Life is full of lessons; we get new ones every day. I learned many of my lessons many years after the teaching event. In other words, I learned my lessons too late to help myself, and only after deep reflection on past events. I have a lot of these, as I am past retirement age.

We started a company in 1978 to sell Enterprise Resource Planning (ERP) software to manufacturing companies, with implementation and training services as our value add. At the time, the transition from service bureaus to mini-computers had just begun, and we intended to take advantage of the trend. A typical sale in those days was a bundled package of hardware, software, and professional services. Before we started operations, we had executed a reseller agreement with Digital Equipment Corporation (DEC) for hardware, and licensed a complete set of accounting software from Mini Computer Business Applications (MCBA). We could not find manufacturing software that met our needs, so we became a software development firm as well, and built a development staff soon after startup.

As with any startup, nothing was more valuable than a sales prospect. We directed our marketing entirely at manufacturers. From time-to-time, DEC would refer a distribution prospect to us. We sold several of these and developed the distribution functionality they needed. This digression did not dilute our efforts, since manufacturers needed the additional distribution functionally as well.

About two years after we began operations, a big opportunity — or temptation, depending on your point of view — arrived. Our DEC salesperson called and asked if we would take a lead in the vending industry. While a vending company is a distributor, they have routes that serve mini retail stores (a.k.a., vending machines). They require unique software. We had a meeting with the prospect and found that he also had friendly relationships with vending companies in other cities. We took the plunge, sold the prospect, and developed the software. We quickly got other vending customers and became a presence in the vending software business. We spun the business off, and the company is still in business today. Sounds like a success story, right?

The manufacturing software company also grew rapidly, making the Inc. 500 list in ‘84 and ‘85. It acquired venture capital in ‘88 went public in ‘94. Finally, after 21 years of operations, a European ERP company acquired it in ‘99 during the great ERP consolidation. Sounds like a success, right?

Here’s where the hindsight comes in.

The lost opportunity was in the manufacturing software company. If the vending customers had been manufacturing companies, our manufacturing customer base would have been almost 40% larger. We could have invested more in the manufacturing software earlier, resulting in increased competitiveness, and consequently, even more customers. The manufacturing software company would have gone public at a higher valuation. The vending software opportunity, even though it became a new business, was a diversion that decreased total value.

Increasing product lines or expanding into new markets is a temptation that is difficult to resist. I have spoken with many entrepreneurs who were trying to do too much. I cannot remember any that were trying to do too little. Focus has to be on the minimum number of products and the minimum number of markets that still enable you to attain your financial goals. Anything else can create diversions that increase risk and reduce your overall financial success.

Did you ever hear about the entrepreneur who, upon returning from a quick lunch, finds his angel investor sitting in his office? The angel greets him with the question, “Where have you been?” Upon hearing the answer, the angel responds, “I don’t see how you have time for lunch given the fact that last months sales were 3.5% below budget.”

Don’t laugh, it happens more than you think.

Obviously this isn’t exactly what you were expecting when you took your angel’s money. In addition to your angel’s money, you expected him or her to provide advice, contacts, and support, but not unwarranted sarcasm and criticism.

So how do you ensure that your relationship with your angel meets your expectations and your angel’s expectations in a positive and productive way?

The answer is really quite simple: In addition to the legal agreement that covers the exchange of shares for cash, you need a written or unwritten agreement that carefully and thoughtfully sets forth the terms and conditions of your working relationship. Issues to be covered might include:

• Detailed discussion of the contributions you expect from your angel;
• A very clear understanding of how you intend to run the business;
• Type and frequency of shareholder reports;
• Most appropriate forms of communications; and
• How and when the angel might expect repayments or distributions.

If you and your angel are unable to mutually agree on any of the above points as well as other expectations specific to your business, then do not take their money. Find an angel that you can harmoniously live with. It will be more pleasant, productive, and profitable for all concerned.

If you have some stories about dealing with difficult angels, or if you have some tips to share, please leave a comment below!

Do you turn most of your ideas into reality or are they often filed in the maze of your mind under the heading of “Maybe Someday?”

People often ask me what the secret is to success… my answer is always the same: “You must be willing to learn and commit to follow-through! So many people dream, so few act.” This is what sets the achievers apart from the dreamers!

