, you need to
accept the fact that most people will lie to you
and themselves about what they “will do” on the
job.
So get over being upset about it and deal with
the repercussions of this enormous problem.
Hire the best you know how; but control the
alternative by eliminating the liars quickly
those that say they will do the sales job, for
example, but wind up fussing with marketing or
administrative work. Not withstanding this
negative line of thinking, you can help yourself

enormously by implementing an effective set of
hiring plans as you need new people.
Hiring Plans
Identify clearly and in writing what the job is.
You should be seeking line people virtually
exclusively. This means sales not marketing;
operations not administration; bookkeeping not
finance; and so on and so on.
Line people. Line people are tough interviews
because they tend to be doers and not talkers.
This is good on the job but a challenge to the
interviewer in the employee selection process.
Good job fit. To make a good match, the key
thing for the interviewer to do is to help the job
candidate and you identify what they are good at
and like to do. The secret to interviewing suc-
cess is not to ask the the candidate leading ques-
tions but to find out indirectly what they like to
do, then see if it fits the job to be done.
Interview with Open ended questions. Open
ended non-leading questions such as “What do
you like about sales and what sales jobs have you
liked doing?” are the best sources of informa-
tion. Then the candidate can say he or she likes
telemarketing, personal visits, or putting materi-
als together. You then see if their preferences fit
your needs; if they don’t, go to the next candi-
date. Better to hire no one than the wrong per-
son.
Job Description as conclusion to interview.

Once you decide to hire a candidate, you want to
be clear about the job and the consequences of
not doing it. “We need you to make 40 sales
Business Startup Survival Kit
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19
calls a day. If you don’t want to do it, or can’t do
it, don’t take the job. We will review your per-
formance strictly against that criteria.”
Hiring tips. The best candidates are those that
contact you directly. For a host of reasons, they
have shown the initiative to sell you on them-
selves. They have clearly worked out the per-
sonal factors (i.e. commuting; type of company;
job function).
Opportunity hires. Displaced people through
job transfers, company transitions, downsizing,
moving into the area due to a spouse, just grad-
uating from school in the area, are all good moti-
vating reasons for them to be looking and you to
be attentive.
Recruiting. Job recruiting is always a torturous
process because first you have to sell them; then
you have to evaluate them. A tough proposition.
Hiring Managers. Hiring managers between
yourself and your employees is fraught with dif-
ficulty. They must start by working both as a
subordinate and a boss in your small company.
It is usually best to bring managers in first with
no subordinates so they can get a feel for the job

and the environment. The good managerial
hires lead by their example of getting stuff done.
Once they establish this reputation, people will
generally accept working for them.
On the other hand, if your new management
hire doesn’t like to get stuff done, and tries to
work through your small staff, he or she proba-
bly won’t work out anyway. So starting them to
the side, so to speak, without subordinates, gives
them a chance to get adjusted as well as your
people adjusting to them.
New manager’s subordinates. To the extent you
can, let them hire these people so they are not
grandfathered in and they can manage the hir-
ing, motivating, and evaluation process. This
may involve some short term disruptions and re-
assignments. But, in the long run this approach
stands a much better chance of working.
Summary. At the end of the day, you
must be willing to go through the hiring
process many times to find the right peo-
ple. It is very difficult to tell in an interview
if they will do what they say they will. The best
you can do is weed out as many as possible in the
interview process and eliminate quickly those
that do not perform adequately on the job itself.
Business Startup Survival Kit
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20
The next step in your business startup is to

