I know some really smart people who refuse to get on LinkedIn, Facebook, and Twitter. Sometimes, they cite paranoid-sounding privacy concerns. Other times, they say “social media is a passing fad,” or that social media somehow isn’t relevant to them, or that social media is a waste of time. I don’t think they realize that, almost overnight, social media has become as mainstream as cell phones and horseless carriages. These Luddites need to open their eyes and take stock of the new tools at their disposal. Maybe this video will open some eyes.

If your objective is to someday sell your company for the highest possible price, you would be well served by building reliable systems that can sustain the growth of the business.

A solid management team is the first value driver to focus on when you are preparing your business exit. In addition to building a strong management team, it is important to build reliable operating systems that can sustain the growth of the business. The second value driver then is the development and documentation of business systems that either generate recurring revenue from an established and growing customer base or create financial efficiencies. For most businesses, this includes all of the core processes that generate revenue or control expenses. These systems may include processes related to production or service delivery, but also may include people-related processes such as a succession planning or a performance management approach.

If the value of your business drops significantly when you walk out the door, you’ve got work to do. Look at your business from a buyer’s perspective. If you leave shortly after a sale, what remains? If the answer is top management and highly efficient business systems, you can be more confident that you will be able to get top dollar for your business.

In addition to the business systems related to revenue and expense, some systems are related to customers, such as tracking systems, and the delivery of your products and services such as distribution systems. The documentation of these systems is important to ensuring that quality and consistency can be maintained after the sale. They also signal to the buyer that elements critical to the successful transition of a business are in place. Some examples of items worthy of documentation are:

• Financial control systems and accounting policies.
• Policies to ensure compliance with legal and regulatory matters, especially those related to employer/employee relationships and safety.
• Data management and information systems that tie the company together.

There are several business systems, which, once in place, enhance business value whether you plan to sell your business now or decide to keep it. These systems include:

• Human capital management including: recruitment, selection, hiring, and retention; performance management; training and development; compensation and benefits.
• Production including product or service quality control and improvement.
• Product or service research and development.
• Inventory and fixed asset control.
• Sales, marketing, and communications.
• Procurement including the selection and maintenance of vendor relationships.

Obviously, appropriate systems and procedures vary depending on the nature of a business, but at a minimum, those resources and activities necessary for the effective operation of the business should be documented. After you have built reliable systems designed to sustain the growth of the business, the next value driver to focus on is establishing a diversified customer base.

Are value drivers important to an early stage company? Absolutely. Think of an equity investor as you would a buyer for the business. The same value drivers will resonate. VCs will look first at the caliber of the management team. A great business idea is doomed to failure without the right team. Other value drives such as well documented systems, a solid cash flow growth plan, a diverse customer base, and risk management initiatives will make your business more desirable. Consider developing a Venture Value Scorecard to track your progress as you grow the value of your business.

If you have any questions about increasing the value of your business prior to your exit, please contact us to discuss your particular situation. We can help guide you through the process of identifying the current value drivers in your business and creating a road map for increasing value to meet your overall growth and exit objectives. Rick Tifone is a Certified Exit Planner (CExP) and a member of BEI’s Network of Exit Planning Professionals™. Send questions to rick@caycon.com or visit Cayenne Consulting, LLC at http://www.caycon.com/exit-planning.php.

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.

As a business plan consultant for both non-profit and for-profit startups, I find that non-profit founders, like for-profit entrepreneurs, are looking for experienced help in crafting their business plans. They see the value in strengthening their strategies for fundraising, board development, operations, and marketing before presenting to partners and funders. If you are an aspiring non-profit founder, it is vital that you understand four key differences between for-profit and non-profit plans.

1. Your non-profit must sell to TWO separate markets:

One market is your customers/clients/constituents who receive services and the second is your organization’s funders and funding partners. These are generally two very separate groups (those in need and those with the means to give) and each requires a  distinct marketing strategy to reach them. While flyers and good street presence may be all that is needed to reach your clients, an internet presence and networking may be what is needed to reach your funders. The first marketing strategy is generally covered in a ‘Marketing Plan’ section and the second in a ‘Fundraising Plan’ section.

2. Your non-profit plan must include ‘Outcomes and Evaluation’:

Your non-profit’s results are much more difficult to measure and explain than a for-profit company’s. Growth in the size of your budget is less relevant than the extent to which your organization fulfills its charitable mission. Your challenge is to find specific, quantifiable ways to measure this mission fulfillment through related indicators. For example, a charter school may seek to increase its students eventual college enrollment rates, but must settle for measuring improvements in test scores for many years until it graduates its first class.  Your non-profit plan must demonstrate what the key metrics are and the specific target numbers (‘Outcomes’), as well as the plan for when and how those metrics will be measured by your organization or by others (‘Evaluation’). This section of the plan will be in addition to a full financial rundown.

3. Increased importance of your Board:

Your non-profit’s Board of Directors is not only an advisory body, but a group that is legally responsible for the activities of the non-profit. Therefore, your plan must demonstrate that the organization either has a diverse, skilled, independent and well-connected Board or that you have a specific plan for how to develop one. The early recruitment of qualified and active Board members can also provide invaluable feedback on the plan itself.

4. Your non-profit business plan will need customization for each audience:

Foundations and government agencies all have their own specific proposal templates and application forms, requiring you to customize your non-profit’s basic business plan. For-profit funders, on the other hand, will often accept the standard format business plan. This doesn’t mean it isn’t important to create a strong and well-structured non-profit plan to begin with – it just means that you must be prepared to cut, paste, and revise pieces of that plan to meet each funder’s requirements.

Remember to launch your non-profit with the seriousness of a business, while understanding how your plan must differ from that of a business. If you do, your chances of success will improve significantly.

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!

This fall, I had the opportunity to participate in the public comment review for the Massachusetts Department of Energy Resources (DOER) new Solar REC program. Over all, the Commonwealth has done a great job trying to keep solar development growing. Programs like Commonwealth Solar provided large rebates to commercial and residential solar projects. In fact, Commonwealth Solar was so successful that funding was in short supply late last year.

So the dilemma that the Commonwealth faced was how to keep solar installations growing and demand strong without it costing real dollars to the Commonwealth and ultimately the taxpayers.

Dwayne Breger and his team at DOER invested countless hours this past fall and early winter reviewing programs previously implemented in other states, and developing a unique program that should help maintain growth over the next decade.

The details of the program are available at MA Solar Credit Clearinghouse.

Briefly the new program does the following:

1. It establishes a specific Renewable Portfolio Standard that generators must fulfill with solar energy. In 2010 the Solar RPS is 25MW.
2. It tries, through various economic mechanisms, to establish a relative constant price for S-RECs. By trying to stabilize REC prices, DOER hopes to provide banks and other lending organizations with a reasonable certain, and therefore, financeable revenue stream that project developers can use to obtain financing.
3. Municipal Light Districts are eligible for the program. This is a big change, because it allows towns like Norwood, Wellesley, Concord, and others …. that were not eligible for RET program because they were not members of the trust …. to generate and sell Solar RECs which will in turn help finance projects in those towns.

All in all, kudos to DOER, for grabbing the bull by the horns and getting what looks an exciting program quickly into the marketplace.

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.