If you are an achiever, you move forward with enthusiasm. Your ideas are always a topic of discussion and you think about where you want to be on a regular basis. Most of all, if you are an achiever you ACT on your ideas. You take the steps necessary to move your ideas from a DREAM to REALITY and you feel a surge of energy as you tell others about your newest endeavor. Your fears are overcome by excitement and you are totally willing to do what it takes to accomplish your goals. You are filled with momentum that ignites passion in you, so deep, that it won’t subside.

If you are an achiever, you reach for the stars knowing that you will grasp them. You visualize how the dream will look realized, and embrace the journey.

No one stands in the way of an achiever. For you know who you are and what you want. You do not need others to believe in your abilities, because you believe in yourself.

Most of us have experienced being the achiever at some point in our lives. If you look back you will see that when you turned a dream into a reality, you felt a since of encouragement and excitement during the process and a since of accomplishment and esteem when it was complete. When you are the achiever, you are success oriented. There could be hurdles, but you do not see them as road blocks. There could be struggles, but you view them as milestones and lessons learned as you forge ahead.

Take a moment to think back to January 2009 and where you started the year. Then look at the year, month-by-month to see how you felt when you accomplished a goal as opposed to merely dreaming about one. Now look at the dreams you have kept nearest to your heart for many years; those dreams that are filed under “maybe someday.” Are those lingering dreams still important to you? As someone once said to me, ‘if you always do what you do, you will always get what you’ve got.” So if you want 2010 to look different than 2009 or 2008 or 2007, do something about it!

Where do you want to be by this time next year? If you want to look back on 2010 with pride and a feeling of accomplishment, then “create the change you wish to see” (Mahatma Gandhi).

Make 2010 the year you turned your dreams into reality. Be the one that steps out of the box. Be the achiever.

Do economic cycles of boom and bust affect the number of start-ups? Most analysts have linked entrepreneurial activity to economic growth as though it was a given … and conversely, believed that when recession struck, start-up activity slowed substantially. A recent study by the Ewing Marion Kaufman Foundation concludes that both theories are pure bunk. And as though that bombshell was not enough, the Kaufman study goes on to explode several other theories about what factors stimulate new business formation.

Do start-ups increase in proportion to the availability of venture capital? Nope. Kaufman Foundation researchers Dane Stanler and Paul Kedrosky dispel that myth as well. The authors note that the doubling of start-ups from the period 1960-1978 to the decades since may indeed have been due to the advent of the personal computer and the expansion of the venture capital sector. (One wonders if the baby-boomers coming of age may not have contributed to this step-change as well.) However, the constancy of recent start-up data belies the influence of venture funding. Start-up activity fluctuated by only 3% to 6% each year between 1977 and 2005; but the data shows that venture investment varied by as much as 500% during the same period.

Do tax or bankruptcy law changes, technological advances or entrepreneurship education affect the number of new ventures? No again! The report, Exploring Firm Formation: Why is the Number of New Firms Constant?, also finds no correlation between start-up activity and tax policy or any of these other factors; so much for the theories of our most vocal politicians. Instead it documents the same steady half-million start-ups per year, give or take a 3 to 6 percent. The authors discuss a few possible explanations for the unexpected constancy, some rather arcane, but they do not seem to buy into any of them.

Common sense suggests that certain of the factors discussed in the Kaufman report must have at least some influence on the number of start-ups, even if they do not affect substantially the total for a given year. For example, limited amounts of available venture investment must surely delay some particular start-up decisions. I have been involved in a few such decisions. Similarly, high interest rates and tight credit must also have an effect on many decisions, especially those involving sole proprietorships and mom-and-pop operations. So perhaps a study with greater granularity would reveal that while the total number remains relatively constant, the mix of start-up types changes, maybe even substantially. Perhaps in recessions when venture funding declines, a fall in interest rates turns entrepreneurs toward credit sources. It could also be that more innovation-based entrepreneurs test their business innovations when the economy is booming, and that more laid-off workers start enterprises when unemployment is high during recessions. I suspect that the “mix” of different kinds of start-ups changes a great deal even though the total number may not change much.