incorporate your company. You will find a click-
able button on the main screen to do so.
Selecting a Name
Your corporate name should suggest conser-
vatism and financial stability. The name select-
ed should suggest the nineteenth century not the
twenty first. Your company is risky enough; a
bow to the past endows your firm with an aura
of stability that will please customers, lenders,
and suppliers alike. It may not appear as cute to
your neighbors and friends!
Choose a straightforward name. It should be
simple, memorable, dignified, spellable, and not
catchy or faddish. Consider the straightforward
names of many of the best know growth compa-
nies: Amazon, Cisco, Dell, Home Depot,
McDonald’s, Starbucks, and Walmart. Most of
the blue chips have similarly sounding solid
sounding names: the Generals Foods, Mills,
and Motors; the Founders Ford, Proctor &
Gamble, and Sears.
Consider customer response. Who wants to
make a purchase order out to Yahoo or Get a
Life Inc. Customers want solid, reliable, conser-
vative vendors that sound that way. As a senior
marketing executive said about the well written
brand name Idiot’s Guide series, “I sure wish we
didn’t have that brand name. Now we are stuck
with it.”
No joke names. You can win with a joke name,

just consider the success of Yahoo or For
Dummies. But it is like carrying around extra
weight in a handicap race. Better to not carry
the weight at all!
Final name test: what would your mother say?
It passes the test if your mother or former high
school English teacher could proudly say your
company name. If not, rethink your decision.
Incorporation
You have now selected an appropriate market,
product or service, partner(s) if any, and corpo-
rate name. Incorporation is the next logical step
in a business startup.
Incorporation formalizes your selections in most
states, along with specific stockholder and board
of director composition and title allocation. In
some states all of these steps are not required; in
every state they can be modified at a later date.
Formal incorporation creates an aura of stability
and a recognized corporate vehicle to develop
contacts with the outside world while providing
you substantial personal legal protection from
liability. It also allows you to apply and receive a
Federal Identification number in order to pay
employees, set up bank accounts, and get your
credit record established with various reporting
agencies such as Dun & Bradstreet.
A corporation has an independent standing in
law. It becomes responsible for its own actions
and those enacted by its officers, employees,

Business Startup Survival Kit
Incorporation
Making It Official
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21
physical assets (such as a defective boiler that
explodes), and products or services (such as
product defects). This limits the liabilities of the
founders, employees, and stockholders or owners
of the business. In an age of frequent lawsuits,
incorporation provides a substantial amount of
personal protection for you and the people
involved with your business startup.
Method to incorporate. The methods to incor-
porate vary by state but are relatively simple. A
number of excellent legal services provide the
service for less than $200 plus actual state license
fees involved. See button on the main screen.
Forms available at Secretary of State’s office.
Forms are available at your secretary of state’s
office. Check out www.taxsites.com to get the
proper contact information for your state.
Although you can easily handle this matter
yourself, or through a legal services firm, you
may want to consult an attorney or accountant
about the legal or accounting issues related to
your incorporation. These issues include whose
name to list the stock in, 1244 stock, subchapter
S corporation advantages and disadvantages, and
similar issues.

Ideal state for incorporation. Delaware is tradi-
tional for public companies. Nevada and
Wyoming have recently offered important new
incentives to incorporate there and the rapid rise
in their state incorporations testifies to the ben-
efits offered by their programs.
As a rule, however, most business startups are
better off incorporating in their own state rather
than incorporating elsewhere and having to go
through the added step of qualifying to do busi-
ness in their home state. If your company grows
to substantial size and wishes to take advantage
of the extra benefits offered by Delaware (in
sum, additional protection for the directors and
officers of the company), an appropriate corpo-
rate lawyer can do this relatively inexpensively
and painlessly.
Benefits of early incorporation. Early incorpo-
ration puts you in a better position to negotiate
more effectively with outside vendors, lenders,
and prospective investors. Your firm has the
trappings of stationery, phone number, business
relationships, an earlier corporate birthday, and a
federal ID number. Admittedly these factors
may be of minimal economic importance in the
long run. But, they can be extremely helpful in
the early days of your business startup.
Federal ID Number
Each corporation must have a federal identifica-
tion number for federal tax, employment, bank-