The Stangler and Kedrosky study does not encompass the current Great Recession, of course, it is too soon. Yet surely this anomalous economic epoch will surely add some telling figures. The investment portfolios of the wealthy individuals and institutions that comprise the limited partners of venture firms declined substantially since 2007 and venture investment has fallen by 40% or so since then. At the same time, credit tightened historically and unemployment soared into double figures. Will start-up totals for this period continue the constancy that Kaufman reports? And if not, how will it vary? Will the limitations on available capital drive start-up numbers down, or will necessity and cheap assets power them up? Or will past constancy persist despite alterations in the mix? Only a study based on more granular data could reveal that. I doubt that such data is available or could be economically derived, though that information could prove useful to an economy so reliant on small businesses to create jobs.

A large part of entrepreneurial success comes from perseverance: the ability to tirelessly grind it out, day after day. But if you aren’t in great physical and mental shape, that’s a recipe for burnout.

Pushing your body and mind for peak performance without adequate exercise, nutrition, and rest is like flying an airplane without performing regular maintenance.

A lot of people reason that they’re simply too busy to take care of themselves the way they know they should. “I’ll start in six months when the business is up and running,” they say. Six months later, they’re as busy as ever, and it keeps getting pushed off.

I know. That describes me during most of my 20’s and 30’s.

By the time I hit my late 30’s, as I labored to bootstrap Cayenne Consulting, I realized that it was finally time to break some old habits and live a healthier lifestyle if I wanted to be able to handle the demands of entrepreneurship.

I’d like to share a few tips that I personally found to be helpful. I know that everybody is different, so what worked for me may not work for you, but if I can help just one entrepreneur be just a little more successful, that’s enough for me.

With that, here are my tips:

1. Make a Decision. I went through a lot of soul-searching and decided that personal wellness was going to be a real, lifelong priority, rather than some abstract goal that understood without embracing. Until I made that decision, my previous attempts at getting fit were no more meaningful than most people’s New Year resolutions.
2. Know What You’re Doing. Living a healthy lifestyle is so much easier if you know what you’re doing. Subscribing to Men’s Health magazine was a great start for me. I try to read a little about fitness, health, nutrition, and medicine every week. I also try to be aware of the nutritional content of what I’m consuming, both at home and at restaurants. I still occasionally eat foods with saturated fats, for example, but I do so in moderation because I’m aware of the effects the food is having on my body. Knowing what I’m doing allows me to make better choices and avoid fad diets.
3. Start Gradually. If you try to do everything at once, you’re setting yourself up for failure. All it takes is a small setback–bad weather, a minor injury, or Thanksgiving–to bring everything to a grinding halt. Make a series of small, manageable lifestyle changes. Start with the easy ones. Once you’ve scored some small accomplishments, the larger changes will seem more achievable.
4. Make it a Habit. Being active doesn’t mean hitting the gym every day. It means taking the stairs instead of the elevator, turning up the radio and dancing, or finally getting around to organizing that garage. And eating well doesn’t mean counting every calorie. It means ordering the small fries instead of the super-size, choosing complex carbs over simple carbs, and ordering wisely when eating out.
5. Avoid Shortcuts. Most of the diet and exercise programs sold on TV are designed to do one thing: to clear your wallet of excess cash. The ones that actually work fundamentally boil down to a sensible diet and exercise. There is no magic pill; there is no machine that will give you a thorough workout in five minutes twice a week. Don’t buy into the false hope–you don’t need them to live a healthy life.
6. Associate With the Right People. If you hang out with friends who sit around smoking, drinking, and eating chicken wings, guess what you’re going to do? If your friends aren’t going to change (and they probably won’t), then maybe it’s time for you to change friends. A good, supportive, and sometimes competitive support network can do wonders for helping you implement and stick with major lifestyle changes. It’s difficult–even traumatic–to disrupt your social network, but you need to think about what’s best for yourself in the long run.
7. Mix it Up. It’s a good idea to combine stretching, aerobic exercise, and strength training. It’s also good to find a mix within these categories to prevent boredom and overuse injuries. On the aerobic side, I like to alternate among trail running, mountain biking, climbing, using the elliptical machine, plyometrics, and martial arts. Having many activities to choose from ensures that I always have something interesting to do that will suit my mood, the weather, and the amount of time available. For strength training, I really like the P90X workouts because you only need a chin up bar and a variety of dumbbells.
8. Multitask. When I’m out for a long run or bike ride, I sometimes use the time to think through a difficult problem or to brainstorm ideas for a project. This way, I don’t feel too guilty if I take time out of a busy day to burn some calories.
9. Make it Fun. I don’t do things that I don’t enjoy, at least not for very long. When I first started running, I didn’t care for it very much. It’s amazing what a good running tempo on the iPod does for me. I keep a log of my workouts so that I can see how I’m progressing from one day to the next. When running or biking, it’s fun to wear a Garmin Forerunner 305 heart rate monitor. It has a built-in GPS and altimeter, so you can see how hills affect your pulse and your pace. You can even export and overlay the 305’s data to Google Earth so that you can see your workouts in 3-D.
10. Get a Body Composition Analyzer. These electronic scales, some costing less than $50, that estimate body fat percentage, bone mass, metabolic age, and other factors (which are calibrated based on your age, gender, and activity level). It’s fun to see your body fat percentage fall, or to see that your metabolic age is a few decades lower than your actual age.
11. Push (But Know) Your Limits. You get the greatest benefit when you challenge yourself. Once something becomes easy, find a way to increase your intensity. I’m not going to tell you to “talk to your doctor before starting an exercise program” because I assume you’re smart enough to avoid doing something that’s going to kill you. If you follow some of the tips above, namely Start Gradually and Know What You’re Doing, you should be okay.
12. Quit Smoking. I smoked for over 15 years, sometimes more than two packs a day. It’s incredibly addictive. I tried to quit every few months, using everything from hypnosis to the nicotine patch, but nothing seemed to work. Not even my father’s death from lung cancer was enough to make me quit. I just wasn’t “mentally in the right place” to quit yet. That’s why Deciding–the very first tip listed–is so important. I finally managed to quit in 2005 (Zyban helped), and it was probably the single best thing I could have done for myself.

I’ve made some profound changes over the past five years, and as a result, I have more energy, better endurance, and sharper focus. I’m also sure that I’ve added a few decades to my expected lifespan. As an entrepreneur, this means that I’ve given myself a better chance at achieving success, and a better chance at enjoying the rewards in my later years.

Idea stage entrepreneurs are told by many sources that they need a business plan. When they ask for loans, banks tell them this. When they seek advice, mentors or advisors ask to see their plan. And certainly when they speak with many companies or individuals who write business plans for a living, they will hear the same.

However, there are situations where writing a business plan is simply premature and can be a waste of time and money. It may be more appropriate to start by taking a hard look at the key financials, market or the intended business, and your own situation. This is what business planners refer to as a feasibility study or feasibility analysis.

For example, a new client I recently spoke with told me of her need for a business plan. Upon deeper examination, I found that she felt uncertain about some of the fundamental elements of her idea. Questions remained such as: “Is there a sufficient potential market of people to sell to?”, “Will suppliers provide products at a price that makes the business model work?”, and “Will key partners be interested in signing on?”

The fact is that most of these questions can and should be answered before a full business plan is created. The entrepreneur can save a great deal of money by doing this legwork early on. The strategy is then fine-tuned based on the answers. Sometimes he or she will realize that the idea should be scrapped altogether!

A feasibility study is a way of asking “Does this business idea really make sense?” before creating an investor-grade or loan-ready business plan for it. Most feasibility studies for small businesses require at least three components, each answering the following questions:

1. Market feasibility: Is there a true need in the market for the solution the business will provide? Is there room for the business to create a competitive advantage against the existing competitors and substitutes?
2. Financial feasibility: Can the product or service be produced at a price that covers costs and allows for sufficient profit? Can the business be launched for an amount of capital which can reasonably be raised and recouped?
3. Personal feasibility: What time commitment must the entrepreneur put in to get the business off the ground (or even planned successfully)? What skills or experience does the entrepreneur lack? Can these be lacking skills made up for by bringing on a partner, employee or consultant?

To study market feasibility requires some preliminary market research and competitor research, as well as consultation on the differentiation strategy for the business. A carefully written, presentation-quality report is not needed at this time as it is only the entrepreneur and his partners that must be convinced at this point. The work can and should be carried out by the entrepreneur and consultant as a team for the best results.