ing, and other business relationships.
Ordering the form: phone. Order your SS-4
form over the phone at 800-829-3676. Once
you fill it out, you can call them back on the
phone, answer various questions relating to what
you filled out, they will give you a number over
the phone, and you fax it back to the number
they provide you.
Ordering the form: IRS website. You can also
contact the IRS website. This tends to be a
more cumbersome process due to the need for
interaction. Verbal interaction permits you to
get the FED ID # before they receive the actual
form. The website choice means you fill it out
and have to wait for them to process it. If you
make an error, it will take twice as long. This is
one case where the phone is much faster. The
IRS website is: www.irs.ustreas.gov. This site
offers a lot of other valuable information; you
should make a note of it for other purposes as
well.
Business Startup Survival Kit
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22
Investors
Investors are hard to find for even the most
experienced and successful entrepreneurs. It is
never an easy task so do not be unduly discour-
aged by the difficulty of the task.
Where to find them. The best place to find

them is close to home. Most business startups
find them among their friends, family, associ-
ates, doctors, lawyers, accountants, and angels.
Angels. Angels have begun to organize. You
can find them on-line. A few places to start are:
amisventures.com,garage.com edie-on-line.com,
vcr1978.com, and linc.com. Check out these
angel networks to see how they work and how
they can help you in your business startup.
Selection Criteria. Money is harder to come by
than partners or employees so you often must
compromise your standards in accepting money.
This tendency is understandable given the diffi-
culty of the task. However, for your own long
term survival try to exert the same standards for
investors you use in selecting partners or
employees.
Agreements with investors. Pure stock is usual-
ly the best arrangement for all parties. It lets you
include their investment as equity capital. This
helps you with vendors and prospective lenders.
You should grant them the first right of refusal
on later rounds of financing, should they become
necessary, which they usually do.
Complicated agreements abound in this area.
Generally, though they simply must be rewritten
at a later date to conform to changing circum-
stances. Better to get them right in the begin-
ning. Since this is not always possible, you often
have to hold your nose and sign some pretty ugly

documents in the early days of your adventure.
Business Startup Survival Kit
Angels Individual investors who invest in new emerging companies.
Duns Number
Dun & Bradstreet provides credit reports on
companies and furnishes a Duns number for
each one. Many large firms pay their vendors
using Duns numbers. Therefore, it is wise to
apply for one and include it on all of your invoic-
es. Most customers will not tell you they use
Duns numbers for payment purposes; so this is
merely a wise precaution on your part.
Ordering your Duns number. Contact them at
800-362-3425. D & B occasionally changes its
phone numbers; if they do, call information at
800-555-1212 to get the most current one.
Payroll Service: Paychex
Always use a payroll service because they will
make sure and file all of your required local,
state, and federal employment tax forms. In
addition, they will scoop your account for the
appropriate taxes and make sure they are paid
properly and on time. They can also do direct
deposit for your employees so they need not
leave work to deposit payroll checks. They can
assist you to set up medical and 401k deduction
plans as well.
Paychex: the preferred vendor. Paychex is a
worldwide leader in payroll processing. They
process over 15 million paychecks per pay period

worldwide. Many of their customers have less
than 10 employees. They also service companies
with thousands of employees. They can do all of
your payroll filings for you and keep you up to
date on all local, state, and federal rules and
required payments. Set up your account by
going to the main screen and clicking the Payroll
Services button. At a minimum, contact them
to get the forms prepared and your account set
up so you are ready once you have employees.
www.simplymedia.com
23
Buying a Business
Most successful business startups are founded on
a good deal. It may involve identifying a
promising market niche, finding an appropriate
product or service to exploit, acquiring advanta-
geous intellectual property rights, or simply buy-
ing an established business on good terms.
Some of the best deals have been a combination
of buying an established business on good terms
with the idea of launching a new product or ser-
vice from that established base of operations.
Purchasing an established business. This is the
simplest and safest approach if you can afford it.
The initial cost is higher than starting from
scratch. But you cut the risk of failure substan-
tially due to having an established customer,
vendor, and employee base, as well as an ongoing
concern.