To study financial feasibility requires basic financial modeling with rough, top-down estimates and some research on some large, actual costs. It does not require a full set of financial statements yet. However, this work lays the groundwork for those statements to be developed later on.

And to look at personal feasibility, the entrepreneur needs to think clearly about his own strengths and weaknesses. The entrepreneur must be objective about himself and a trusted advisor can be a great benefit to him in this process.

If you are at a loss as to how you should study these three areas, a consultant can set you on the right path or partner with you in the process. When you get these questions out of the way first, the business plan you eventually create will be more compelling and less expensive than it would have been otherwise.

The MoneyTree report of U.S. venture capital activity for the third quarter was just released by PriceWaterhouseCoopers and the National Venture Capital Association.

The $4.8 billion invested in Q3 is a significant jump from the $4.1 billion in Q2 and $3.3 billion in Q1, but still well off of the $7.1 billion invested during Q3 of last year. The number of deals has remained in the 600 to 700 range each quarter this year, compared to 900 to 1,100 per quarter last year. Clean Tech experienced an 89% increase in Q3 over Q2. As in previous quarters, the four strongest sectors remained biotechnology, industrial/energy (including green tech), software, and medical devices. Very little money – only $633 million – flowed to companies raising venture capital for the first time, down from over $1.5 billion during Q3 of last year.

Meanwhile, several weeks ago, the Center for Venture Research released their analysis of the angel investor market for the first half of 2009. The CVR reported that 24,500 ventures raised capital during this period from 140,200 individual investors. Although the dollars raised fell relative to the first half of 2008, the total number of investments increased slightly.

Combining this data with anecdotal evidence from elsewhere, it’s clear that great opportunities are still finding investors. It’s obviously harder to raise capital than it was before, but I think we all knew that. The keys to funding success haven’t changed much: create a great opportunity with a lot of growth potential, develop as much traction as possible before trying to raise capital, and package the venture in the most compelling way you can when you take it to the investor community. We can help you with that last part.

Eco-conscious product suppliers and their prospective customers descended en masse this week on Phoenix for the annual Greenbuild convention. It is quite an event with over 1,800 exhibitors, several full days of educational conferences, and headline ‘bring on the crowd’ brand names offering inspiration and entertainment. To wit, last night’s marquee event was held at Chase Field, home of the Arizona Diamondbacks and included a speech from Al Gore, and a concert by Sheryl Crow!

Beyond the headliners I was really impressed with the level of entrepreneurship on display at Greenbuild. I think a good way to measure entrepreneurship in a sector is by the amount of small sized booths at an event. Entrepreneurs typically can’t pay much, so they buy the smallest space available and go pitch their tent. The bottom line … lots of small booths at Greenbuild.

Among the areas where it seems Entrepreneurs are diving into the green space are:

1. Green Roofs, which are essentially a container of live plants and a drainage system that can be snapped together on a rooftop. Once installed, the systems dramatically reduce the heat absorption of the rooftop and thus reduce energy costs. There were at least 20 companies present at the show from various regions of the country marketing differentiated products and business models in this category.
2. Energy Efficiency Analysis and Improvement Service Providers offer a relatively low-cost capital efficient way for entrepreneurs to enter the green space. Residential and commercial energy efficiency plans employ a myriad of techniques from lighting and HVAC system improvement to insulation and window improvement to reduce energy expense in a structure. Given the multiple tools available, it’s not surprising that entrepreneurs have rushed to develop services and business models to help building owner get the most energy efficiency improvement per dollar spent … and prove the savings through software and reporting tools.
3. Geothermal Heat Pumps rely on temperature differential between ground and below ground levels. Certainly more capital intense than the first two items, this category represents an area where entrepreneurs with a mechanical focus are probing.

I believe next year’s show will be in Chicago, and if it’s anything like this year’s, it won’t be one to miss.

Summer is winding down and Labor Day is behind us. Although the recession technically started in December 2007, many of us did not feel the full effects of the financial crisis until the sudden collapse of 158-year-old Lehman Brothers one year ago today. This has been a year that none of us will soon forget. The outlook remains uncertain, but the future seems brighter than our immediate past.