Finding opportunities. After incorporating
your firm, you now have a base of operations to
seek an acquisition within your financial means,
which generally includes outside investors
and/or lenders as well.
Market & product or service selection process.
Use the same selection process you used former-
ly to identify appropriate markets, markets to
avoid, and product and services that make sense.
Parameters of the deal. If you search hard
enough you should be able to find a small com-
pany for sale for about $250,000 to $500,000
with a 10% downpayment required.
Evaluation of the business in question. Try to
find at least two businesses to look at. It will
give you a major negotiations advantage and
help you avoid signing a really bad deal.
First step: dominant in a niche. Seek an acqui-
sition that is dominant in its niche. This
restricts you to small markets but it provides you
with a reasonable chance to maintain the firm’s
strengths while you assist it in taking the next
growth steps.
In the consumer software business, I identified
the value priced general interest category. This
provided the base for the business. From this
base, I could expand it to include new products
within the niche, new distribution in larger retail
outlets, and add the affordable Survival series
book line. In strategic terms, the base camp was

the CD line. The growth was in the book &
book and CD businesses. Longer term growth
was to come from strategic alliances and website
opportunities. All of this was made much easier
through the initial acquisition of a base camp.
Now there are four more steps to review in
detail.
Integrity of owner & willingness to leave. The
major owner (s) must be both honest and willing
to leave immediately. If not, your “new” ideas,
the reasons you bought the company in the first
place, will cause him or her anxiety and take up
valuable time in discussions that should be
devoted to doing new stuff well.
My worst acquisition was when I allowed the
owner to stay through a concession late in our
negotiations. He knew the company had to
move on to survive but opposed every new idea
as “nuts” or “risky.” I wound up selling it back to
him at a moderate loss to myself. Whoops!
Net worth of at least $50,000. Negative net
Business Startup Survival Kit
Video 4: Purchasing An
Established
Business
www.simplymedia.com
24
worth is simply too hard to finance and deal
with in a new business venture. You can do bet-
ter. Look harder.

Breakeven income statement. The company
must be making money. And this includes the
owner’s salary and perks. If this is not the case,
you must work on two flanks saving the old
business as well as starting the new one. This is
overconstraining the problem and too tough a
task for you to take on voluntarily.
Solid customer base. You need a solid customer
base to keep the old business strong as well as
launching your new ideas. Fortune 1000 cus-
tomers are best, even if there are only a few of
them that account for most of the firm’s sales.
You need to check this out by visiting a few of
these customers with the old owner, after you
have worked out the other details about the
acquisition. You need to learn how the customer
sees the vendor in terms of its future relation-
ship; would they like to do more business; or is
the relationship tattered and this is why the
owner wants to sell.
Tip: This request will kill some deals. In
our opinion, they should stay killed then.
You need to know what you are facing. If
the owner won’t do it, show him this part of
the book. Tell them that while it is our idea, you
believe we are right. Stick to your guns.
Negotiations for Purchase
Books and books have been written on this sub-
ject. The best in our opinion are Negotiations by
Roger Dawson, Negotiations by Mark

McCormack, Negotiations by Herb Cohen, and
Getting to Yes by Roger Fisher.
Over-negotiations kill many deals. Get the
owner’s offer on the table. If you can accept it,
do so. If not, pick a few key point and work on
getting them. Good deals come together quick-
ly; bad ones start hard and end hard. You are
usually better off walking away from tough
negotiations because the parties lack the reser-
voir of good will to make the deal work after the
fact when cooperation is so very necessary.
Lawyers do not make good negotiators.
Lawyers tend to be poor at math despite the fact
all commercial law is about numbers. The initial
screening device for law school, the law boards,
do not include a section on math. It is the only
major profession that does not do so. As a result,
very smart people who tend to be poor at math
go into the legal profession.
As a result, many lawyers are uncomfortable
with numbers and tend to shift the negotiations
to other subjects such as contracts, personal rela-
tions, and the like. This, in turn, often results in
inflaming the other side and stirring the fires of
conflict. Our advice: make the deal without
lawyers. Memorialize it with lawyers but restrict
them to their contract and enforcement exper-
tise.
Opportunity negotiations. Deals that work
generally involve two parties that share mutual

interests. In other words, the seller wants to get
out of the business and retire; the buyer wants to
become active in the same line of work and move
the business to a new higher level. Both parties
share an interest in the success of the new owner
in making his dreams come true.
Final warning: Watch out. If in doubt,
don’t buy the business. Remember that
you do not need to justify your decision to
anyone. If it feels wrong, don’t do it.
Instinct is only uncodifed intellect (in other
words, you know something is wrong you just
can’t describe it well).
The time and money invested in the exploration
and negotiations is gone. It is a sunk cost (in
simple terms, gone). Next is the operative word.
If you get cold feet at the last minute, don’t sign
the deal and move on.
Business Startup Survival Kit
www.simplymedia.com
25
Tip: “The shortest distance between two
points is often not a straight line. Indirect
movement often gets you there more
quickly.” Deaver Brown, 1971
Intellectual Property Negotiations
The purchase of intellectual property tends to be
smoother than other businesses because people
and facilities are not involved. The transfer of
ownership is simpler and has fewer complica-

tions. The corporate seller generally wants to be
done with the project and the buyer has enthu-
siasm for the untapped possibilities.
This leads to performance based agreements
which reward both parties. If the property is
truly a good one, results will dictate higher pay-
ments; if not, lesser payments will be called for.
High minimums can be a stumbling block. The
best deals are purely variable: if the property is
as good as the seller says, the payments will be
high; if not, the payments will be low. Both
sides have their goals in alignment provided they
are not trying to con the other side.
Minimums controvert this and often lead to dis-
putes and litigation. High minimums kill many
deals, as well they should. Interestingly, many
intellectual property holders would rather get no
money than settle for a low minimum deal that
they believe might tarnish the perceived value of
their property.
Tip: This problem, in and of itself, should
warn you as a prospective buyer to be wary
of high minimum deals. They often betray
the lack of confidence the seller has in his pro-
ject or his over-inflated views of its value.
When dealing with individuals, you may have
the additional problem that the seller has invest-
ed far more time and energy into the project
than can be recouped through a sale. Since you
can not cure this problem, you often must sim-

ply walk away from the deal. Of the literally
hundreds of deals I have walked away from,
none has been produced in the marketplace.
Nothing could more eloquently describe the
emotional problems of the sellers. They would
rather get nothing than take a small something
for their project, which, in their minds would
detract from their perceived value of their
efforts.
Where to find the best deals. The best deals are
spin-offs from large companies that wish to dis-
pose of unused or underused intellectual proper-
ty. Being professional business people them-
selves, and not inventors or creators, they tend to
have a more reasonable and rational sense of
their property’s worth.
The worst deals. The worst deals are those con-
trolled by one individual in a small closely held
private company. They often have an inflated
sense of the worth of the project and an unrea-
sonable buyout price in mind. It is as they so
often will tell you, “their baby.” Since no one has
an ugly baby, let them keep it.
Tax implications. Royalty agreements can be
expensed easily. Most business purchases can be
expensed as well. Consult an accountant and a
lawyer about this point. The wrong decision can
cost you dearly over the long term.
Execution of the purchase. You must get full
unrestricted ownership of the property. If not

you are subject to a ton of problems if your pay-
ment plan does not work out. As a rule, the
more complicated the purchase and sale agree-
ment, the worse it will be for you. Some seller’s
lawyers rig these agreements like terrorist
bombs. Don’t sign them. Almost without
exception, you will violate some rule or covenant
and the terrorist bomb lawyer will ride you like a
cheap suit. If they demand to make the transac-
tion complex, you are advised to pass on it
entirely.
Business Startup Survival Kit