Many economists are seeing signs of a so-called jobless recovery. A jobless recovery is a situation where the economy resumes growth, but employers remain reluctant to hire. The pattern could be similar to the aftermath of the 2001 recession, which was followed by two years of low employment. As of August, the unemployment rate was at 9.4%, and the underemployment rate – which includes part-time workers who cannot find full-time work – was at 16.8%.

Historically, high unemployment has translated into forced entrepreneurship. To paraphrase Plato, necessity is the mother of invention. Indeed, many successful companies such as Microsoft, Hewlett Packard, GE, FedEx, and Trader Joe’s were started during recessions (for more, see 14 Big Businesses That Started in a Recession and Defying Gravity).

With this in mind, we’ve collected a few resources to help entrepreneurs succeed in this tough environment:

1. The Best Industries for Starting a Business Right Now: As consumers and businesses cut back in some areas, they continue to spend in others. Here are brief profiles of 18 markets with great potential for today’s entrepreneurs.
2. Starting a Business When the Economy is Down: This talk by serial entrepreneur Michael Jones discusses several key issues that startups must address.
3. Is Starting a Business Brave, Smart, Stupid or Nuts?: It depends on who you are and who you ask. People are different, and it has to be right for you.
4. How We Got a Loan: Banks have tightened their lending standards, and many are turning away small businesses. This story of how one company managed to get a loan may give you some ideas. The key lesson learned is that it isn’t going to be easy, even if you are thoroughly prepared, but it can be done.
5. Startup 101: How to Build a Startup: Bernard Lunn, another serial entrepreneur, has published an online book that covers a lot of the important aspects of entrepreneurship. Although geared towards web technology startups, the majority of the information here applies to any technology venture. Lots of excellent advice for first-time entrepreneurs, and quite a few important reminders even for folks with several startups under their belts.
6. Finding the Path to Success by Changing Directions: When what you’re doing isn’t working, it’s time to consider new strategies. It’s all about staying responsive to the marketplace. The best line in the article: “It was like people were smacking us around with a fish trying to get our attention about this high cost of storage problem.”
7. Meeting Short Term Cash Needs: If your business is generating revenue but is facing a short-term cash crunch because your revenue can’t keep up with your existing debts, the SBA has a new program that can help. The American Recovery Capital, or ARC Loan Program, provides up to $35,000 to help you stay current on the principal and interest payments on your other existing loans. The ARC loans are interest only for the first year, and amortizing over the next five years. To be eligible, you must demonstrate that your business was profitable in one of the past two years – this is not a program for startups.
8. Six Ways to Speed Up SBA Loan Approval: The American Recovery and Reinvestment Act made SBA loans easier and cheaper to get, but these special provisions will expire by the end of the year. If you’re thinking about applying for one of these loans, you need to act quickly.
9. To Slim Down, Businesses Team Up: Creative alliances can mean lower costs while allowing everybody to focus on their core strengths. This is a simple strategy that any entrepreneur can employ.

On July 24th, SnagFilms released The Entrepreneur, a documentary film about a driven auto industry entrepreneur named Malcolm Bricklin. Bricklin is a fiery, temperamental entrepreneur with a flair for brinkmanship. He has a storied past, having introduced the Subaru and Yugo automotive brands into the United States, and having developed the Bricklin SV-1 gull-wing sports car in the mid-1970s.

This film follows Bricklin for five years as he strives to build a new car company, Visionary Vehicles. He scours the planet for an unknown manufacturer whose vehicles he can import into America. After a long search, he discovers Chery International, a small but growing Chinese carmaker. He negotiates exclusive North American distribution rights to the Chery. His next task: to raise the financing and support from dealerships to make it happen.

Bricklin exhibits attributes shared by many successful entrepreneurs: industry expertise, unstoppable tenacity, unyielding hubris, and a willingness to risk it all (he has made and lost several fortunes and has developed a knack for emerging from bankruptcy on his feet). He also has anger management issues, zero empathy, and is inflexible.

In the end, the business falls apart when Chery backs out of the deal. But it won’t be long before a man who has started 30 companies will take another shot at it.

This isn’t the story of a “typical” entrepreneur – but every entrepreneur will appreciate many of the challenges Bricklin must surmount. Enjoy.

[EDIT: THE COMPLETE FILM IS NO LONGER AVAILABLE ONLINE FOR FREE VIEWING; HERE IS AN ABC STORY ON THE TOPIC]